CER and a changing energy landscape

CER and a changing energy landscape

Australia’s energy landscape is being transformed by the proliferation of consumer energy resources (CER).  Already around one in three Australian homes have solar panels, with one in two expected by 2040, while more than 50,000 small-scale battery systems have been installed in the past seven years.

There is also predicted to be 22 million electric vehicles (EVs) by 2050. A big part of Australia’s energy future is CER and if well integrated there will be positive outcomes for all market participants and flow-on benefits for consumers. 

CER integration is important, though we may debate the complexity and delivery timetables of enabling platforms and systems.  The Australian Energy Market Commission’s (AEMC) recent draft determination, Unlocking CER benefits through flexible trading, tries to balance the needs of the present with a pathway to the future.

The AEMC’s draft proposes new arrangements for: 

• Large customers to choose multiple energy service providers for their premises,
• ‘Flexible’ CER (e.g. rooftop solar, batteries, EVs) to be identified and managed separately from other ‘passive’ consumer loads (e.g. lights, fridges) in the energy market, and 
• The in-built measurement capability in technology such as streetlights and EV chargers to be used instead of installing additional meters, which would allow for the measurement and management of energy use at a lower cost.

Following expansive consultation, the AEMC draft has landed some distance from the original Australian Energy Market Operator (AEMO) proposal.  This is something of a relief, as the Australian Energy Council (AEC) has advocated for the efficient, scalable integration of CER that delivers real benefits customers can see, and much of the AEMO proposal was about solving the operator’s concerns, and not a market problem directly impacting CER owners, nor creating real value for them.   

Retailers have been criticised for their stance on flexible trading, and there is a belief that energy retailers are interested in suppressing CER against their own self-interest. This is despite the fact a customer with CER can easily switch to another retailer now. 

Ultimately, any retailer who is more friendly to CER would thrive, and those who are not, are likely to be bypassed by customers wanting to take advantage of the new technologies.  This is reflected in current retailer business models, from the largest incumbents to the smallest new entrant.  Many CER products exist, while there are also trials underway for others, as retailers recognise CER will be a crucial part of the future energy system.

Retailers have not been enthusiastic about creating new complex systems just to achieve what is already possible. A large customer with CER, like the ones anticipated in the AEMC draft determination, can readily switch its CER to another retailer now.  The mechanism proposed by the AEMC is costly and adds little benefit to consumers because the benefits of CER participation (for this class of customers) can, and already are, accessible under current arrangements.  Interestingly, this is exactly what the AEMC said of the Wholesale Demand Response Mechanism (WDRM) in 2016.  For those interested in the rhymes of history, we took a look in an earlier EnergyInsider article.

The AEC wants the efficient, scalable integration of CER to deliver real benefits the customer can see. Carve outs of consumer protection obligations or metering standards to enable third party participation are difficult for retailers to reconcile as being to the customer’s benefit, either competitively or structurally, and we would be likely to oppose such arrangements.  But what is key and pleasing, is the AEMC’s stated commitment to promoting innovation and competition by reducing regulatory and cost barriers for market participants to provide wholesale energy, ancillary services, and network services.   

What is needed now is for ancillary services and network services to be priced, and subsequently (and this may be some time into the future) for the price to represent a compelling proposition to the CER owner to participate in some way in that market, most likely via a third party.  We should avoid the mistakes of wholesale energy and early feed in tariff rates in this regard to confect early participation.  Solutions from networks and emergency measures are already in place, so we can let the price reflect the market value.  The markets needed to manage a high CER future, need to be built upon sustainable numbers from now on. 

In summary, the AEC sees the AEMC’s draft decision as a way of facilitating outcomes for ancillary and network services, unlocking CER value and benefits for all consumers in the future.  The important thing now is to avoid seeking to abruptly bring forward benefits based on a theoretical “size of the prize”, as well as avoiding the pitfalls and experience of the Wholesale Demand Response Mechanism, which was a concept which never stood up to impassionate scrutiny, but was nevertheless pursued.