The Australian Energy Regulator is considering its approach to regulating innovative energy selling business models.

The Australian Energy Regulator (AER) is currently considering its approach to regulating new and innovative energy selling business models, for example business models which incorporate electricity storage, under the National Energy Retail Law.

The AER released an issues paper on this topic at the end of 2014 and has sought feedback on the issues paper from interested stakeholders.  The AER has indicated that it will publish its final position in the second quarter of 2015.

Background

The AER is responsible for regulating the sale of energy (electricity and gas) in Australia under the National Energy Retail Law.  The regulatory framework under the National Energy Retail Law was developed based on the traditional model of energy retailing where energy retailers purchase energy from wholesale markets and then sell that energy to end-use customers.  Concern that new and innovative business models for selling electricity may not easily fit into the current regulatory framework has prompted the AER to consider whether (and how) this framework is appropriate for such alternative energy sellers.

Under the National Energy Retail Law a person or business selling energy for use at premises must hold a retailer authorisation or hold an exemption from being authorised (which exemption may contain specific conditions).  Generally speaking, traditional energy retailers are required to hold a retailer authorisation, while a narrow range of sellers are exempt from this requirement (for example those who on-sell energy within private networks such as shopping centres and office buildings).  Holders of retailer authorisations have a range of obligations under the National Energy Retail Law which are quite prescriptive as to interactions with residential and small business customers and with the AER.  Although conditions may be imposed on exemption holders, these are generally not as onerous, or as expensive, as complying with the obligations of an authorised retailer.

2014 review of regulation for alternative energy sellers

In July 2014 the AER released a statement of approach setting out how it intended to regulate alternative energy sellers, primarily being businesses who sell electricity through solar power purchase agreements (SPPA).  

The AER’s current approach is that SPPA providers will generally be granted an individual exemption if they are providing a supplementary or “add-on” service to customers who also purchase energy from an authorised retailer, or if the energy provided by the seller comprises an insignificant part of a bundled service. 

A retailer authorisation will be required where the seller is the primary seller of electricity to a premises and sells energy at multiple sites.

Current review of regulation for innovative energy sellers

The introduction and potential future introduction of more new technologies in the energy industry has led the AER to give further consideration to the regulation of alternative energy sellers who incorporate innovative components, with a focus on electricity storage.  For example, with the advent of storage technologies, a SPPA provider may soon be able to provide all or most of the energy needs of their customers. 

This review is not necessarily intended to change the AER’s approach to regulating SPPA providers, unless the SPPA is combined with an innovative component such as storage.

Authorisation or individual exemption?

The AER’s primary consideration is whether alternative energy sellers offering storage or another innovative component should be required to apply for a retailer authorisation or, in the alternative, whether the individual exemption regime is a sufficient form of regulation and consumer protection.

Requiring authorisations may have the advantage of providing stronger consumer protections for customers as well as utilising established reporting and compliance regimes.  There are also arguments that it would create a level playing field between retailers and alternative energy sellers as both types of energy providers would be subject to the same regulatory obligations.

On the other hand, questions remain as to whether authorisations are always the most appropriate form of regulation for non-traditional energy sellers given the cost involved for new or smaller providers and the potential overregulation of consumers.

The potential advantages of utilising the exemption regime include the flexibility it offers in terms of being able to more easily adapt to changes in technology and business models and the ability to impose specific conditions on individual businesses as appropriate.  The opposing view is that new business models may be subject to less onerous and less costly regulations than traditional retailers, which may provide them with a business advantage.

Should the second option (regulation via the exemption regime) be favoured, the AER has signalled that a key aspect of this might be a mandatory review of individual exemptions at a particular trigger point, following which the exemption might be retained or an authorisation might be required.  The AER has sought feedback about imposing review conditions and what might be the most appropriate trigger point (for example at a particular time period or once a business reaches a particular volume of energy sales).

We expect that there will be more certainty for interested stakeholders as to the regulatory approach for innovative energy selling business models once the AER releases its final position paper on this subject in the second quarter of the year.