DEPARTMENT OF PRIMARY INDUSTRIES Energy in

Electricity: an essential service Energy shapes our lifestyle, economy and Transmission: Victoria’s 6,000 kilometre wellbeing. As an essential service, high-voltage electricity transmission system has distinct characteristics that require is owned and maintained by SP AusNet. active management and strict operating This system transmits electricity over long regulations: it can’t be stored economically in distances from the generation centres to the large quantities, constant equilibrium must load centres. Transformers reduce the voltage be maintained between supply and demand, so it can be transmitted via lower voltage to and sufficient capacity is needed to meet peak distribution networks. Victoria’s electricity periods of demand. transmission network is connected to South Australia, , and Demand can be extremely volatile and indirectly with Queensland. managing ebbs and flows requires a range of generators with different operating Distribution: Electricity is distributed through and commercial features. overhead powerlines and underground cables in five Victorian distribution areas. The total In Victoria, demand for energy consumption length of the state’s distribution lines is about (measured in watt-hours) is growing at about 200,000 kilometres. Electricity is distributed 1.3 per cent per annum, while peak demand by Powercor in Western Victoria; SP AusNet (measured in watts) is growing at about 2 per in Eastern Victoria; United Energy in South- cent per annum. East ; Victorian Electricity Network in North-West Melbourne; and CitiPower in Victoria’s electricity system the CBD and inner suburbs of Melbourne. Road side poles and wires are owned by the In the simplest sense, Victoria’s electricity distributors. system comprises generation, transmission, distribution and retailers. Retailers: There are more than 20 energy re- tailers operating in Victoria, including Austral- Generation: brown coal generators in the ia’s largest electricity and gas retailers, AGL, supply the majority (about 90 and TRUEnergy. per cent) of Victoria’s electricity requirements. At current production rates, brown coal Retailers generally have the direct, daily rela- reserves will adequately satisfy Victoria’s tionship with domestic and business consum- electricity demand for several hundred years. ers, and they bill their customers. Generally, The main generators are Loy Yang, Hazelwood more than one retailer competes for customer and . Electricity supply also comes service within a single distribution area. from gas-fired generators and sources including hydro-electric, wind continued on page 2 power, solar and biomass. www.dpi.vic.gov.au The Victorian Government’s role Other statutory and regulatory The greatest challenge for the Victorian bodies Government is to ensure that Victorians The Ministerial Council on Energy (MCE) continue to enjoy a safe, secure, reliable and comprises all federal, state and territory affordable energy supply, which is sustainable. energy ministers and is responsible for Until industry reform in the 1990s, integrated, national energy market policy. self-regulated government monopolies The Australian Energy Market managed Victoria’s electricity and gas Commission (AEMC) is responsible for the industries. Victoria’s electricity system is now National Electricity Rules (NER) and policy privately owned. Generators and retailers advice for the National Electricity Market operate in a competitive market, while the (NEM). monopoly network providers are subject to The Australian Energy Regulator economic regulation. (AER) administers, monitors and enforces Though the government does not provide compliance with the NER. The AER will take any services in its own name, it actively over the economic regulation of distribution facilitates investment in energy supply and businesses for state and territory regulators has reserve retail pricing powers, as well as (the ESC in Victoria) from mid 2007. the power to manage supply emergencies Energy Safe Victoria is a statutory body and plan against them. tasked with enforcing electricity technical regulation, such as powerline clearance and The electricity market and energy safety. regulatory arrangements Victoria is part of the National Electricity Growth and progress in Victoria’s Market (NEM), including Queensland, New electricity system South Wales, South Australia, the Australian The Victorian Government aims to ensure all Capital Territory and Tasmania. consumers, especially low-income earners, can The National Electricity Market access essential energy services at affordable Management Company (NEMMCO), prices. It also facilitates investment in safe, manages and monitors the market day-to-day, secure and sustainable energy supplies. and ensures the integrity of electricity supply. The government has implemented several NEMMCO manages the NEM in accordance initiatives, schemes and programs to achieve with the National Electricity Rules (NER). these objectives, including: These govern market operations, managing • Passing legislation that mandates energy power system security, access retailers to compensate customers with and connection to the network, and pricing up to $250 each day where electricity for network services. supply is disconnected The Victorian Energy Networks • Establishing a Committee of Inquiry into Corporation (VENCorp) is an independent, Financial Hardship of Energy Consumers statutory operator, owned by the Victorian to assess the impact of the policies and Government. It plans the electricity practices of energy retailers, government transmission system in Victoria and procures departments and agencies additional capacity to ensure existing and • Committing to a Network Tariff Rebate to expected demands are met. close the gap in electricity prices between The Essential Services Commission (ESC) the city and the country is Victoria’s economic regulator. It regulates • Developing a free online tool to help the distribution businesses and consumer consumers compare energy retailers’ offers protection provisions for customers. During and prices 2007, these functions transfer to the • Developing the Greenhouse Challenge Australian Energy Regulator (AER). for Energy position paper in 2004, which sets out the government’s policies to reduce from the stationary energy sector • Releasing the Victorian Greenhouse Unserved energy: The shortfall of supply Strategy Action Plan Update in 2005, against demand to continue the state’s efforts to tackle Supply reserve: Under current standards, NEMMCO is required to ensure sufficient • Committing to the development of new, reserve is carried across the entire NEM cleaner coal technologies, including setting a goal to increase the amount of energy Load shedding: Involves NEMMCO generated from renewable sources from 4 instructing network service providers to to 10 per cent by 2016 disconnect some customers, resulting in serial blackouts across NEM areas. This only • In 2006, aiming to reduce energy use in occurs if demand in a region exceeds supply, government buildings by 15 per cent. and all other means to satisfy supply have been implemented. The justification for load Other terminology shedding is that system security is a higher The spot market: Wholesale trading in priority than reliability. Load shedding protects electricity is conducted as a ‘spot market’, the stability of the power system so to avoid where supply and demand are instantaneously wider spread and longer lasting blackouts. matched in real time through a centrally- Reserve Trader Scheme: At the start of coordinated dispatch process. A dispatch price each summer, NEMMCO assesses Victoria’s is determined every five minutes, and six upcoming power needs. If necessary, to dispatch prices are averaged every half hour to meet needs, it can invoke the Reserve Trader determine the spot price for each trading (half- Scheme, which allows industry to tender to hour) interval for each region of the NEM. reduce power consumption. The National Value of lost load: Another name for Electricity Rules allow NEMMCO to invoke the the maximum spot price. Is automatically scheme only if it forecasts a seasonal supply triggered when NEMMCO directs network shortage at the start of summer. service providers to interrupt customer supply Demand Side Response: If NEMMCO so that supply and demand in the system assesses supply to be just short of forecast remains in balance. demand on any given day, it can reduce load Security of supply: The measure of the by invoking a strategy called Demand Side system’s capacity to continue operating Response to reduce power consumption. This despite disconnection of a major element, is taken into consideration when assessing if such as a generator. the Reserve Trader Scheme is to be invoked at the start of each summer. Power system reliability: A measure of the power system’s availability

Published by: Department of Primary Industries, 1 Spring Street, Melbourne, Victoria, 3000 Australia, February, 2007

© The State of Victoria, 2007

This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968.

Authorised by: Victorian Government, 1 Spring Street, Melbourne, Victoria 3000 Australia

ISBN: 978 1 74199 021 8

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