POLICY CHALLENGES FOR THE ENERGY INDUSTRY: VIEWS FROM KEY STAKEHOLDERS FORUM WEDNESDAY 16TH MARCH 2016 CONTENTS INTRODUCTION ......................................................................... 3 GAVIN DUFTY, ST VINCENT DE PAUL ........................... 4 TIM NELSON, AGL ENERGY .............................................. 10 TIM ROURKE, CITIPOWER POWERCOR .................... 30 JANINE YOUNG, ENERGY AND WATER OMBUDSMAN NSW ............................................. 38 ANDREW MCKENNA, BUSINESS SA ............................ 58 CARLY HYDE, QUEENSLAND COUNCIL OF SOCIAL SERVICE ............................................................ 70 JO DE SILVA, SOUTH AUSTRALIAN COUNCIL OF SOCIAL SERVICE ..................................... 80 RON BEN-DAVID, ESSENTIAL SERVICES COMMISSION ..................................................... 98 MARGARET SEWELL, DEPARTMENT OF INDUSTRY ......................................................................... 102 The South Australian Council of Social Service and St Vincent de Paul Society Victoria warmly thank you for attending the Policy Challenges for the Energy Industry: Views from Key Stakeholders Forum. This Forum was held to discuss and This Forum’s particular focus was to explore the policy challenges in an explore this changing energy market and increasingly diverse and changing energy implications for consumer protections. market - this transformation challenges Key themes for discussion were: the traditional view and role of the energy retailer, energy networks, energy • Curr ent and future challenges from an production and that of the consumers. energy industry perspective These changes question the current • Consumer experiences and emerging fundamentals of the energy market, in issues and concerns from different particular the models of delivery and jurisdictions protections and reshape what is an energy • Views from various policy makers of service provider current and future activity in this area This Forum brought together diverse We will continue to engage with the sector interests and views with the aim emerging policy challenges and find the of discussing themes and identifying most appropriate ways to deal with them. emerging issues. We believe these We trust these presentations will assist in conversations are essential in recasting our the continuation of this conversation. understanding and meeting the challenges that we all face in the future. Furthermore, Best wishes, they are central in developing appropriate structures to support these changes to meet the long term interests of consumers. Jo De Silva Gavin Dufty South Australian Council St Vincent de Paul FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS of Social Service 3 Gavin Dufty, St Vincent de Paul Setting the Scene POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS 4 ENERGY REGULATION FORUM PREPARED BY GAVIN DUFTY MARCH 2016 POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS 5 [INSERTENERGY DEPARTMENT]REGULATION FORUM | [INSERT TITLE] [INSERTSTATING TITLE] THE OBVIOUS - THE MARKET IS CHANGING •Market Insert is texttransforming as required - there – use is Arial more Narrow divergence 18pt as across standard the font NEM eg ● Retail market contestability (Vic – ACT/Tas) ● Metering types and products and services (mandated vs competitive) across states and within states ● Generation mix and impacts on reliability / contestability in wholesale ● Universal vs targeted (NECF – derogations to the states) ● 40 MW Vs !60MW (TSS reach) Greater consumer engagement and, as importantly, investment (more money on the table more skin in the game) Potential changes in the mix of reliability, security and affordability based on metering type and behind the meter “kit” different for different consumers Gas pricing into the future (very uncertain) POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS 6 [INSERTENERGY DEPARTMENT]REGULATION FORUM | [INSERT TITLE] [INSERTENERGY TITLE] REGULATION FORUM – WHO SHOULD BE COVERED •Lack Insert of clarity text as about required protections – use Arial and Narrow obligations 18pt as- Behind standard the font meter vs through the meter At very high level – “Long term interest of Consumers” – does the law / rules and obligations cover the production part of the PROsumer through the meter energy obligations needs to be made clear Protections based on metering type and hence the types of products and services that can be offered Embedded networks, exemptions carve outs and residual markets POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS 7 [INSERTENERGY DEPARTMENT]REGULATION FORUM | [INSERT TITLE] [INSERTENERGY TITLE] REGULATION FORUM – WHAT SHOULD BE COVERED •What Insert is an text energy as required retailer – (bundleduse Arial Narrowinsurance 18pt type as standardproduct energyfont plus PV etc) New market entrants (companies linked to DBs – speciality providers) ROLR Retailer or other insolvencies (near miss go energy others) What’s essential, what’s not Obligation standards on new technologies (inverters Frequency , batteries, building standards etc) Dispute resolutions scope Ombudsman schemes Concessions coverage off the bill versus or energy consumed from grid POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS 8 9 POLICY CHALLENGES FOR THE ENERGY INDUSTRY: VIEWS FROM KEY STAKEHOLDERS FORUM Tim Nelson AGL Energy Industry View POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS 10 Transitioning to a 1 cleaner energy sector: a 21st century regulatory framework for a 21st century technology Tim Nelson March 2016 AGL’s Nyngan Solar Plant FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS 11 2 ‘Relief in sight: why residential electricity costs in Eastern Australia may fall between 2015 and 2020’ - Economic Analysis and Policy > Presentation title POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > Author > Date (Verdana 10pt) 12 Demand has been ‘grinding down’ 3 Average cost pricing and the ‘death spiral’ results in higher prices > SACOSS/Vinnies forum > Tim Nelson FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > March 2016 13 Electricity prices 4 Consumption has responded to higher electricity prices > SACOSS/Vinnies forum POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > Tim Nelson 14 > March 2016 Electricity prices and capacity utilisation 5 Bills could have been materially higher without consumption response > SACOSS/Vinnies forum > Tim Nelson FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > March 2016 15 Looking at costs 6 LRMC analysis is instructive about cost drivers > SACOSS/Vinnies forum POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > Tim Nelson 16 > March 2016 Looking at bills 7 Focus on behind the meter is critical in relation to consumption > SACOSS/Vinnies forum > Tim Nelson FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > March 2016 17 Grid defection unlikely Very few customers will be able to ‘self-satisfy’ – partial grid substitution 8 instead > SACOSS/Vinnies forum POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > Tim Nelson 18 > March 2016 9 An evolutionary economics perspective – what has changed and what hasn’t? > Presentation title > Author FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > Date (Verdana 10pt) 19 What has changed and what hasn’t? 10 Simplistic evolutionary economics perspective › Consumer sentiment and technology have changed › Solar – firms must keep pace with rapidly changing generation technologies › Digital – consumers are now able to respond more quickly to pricing/ information › Batteries just around the corner? › Regulatory framework has been lagging behind › Pricing is still largely regulated (c.a. 50% of the bill) › Roles and responsibilities – prescribed by regulation › Metering › Solar › Intersection between regulation and financial markets > SACOSS/Vinnies forum POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > Tim Nelson 20 > March 2016 Some things won’t change! 11 Customer and community expectations about policy › Stakeholders driving change, not just technology and consumers › Investors (divestment), governments (policy), NGOs (political pressure) › Issues of focus unlikely to change and in conflict (sometimes) › Reliability – unlikely consumers will accept lower reliability › Consumer choice – partial grid substitute › Affordability – electricity considered an essential service, should other services (e.g. solar, batteries) be thought of in the same way? › Environmental – increased focus on reducing emissions › With all of this to be considered, it is little wonder the regulatory framework is lagging! > SACOSS/Vinnies forum > Tim Nelson FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > March 2016 21 12 Roles and responsibilities > Presentation title POLICY CHALLENGES FOR THECHALLENGES POLICY ENERGY INDUSTRY: FORUM FROM KEY STAKEHOLDERS VIEWS > Author > Date (Verdana 10pt) 22 Roles and responsibilities - metering 13 Current regulation acting to prevent