'Modesty rules' - door opens to split household energy bills but not retail competition for households or small business

The vital change that could unlock the potential of consumer energy resources is missing from the Australian Energy Markets Commission’s suggested rule change.

Every household with solar on their roof knows that it lowers their electricity bills. What they don’t necessarily know is that they could also be lowering their bills by having a smart energy company automating the operation of their air conditioning or their pool pump or all their flexible loads through a Home Energy Management System.

Each large electrical device (known as distributed energy resources, or DER, or consumer energy resources, or CER) has the potential to be managed separately or together through smart IT. Then, these managed devices have the potential to provide different kinds of energy services from generation, to storage, to ancillary services (to keep the grid stable). At the Institute for Energy Economics and Financial Analysis (IEEFA) we have called these tools on the ‘swiss army knife’ – or what economists call the ‘value stack’ of available revenue sources.  

Distributed Energy Resources (DER) is the swiss army knife of the electricity system (Image: IEEFA)

Currently, the only way for households to earn revenue from their DER is via their retailer and only for a small number of these value streams. (The one small exception is a few consumers who participate in Frequency Control Ancillary Services (FCAS) markets via third-party aggregators’ Virtual Power Plant (VPP) projects.)

Consumers have to choose one provider to manage all their electricity generation and load, including solar, batteries and electric vehicles (EVs) and the market is dominated by just three big retailers. This, of course, limits competition and, potentially, innovation.

That said, Amber does have a business model that allows for spot market prices to be passed through to consumers and a number of Amber consumers have been paid to charge their EVs at times when prices are negative.

In the UK, by comparison, you can separate out your DER, signing up for different providers. While there are only one million EVs on the road in the UK, Octopus Energy recently announced they would offer free EV charging in exchange for Octopus being able to optimise the charging and discharging of the car’s battery.

Octopus claim this will save drivers £850 a year and Gridcog have run the numbers on what might be behind the business model. Estimates for annual savings from EVs in Australia range from around $1,000-$5,000/year.

The Unlocking CER benefits through flexible trading draft rule change out today from the Australian Energy Markets Commission (AEMC) states that households and small businesses cannot enter into multiple contracts with multiple energy providers.

It does say flexible resources like rooftop solar, batteries, and electric vehicles (EV) can be metered and managed separately from other ‘passive’ consumer loads (such as fridges), but unless you’re a pulp and paper mill, or another large energy user, you still have to stick with a single retailer.

What does this mean in practice? Your retailer can separate out the loads in your house, offering you different tariffs (cost per kW) for different devices without installing multiple meters. This is a useful change.

The draft rule means they can use the smarts inside a solar inverter or modern air conditioner, for example, to understand the generation, storage or load inside a house.

Your retailer then could offer different tariffs for your fixed and flexible loads or potentially for different large appliances at different times, commencing 2 February 2026. Of course, none of this solves the issue that there are currently limited ways to get paid for these tools in the swiss army knife.

In particular, retailers or others cannot aggregate household demand to participate in the demand response mechanism. It is only available to large commercial and industrial loads.

While you can compare deals for different tariffs for your EV, as the most obvious example, you can’t enter into a separate deal for charging and discharging your EV.

Even though with a petrol car you can choose your supplier of petrol, you will be locked into the same retailer for charging your car at home as that which supplies electricity to your fridge.

There’s been a lot of discussion in this cost of living crisis about the need for greater competition and regulation, for example, in banks and supermarkets, to prevent price gouging. Indeed, Alan Fels called out electricity as an area needing ‘urgent reform’ in his report for the Australian Council of Trade Unions (ACTU).

The AEMC has taken a step forward, but even it says the changes are ‘relatively modest’. It claims the change will promote innovation and competition, but the vital change, to really unlock the potential of DER, that of households and businesses being able to enter into multiple contracts, is still missing.

The AEMC developed the concept of ‘multiple trading relationships’ in 2012 as part of the Power of Choice review, then decided against ‘multiple trading relationships’ in 2016, following a 2014 rule change request from AEMO.

One would have hoped that with the AEMC Chair’s public commitment in October 2023 to ‘doing better’ on DER, we could have moved from ‘relatively modest’ to solid, tangible progress to ensuring consumers benefit as much as possible from competitive markets for their energy devices.

In that speech last year, AEMC Chair, Anna Collyer said, ‘Our CER benefits rule change opens the door for retailers to offer different products choices (sic) to customers. For example, you might choose one product for your family’s EV charging and another for your main household use.’

It appears the door will only be open to one retailer per household, and be closed to competition for some time to come.

Submissions on the draft rule change close on 11 April, with a final determination due July 2024.

Author
Dr Gabrielle Kuiper
March 11, 2024
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