Q&A with the AER

We caught up with AER Chair Clare Savage to talk about the key messages of her keynote speech to network service providers at the recent Energy Networks Australia Regulation Seminar.

Read our two-minute Q&A with Clare below.

And for more on innovation in regulation, visit the Energy Innovation Toolkit.

Q: You started out with a quiz, showing some data on charts. What did you want the audience to see?

I wanted to make a point about how network reliability has generally been improving through time but that network asset utilisation has decreased. It currently sits in the low 40% range across the NEM.

I also showed data on the significant proposed capital expenditure increases for many distribution networks which are on top of the billions to be spent on projects that are critical to unlocking new sources of renewable energy to replace our aging and increasingly unreliable coal plants.

I described this as a “wall of capex” coming at consumers that could more than offset the lower costs of wholesale energy as we make the switch to renewables unless we find ways to be more efficient.

These network capex costs will be baked in not just for today but for many years to come. So it is vital that before we build more network, we use more network.

To support this, I wanted to make it clear that the AER is open-minded as to how the regulatory framework can be utilised to help deliver this in the long-term interests of consumers.

Q: Which explains the title of your speech - Adapting regulation to Australia’s energy future?

Yes, I wanted to challenge the notion that the rules or the regulations or the regulator are the barrier to innovation – that accelerated change can only happen if the rules or regulation get out of the way.

Perhaps we don’t need the rules to be our first consideration. By that I don’t mean we ignore them … by that I mean let’s get creative around what customers need and find solutions that perhaps we didn’t consider would exist within the framework before we turn to the rule book.

Let’s identify the barriers to more efficient utilisation of network infrastructure, let’s get crystal clear on the role of distribution system operation, let’s establish what level of network visibility or control over distributed resources is needed to avoid that wall of capex bearing down on us.

Are there investments that could be made that would reduce or negate the need for the wall of capex? What’s stopping these investments or partnerships or contracts?

What’s needed to overcome the barriers – is it a new incentive scheme? A ring-fencing waiver? Would a regulatory sandbox assist? Are there non-network solutions that the current framework doesn’t incentivise?

Q: In posing those questions, what was your main message to network businesses?

Essentially it was that regulation is not a barrier to innovation and that the AER is open-minded and open for business.

Before blaming the rules or the regulations let’s ask ourselves this…How many regulatory sandbox applications has a network business made to the AER?

The answer is one. How many has the AER rejected? None.

How many ring-fencing applications have we received from network businesses to install a battery or stand-alone power system or to install an edge of grid technology?

The answer is 16. How many has the AER rejected? None.

So are the rules and regulation really the barrier?

We have the tools available to test and trial ideas.

However, we are not going to kill a competitive landscape for a short-term goal, but if a network business believed there are good reasons as to why it might make more sense for it to do something now that the AER may have historically said no to – then make the case.

Show us the long-term interest to consumers. We are listening.

Q: Is that why Tom Cruise made an appearance at your presentation?

Yes! I was borrowing a few lines from one of his films (Jerry Maguire)… “show me the money” and “help me, help you”.

And what I mean by that is we want network businesses to show us the value to consumers in the short, medium and long-term from their propositions.

Because they must help us solve the wall of capex and ensure the per unit cost of electricity is lower not just in the short-term but in the medium and longer term as well.

Draw a line to how it all meets the National Electricity Objective. We are at a point where it is not business-as-usual anymore, so we have to think differently and if you believe you have better ways of spending money to meet the NEO, then show us.

We are listening. The AER is open-minded.