Distributed Generation (DG), Demand Side Response (DSR) and the National Framework for the Economic Regulation of Distribution
National rules governing economic regulation of electricity distribution networks were established on 1 January 2008, replacing the separate rules that previously operated in each jurisdiction. These rules come into force for the distribution businesses in each NEM jurisdiction at the first five-year revenue determination after that date
- 2009 New South Wales and Australian Capital Territory
- 2010 South Australia and Queensland
- 2011 Victoria
- 2012 Tasmania
The framework seeks to balance the incentives and obligations for distribution businesses to invest in non-network alternatives (such as DSR and DG) with those for network infrastructure, and to encourage adoption of the most efficient option.
Summary of relevant DG and DSR provisions
Aspects of the reforms that seek to address barriers to, and balance incentives for, DG and DSR include:
- The establishment of distribution expenditure objectives that recognise distribution companies should not just be seeking to meet expected demand but may also manage demand. Additionally, the new national framework requires the Australian Energy Regulator (AER) to consider the extent to which distribution businesses have considered, and made provision for, efficient non-network alternatives such as DG and DSR, when assessing their expenditure forecasts. This means that the AER has the discretion to reject proposals for capital expenditure on network infrastructure if DG or DSR would be more efficient. (Clauses 6.5.6 and 6.5.7)
- Requirements that the AER must consider the possible effects on incentives for non‑network alternatives when establishing distribution regulatory guidelines, models and schemes – such as the service target performance incentive scheme (Clause 6.6.2) and the efficiency benefit sharing scheme (Clause 6.5.8).
- Provisions that enable the AER to extend the efficiency benefit sharing scheme to distribution losses and capital expenditure if appropriate (Clause 6.5.8). To the extent that DG and DSR options reduce network losses and avoid network augmentations, such schemes could reflect these benefits.
- A head of power for a demand management incentive scheme (DMIS) to provide incentives for distribution businesses to implement efficient non-network alternatives or to manage expected demand (Clause 6.6.3).
- Provisions that seek to ensure customers with embedded generation are treated no less favourably than other customers and types of generation. For example, Clause 6.1.4 aims to ensure distribution-connected generation is treated equally to transmission-connected generation by prohibiting the application of charges for energy exported to the distribution network. Similarly, the tariff assignment rules require customers with micro-generation facilities to be treated no less favourably than customers without such facilities but with a similar load profile (Clause 6.18.4).
- A requirement for distribution companies to assess and review the assignment of customers to a particular tariff class, enabling customers that reduce their demand by adopting DSR or DG options to be re-assigned to a tariff structure that better reflects their load profile (Clause 6.18.4).
These provisions relate to Chapter 6 of the National Electricity Rules, which are published by the AEMC. These provisions may be the subject of Rule change proposals and evolve over time.
In accordance with Chapter 6, the AER has developed and published several electricity distribution guidelines and regulatory information instruments that relate to DG and DSR including the Demand Management Incentive Scheme. These are available from the AER website.
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