New rules pave way for community batteries and taking customers off the grid

The shift to a smarter, cleaner national electricity market populated by disconnected microgrids and community batteries has been given a nudge along by the Australian Energy Regulator, through a loosening of ring fencing rules for network companies.

The new rules and provisions could lead to tens of thousands of customers, and even some small communities, being taken “off-grid”, because networks understand that using renewables and battery storage is cheaper, and cleaner, than maintaining long distance connections to the grid.

The AER on Wednesday published its updated guidelines around ring-fencing, which separates monopoly network companies from certain energy services to promote a competitive market and, thus, better outcomes and more choice for consumers.

The new guidelines, which are the result of review and industry consultation process that kicked off in 2019, give distribution network service providers, or DNSPs, greater leeway to participate in the provision of community-scale batteries or stand-alone power systems (SAPS) according to strict new criteria.

This would be achieved via a streamlined waiver process for eligible community battery and/or SAPS projects that would weigh the risks to market competition against the benefits to consumers and the broader grid.

Ultimately, if a project was ruled to be in the best interests of consumers, and was unlikely to be realised without the involvement of a DNSP, then it was likely to get the green light.

“In some cases, these emerging technologies operate at the boundary between regulated monopolies and contestable markets,” the AER says in an Explanatory statement published alongside the amendments.

“Through submissions, a number of instances were identified in which a DNSP may not be able to find a third-party SAPS resource provider, including that a third-party provider is not available or willing to offer services,” the statement said.

“This could result in consumers not being switched to a regulated SAPS, even though it is the most economical option for DNSPs and in consumers’ long-term interests to do so.”

Similarly, the review found that the current high cost and complexity of installing community-scale battery storage projects could be delaying – or temporarily ruling out – their roll-out by third party organisations.

“The AER wants a framework that supports innovative battery projects. To do that, space needs to be provided to the market to determine how to deliver the services that best meet the needs of consumers,” the explanatory statement says.

Essentially, the amendments to the National Electricity Law, which will come into play as market rules (NER) on February 03 next year, aim to promote the “efficient deployment” of both community batteries and stand-alone power systems in the early stages of market development.

“This ensures the benefits to consumers, including potentially improved reliability and lower costs, can be realised, while maintaining energy protections such as retail competition,” the explainer document says.

This might put the rest of the NEM on an even playing field with the separate Western Australian market, where government-owned network companies have been installing community batteries across the Perth grid and shifting fringe-of-grid customers – and in future, even whole towns – to solar and battery storage, with a clear view of the benefits and revenue streams.

To keep the privately owned DNSPs in check, however, the AER notes that the new rules will put a cap on the revenue they can earn from these services (a generation revenue cap) and apply reporting obligations to provide transparency and information to prospective third-party providers.

As regulated SAPS and community battery deployment progresses, the AER also intends to review the exemption framework to consider if it remains appropriate.

For the battery rule change, the AER has put in place extra measures to ensure a DNSP-owned community BESS is not being used in a discriminatory way, including the requirement for an annual auditor’s report.

“Community batteries are on the rise as regional towns and local government areas seek to  power their communities from renewable energy,” said AER chair Clare Savage in a statement on Wednesday.

“Without changes to our ring-fencing guideline, network businesses may unfairly compete in this market, which could damage it in its early formation,” she said.

“At the same time, we recognise that network companies may have an important role in this  emerging market.

“The good news is that our updated guideline paves the way for faster deployment of regulated SAPS, as it allows network distribution companies to have a greater role in providing these stand-alone generation services.

“Our decision supports a network business’ choice to move a customer to a regulated SAPS where this is demonstrated to be a lower cost, more reliable outcome for all consumers.”