September Update: More Regulation on the Retail Side

My September update follows this one for August.

This month saw continued pricing concern, new applications for energy retail authorisations, and further interest about and proposed regulation of embedded networks.

New Energy Retailers

The number of entities with a retail authorisation or applying for a retail authorisation has continued to climb this month. Two new applications were published last week by the Australian Energy Regulator (AER), one for Zen Energy and the other Discover Energy.

We see this as response to limitations imposed on participants who do not hold a retail authorisation, particularly those seeking to sell within embedded networks. There is also a perception that money can still be made in the retail game.

New retail authorisation applicants are either specialised or are seeking to differentiate themselves from the large three in some other way.

The two applicants from last week both came from a background in renewables:

Retail Applicant	Brief Overview
Discover Energy	Discover Energy, a client of ours, will be focused on solar offers. Discover Energy is owned by One Stop Warehouse, one of Australia’s largest solar and storage distribution companies. You can find the retail application here on the AER website.  Note that submissions on this application are due by 20th October.
ZEN Energy	ZEN Energy is targeting large energy consumers. ZEN Energy is a well-known renewable company. According to its application, it has installed approximately 75MW of solar PV and battery storage systems across Australia. You can find the retail application here on the AER website.  Note that submissions on this application are due by 18th October. ZEN Energy has been in the media in recent times, particularly as a result of Sanjeev Gupta’s purchase of a controlling stake in the company – with mentions in numerous places including: 1)  Reported in the Australian on 20th September by Matt Chambers; and 2)  Reported in the AFR on 20th September by Simon Evans; and 3)  Reported in RenewEconomy on 20th September by Giles Parkinson.

Embedded Networks

We continue to see interest in embedded networks. Embedded networks can be very profitable and are getting the attention of ‘non-traditional’ players including building developers, owners and operators. These new players on-sell energy to occupants within embedded networks.

The rise of embedded networks has been challenging for the existing regulatory framework and for regulators such as the AER.

The Australian Energy Market Commission (AEMC) published its Draft Report on the Review of regulatory arrangements for embedded networks on 12 September, finding that:

“the current regulatory framework for embedded networks is no longer fit for purpose and is resulting in some customers not being able to access competitive prices or important customer protections.”

AEMC estimate that there are over 200,000 embedded network customers.

AEMC found that:

“embedded networks customers receive a lesser level of consumer protections and a limited monitoring and enforcement regime under the network service provider and retail exemption framework due to regulatory gaps, the growth in the numbers of embedded networks, and diversity in the capacity and resources of embedded network operators.”

Recommendations in the draft report include:

a. Mandatory registration and allocation of NMIs for all child connections where an Embedded Network Manager is appointed;

b. Mandatory registration of embedded network operators with AEMO;

c. Reducing the circumstances that would justify an exemption from the requirement to hold a retail authorisation; and

d. Allowing the AER to exempt authorised on-sellers from particular provisions of the rules.

If recommendations from the report are implemented we are going to see the most significant change to the licensing regime since the introduction of the National Energy Consumer Framework.

The final AEMC report is due to be published on 28 November 2017.

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