The annual review of the economic regulatory framework for electricity networks is part of the AEMC’s work to support the continual evolution of the energy sector. In light of the significant growth in decentralised energy resources, the review examines whether the economic regulatory framework is robust, flexible and continues to support the efficient operation of the energy market in the long term interest of consumers. 

The 2018 review  focused on the following three areas:

• Annual monitoring of network service providers’ (NSPs’) expenditure and performance
• Financial incentives for NSPs in providing economically regulated services
• Economic regulation and arrangements for distribution network access and connection in the context of distributed energy resources

The 2018 review also implemented one of the recommendations from Dr Alan Finkel’s Independent Review into the Future Security of the National Electricity Market to conduct financial modelling to test whether distribution network businesses have a preference for capital investments in network assets over operational expenditure on demand-side measures and, if so, consider alternative models.

The Commission found that incentive regulation remains the appropriate fundamental principle of the economic regulatory framework for electricity networks and that the framework currently provides sufficient flexibility to support the evolving role of NSPs in the context of the electricity sector’s transformation. 

However, the Australian electricity system is likely to be highly decentralised in the future, and Distributed Energy Resources (DER) are likely to be able to provide plausible alternatives to traditional network solutions. The Commission is concerned that the potential for bias would be greater under such a scenario. 

The Commission has announced it will commence consultation on changes required to the expenditure assessment and remuneration systems to enable the economic regulatory framework to continue to support the electricity sector’s transformation.