Market Review: Completed
On 31 August 2012, the Australian Energy Market Commission (AEMC) published its final report on the NSW workstream of the Review of distribution reliability outcomes and standards.
The final report sets out our advice on the trade offs between distribution investment and reliability performance for the future level of reliability that could be provided by electricity distribution networks in NSW. We have considered four scenarios for distribution reliability in NSW, three scenarios with lower levels of reliability and one scenario with higher levels of reliability.
Our analysis suggests there are benefits to NSW consumers from reducing the level of distribution reliability in NSW. This is because the cost savings from reducing reliability are larger than the costs to customers of poorer reliability performance, compared to the continuation of the current requirements for distribution reliability. In other words, a relatively small reduction in reliability can lead to a large reduction in the investment required by electricity distribution networks.
Over a fifteen year timeframe, reductions in distribution investment in NSW could range from $275 million to $1.3 billion in today’s dollars, depending on how much distribution reliability is reduced by. By 2028/29, this reduction in distribution investment would result in an increase in power outages for customers ranging from two to fifteen minutes more a year and savings of $3 to $15 a year for the average NSW residential electricity customer.
The potential reduction in customer bills from reducing reliability levels has been limited, as investment to meet the current reliability standards has already been approved and committed out to 30 June 2014. Investment to meet distribution reliability standards also only forms one of the drivers of distribution costs. Distribution costs in turn, forms one component of overall electricity bills.
Our report provides information for the NSW Government should it decide changes should be made to the level of distribution reliability that is being provided in NSW.
Our analysis has been based on:
- a survey of 1,288 NSW electricity customers to understand the value placed on a reliable electricity supply by different customer types. The results from this survey have been used to assess the impact of changes in reliability on customers under each of our four scenarios for the future level of distribution reliability in NSW; and
- modelling undertaken by each of the NSW electricity distribution businesses on the likely impact of each scenario on their investment and reliability performance over a fifteen year timeframe. This modelling has been used to understand the change in distribution investment and power outages that may occur under each scenario.
The customer survey results and modelling by the NSW electricity distribution businesses have been used to compare the costs and benefits of each scenario.
Supporting consultant reports which provide further detail on the AEMC’s analysis are available below. This includes reports by:
- Nuttall Consulting, which reviews the capital expenditure and reliability modelling undertaken by the NSW distribution business on the four scenarios the AEMC considered; and
- Oakley Greenwood, on the results of the NSW customer survey that was undertaken.
On 30 August 2011 the Standing Council on Energy and Resources (SCER) directed the AEMC to undertake a Review of distribution reliability outcomes and standards. The review has two separate workstreams, working to separate, but overlapping, timetables:
- a review of the distribution reliability outcomes in NSW; and
- a review of the frameworks across the National Electricity Market (NEM) for expressing, delivering and reporting on distribution reliability outcomes.
The NSW workstream:
The objective of the NSW workstream was to provide advice on the costs and benefits of alternatives for the future level of distribution reliability in NSW. The level of distribution reliability which is provided affects the reliability of customers’ electricity supply, as well as the level of investment distribution businesses need to undertake and the prices paid by customers for distribution services.
A draft report on the NSW workstream was published in June 2012 for public consultation. Submissions closed in July 2012.
The National workstream:
The objective of the national workstream is to analyse the different approaches to setting distribution reliability outcomes across the NEM. We will then consider if there is merit in developing a nationally consistent framework for expressing, delivering, and reporting on distribution reliability outcomes.
If requested by the SCER we will then develop a best practice framework that could be adopted by the NEM jurisdictions or used as a reference to amend aspects of the existing approaches.
Further information on the national workstream, including relevant reports, can be found at: Review of Distribution Reliability Outcomes and Standards - National Workstream
The Brattle Group report
On 2 February 2012, the AEMC published a paper by The Brattle Group on approaches to delivering electricity distribution reliability outcomes across Australia and internationally.
Brattle's paper sets out key findings from its analysis of the alternative approaches to distribution reliability, as well as a comparison of the approaches used in Australia compared to other jurisdictions overseas. In addition, Brattle sets out some best practice recommendations for distribution reliability in Australia.
Brattle's paper has been used to inform both the New South Wales and national workstreams of this review.