I’m very pleased to be back for this important summit, here in Sydney, or Warrung, on the land of the Gadigal people of the Eora nation. I pay my respects to their Elders and to any Aboriginal and Torres Strait Islander people present today.
As the original owners and custodians of the grounds and waterways we now rely on for our power system, Indigenous Australians have an important role to play in the energy transition.
I note, too, that some of the most interesting remote power initiatives underway today involve Indigenous enterprises such as Original Power, and the First Nations Clean Energy Network, which is led by a young Yorta Yorta woman, Karrina Nolan.
Last year I spoke to this summit about the crucial role in the transition for customer energy resources, or CER.
CER is Australia’s 3.5 million rooftops with solar, but it’s also domestic batteries, electric vehicles, pool pumps, hot water heaters and more. Anything that produces or stores energy, or where you have flexibility about when and how it uses energy.
In fact, CER comprises the majority of what we used to – and sometimes still do – call DER… you’ll never miss a good alphabet soup moment in the energy sector.
I’m pretty fond of this acronym though, because the change from D for Distributed to C for Consumer was a very deliberate choice to remind everyone that customers are at the heart of this part of the energy revolution.
So, that’s CER: and I warn you, I’m singing the same song again this year – but louder.
And I do know others are singing it too.
I’m encouraged that, very recently, we’ve seen public calls for the AEMC and other market bodies to move faster.
We can all do better. And I’ll speak to some of that now.
So, here’s what I’ll cover with you today:
- Firstly, as I said, I remain concerned that CER isn’t getting the attention it deserves. CER will be at least 20% of our energy solution, but it is not getting 20% of our attention. That has to change.
- Secondly, as we all know, the frameworks for the old thermal generation are no longer fit-for-purpose and we are in an emerging regulatory landscape now where, to play on the Einstein quote, imagination is just as important as knowledge. So I’ll take this opportunity to explain some of the new architecture we’ve been building to effectively integrate CER into the future of the NEM.
- And thirdly, rule changes are only one part of the process. We can’t do it all. Today, I’ll be calling on Australia’s governments to increase their focus in this space with some immediate and practical steps.
Now, why am I so focused on CER?
A better question would be, why isn’t everyone MORE focused on CER?
Consider the scale of what we’ve got here.
Australia’s households and businesses have invested in CER at rates unparalleled across the globe.
In terms of generation, small-scale rooftop solar systems currently provide over 20 GW of capacity across the NEM. That’s more than four times the current capacity of Snowy Hydro, and it’s not slowing down.
Also think about:
- EVs sales this year topped the Bloomberg mass adoption tipping point, and on track for 30% of sales by 2027.
- AEMC research shows most domestic batteries will hit the affordability turning point by 2025, years ahead of predictions.
- real estate searches for electrified and energy efficient homes are surging, and developers like Mirvac are marketing net zero homes.
And these changes point to two things:
First, the risk created by the potential strain on the grid to meet increased demand as we swap out petrol and gas appliances for those powered by electricity, and on the flip side, the potential opportunity to meet that demand, and more, through the way customers use their own energy assets
This is the secret sauce of CER – that it punches well above its weight.
The stronger our CER is, the more confident we can be about supply, and the less back-up infrastructure we need to build at utility-scale.
I’ve said it before, consumers are the heroes on the road to net zero.
Here are just three practical ways their CER can build our confidence and reduce the cost of the transition:
- Solar panels provide low-cost energy to their owners and to the grid, where non-CER owners can also benefit from time-of-use tariffs made possible by their smart meters.
- CER devices that are flexible loads – like EVs and electric hot water heaters – can give us more efficient ways to use our existing network infrastructure because we can charge them at times of the day we have excess capacity in the grid. This reduces our spend on the kind of grid augmentation that would otherwise be passed on to customers.
- And thirdly, all customers benefit from lower costs when CER like household batteries can join virtual power plants, because that helps AEMO and the networks be able to effectively use those assets to operate the system more efficiently.
There is a high-end estimate that a CER-supported power system could save Australians as much as $6.3 billion,
Crucially, those savings benefit all customers, not just the owners of CER.
So what have we been doing to support the integration of CER and reach those goals?
At the Commission, we’ve been working on the rules we need to build a market architecture suitable for CER. The same is true of the former ESB since its formation in 2017.
It’s always easy to ask why more hasn’t been done, but let’s remember the pace of change in the energy sector now has us all thinking in dog years!
For example, it was only two years ago we released the DER Access and Pricing review that revolutionised the way Australia treats CER.
Before then, distribution networks were only obligated to deliver electricity to households.
Since then, networks have a regulatory obligation to receive exported energy from customers.
This shift from one-way traffic to 2-way flows was a fundamental reimagining of how our system works. But of course, there was more work to do.
This year we completed a landmark review of electricity metering, and we’re now commencing work on fast-tracking the rule changes we recommended, including a 100% rollout of smart meters by 2030.
We’ve been saying for a long time, smart meters are crucial enablers for the energy transition, and particularly to share the benefits of CER.
One of the most important things smart meters do is to give households – without solar PV – access to the benefits of time-of-use savings from their retailers, when they can use electricity at times of day when we have all that excess solar in the grid.
Another important enabler for CER integration is the data from smart meters, which is foundational to a more connected, modern and efficient energy system.
The sharing of that data with distributors will help manage supply and reduce future spending on expensive poles and wires.
Flex trading and VPPs
We’re also continuing to work on market settings to get better demand-side involvement. The wholesale demand response mechanism was an interim measure, and yes, we know the benefits have been limited.
This year we’ve forged ahead with other market processes that unlock the full value of CER, for the benefit of CER-owning customers as well as the reliable, secure operation of the system.
Our CER benefits rule change opens the door for retailers to offer different products choices to customers. For example, you might choose one product for your family’s EV charging and another for your main household use.
The rule potentially goes further for large energy customers, like supermarkets and hospitals. The idea is that that they can not only choose different products to keep their costs down, but they can also select them from multiple service providers, beyond their main retailer.
In this way, new service providers can help large customers use flexible load such as refrigeration and air conditioning to manage their costs.
Integrating price responsive resources
We’re also now consulting on ways that energy companies can better integrate CER into the NEM via the aggregation of price-responsive resources like virtual power plants or VPPs.
VPPs have been around for some time, but the rapid increase in solar and batteries has the potential for them to be bigger and more sophisticated.
The real value of this growth, which we are seeking to capture, is in the well-managed sharing of the stored energy, rather than the current more ad hoc approach to integrating CER.
Whatever we’ve achieved in preparing the way for CER, there is always more to do.
And this is where I remind you that Australia’s booming adoption of CER – including and beyond rooftop solar – puts us in an extraordinary position globally.
When I speak to international colleagues, it’s clear we are miles and years ahead of their thinking with our two-way integration of CER.
But that means we don’t have any examples to follow here. We are, step-by-step, inventing and implementing entirely new fields of policy and engineering.
And from an AEMC perspective, we are doing that shoulder-to-shoulder with our stakeholders from industry, governments, and consumers, in as transparent and collaborative way as we can.
It’s what we are known for.
And if that comes with a small time-penalty, it also brings a huge payoff for the eventual merit and durability of the changes we recommend.
And speaking of recommendations brings me to my final point – what we are calling for our governments to do when I present the ESB’s final report to the energy ministers next month.
This report’s CER focus combines years of work from the three market bodies – the AEMC alongside AER and AEMO.
It identifies six key priorities we are calling on governments to take forward now.
In order to action those priorities, we first call on governments to form a CER Taskforce, mandated with clear terms of reference to drive the outcomes across an intense 12-month period.
Our time is short here today, so I’ll just talk briefly to two of those six priorities.
The ability of CER to safely and securely contribute to the grid relies on the extent to which devices like solar panels and batteries operate consistently and predictably.
CER standards have traditionally focused on safety, but the rapid connection of new devices to the NEM means AEMO increasingly requires equipment to meet standards for security and reliability.
In simple terms, setting technical standards can reduce instances of devices tripping and interfering with connections to the grid.
Sadly, as I have said before, our millions of tiny rooftop generators don’t come with millions of tiny engineers to manage them… but CER tech standards are the next best thing.
Our review has 10 recommendations for reform, and nine of them can be actioned immediately, and without the need for law or rule changes.
You can view them on our website.
The 10th recommendation is for the body or bodies charged with setting and enforcing the tech standards.
We need an enduring national regulatory framework to set and enforce CER technical standards. We identified four potential pathways for the Ministers to consider next month, and they will take the work on from there.
Getting this part of the regulatory framework right will give networks and AEMO greater operational certainty. It’s another important enabler for CER integrating with the grid.
The second of the six priorities I’ll mention today is the Review of Consumer Protections for Future Energy Services led by the AER, whose chair, Clare Savage, will speak to later today.
It recognises the existing National Energy Customer Framework does not cover all the potential new businesses attracted to the opportunities that connected CER devices could offer to the market.
The review recommends an updated framework with robust consumer protections and straightforward resolution processes.
It seeks to balance the need for innovation, with the need to build customer confidence to take up those new innovative services, by ensuring the right protections are in place.
This reform would require changes to national energy laws, beyond the scope of the rules, so again, we are now calling on governments to lead the way.
The AER consumer protection review also points out the risk of adding more layers to the already complex electricity market.
This is a tune we often hear from Energy Consumers Australia, which tells us information overload is a significant barrier to greater CER participation.
Consumers are already in overwhelm about electricity, so – pardon the power pun – no wonder they switch off.
But they are also missing out on something we’ve been good at in the past – a shared narrative for the transition, what it means for customers, and important community behaviour change that can deliver benefits for everyone.
And this is my final call to governments today – to help the sector build the social licence or ‘social trust’ we need for CER by supporting a new narrative to bring everyone along on the energy transition.
I’m not talking about adding to the overwhelm. I’m thinking something simple and relevant like Slip, Slop, Slap – or, if you remember water shortages in Melbourne, you’ll know not to be a Wally With Water!
We have been very good at encouraging mum-and-dad investors in CER.
In this new phase, we need to be just as good at engaging the uniquely Australian participation of millions of mum-and-dad generators, because that’s the role they’re now playing in our system.
However, you don’t need to be a dermatologist to understand slip slop slap, and you shouldn’t have to be an engineer to understand the message about your equipment contributing to the grid.
As the Chair of both the former ESB and the new Energy Advisory Panel, as well as the Australian Energy Market Commission, I understand, better than most, the complex and intersecting challenges that CER presents.
My job is to push reform that’s required to unlock the benefits of the rapid uptake of CER, while also reducing risks resulting from the speed and scale of the change.
But at this stage of the transition, governments need to take the lead in a coordinated and decisive way to give us:
- a CER taskforce with clear terms of reference to deliver on our six priorities across 12 months, including…
- consistent technical standards and consumer protections to minimise risks and maximise participation, and
- an overarching, national narrative about the energy transition in general and CER in particular, to support social trust and encourage participation.
I’ll be thinking about all of this as I go back to ministers in November to sing the CER song again.
We all need to go faster. We can all do better. We all need to improve on where we’re at right now with integrating CER – industry, consumers, and government.
But as I said before, bear in mind that Australia is at the cutting edge of the deployment of this technology globally.
So it’s also important to get this right.
And that means working steadily and meaningfully together.
We have to get onto it – and we have to build each other up as we do.
I look forward to returning next year to a choir in full voice, singing the CER song.