On 22 December 2011, the Australian Energy Market Commission (Commission) gave notice under sections 102 and 103 of the National Electricity Law (NEL) of the publication of a final rule determination, including a final rule, for the Network Support Payments and Avoided TUoS for Embedded Generators Rule change.

The Commission's final rule incorporates the principle of the rule proposed by the Ministerial Council on Energy (MCE). The reasons for the Commission's decision are set out in detail in its final rule determination.

Background

The cost of providing the electricity transmission network is recovered from Transmission Network Service Providers' (TNSPs) customers and is ultimately reflected in the bills end use customers pay.

Generators who connect to the distribution network (embedded generators) have the potential to reduce the amount of transmission that is required to be built. This is because the embedded generator may reduce the demand level of the distribution network that drives the need for transmission.

There are currently two payments that embedded generators can receive to reflect this benefit they have to the market.

One is a network support payment directly from a TNSP for a specific service provided by the embedded generator to defer investment in the transmission network.

The other is an avoided Transmission Use of System (avoided TUoS) payment from the Distribution Network Service Provider (DNSP). This is paid where the embedded generator has reduced the demand taken by the DNSP from the transmission system at times of peak demand.

Rule Change Request

In its rule change request, the MCE considered that to provide an avoided TUoS payment when an embedded generator is already in receipt of a network support payment would constitute a double-payment to embedded generators.

The MCE considered that a double payment would be inefficient and ultimately lead to higher long term costs for electricity consumers. It therefore proposed that embedded generators who receive a network support payment from a TNSP should not receive an avoided TUoS payment from a DNSP at the same time.

The rule as made

The final rule (or ‘rule as made') incorporates the principle from the proposed rule that there should be an efficient level of compensation for embedded generators for the benefits they provide in terms of reduced need to augment the transmission network.

However, the rule as made also recognises that avoided TUoS payments and network support payments may compensate for different services. Accordingly, in some instances, it may be appropriate for an embedded generator to receive both payments. This is not an endorsement of two payments for the same service but recognition that both payments can, in certain circumstances, be justified due to the provision of separable services.

The rule as made requires TNSPs to take avoided TUoS payments into account when negotiating a network support payment with an embedded generator.

Rule Change Process 

On 4 November 2010, the MCE submitted this rule change request to the Commission. The MCE's original rule change request had sought three separate rule changes which were recommended by the AEMC in its Stage 2 Demand Side Participation (DSP) Review.

However, as the subject matter of each proposed rule was not related or inter-dependent, the proposed rule changes were disaggregated into three separate projects to allow the AEMC to more efficiently assess each rule on its merits within the rule change process.

The other proposed rules are "ERC0127 - Efficiency Benefit Sharing Scheme and Demand Management Expenditure by Transmission Businesses" and "ERC0128 - Inclusion of Embedded Generation Research into Demand Management Incentive Scheme".

On 23 June 2011, the Commission gave notice under section 95 of the NEL to commence consultation on the rule change proposal from the MCE. A consultation paper prepared by staff of the AEMC was published to provide guidance to stakeholders in commenting on the rule change proposal. The first round of consultation closed on 21 July 2011. In total, 11 submissions were received.

On 29 September 2011 the Commission published a notice under section 99 of the NEL and a draft determination including a draft rule in relation to the rule change request. Submissions on the draft determination closed on 10 November 2011 for which the Commission received six submissions.