Appendix B: Regulation of the electricity sector
Appendix B provides background information on the regulation of electricity in Victoria,
focusing on the connecting and selling processes for distributed generation. At the time
this report was finalised, it was uncertain when the National Energy Customer
Framework (NECF) would be applied in Victoria. The delay of the NECF meant that
there was some uncertainty about the regulatory arrangements at the time this report
was finalised. The Commission’s description of the regulatory framework in appendix B
was current as of 20 July 2012.
B.1
Victorian regulation
The Electricity Industry Act 2000 (Vic) (EI Act) and predecessor legislation have
regulated the Victorian electricity supply industry for almost two decades, following
privatisation of the State-owned electricity industry in the 1990s. The EI Act supplements
the national framework for economic regulation of transmission and distribution services
by regulating various matters including:

a licensing regime for those who generate electricity for supply or sale, or the
transmission, distribution, supply or sale of electricity

Victorian feed-in tariff (FiT) arrangements for the premium, transitional and standard
FiT schemes.
The Essential Services Commission (ESC), established by the Essential Services
Commission Act 2001 (Vic), administers the licensing and service standard provisions of
the EI Act. Box B.1 outlines key elements of the EI Act.
Box B.1
Electricity Industry Act 2000 (Vic)
The Electricity Industry Act 2000 (Vic) regulates the Victorian electricity supply
industry.

Part 2 Division 1 sets out the objectives of the Essential Services Commission
(ESC), which include promoting the development of full retail competition in the
electricity industry.

Part 2 Division 2 sets out ‘reserve’ powers of the ESC with respect to charges for
connection to, and the use of, the distribution system. It also provides that the
ESC has the power to regulate tariffs for the supply of electricity (s 12(1)). The
Governor in Council may make an order to regulate tariffs for the sale of
electricity if the Australian Energy Market Commission concludes that
competition in a market for electricity is not effective (s 13).

Part 2 Division 3 requires the ESC to license people who generate electricity for
supply or sale, or the transmission, distribution, supply or sale of electricity unless
the person holds a relevant exemption. Division 3 regulates the conduct of
licensees. Licences are transferable and the ESC can suspend or revoke
licences.

Part 2 Division 5 regulates the terms and conditions of sale and supply of
electricity. It deals with matters including the publication of tariff information,
and the terms and conditions for sale of electricity to certain customers.

Part 2 Division 5A governs Victorian feed-in tariff (FiT) schemes. It sets terms and
conditions for the purchase of small-scale renewable energy exports,
distinguishing between premium, transitional and standard FiT schemes. FiT
schemes are discussed in detail in section B.4.3.
Source: Electricity Industry Act 2000 (Vic).
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
215
A discussion of the national regulatory framework governing the national electricity
market (NEM) can be found in section 2.2.1 of this report.
B.2
Regulatory framework after commencement of
the NECF
When the National Energy Customer Framework (NECF) commences in Victoria there
will be significant changes to the regulation of the Victorian electricity sector, with
many Victorian responsibilities being transferred to the national framework. The NECF
includes the National Energy Retail Law (NERL), National Energy Retail Rules (NERR), and
amends existing national regulation, including introducing chapter 5A into the National
Electricity Rules (NER). The NECF was intended to commence in Victoria on 1 July 2012.
Since the publication of the Commission’s draft report, the implementation of the NECF
has been delayed in Victoria, and a number of other participating jurisdictions — New
South Wales, Queensland and South Australia (O’Brien 2012b; Hartcher 2012; Energex
2012; JIG 2012b). At the time this report was finalised, no decision has been announced
about when the NECF will be implemented in Victoria (section 2.2.2).
The NECF will be applied in Victoria by the proposed National Energy Retail Law
(Victoria) Bill 2012, which will repeal a significant amount of Victorian energy regulation
that will become redundant after the NECF is applied. However, Victorian-specific
energy legislation will still be necessary in a number of areas after the NECF
commences. The Department of Primary Industries (DPI) intends, where feasible, to
consolidate the remaining Victorian-specific energy regulation (DPI 2011n; DPI 2011l).
Importantly, in relation to the electricity sector:

The ESC will retain responsibility for licensing distribution, transmission and generation
activities in Victoria. Electricity retailers will no longer be regulated through a
State-based licensing scheme and will instead be governed by a national retailer
authorisation and exemption regime administered by the Australian Energy
Regulator (AER).

The NECF is silent on the issue of FiTs and the Victorian FiT schemes will continue
unaffected by the commencement of the NECF in Victoria — although retail
license conditions that were linked to feed-in tariffs will become direct statutory
obligations under an amended EI Act (DPI 2011l; DPI 2011n; Explanatory
Memorandum 2012, p.18).
B.3
Connecting to the distribution network
The process for connecting connection applicants (CA) to the distribution network will
change with the commencement of the NECF. Currently there is one connection
process under chapter 5 of the NER for distributed generators, which is supplemented
by Victorian regulation, including:

distribution licence conditions

Electricity Distribution Code (ESC 2012a)

Electricity Industry Guideline No. 14: Provision of Services by Electricity Distributors
(ESC 2004b)

Electricity Industry Guideline No. 15: Connection of Embedded Generation (ESC
2004a).
With the commencement of the NECF in Victoria, the majority of these State-based
obligations imposed on distribution network service providers (DNSPs) will be replaced
or replicated under the national framework and these Victorian sources of regulation
will largely be repealed. Therefore, the NER chapter 5 connection process will only be
216
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
supplemented by a minimal number of State-based requirements that the Victorian
Government has decided to retain.
After the NECF commences in Victoria, there will be two processes under the NER for
connecting distributed generation to the distribution network:

a process for registered generators or generators exempt from registration by the
Australian Energy Market Operator (AEMO), under chapter 5

a simplified process for retail customers (including non-registered embedded
generators who do not intend to participate directly in the NEM) under chapter 5A.
Household-scale distributed generators are likely to connect through the chapter
5A process.
Each connection process has associated rights and obligations in relation to accessing
the distribution network and specific sizes/types of generators may be excluded from,
or find it more difficult to access, current connecting processes.
B.3.1
Connecting registered generators under chapter 5
Registration as a generator
To be connected under chapter 5, registration as a generator in the NEM is required
unless AEMO grants an exemption from registration where an exemption ‘is not
inconsistent with the national electricity objective’ (NER, cl 2.2.1(c)). Section 7 of the
National Energy Law (NEL) states:
The objective of this Law [the National Electricity Objective] is to promote
efficient investment in, and efficient operation and use of, electricity services
for the long term interests of consumers of electricity with respect to(a) price, quality, safety, reliability and security of supply of electricity; and
(b) the reliability, safety and security of the national electricity system.
To register as a generator with AEMO, each of the generating units within a generating
system that a distributed generator owns, operates or controls must be classified.
Clause 2.2.1 of the NER requires that:

each generating unit within a generating system must be classified as a
‘scheduled’ generating unit, ‘semi-scheduled’ generating unit or ‘non-scheduled’
generating unit

each generating unit must be further classified as a ‘market’ or ‘non-market’
generating unit.
Generating units within a generating system may be registered under different
classifications (AEMO 2010b, p.7). Generator registration has significant implications for
participation in the NEM. The consequences of generator classification for distributed
generators selling excess electricity into the distribution grid are discussed in
section B.4.1.
Table B.1 provides typical definitions and examples of the available generator
classifications. Note that in certain circumstances, AEMO may approve a generating
unit classification, even though it does not meet the typical definition of a ‘scheduled’,
‘semi-scheduled’ or ‘non-scheduled’ generator.1
1
See NER cl 2.2 and the NEM Generator Registration Guide (AEMO 2010b).
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
217
Table B.1
Categories of registration as a generator
Market:
A generating unit from
which the sent out
electricity is not purchased
in its entirety by the local
retailer or by a customer
located as the same
connection point
Non-market:
A generating unit from
which sent out electricity is
purchased in its entirety by
the local retailer or by a
customer located at the
same connection point
Scheduled:
A generating unit with a
nameplate rating of
30 MW or greater or a
group of generating units
connected to a common
connection point with a
combined nameplate
rating of 30 MW or greater
Scheduled market
generator
Scheduled non-market
generator
Example: 2000 MW power
station from which all of
the electricity is sold via
the market
Example: 40 MW
generating system under
contract for all output to a
local retailer located at
the same connection
point
Semi-scheduled:
A generating unit with a
nameplate rating of
30 MW or greater or group
of generating units
connected to a common
connection point with a
combined nameplate
rating of 30 MW or greater
and the output of the
generating unit is
intermittent
Semi-scheduled market
generator
Semi-scheduled
non-market generator
Example: 160 MW wind
farm from which all the
electricity is sold via the
market
Example: 160 MW wind
farm under contract for all
output to a local retailer
located at the same
connection point
Non-scheduled:
A generating unit with a
nameplate rating of less
than 30 MW or a group of
generating units
connected to a common
connection point with a
combined nameplate
rating of less than 30 MW
Non-scheduled market
generator
Non-scheduled
non-market generator
Example: 10 MW
generating system from
which all of the electricity
is sold via the market
Example: 10 MW
generating system under
contract for all of its output
to the local retailer at the
same connection point
Source: (AEMO 2010b, pp.7–8).
Exemption from registration
Appendix 6: Guideline on Exemption from Registration as a Generator of the NEM
Generator Registration Guide (AEMO 2010b) provides guidance on the circumstances
in which AEMO may exempt a generator from registration. Where a Standing
Exemption applies, the generator is automatically exempt and there is no need to
apply to AEMO for an exemption from registration (AEMO 2010b, p.1).

218
A Standing Exemption exists for generating systems with a nameplate rating of less
than 5 MW, provided any of the following are met:
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION

–
the generating system has a total nameplate rating at a connection point of
less than 5 MW
–
the generating system is not capable of exporting to a transmission system or
distribution system in excess of 5 MW
–
the generating system has no capability to synchronise or to operate
electrically connected to a distribution system or transmission system
–
the sent out generation of the generating unit is purchased in its entirety by the
Local Retailer or by a Customer located at the same connection point (AEMO
2010b, p.36).
In exceptional circumstances, AEMO may also grant an exemption from registration
on a case-by-case basis. On application, AEMO may grant an exemption from
registration for generating systems of more than 5 MW and less than 30 MW
capacity which export (sell) less than 20 GWh in any 12 months (AEMO 2010b,
pp.36–37).
Registration process
Chapter 2 of the NER governs the registration of generators. The registration process is
lengthy and requires the connection applicant (CA) to provide detailed documentary
evidence that their generating equipment will meet or exceed the technical
requirements of chapter 5 of the NER. It may take up to three months for a CA to
prepare the documentation required for registration as a generator (AEMO 2010b, p.4).
The registration process consists of four key steps:
(1) CA submits an application (using the appropriate form):
–
for registration as a generator, accompanied by a registration fee (fees range
from $5000 to $7100 depending on generator classification) or
–
for exemption from registration as a generator, accompanied by an exemption
from registration fee ($2000 for 2011-12).2
(2) AEMO reviews the application and responds within five business days.
(3) AEMO may request additional information or clarification of the information
contained in the application. If such a request is made, the CA has 15 business days
to supply the additional information or clarification.
(4) Within 15 business days of receiving the application or requested additional
information or clarification, AEMO will notify the CA of its determination. If accepted,
AEMO will notify the CA of the effective date of registration and of any applicable
conditions of registration (AEMO 2010b, pp.5–6).
Connection process
The connection process under chapter 5 requires the exchange of detailed technical,
prudential and commercial information, and extensive consultation between the CA
and the distribution network service provider (DNSP). The process can be summarised
into five main steps:
(1) Connection studies and enquiry: the CA conducts a network connection feasibility
study (which may include a network stability study) and approaches their local
2
See AEMO Schedule of Registration Fees 2011/12 (www.aemo.com.au/registration/0120-0031.pdf).
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
219
DNSP detailing the type, magnitude and timing of the proposed connection. The
information to be provided with the connection enquiry is set out in cl 5.3.4 and sch
5.4 of the NER.
(2) Response to connection enquiry: the DNSP will liaise with other network service
providers to determine the impact the proposed connection may have on existing
connection agreements. Within 10 business days, the DNSP must provide
preliminary information, including a preliminary program of proposed milestones for
the connection process. The DNSP has 20 business days to advise the CA of the
technical requirements and all further information required to enable an
assessment of the application to connect.
(3) Application to connect: the CA submits an application to connect accompanied
by the application fee. The application must include proposed technical standards.
The CA has an automatic right to connect if the relevant automatic access
standards are met. If the application to connect deviates from the relevant
automatic access standards, then there is no automatic right to connect, and the
parties need to negotiate each proposed technical standard in consultation with
AEMO. The DNSP ‘must use reasonable endeavours’ to provide the access
arrangements sought by the CA, ‘subject to those arrangements being consistent
with good electricity industry practice’ (cl 5.5(e)).
–
Schedule 5.2 sets out the automatic access standards for registered
generators. The automatic access standards do not apply to distributed
generators exempt from registration or eligible for exemption under
Appendix 6: Guideline on Exemption from Registration as a Generator and
where connection is ‘unlikely to cause a material degradation in the quality of
supply to other network users’ (NER cl S5.2.1(b)). This means that technical
standards for distributed generators of less than 5 MW capacity must be
negotiated on a case-by-case basis and there is no automatic right of
connection for distributed generators of this size.
–
The negotiated access standards must meet at least the minimum access
standards specified in the sch 5.2 of the NER.
(4) Connection agreement and generator installation: once the access standards
have been agreed, the DNSP must prepare an offer to connect based on the
agreed standards within the timeframe specified in the preliminary program (or as
agreed between the parties). The CA and DNSP will execute the connection
agreement that describes the connection and outlines the applicable technical
and commercial conditions. AEMO is to be notified within 20 business days of the
execution of the connection agreement. The CA may then commence
construction and installation of the generator.
(5) Inspection and commissioning: Energy Safe Victoria will inspect and test the
installed generating system and issue a Certificate of Electrical Safety. A range of
connection tests will be performed with a DNSP representative present, before live
connection to the distribution network. After connection, an installation engineer
will test and commission the generator to ensure it is ready for regular service
(AEMO 2011c).
The Commission notes that on 18 April 2012, a rule change request — designed to
facilitate the process for connecting embedded generators to the distribution grid
under NER chapter 5 — was jointly submitted to the AEMC by ClimateWorks Australia,
Seed Advisory and the Property Council of Australia. On 14 June 2012, the AEMC
released a Consultation Paper on the rule change proposal, National Electricity
Amendment (Connecting embedded generators) Rule 2012 (AEMC 2012e). The
connecting embedded generators rule change is discussed in chapter 6.
220
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
State-based supplementary connection requirements
Victorian regulation contains supplementary protections for distributed generation
proponents connecting under chapter 5 of the NER. These requirements place
additional obligations on DNSPs and supplement the NER chapter 5 connections
framework. These supplementary connection requirements will be largely redundant
under the NECF and will be repealed, with some Victorian-specific supplementary
regulation being retained and consolidated.
Victorian regulation supplementing chapter 5 connections includes:

A Victorian distribution licence condition that DNSPs offer connection services to
embedded generators within 65 days of request or when the DNSP receives all the
information ‘reasonably require[d] to make the offer, whichever is the later’ (cl 7.1
and 11.1)

Clause 7 ‘Embedded Generators’ of the Electricity Distribution Code (ESC 2012a)
which:
–
obliges DNSPS to ensure they are able to receive supply from a connected
embedded generator in accordance with a connection agreement (cl 7.1.1)
–
obliges DNSPs and embedded generators to ‘negotiate in good faith’ to reach
a connection agreement (cl 7.1.2)
–
outlines technical and safety standards that embedded generators
connecting to the distribution system in Victoria must satisfy (cl 7.2 to 7.9)
DNSPs must remedy breaches of the Electricity Distribution Code (see cl 11) and
comply with the Code under their distribution licence.

Electricity Industry Guideline No. 15: Connection of Embedded Generation (ESC
2004a) requires DNSPs to provide embedded generator proponents with
‘reasonable information’ (cl 2.2) and negotiate generator access arrangements in
‘good faith’ (cl. 2.1).

Under the National Electricity (Victoria) Act 2005 (Vic), the AER can resolve disputes
on whether the terms, conditions or embedded generation charges of Victorian
DNSPs’ embedded generation connection offers are ‘fair and reasonable’ under
Electricity Industry Guideline No. 15: Connection of Embedded Generation (ESC
2004a), cl 3.4 (AER 2011b, p.7).
Small embedded generator connections

Under cl 3.2 of the Electricity Industry Guideline No. 15: Connection of Embedded
Generation (ESC 2004a), DNSPS must have a ‘fair and reasonable’ standard
connection agreement for ‘small embedded generators’ that the AER has
approved.3
–
‘Small embedded generators’ are defined as embedded generators of 2 kW or
less and/or embedded generators that meet Australian Standard AS4777.
–
The standard connection agreement must include the terms and conditions for
‘embedded generation services’ provided by the DNSP and ‘embedded
generation charges’.
Responsibility for approving small embedded generator standard connection agreements was transferred
from the ESC to the AER on 1 January 2009 (AER 2012i).
3
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
221
–
If requested by a customer or retailer, DNSPS must make a small embedded
generator standard connection offer within 65 business days ‘adapted only to
reflect the particular circumstances of the small embedded generator’
(cl 3.2.5).
Amendments to the Electricity Distribution Code
In August 2007, the ESC published a final decision as part of its review of small
embedded generator connections, Final Decision: Network Connection Arrangement
for Small Embedded Generators (ESC 2007). The review arose out of concerns about
the then current connection arrangement between DNSPs and embedded generators
in Victoria. The ESC identified the following issues:

Embedded generators’ liability regarding safety — DNSPs were concerned that the
liability of the embedded generator for the DNSPs’ employees and the general
public was not adequately covered without a specific agreement between the
distributors and the embedded generators.
Some photovoltaic installers also suggested to the Commission that there was an
additional risk that some customers would not register their generators, as reported
in the United States, because these customers perceive the connection process
and connection agreements as too complicated. This was a safety risk to the DNSPs
and the general public.

DNSPs’ liability for network availability — DNSPs were concerned that they may be
liable to claims by the embedded generators for loss of income during network
outages because the network was unable to accept the output of the embedded
generators.

Effectiveness of the process — the existing connection agreements become
ineffective after a transfer of property ownership. DNSPs did not always receive
information on changes in ownership of a supply address and therefore the new
owners may not have been aware of their obligations to comply with the safety
regulations (ESC 2007, p.5).
In the final decision, the ESC determined that from 1 October 2007 a specific
connection agreement between small embedded generators and DNSPs (under
Guideline No. 15 cl 3.2) was no longer required. The ESC considered that the DNSP and
small embedded generators would be adequately protected by revisions to the
Electricity Distribution Code outlined in its final decision (ESC 2007, pp.12–13). The key
amendments included requiring the DNSPs to:

keep a register for all embedded generators connected to their distribution
network (cl 7.9)

inform all registered small embedded generators of their rights and obligations
under the Code and the circumstances in which the DNSP has the right to
disconnect unsafe small embedded generators at regular intervals (on initial
connection and at least every 3 years thereafter) (cl 9.1.3A).
The ESC clarified that DNSPs and small embedded generators may enter into specific
connection agreements in accordance with Electricity Industry Guideline No. 15 —
Connection of Embedded Generation. However, the ESC considered that such
connection agreements were not necessary and the parties may rely on the Electricity
Distribution Code, provided small embedded generators were informed of their rights
and obligations (ESC 2007, p.12).
222
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Australian Energy Regulator approach to approving small embedded
generator standard connection agreements
The Commission understands that the AER does not intend to require Victorian DNSPs to
submit the terms and conditions of their standard connection agreements for approval
unless there are concerns that the current arrangements are not working (box B.2).
Box B.2
Australian Energy Regulator approach to
approving small embedded generator standard
connection agreements
The Commission received the following advice from the Australian Energy Regulator
(AER) about its approach to approving small embedded generator standard
connection agreements under cl 3.2 of the Electricity Industry Guideline No. 15:
Connection of Embedded Generation (ESC 2004a).
The AER understands that based on the ESCV’s Final Decision – Network
Connection Arrangement for Small Embedded Generators, August 2007, the
ESCV amended the Electricity Distribution Code (EDC) to reduce the need
for specific connection agreements for small PV generators. In this paper the
ESCV identified that, under the current Victorian regulation framework:

A connection agreement for an embedded generator is signed
between the original owner of the embedded generator and the
relevant distributor. Unless the connection agreement is replaced or
revised, the relevant parties to the agreement are the original owner
and the distributor.

After a change of ownership, the original connection agreements are
not applicable to the new owner under contract law because of the
absence of an agreement. Moreover a new owner would not
necessarily be aware of the need to have a connection agreement, or
of their obligations about the operation of their small embedded
generators. Further, distributors do not have the power to require the
new owners to have a new connection agreement with the distributors
under the existing regulatory framework.

Placing all relevant obligations in the Code [EDC] and requiring the
distributors to regularly provide information on these obligations to the
owners of the small embedded generators were considered to be the
best mechanism to improve the connection arrangement for small
embedded generators.

This arrangement would reduce the need for a specific connection
agreement between the distributors and the small embedded
generators. However, distributors and small embedded generators may
still wish to enter into a specific connection agreement in accordance
with GL15 to suit their specific requirements.
Further, a new chapter 5A has been added to the NER under NECF to
regulate the connection of retail customers and small embedded generators
(EG). In the near future, all Vic DNSPs will be required to submit for AER
approval their model connection contracts for new retail customers with EGs
under chapter 5A for basic and standard connections (nearly, if not all, PV
customers will be under such contracts). As Guideline 15 was published in
2004, and in view of the modifications made to the EDC and the addition of
chapter 5A to the NER, the AER does not intend to seek DNSPs to submit their
terms and conditions for small embedded generators under Guideline 15 for
approval unless there is evidence that the current arrangement is not working.
Source: (AER 2010b).
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
223
The Commission notes that it is standard industry practice for household-scale
distributed generation applications to be automatically approved on request. For
household-scale, the approval to connect step is generally a formality and the lengthy
information and technical assessment requirements that apply to larger distributed
generators do not occur in practice. Based on the information available on Victorian
DNSP websites, the approval process for household-scale distributed generation varies
between Victorian DNSPs (table B.2).
Table B.2
Victorian
DNSP
CitiPower/
Powercor
Victorian DNSPs approval/connection process for
household-scale distributed generation
Household-scale
distributed generator
Solar PV up to 10 kW
DNSP approval/connection process
 customer completes the Solar Connection
Form
 customer contacts retailer and organises for
the retailer to forward the Service Paperwork
and Service Order Request
 CitiPower/Powercor sends Customer
Technical Advisor to check compliance of
solar PV installation
 CitiPower/Powercor arranges for
appropriate metering
Inverter energy
systems up to 10 kW,
including:
 solar PV arrays
 small wind
generators
 micro hydro
generators
 fuel cells
 customer contacts CitiPower or Powercor
and requests copy of Customer Guidelines
for Grid Connection of Inverter Power
Sources
 customer completes Application for
Network Connection of an Inverter Energy
System up to 10 kW form
 CitiPower/Powercor assesses the application
and the impact of the proposed inverter
energy system
 customer contacts retailer and organises for
the retailer to forward the Service Paperwork
and Service Order Request
 once the retailer forwards the Service
Paperwork and Service Order, CitiPower/
Powercor arranges for appropriate metering
 CitiPower/Powercor inspects and tests the
installation before approving the system for
service
224
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Table B.2
Victorian
DNSP
Jemena
Victorian DNSPs approval/connection process for
household-scale distributed generation (cont)
Household-scale
distributed generator
Solar PV up to 10 kW
DNSP approval/connection process
 customers completes the Solar Connection
Form
 customer contacts retailer and requests
installation of an embedded generator
meter and, if necessary, network tariff
reassignment
 retailer forwards Service Paperwork and
Service Order Request
 Jemena arranges for metering installation
SP AusNet
Distributed generators
without an inverter or
above 10 kW per
phase
 customers must contract Jemena
 Jemena assesses the enquiry, provides
Solar PV less than 4.5
kW
 customer completes the Solar Connection
generator connection standards and guides
proponent through the connection
application process
Form
 SP AusNet advises customer once the Solar
Connection Form has been received and
validated
 customer contacts retailer and organises for
the retailer to forward the Service Paperwork
and Service Order Request
 once the retailer forwards the Service
Paperwork and Service Order Request, SP
AusNet arranges for appropriate metering
Solar PV that exceeds
4.5 kW
 technical review to assess impact on SP
AusNet’s network is required (20 business
day timeframe indicated):
– Customer to complete the Pre Approval
Application for Solar PV Systems form to
enable technical review to be
conducted
– SP AusNet advises customer whether
authorisation to connect is granted
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
225
Table B.2
Victorian
DNSP
Victorian DNSPs approval/connection process for
household-scale distributed generation (cont.)
Household-scale
distributed generator
DNSP approval/connection process
 customer completes the Solar Connection
Form
 SP AusNet advises customer once the Solar
Connection Form has been received and
validated
 customer contacts retailer and organises for
the retail to forward the Service Paperwork
and Service Order Request
 once the retailer forwards the Service
Paperwork and Service Order Request, SP
AusNet arranges appropriate metering
United
Energy
(UE)
Solar PV up to 10 kW
 customers contacts UE and completes the
Solar Connection Form
 customer contacts retailer and fills out a
request for solar compatible/bi-directional
meter and, if necessary, requests network
tariff reassignment
 retailer forwards Service Paperwork and
Service Order Request
 following receipt and processing, UE
progresses metering installation within 25
business days
Notes:
connection approval process information on household-scale solar PV on Victorian DNSPs' websites
accessed on 6 July 2012.
Source: Victorian DNSPs websites (CitiPower/Powercor 2012b; CitiPower/Powercor 2010; Jemena nd;
Jemena 2011; SP AusNet 2012; UE 2012a; UE 2012b).
B.3.2
Connecting retail customers under chapter 5A
With the commencement of the NECF in Victoria, responsibility for the sale and supply
of energy to Victorian retail customers — including new connections to distribution
networks — will be transferred to a national regulatory regime. This includes a new
chapter 5A in the NER that provides for the electricity connection of retail customers,
including embedded generators. The connection process under chapter 5A will vary
between Victorian DNSPs.
Chapter 5A applies to retail customers, including embedded generators, who are not
registered with AEMO (unless the registered participant is acting as the agent of a retail
customer). Retail customers connected under chapter 5A of the NER have direct
contracts with their DNSP, as well as their designated retailer.

Small customers have a contract with a designated retailer to provide customer
retail services (that is the sale of electricity) under a standard or market retail
contract, governed by Part 2 of the NERL.

Distribution services provided by DNSPs are divided into initial ‘connection’ services
and ongoing ‘energisation’ services that come into effect after connection. A retail
226
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
customer will have a distribution contract for connection under chapter 5A of the
NER and a separate (deemed) distribution contract for ongoing energisation
regulated by Part 3 of the NERL. At this stage it is unclear how these two sets of
distribution contracts will interact (Newman & McDermott 2010).
Types of connection service
Chapter 5A provides for three types of connection service for retail customers:
(1) A basic connection service, which will cover retail customers including those who
are micro-embedded generators. DNSPs must have a model standing offer for
basic connection services that has been approved by the AER. Micro-embedded
generators (‘micro EG’) are not defined in chapter 5A according to generator size.
The NER states that a micro EG connection is ‘of the kind contemplated by
Australian Standard AS 4777 4 (Grid connection of energy systems via inverters)’ (cl
5A.A.1). According to Standards Australia, AS 4777 applies to inverter energy
systems with ratings up to 10 kVA for single-phase, and 30 kVA for three-phase,
intended for connection to the low voltage electricity distribution network. It is likely
that household-scale distributed generators in Victoria will connect through a basic
connection service.
(2) A standard connection service, which can cover the terms and conditions for
different classes of connection services or different classes of retail customers
(including non-registered embedded and micro-embedded generators). DNSPs
can choose to prepare a model standing offer for such services and have it
approved by the AER.
(3) A negotiated connection contract, which covers services that are not subject to a
basic or standard connection standard offer, or where a basic or standard
connection service is sought but the CA elects to negotiate the terms and
conditions of the connection agreement. The terms and conditions for such
services are negotiated and if agreement cannot be reached the dispute can be
arbitrated by the AER. In relation to a negotiated connection contract, a CA is an
applicant for a connection service that is:
–
a retail customer (including an embedded generator)
–
a retailer or other person acting on behalf of a retail customer, or
–
a real estate developer.
The requirement to have model standing offers approved by the AER published on the
websites of Victorian DNSPs will commence as soon as the NECF is applied in Victoria.
Connection process
The connection process under chapter 5A is broadly similar to the connection process
under chapter 5, and consists of the following key steps:
(1) Preliminary enquiry: the CA makes a preliminary connection enquiry about
connection services. The DNSP has five business days (or longer agreed period) to
provide the enquirer with information required to make an informed application.
(2) Application to connect: once an application is made, the DNSP must advise the
CA if the application is incomplete and, if so, request the CA to resubmit it. The
DNSP may also request additional information if ‘reasonably required’. The DNSP
4
The Commission understands that AS 4777 is currently under review (Queensland Government 2012).
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
227
has 10 business days after receipt of a complete application/requested additional
information (or some other agreed period) to advise the CA whether the proposed
connection is a basic connection service, standard connection service or neither.
A site inspection may be required for the DNSP to determine the nature of the
connection service sought by the CA.
(3) Connection offer where a basic or standard connection service is sought: within
those same 10 business days (from receipt of a complete application/additional
information) or other agreed period, the DNSP must make a connection offer
based on the relevant model standing offer. The offer remains open for
acceptance for 45 business days, unless extended by agreement.
(4) Expedited connection where a basic or standard connection service is sought:
where the CA requests an expedited connection and indicates that the terms of
the model standing offer would be acceptable in the connection application, the
DNSP is taken to have made, and the CA accepted, a connection offer according
to the terms of the relevant model standing offer on the date the DNSP receives the
connection application.
(5) Where a negotiated connection contract applies: the DNSP must advise the CA of
the negotiation process and related costs. The DNSP must use its 'best endeavours'
to make a negotiated connection offer within 65 business days. A negotiated offer
must comply with the minimum statutory requirements and remains open for
acceptance for 20 days (unless extended by agreement). In the event that the
DNSP and CA cannot reach an agreement — on the proposed or actual terms and
conditions of a negotiated connection contract, or the terms and conditions on
which a basic or standard connection service is to be provided — then the matter
can be arbitrated by the AER.
The introduction of chapter 5A into the NER is designed to simplify the connection of
small-scale retail customers, including those with distributed generation. However,
connection under chapter 5 still remains an option and distributed generators wishing
to sell through the NEM are required to register and connect through the chapter 5
connection framework (section B.4.1). The transparency of the process for small
distributed generators connecting under chapter 5A will depend in part on whether
DNSPs decide to provide model standing offers for standard connection services. The
process for seeking connection under chapter 5A is illustrated in figure B.1.
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POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Figure B.1
Connection under the NECF (chapter 5A) for
embedded generators who are retail customers
Preliminary inquiry from
potential applicant
wishing to connect
DNSP has 5 days to
provide information
Applicant lodges
application on form
determined by DNSP
Additional information required
Application incomplete
DNSP informs applicant of
additional information
needed
DNSP informs applicant of
deficiency
Application complete
Completed application
submitted
Site visit, if needed
Not approved service.
DNSP notifies applicant of
the negotiation process &
possible changes &
expenses
DNSP uses best endeavours
to make offer within 65 days
of receiving completed
application*
Offer open for 20 days
Basic connection service
or standard connection
service
Use agreement approved
by AER
Negotiated connection
offer
Not agreed
Agree
d
Offer terms form
connection contract
DNSP has 10 days to advise
whether the service is covered
by an approved connection
process and, if so, make a
connection offer
 offer open for 45 days
 expedited connection may
be available
Option of dispute
resolution reduction
through AER
* This applies to negotiation,
not dispute resolution
Legend
Australian Energy
Regulator
DNSP – Distributed Network
Service Provider
AER –
Source: Commission analysis of chapter 5A NER.
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
229
B.3.3
Cost of connecting distributed generation
There are fees and charges associated with connecting distributed generators to the
distribution network. These costs vary depending on the size/type of generator being
connected and type of connection. Generally, connection charges apply to the
following four components of a typical connection:
(1) Direct connection assets — these are the premises’ connection assets which run
from the connection point to the supply point and where applicable also include
the consumer mains.
(2) Extensions — an augmentation that requires the connection of a power line or
facility outside the present boundaries of the transmission or distribution network
owned, controlled or operated by a network service provider.
(3) Shared network augmentations — an augmentation of a distribution network
means work to enlarge the system or to increase its capacity to transmit or
distribute electricity, caused by the connection. This is all augmentations other than
extensions.
(4) Incidental costs — includes administration, design, certification and inspection fees
(AEMC 2012f, pp.171–172; AER 2011g, p.14).
Cost of connecting distributed generation under chapter 5
Chapter 5 of the NER provides that CAs are subject to fees and charges to cover direct
costs (such as an application fee) and indirect costs (such as a registration fee). The
DNSP and CA must ‘negotiate in good faith’ to reach agreement on connection
charges (cl 5.5(f)). Some of these connecting costs are regulated by the AER and some
are negotiated between the DNSP and CA. The costs of connecting under chapter 5
are summarised in table B.3.
Table B.3
Cost of connecting distributed generation under
chapter 5
Fee or charge
Description
Registration fee
Registered generators and exempt generators (not
subject to the 5MW Standing Exemption) pay a
registration fee to AEMO. The registration fee varies
depending on the type of generator (see AEMO
Schedule of Registration Fees 2011/12)
Participant fee
 Registered generators pay participant fees
determined by AEMO in accordance with the
NERs cl 2.11
 Exempt generators do not pay participant fees
Application fee (cl 5.3.4(b))
 Payable on lodgement of application to
connect
‘No more than necessary to cover reasonable
costs’ to assess application and prepare offer to
connect
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POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Table B.3
Cost of connecting distributed generation under
chapter 5 (cont)
Fee or charge
Connection service charge
(cl 5.5(f)(1))
Description
Paid by the connection applicant (CA) for the
connection assets provided by the distribution
network service provider (DNSP)
Negotiated use of system
charges (cl 5.5(f)(3)(i))
Paid by CA for any required augmentations or
extensions to affected transmission and distribution
networks. The maximum negotiated use of system
charges must be in accordance with NER chapter 6
and applicable ‘negotiated distribution service
criteria’
Costs ‘reasonably incurred’ to
provide distribution network
user access (cl 5.5(f)(4)(i))
Paid by the CA to the DNSP
Compensation to DNSPS and
embedded generators
(cl 5.5(f)(4)(ii))
 Compensation paid by DNSP to the embedded
generator when it is constrained off or on during
a trading interval
 Compensation paid by the embedded
generator to the DNSP when dispatch of the
embedded generator causes another generator
to be constrained off or on during a trading
interval
Avoided customer transmission
use of system (TUOS) charges
(cl 5.5(h))
The DNSP must pass through to the CA the
locational component of prescribed TUOS services
that the DNSP would normally pay to the
transmission network service provider (TNSP), had
the embedded generator not been connected to
the distribution network. This payment reflects the
transmission charges that the DNSP has avoided
due to the connection of the embedded generator
Reasonable costs to address
impacts on the transmission
network determined by the
TNSP (cl 5.3.5(e))
Paid by generating units with a nameplate rating of
10 MW or greater that impact on fault levels, line
reclosure protocols and stability aspects
Reasonable costs associated
with remote control equipment
and remote monitoring
equipment (cl 5.3.5(g))
Payment of these costs may be a condition of an
offer to connect
‘Reasonable fee’ for assistance
in obtaining approvals (cl
5.3.7(e))
Where permitted by the relevant participating
jurisdiction, the DNSP may charge the CA a
reasonable fee to prepare applications for
environmental and planning approvals
Source: Commission analysis.
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
231
Essential Service Commission guidance on connection costs
In addition, Victorian DNSPs are currently subject to guidelines issued by the ESC,
including Electricity Industry Guideline No. 14: Provision of Services by Electricity
Distributors (ESC 2004b) and Electricity Guideline No. 15: Connection of Embedded
Generation (ESC 2004a). These Victoria-specific guidelines were developed to clarify
the connection process and regulate connection charging for distributed generation.
Guidelines No. 14 and 15 regulate pricing aspects of connection agreements between
DNSPs and CAs, including:

the application fee DNSPs can charge embedded generators on lodgement of an
application to connect (Guideline No. 15, cl 2.3). The fee ‘may not be more than
necessary to cover the reasonable costs’ to investigate and prepare the offer to
connect (cl 2.3(b))

the charges under, and other terms and conditions of, connections agreements,
including the principles DNSPs must observe in setting those charges and other
terms and conditions (Guideline No. 15, cl 3)

the payment to embedded generators of a share of DNSPs’ avoided distribution
system costs (Guideline No. 15, cl 4)

the payment to embedded generators of DNSPs’ avoided customer transmission
use of system (TUOS) usage charges (Guideline No. 15, cl 5)

the determination of customer contributions to the capital cost of new works and
augmentations to the network (Guideline No. 14, cl 3).
Electricity Guideline No. 15: Connection of Embedded Generation (ESC 2004a) cl 3.3
requires that connection agreements between Victorian DNSPs and embedded
generators must provide for:

matters contemplated by NER cl 5.5(f):
–
a connection services charge
–
a use of system services charge
–
costs incurred by the DNSP in providing generator access
–
compensation paid by either party where certain network constraints occur

the DNSP to pass through to the embedded generator a share of the DNSP’s
avoided distribution system costs and all of the DNSP’s avoided customer TUOS
charges

embedded generation charges and terms and conditions for DNSP’s embedded
generation services (distribution services and distribution system augmentation) that
are ‘fair and reasonable’:

232
–
may cover the incremental capital costs for the DNSP to bring forward ‘shallow
augmentation’ works — installation of connection assets and any
augmentation up to, and including, the first transformation — to the distribution
network as a result of the embedded generation connection
–
excludes any costs for ‘deep augmentation’ (any augmentation other than
shallow augmentation in respect of embedded generation services)
any ‘fair and reasonable’ compensation payable by the embedded generator for
failing to provide network support services to the DNSP, as and when required.
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Electricity Guideline No. 15: Connection of Embedded Generation (ESC 2004a) also
requires that standard ‘fair and reasonable’ embedded generation charges 5 apply to
small embedded generators6 under small embedded generator standard connection
agreements (cl 3.2).
Connection charging under chapter 5 after the NECF is applied in
Victoria
In the discussion paper Victorian-Specific Regulatory Requirements Under the National
Energy Customer Framework (2011n), DPI concluded that:

with the insertion of chapter 5A into the NER, which provides a detailed negotiation
framework for connection contracts with embedded generators and a connection
charging regime, ‘Chapter 5A will effectively cover the field of regulation covered
by Guideline 15, and the guideline will therefore not be needed under the NECF’

that guidance on determination of customer contributions to the capital cost of
new works and augmentation contained in Guideline No. 14 will be also addressed
in the NECF or through AER guidelines and this guidance will therefore also be
redundant after commencement of the NECF in Victoria.
Cost of connecting distributed generation under chapter 5A
Embedded generators connecting through the retail connection process under NER
chapter 5A are also subject to connection costs. Clause 5A.E.1 contains connection
charge principles and under cl 5A.E.3(a) requires the AER to develop and publish
connection charge guidelines, to assist DNSPs to develop connection policies. NER
chapter 6 Pt DA requires DNSPs to prepare a connection policy that sets out the
circumstances in which they will require a retail customer or real estate developer to
pay a connection charge for the provision of the chapter 5A connection service. A
DNSP’s connection policy must comply with the connection charge principles in cl
5A.E.1 and the AER’s connection charge guidelines. The AER may approve a DNSP’s
connection policy if satisfied that it complies with these two requirements.
Clause 5A.E.3(b) states that the purpose of the AER’s connection charge guidelines is to
ensure that connection charges:

are reasonable, taking into account the efficient costs of providing the connection
services arising from the new or altered connection and the revenue a prudent
operator would require to provide those connection services

provide, without undue administrative cost, a user-pays signal to reflect the efficient
cost of providing the connection services

limit cross-subsidisation of connection costs between different classes (or
subclasses) of retail customer

are competitively neutral, if the connection services are contestable.
In addition, chapter 5A specifies that a DNSP may charge the following fees:
The charge for distribution services and distribution system augmentation required to allow a distribution
system to receive energy from an embedded generator.
5
Defined as embedded generators of 2 kW or less and/or embedded generators that meet Australian
Standard AS4777.
6
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
233

site inspection fee (cl 5A.D.4): DNSPs may charge 'reasonable expenses' if site
inspection is required to determine the nature of the connection service sought

negotiation fee for negotiated connection contracts (cl 5A.C.4(a)): DNSPs may
charge 'a reasonable fee to cover expenses directly and reasonably incurred' in
assessing the connection application and making a connection offer.
Australian Energy Regulator connection charge guidelines
The AER released its final Connection Charge Guidelines for Electricity Retail Customers:
Under chapter 5A of the National Electricity Rules (AER 2012c) in June 2012. Key aspects
of the connection charging regime established under chapter 5A and the Connection
Charge Guidelines are as follows:
Shared network augmentations: retail consumers (other than non-registered
embedded generators or retail developers) who apply for a connection service
requiring an augmentation cannot be required to make a capital contribution to
the cost of the augmentation (other than an extension) if the connection is a basic
connection service or below a threshold set in the DNSP’s connection policy (cl
5A.E.3(c)(4)). It is intended that retail customers should be excluded from deep
system augmentation charges.7

Under the AER Connection Charge Guidelines, a DNSP’s connection policy must
include a shared network augmentation charge threshold or thresholds below
which retail customers will not be required to contribute to the cost of
augmentation. The AER intends that the threshold should be set so that at least
residential customers in an urban area would not be required to contribute to the
cost of an augmentation (AER 2012c, p.8).

Extension assets: retail customers (including non-registered embedded and
micro-embedded generators) are entitled to receive a refund when new users start
using an extension connection asset — that was originally installed and funded for
their exclusive use — within seven years of its installation. DNSPs are entitled to
recover the amount of the refund through a connection charge imposed on new
users of the extension asset under their pioneer scheme (cl 5A.E.1(d)). The
Connection Charge Guidelines require DNSPs to include a pioneer scheme in their
connection policy and publish the details of the scheme on their website (AER
2012c, p.22).

Augmentation assets: DNSPs are required to ‘implement an accounting treatment
which ensures that they do not earn a regulated rate of return’ on assets gifted or
funded by customers (AER 2012c, p.28).
The Connection Charge Guidelines provide that the total connection charge that a CA
will pay to a DNSP will be calculated according to a specific formula (box B.3).
7
See ‘Connection Charge Principles’ note under cl 5A.E.1(b).
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POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Box B.3
Total connection charge under chapter 5A
The charge that connection applicants (CAs) pay to the distribution network service
provider (DNSP) may be made up of multiple connection services and is calculated
in accordance with the following formula:
Connection Charge = AS + CC + PS
Where:

The ‘Connection Charge’ is the charge imposed by a DNSP for a connection
service (a service relating to a new connection and/or connection alternation).

AS is the charge payable to the DNSP for all relevant alternative control
connection services, which are subject to economic regulation by the AER. The
AER classifies a connection as an ‘alternative control service’ where the service
is provided to a small number of identifiable customers on a discretionary or
infrequent basis, and costs can be directly attributed to those customers.

CC is the capital contribution payable to the DNSP for all relevant standard
control connection services. Standard control services are subject to economic
regulation by the AER.

PS is the total payable to the DNSP to account for any pioneer scheme applying
to the extension assets to which the CA connects.
CAs may also be required to pay a security fee to the DNSP.
In determining the total connection charge, a DNSP must:
(1) Determine the charge for each component in a fair and reasonable manner.
(2) Calculate the charge for each component on the least cost technically
acceptable standard necessary for the connection service. However, if the CA
requests all or part of a connection service be performed to a higher standard,
the CA contributes to the additional cost of providing the service to the
standard requested.
Capital Contribution
The amount of any capital contribution is the difference between the incremental
revenue and the incremental cost attributable to the standard control services
required by the CA. Where the capital contribution is less than zero, no capital
contribution is payable by DNSP or CA.
The capital contribution (CC) is calculated according to the following formula:
CC = ICCS + ICSN – IR (n=X
Where:

CC is the capital contribution for standard control services.

ICCS are the incremental costs incurred by the DNSP for standard control
connection services used solely by the CA. This may include extensions and
augmentation of premises connection assets at the connection point.

ICSN are the costs incurred by the DNSP for standard control connection
services that are not used solely by the CA. This may include any augmentation
(other than an extension) attributable to the new connection.

IR (n=X) is the incremental revenue expected to be received from the new
connection — the present value of the revenue stream directly attributable to
the new connection.
Source: (AER 2012c, pp.10–11, 14–15).
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
235
Connection charging for embedded generation retail customers
In relation to embedded generation, the Connection Charge Guidelines for Electricity
Retail Customers: Under chapter 5A of the National Electricity Rules (AER 2012c)
provide:

Augmentation costs — retail customers who are non-registered embedded
generators are not eligible for the exemption from augmentation charges under cl
5A.E.1(b)(2) and 5A.E.3(c)(4) (cl 7.1.1).

Negotiated or unclassified distribution services — the connection charge for
components of an embedded generator connection that are classified by the AER
as ‘negotiated distribution services’ or which are unclassified 8 are negotiated
between the DNSP and CA (cl 7.1.2).

Alternative control services — the cost of components of an embedded generator
connection service classified by the AER as an ‘alternative control service’ are
regulated by the AER (cl 7.1.3).

Standard control services — DNSPs may seek a capital contribution from an
embedded generator if the incremental cost of the standard control connection
services exceeds the estimated incremental revenue expected to be derived from
standard control connection services (cl 7.1.4) (AER 2012c, p.24).
In addition, the Connection Charge Guidelines state:
Non-registered embedded generators which seek to remove a specific
network constraint, will generally be required to pay for the cost of
removing the constraint. The AER considers services related to removing
shared network constraints for specific users, such as embedded
generators, would generally be an alternative control service, negotiated
service or unclassified service. However, a DNSP’s normal asset
management may lead to a DNSP funding such shared network
augmentation if there is a demonstrable net benefit to other network users.
Non-registered embedded generators will not be charged a unit rate for
shared network augmentation (based on the generation output). (AER
2012c, p.24)
Connection charging under chapter 5A after the NECF is applied in
Victoria
Both ESC Guidelines No. 14 and 15 and the AER’s Connection Charge Guidelines
require that embedded generator connection charges are ‘fair and reasonable’,
although there are subtle differences. The major difference is that under NER chapter
5A connection charging framework embedded generators will be liable for deep
augmentation costs. Currently under ESC Guideline No. 15 cl 3.3.2, embedded
generators are only liable for shallow connection costs of network augmentation and
cannot be charged for deep augmentation costs.
The Joint Implementation Group responsible for coordinating the implementation of the
NECF has advised that each jurisdiction will institute transitional arrangements to ensure
smooth implementation of the NECF. This will include transition to the connection
charging regime under chapter 5A of the NER (JIG 2012a, p.2). An interim connection
charging regime under the NER chapter 11 modifies the operation of chapter 5A, so
8
‘Unclassified services’ are not subject to economic regulation by the AER.
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POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
that it does not conflict with jurisdictional electricity distribution price determinations. It is
anticipated that the AER’s Connection Charge Guidelines will be implemented when
DNSPs submit their connection policies as part of each DNSP’s next distribution pricing
proposal. Jurisdictional capital contribution rules will remain in place for each
jurisdiction’s current regulatory control period, after which the connection charging
framework under chapter 5A will apply (AER 2012d, p.13). As such, cl 38 of the National
Energy Retail Law (Victoria) Bill 2012 provides that, in the interim connection charging
rules period (until 31 December 2015), transitional connection charging rules under
chapter 11 of the NER will apply instead of chapter 5A (Explanatory Memorandum
2012, p.12). Chapter 5A and the interim connection charging regime in Chapter 11 of
the NER will only commence in Victoria when the NECF is applied in Victoria.
Distribution planning and reporting
DNSPs are required to consider the impacts of connecting distributed generation as
part of their distribution network planning. The national network planning and
development framework is supplemented by State-based planning and reporting
regulatory arrangements, which vary among jurisdictions (AEMC 2009d, pp.107–111;
AEMC 2011c, p.5). On 14 June 2012, the AEMC published a draft rule determination
and draft rule in response to a rule change request to amend the NER and establish a
national annual distribution network planning and reporting framework (AEMC 2012d).9
The draft rule determination is discussed in chapter 5 of this report.
The current distribution planning arrangements are as follows:

Chapter 5 of the NER requires that each DNSP review annually the expected future
operation of its distribution networks over the next five years, taking into account
forecast loads, future generation and market network services, and demand side
developments (cl 5.6.2(a) and (d)). The NER does not require that DNSPs publish
periodic planning reports (AEMC 2011c, p.5).

In Victoria, the Electricity Distribution Code (ESC 2012a) requires that DNSPs publish
annual distribution system planning reports (DSPRs) that plan for the next five
calendar years (cl 3.5). A DSPR must cover:

–
historical and forecast demand
–
feasible options for meeting forecast demand, such as opportunities for
embedded generation and demand management
–
availability of contributions from the DNSP to embedded generators to reduce
forecast demand and defer or avoid augmentation of the distribution system.
The EI Act s 40FJ requires that, as a licence condition, licensed DNSPs must regularly
report10 to the Minister for Energy and Resources on:
–
the number of solar photovoltaic (PV) systems connected to the distribution
network operated by the licensee
–
the aggregate generating capacity of solar PV systems connected to the
distribution network operated by the licensee
9
See
the
AEMC’s
Distribution
Network
Planning
and
Expansion
Framework
website:
http://www.aemc.gov.au/Electricity/Rule-changes/Open/Distribution-Network-Planning-and-ExpansionFramework.html
10
On a six monthly basis for solar PV systems eligible for the premium feed-in tariff and on a monthly basis for
solar PV systems eligible for the transitional feed-in tariff. Feed-in tariffs are discussed is section B.4.2.
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
237
–
the total amount of surplus electricity generated by solar PV systems conveyed
along the distribution network operated by the licensee.
When the NECF commences in Victoria, the reporting requirement in the Electricity
Distribution Code (ESC 2012a) will become a licence condition. This will ensure that
DSPRs continue to be completed by DNSPs until the AEMC’s rule change process
regarding a national reporting framework has been completed. Should the AEMC’s rule
change commence before the NECF is applied in Victoria, the retention of the
reporting requirement in the distribution licences may not be required. These distribution
planning and reporting obligations mean that DNSPs must consider, plan for,
accommodate and monitor the effects of distributed generators connecting to, and
sending surplus electricity generated into, the distribution grid.
B.4
Selling electricity generated
B.4.1
National regulation governing selling
Under the NER, there are currently two options for distributed generators wishing to sell
electricity exported to the distribution grid:
(1) registered distributed generators can sell through the NEM at spot prices
(2) registered ‘non-market’ generating units and generating systems exempt from
registration can sell through a private bilateral agreement outside of the NEM
(generally for an agreed fixed price) to a local retailer or customer located at the
same connection point.
Market generators and non-market generators
As noted in section B.3.1, distributed generators wishing to connect under chapter 5 of
the NER are required to be registered with AEMO, unless an exemption from registration
applies (cl 2.2.1 NER). Registration as a ‘market generator’ is required to sell electricity
through the NEM.
Registered generating units must be classified as either ‘market’ or ‘non-market’
generating units (cl 2.2.1(f)). These classifications impose important restrictions on selling
surplus electricity generated and exported to the grid.

Market generating unit (cl 2.2.4) — a generating unit whose sent out electricity is
not purchased entirely by the local retailer or a customer located at the same
connection point.

Non-market generating unit (cl 2.2.5) — a generating unit whose sent out electricity
is purchased entirely by the local retailer or a customer located at the same
connection point.
A registered generator may have both ‘market’ and ‘non-market’ generating units
within the generating system that it owns, operates or controls (AEMO 2010b, p.7). A
registered generator is taken to be a ‘market generator’ in relation to its ‘market’
generating units, and a ‘non-market generator’ in relation to its ‘non-market’
generating units.

238
Market generator — must sell all sent out electricity through the spot market and
accept payments from AEMO at the spot prices applicable to its connection point.
A ‘connection point’ is the agreed point of supply established between a DNSP
and distributed generator.
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION

Non-market generator — is not entitled to receive payment from AEMO for sent out
electricity, except for any compensation as a directed or affected participant (as
a consequence of a direction from AEMO under cl 4.8.9(a1)(1)).11
Non-market generators can sell sent out electricity through a private bilateral
agreement outside of the NEM, for a (usually fixed) price agreed between the
non-market generator and a local retailer or customer located at the same
connection point. All of a non-market generator’s sent out electricity must be
purchased in this way.
In Appendix 6: Guideline on Exemption from Registration as a Generator of the NEM
Generator Registration Guide (2010b), AEMO advises that:
Clause 2.2.4(a) of the Rules [NER] states that a generating unit whose sent
out generation is not purchased in its entirety by the Local Retailer or by a
Customer located at the same connection point must be classified as a
market generating unit.
This requirement applies regardless of the size of a generating unit.
One consequence of this requirement is that, where a person, who would
otherwise be eligible for exemption from the requirement to register as a
Generator, wishes to receive payment for electricity generated by their
generating unit through the NEM, they must apply to AEMO for registration
as a Market Generator and its generating unit must be classified as a
market generating unit. (AEMO 2010b, p.35)
Small generation aggregators
In the future, there may be a third selling option under national regulation for distributed
generators wishing to sell surplus electricity generated through the NEM. Currently, the
NER provides for the registration of intermediaries where a generating system involves
multiple parties in ownership, control and operator roles (cl 2.9.3). Generators ordinarily
required to register as a ‘market generator’ can apply to AEMO for an exemption on
the basis that they have nominated another party to act as their intermediary.
However, the intermediary will need to apply to AEMO for registration as a generator
and each generating unit it is acting for will need to apply for an exemption from
registration under cl 2.9.3, incurring fees each time. AEMO will only allow an
intermediary exemption if the intermediary satisfies that, from a technical perspective, it
can be treated as a CA with respect to the generating system (AEMO 2010b, p.2).
However, where the ownership of generating units within a generating system is split,
each generating unit must be registered separately as a market generating unit to sell
through the NEM (AEMO 2010b, p.2; AEMC 2012c, p.2).
On 22 December 2011, AEMO proposed a rule change to the AEMC to introduce a
new category of market participant into the NER called a 'small generation
aggregator'. AEMC released a draft rule determination on the rule change request on 5
July 2012.12 Under the proposed rule change, small generation aggregators will only
have to register once with AEMO. A small generation aggregator will have market
responsibility for the participation of multiple generating units in the NEM. Separate
11
See Appendix 4: AEMO’s Policy on Registration as a Non-Market Generator of the NEM Generator
Registration Guide for the conditions that apply to registration as a non-market generator (AEMO 2010b,
pp.25–26).
12
See the AEMC’s Small Generation Aggregator Framework website:
http://www.aemc.gov.au/electricity/rule-changes/open/small-generation-aggregator-framework.html
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
239
registration of each of the generating units will not be required, significantly reducing
costs and improving access to the market. This will allow aggregated generators to
more easily enter and sell in the NEM (AEMC 2012c, pp.1–5). AEMO’s draft rule
determination broadly reflects the rule change requested by AEMO. The key difference
between the proposed rule change and the draft rule is the structure of the new entity
within the NER. AEMO proposed that the small generation aggregator is both a
registered participant and a market participant. AEMC proposes that a distinction
between these categories of participant should be maintained and the draft rule
creates a new registered participant the small generation aggregator (SGA), and a
new market participant (MSGA) (AEMC 2012g). The AEMC notes that ‘this distinction
does not change the practical operation of the framework and it is likely that all SGAs
will also be an MSGA’ (AEMC 2012g, p.2). As registered participants, SGAs would be
ineligible to connect through NER chapter 5A and would be required to connect to the
distribution network through the chapter 5 process.
Network exemptions
Under the NER, any party that engages in an electricity transmission or distribution
activity must either be registered with AEMO as a network service provider (NSP) or
exempted from registration by AER. The AER’s Electricity Network Service Provider
Registration Exemption Guide (AER 2011e) governs the process for applicants seeking
an exemption to allow them to operate a privately owned embedded or exempt
network (a ‘private network’).
The Guideline defines a ‘private network’ as ‘any network for the supply of electrical
energy to a third party, but not a transmission or distribution network registered with the
Australian Energy Market Operator (AEMO)’ (AER 2011e, p.8). The AER advises that:
The types of networks covered by the network Guideline include situations
where electricity supply is incidental to the main purpose of a business, such
as networks within caravan parks, apartments, industrial parks and shopping
centres. It also deals with a wide range of industrial, commercial and
primary production situations. The AER’s network Guideline sets out the
AER’s approach to network exemptions, including a full list of the types of
activities which are exempt from the requirement to register as a network
service provider.
A network exemption can relieve you of the requirement to comply with
certain technical requirements set out in Chapter 5 of the NER, and the
obligation to provide other network users with access on demand to the
network. (AER 2012e)
There are three types of network exemptions: deemed, registrable and individual. The
AER maintains an online public register of NSP exemption applications approved by the
AER (AER 2012g).
Retailer authorisations and exemptions
Retailer authorisations
When the NECF is applied in Victoria, Victorian electricity retailers will be regulated by a
retailer authorisation and exemption regime, administered by the AER. Under this
framework, sellers of electricity are required to have a retailer authorisation or be
exempt from the requirement to be authorised (NERL, cl 88). Under cl 119 of the NERL,
the AER maintains a public register of authorised retailers and exempt sellers. The public
register is available on the AER website.
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Clause 90 of the NERL sets out three entry criteria that an applicant must satisfy to
obtain a retailer authorisation:

organisational and technical capacity — the applicant must have the necessary
organisational and technical capacity to meet the obligations of a retailer

financial resources — the applicant must have resources or access to resources so
that it will have the financial viability and financial capacity to meet the obligations
of a retailer

suitability — the applicant must be a suitable person to hold a retailer authorisation
(AER 2012b).
The AER has published a Retailer Authorisation Guideline (AER 2011i), which sets out its
approach to applying the above retail entry criteria. The Guideline also addresses the
transfer, surrender or revocation of a retailer authorisation.
Retail exemptions
The AER has published an Exempt Selling Guideline (2011f), which sets out its approach
to retail exemptions and the types of available exemptions: deemed, registrable and
individual exemptions. The AER may grant a retail exemption subject to specific
conditions.
Retail exemptions commonly apply to situations where electricity is being ‘onsold’:
Electricity onselling, also known as reselling, occurs where a person (the
exempt person) makes arrangements to acquire energy from an authorised
retailer and then onsells that energy to persons who are within the limits of
an embedded distribution network (being a network that is connected to
the main distribution network through a single connection point).
Examples of embedded networks where onselling occurs are shopping
centre complexes, caravan parks and retirement villages. Potential
applicants for exemptions are therefore likely to include the owners and
operators of these sites. Other likely onsellers include bodies corporate and
landlords of rooming houses. (AER 2011f, pp.2–3)
Under the NERL, the AER must consider a number of policy principles (including choice
of retailer) and may consider exempt seller characteristics and customer related
factors, in determining retail exemptions (cl 114(2)).
The AER considers that exempt selling is often not in the long term interests
of customers. We have seen particular growth in onselling within high
density residential developments such as apartment buildings. We do not
want onselling to be a motivating factor for developers in deciding how
these developments are structured… The most effective way of affording
customers the right to a choice of retailer is to ensure that network
configuration and metering arrangements for new developments and
redevelopments facilitate customer choice of retailer going forward. (AER
2011f, pp.3, 8)
The Exempt Selling Guideline (AER 2011f) advises that decentralised energy (including
onsite co-generation and tri-generation) will be treated as an ‘exempt seller
characteristic’ and on-site distributed generators will need to apply for an individual
retail exemption on a case-by-case basis. The Guideline states that the AER ‘will grant
exemptions in these situations where the initiative is in the long term interests of energy
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
241
consumers having regard to all of the criteria and factors we are required to assess’
(AER 2011f, p.17).
Private embedded networks
When the NECF is applied in Victoria, distributed generators who wish to onsell their
generation in a private embedded network will usually need to obtain both a retail
exemption and a network exemption. The AER has a common application process for
both types of exemption (AER 2012e).
B.4.2
Victorian regulation governing selling
Licensing
The Victorian electricity industry is regulated through a licensing regime established
under Pt 2 of the EI Act and administered by the ESC. DPI noted that:
The licensing regime has also been utilised directly by Government as an
instrument to deliver on specific policies, placing statutory obligations on
licensed businesses while bringing compliance with those obligations into
the purview of the regulator. (DPI 2011m)
The licensing regime has a diverse range of functions, including:

limiting entry to the energy sector

imposing regulatory obligations on licensed businesses

imposing statutory obligations on licensed businesses

prohibiting cross-ownership between licensed businesses of different types

identifying energy businesses that may exercise special statutory powers

requiring exit from the energy sector (revocation)

funding regulatory activities (DPI 2011m).
Restrictions on selling electricity
The EI Act prohibits a person from generating electricity for supply or sale unless that
person has a license or is exempt from the requirement to hold a license (s 16(1)). Under
s 17 of the EI Act, the Governor in Council can make an Order in Council exempting a
person from the requirement to obtain a licence. An Exemption Order came into effect
on 1 May 2002 (ESC nd, p.1). Exemptions available include:

generators connected to the transmission or distribution network at a common
connection point with a capacity of less than 30 MW

the intermediary distribution and supply of electricity to a short term resident, long
term resident, small business customer or large business customer within the limits of
the premises owned or occupied by the person engaging in that activity

the metered intermediary sale of electricity within the limits of the premises owned
or occupied by the person engaging in that activity (Order in Council 2002; ESC
nd, p.1).
A licence exemption automatically applies to any person who falls within the classes of
exempt activity specified in the Exemption Order, provided they continue to comply
with the relevant exemption obligations set out in the Exemption Order (ESC nd, p.1).
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The ESC is empowered by cl 5 of the Exemption Order to issue certificates of opinion
where it considers that a particular activity does or does not constitute:

the intermediary distribution or supply of electricity, or

the metered intermediary sale of electricity, and

if it does so, that activity does or does not, as applicable, constitute the
intermediary distribution or supply of electricity or the metered intermediary sale of
electricity for the purposes of the Exemption Order.
The ESC made a policy decision in 2011 to cease issuing these certificates, due to
confusion regarding their regulatory status (ESC 2011c).
Licensing after commencement of the NECF
The commencement of the NECF will introduce a national retailer authorisation
scheme, designed to replace the jurisdictional licensing schemes for energy retailing
currently in place in states and territories. In an issues paper discussing Victorian
licensing arrangements under the NECF, DPI has stated that:
It is assumed in this paper that commencement of the NERL in the retail
sector will see the complete removal of any requirement for a retailer to
maintain a Victorian retail licence to sell energy in Victoria.
On the other hand, there is no proposed replacement scheme for the
authorisation of distribution, transmission or generation activities at the
national level beyond what is already provided by market registration
requirements…. Therefore, from the point of view of applying the NECF
alone, no licensing regime is necessary. (DPI 2011m)
DPI has concluded that although the NERL includes a retailer authorisation and exempt
selling process, ‘small scale’ generators who sell surplus electricity into the distribution
grid are not catered for under the national framework. As such, a Victoria specific
regime, regulated by the ESC, will continue to govern distribution licensing in Victoria.
DPI has noted its ‘concern that there is a high degree of regulatory fragmentation in
the area of licensing, authorisation and exemptions’ and that it will ‘investigate
appropriate ways for rationalising this structure in the future’ (DPI 2011m; DPI 2011l). The
Commission has been advised by DPI that the Exemption Order (in an amended form)
will also continue to exempt generators of less than 30 MW capacity from the need to
obtain a generation licence.
B.4.3
Victorian feed-in tariff schemes
In Victoria, certain distributed generators connected to the distribution network are
able to sell surplus electricity generated into the distribution grid through FiT schemes
under Division 5A of the EI Act.
There are currently three FiT schemes operating in Victoria:
(1) Premium feed-in tariff (PFiT): commenced on 1 November 2009 and ended on 29
December 2011 (the declared scheme capacity day). The PFiT scheme is now
closed to new applicants. However, generators participating in the PFiT scheme
before the declared scheme capacity day can continue to participate for the 15
year duration of the scheme (until 31 October 2024).
(2) Transitional feed-in-tariff (TFiT): commenced on 1 January 2012 and is currently open
to new applicants. The TFIT scheme will run for 5 years from its commencement
date until 31 December 2016. The scheme can, however, be closed to new
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
243
applicants once certain discretionary trigger points are reached. The Minister for
Energy and Resources may declare a TFiT scheme end day if any of the following
occur:
–
the aggregate generating capacity cap of 75 MW of installed scheme
generating capacity is met
–
the average cost per customer of electricity per year arising out of the
operation of the TFiT scheme is $5 or more
–
the Minister considers it appropriate to do so (s 40FEA, EI Act).
(3) Standard feed-in-tariff (SFiT): open to new applicants. The SFiT was initially
introduced in 2004 for wind energy generators and was extended to other forms of
small-scale renewable energy in 2007 (Batchelor 2007). Unlike the PFiT and TFiT
schemes, there is no end date.
Funding of feed-in tariff schemes
In Victoria, to ensure that the customer is paid (in the form of a credit as a statutory
minimum) for any surplus generation exported to the distribution grid, the PFiT and TFiT
schemes are funded by a DNSP ‘pass through’ model. Under this arrangement,
Victorian DNSPs apply the appropriate FiT rebates to licensed electricity retailers’
network bills that, in turn, apply the credits to eligible FiT customers’ bills. The AER
regulates the distribution charge that licensed retailers pay the DNSP. The AER allows for
the costs associated with the PFiT and TFiT schemes when approving the annual
distribution network tariffs applied to retail customers’ network bills. The recovery of
costs is underpinned by various national and Victorian regulatory instruments, including:

NEL cl 2D(1)(b)(iv), 7A(2)(b) and 14B

distribution determinations by the AER under NER chapter 6 Part E, in particular cl
6.12.1(14)

distribution pricing rules under NER chapter 6 Part I, in particular cl 6.18.7A

Victorian Electricity Distribution Network Service Providers, Distribution Determination
2011–2015, Final Decision (AER 2010d), chapter 16 — Cost Pass Throughs

National Electricity (Victoria) Act 2005 (Vic) (‘National Electricity (Victoria) Law’) ss
16A and 16AB

EI Act ss 40FI and 40FH.
Distribution licence condition to credit retailers for PFIT and TFiT
generation
Victorian electricity retailers and DNSPs are required — in the form of a distribution and
retail licence conditions — to enter into ‘Use of System Agreements’. Licensed retailers
must have a Use of System Agreement with each DNSP in whose distribution area the
supply point of any customer of the retailer is located. The EI Act s 40FH states that it is a
deemed Victorian distribution licence condition that Use of System Agreements include
a condition that the DNSPs apply PFiT and TFiT credits — 60c and 25c per kWh
respectively — to the relevant licensed retailer for PFiT and TFiT scheme generation
conveyed along the distribution network in the DNSP’s distribution area.
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DNSP cost recovery for PFIT, TFiT and SFiT schemes
In addition, the Revenue and Pricing Principles contained in the NEL cl 7A(2)(b) state
that DNSPS ‘should be provided with a reasonable opportunity to recover at least the
efficient costs the operator [DNSP] incurs in… complying with a regulatory obligation’.
The National Electricity (Victoria) Law s 16A deems that the PFiT and TFiT credit
obligation imposed on Victorian DNSPs under the EI Act s 40FH is a regulatory obligation
under the NEL.
Under the NER cl 6.18.2, Victorian DNSPs must submit pricing proposals to the AER for
each year of the regulatory control period, and the NER and National Electricity
(Victoria) Law require that a DNSP’s pricing proposal must provide for tariffs designed to
pass on to customers the DNSP’s costs for participating in the PFiT and TFiT schemes. NER
cl 6.18.7A(b) states:
The amount to be passed on to customers for a particular regulatory year
must not exceed the estimated amount of jurisdictional scheme amounts
for a Distribution Network Service Provider's approved jurisdictional schemes
adjusted for over or under recovery …
The PFiT and TFiT schemes under the EI Act are jurisdictional schemes for the purposes of
the NER. Victorian DNSPs are therefore able to recover the costs associated with the
PFiT and TFiT schemes from all their customers through approved annual network tariffs
applied to customers’ network bills. The increased network tariffs are then reflected in
an increased retail energy price that Victorian retailers charge all Victorian electricity
consumers, resulting in a cross subsidy.
The SFiT scheme is funded differently to the PFiT and TFiT schemes. Under the EI Act,
licensed retailers with more than 5000 customers are required to fund the SFiT scheme,
by paying or crediting the SFiT customer for generation exported to the distribution grid
(DPI nd, p.1). As a consequence, retailers presumably fund SFiT payments by smearing
the costs across their retail customer base, again resulting in a cross subsidy. There is no
regulated or standard process for how Victorian retailers must fund the SFiT scheme.
Premium feed-in tariff scheme
Eligibility
All licensed retailers with more than 5000 customers were required to offer a PFiT to
qualifying customers. Licensed retailers with 5000 or less customers could choose to
offer a PFiT to qualifying customers. Note that the PFiT scheme closed to new applicants
on 29 December 2011. A ‘qualifying customer’:

purchases electricity from a licensed retailer, and

engages in the generation of electricity using a solar PV system with a capacity of
5kW or less connected to the distribution network, and

for householders: is claiming only one solar PV system on a property that is a
principal place of residence, or

for persons that occupy one or more properties (other than as a place of
residence):

–
is claiming only one solar PV system at each of those properties, and
–
the person's annual consumption rate of electricity is 100 MWh or less, and
has been exempted by Order under s 17 from the requirement to hold a licence in
respect of the generation of electricity for supply and sale, and
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
245
has net metering in place.

Price, terms and conditions
The PFiT is prescribed as not less than 60 cents per kWh credit for surplus electricity fed
into the grid (s 40FA(2)(a) of the EI Act). In certain circumstances, retailers can
extinguish excess PFiT credits that have accrued and are older than 12 months (DPI
2012c).13 A PFiT offer must comply with statutory minimum terms and conditions. Other
terms and conditions of a PFiT offer must be ‘fair and reasonable’. A number of
electricity retailers have offered a ‘top-up’ over and above the statutory minimum rate.
Transitional feed-in tariff scheme
Eligibility
All licensed retailers with more than 5000 customers must offer a TFiT to eligible
customers (‘TFiT scheme customers’). Licensed retailers with 5000 or less customers may
choose to offer a TFiT to TFiT scheme customers. A ‘TFiT scheme customer’:

purchases electricity from a licensed retailer, and

engages in the generation of electricity using a solar PV system with a capacity of
5kW or less connected to the distribution network on or after 1 January 2012, and

for householders: is only claiming one solar PV system on a property that is a
principal place of residence, or

for persons that occupy one or more properties (other than as a place of
residence):
–
is only claiming one solar PV system at each of those properties, and
–
the person's annual consumption rate of electricity is 100 MWh or less, and

has been exempted by Order under s 17 from the requirement to hold a licence in
respect of the generation of electricity for supply and sale, and

has net metering in place.
Price, terms and conditions
The TFiT is prescribed as not less than 25 cents per kWh credit for surplus electricity fed
into the grid (s 40FAB(2)(a) of the EI Act). In certain circumstances, retailers can
extinguish excess TFiT credits that have accrued and are older than 12 months (DPI
2012c).14 A TFiT offer must comply with statutory minimum terms and conditions. Other
terms and conditions of a TFiT offer must be ‘fair and reasonable’. A number of
electricity retailers have offered a ‘top-up’ over and above the statutory minimum rate.
Standard feed-in tariff scheme
Eligibility
All licensed retailers with more than 5000 customers must offer a SFiT to relevant
generators. A ‘relevant generator’ is:
13
See EI Act s 40FA(2)(d).
14
See EI Act s 40FAB(2)(d).
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
a generation company, or

a person engaging in the generation of electricity that has been exempted by
Order under s 17 from the requirement to hold a licence in respect of the
generation of electricity for supply and sale, and

engages in the generation of electricity using a small renewable energy generation
facility connected to the distribution network, with a capacity of less than 100 kW,
defined as:
–
solar, wind, hydro and biomass generating facilities
–
other forms of small renewable energy specified in an Order in Council
published in the Government Gazette. The Commission understands that the
power to extend the definition of ‘small renewable energy generation facility’
has not yet been used.
The SFiT specifically excludes:

energy created from the combustion of fossil fuels, or materials or waste products
derived from fossil fuels, and

since the commencement of the TFiT scheme, solar PV systems with a capacity of
5 kW or less, connected to the distribution system.
Price, terms and conditions
Unlike the PFiT and TFiT schemes, the SFiT price is not prescribed by the EI Act and each
licensed retailer has discretion to set its own tariff price. However, the EI Act requires
that the SFiT price and associated terms and conditions must be ‘fair and reasonable’
(s 40FB). The ESC has interpreted a ‘fair and reasonable’ price to mean that the rate
offered to the customer must be not less than the rate the customer pays to buy
electricity from the retailer (box B.4). Similarly, DPI’s website states that SFiT customers
receive a ‘“one-for-one” payment rate for any excess electricity they feed back into
the state’s electricity grid’ (DPI 2011d).
Although not mandated by legislation, DPI’s website also advises that:
The Standard Feed-in Tariff’s threshold is not designed for system installations
where the generating capacity is significantly disproportionate to the
actual energy used.
This does not mean that the maximum system capacity must be in use at all
times, although the entire capacity should be required for a significant
portion of the year to offset your energy consumption. (DPI 2011d)
Obligation on licensed retailers to publish feed-in tariff offers
As discussed above, the EI Act regulates the electricity industry in Victoria through a
licensing regime that, amongst other things, imposes statutory obligations on licensed
businesses. This includes imposing a licence condition on electricity retailers to publish
FiT terms and conditions online. The EI Act requires that FiT offer information on licensed
retailers’ websites must be kept up-to-date (ss 40N, 40NA and 40NB) but does not
provide any guidance on how this information must be presented. 15
15
Note that the obligation on licensed electricity retailers to publish tariffs and terms and conditions of sale
under ESC Guideline No. 19: Energy Price and Product Disclosure (2009c) — currently under review — does
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
247

Licensed retailers that sell electricity to more than 5000 customers (‘relevant
licensees’) must publish the terms and conditions of their PFiT, TFiT and SFiT offers
(ss 40FF and 40G).

Licensed retailers that sell electricity to 5000 or less customers (‘small retail
licensees’) and choose to offer a PFiT and/or TFiT, must publish the terms and
conditions of their PTiT and/or TFiT offers. If a small retail licensee decides to no
longer purchase electricity through a PFiT and/or TFiT scheme, it may publish a
notice in the Government Gazette to that effect. The small retail licensee’s
obligations under the PFiT and/or TFiT scheme will cease on the day such a notice is
published (s 40FG).
The terms and conditions of FiT offers take effect two months after publication, unless
they are referred to the ESC for assessment (s 40H). The criteria considered by the ESC in
assessing whether a FiT offer is ‘fair and reasonable’ effectively prescribe the matters
that should be included in a fair and reasonable offer published by licensed retailers.
The role of the ESC is discussed below. The EI Act also sets minimum terms and
conditions for PFiT and TFiT offers (ss 40FA and 40FAB). These statutory conditions form
the required minimum content of a published offer.
Electricity pricing information requirements
In addition to the obligation on Victorian electricity retailers to publish FiT offer terms
and conditions, retailers are subject to pricing information requirements in ESC Codes
and Guidelines. These Codes and Guidelines only apply to retail supply contracts. They
include:

information provisions of the Energy Retail Code (ESC 2012b, pp.34–35)

Code of Conduct for Marketing Retail Energy in Victoria (ESC 2009a, pp.6–8)

internet publication requirements under Guideline 19: Energy Price and Product
Disclosure (ESC 2009b) and the EI Act ss 35B, 35C and 36A.
In addition, the ESC maintains a price comparator website ‘YourChoice’ that allows
customers to compare standing and market offers of Victorian electricity retailers.16 At
this stage, YourChoice is limited to comparing retail contract offers for supply. It does
not currently have the functionality to compare FiT offers.
Role of the Essential Services Commission
The EI Act provides that the Minister for Energy and Resources may refer matters to the
ESC for assessment if the Minister considers that the terms and conditions of a licensed
retailer’s FiT offers may not be ‘fair and reasonable’ (s 40I(1)(a)):

for licensed retailers that have published their FiT terms and conditions — the
referral must be before the PFiT, TFiT and SFiT terms and conditions take effect
(published terms and conditions take effect two months after publication)

for licensed retailers that have failed to publish the their FiT terms and conditions as
required — the referral may be at any time.
not extend to feed-in tariff offers. See Guideline 19: Energy Price and Product Disclosure – Issues Paper (ESC
2011b).
16
See: http://www.yourchoice.vic.gov.au.
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The ESC must assess the referred terms and conditions as to whether they are fair and
reasonable and report to the Minister on its assessment (s 40J(1)). The ESC can
recommend (in the case of published retail FiT offers) or determine (in the case of retail
FiT offers that have not been published):

Any terms and conditions of a licensed retailer’s PFiT and TFiT scheme — apart from
the statutory minimum conditions which are not reviewable — are not ‘fair and
reasonable’, and recommend or determine alternative terms and conditions. The
recommended or determined terms and conditions must be consistent with the
statutory minimum conditions.

Any prices, terms and conditions of a licensed retailer’s SFiT scheme are not ‘fair and
reasonable’, and recommend or determine alternative prices, terms and conditions (ss
40J and 40L).
On receipt of such a report from the ESC, the Minister may declare (by notice published
in the Government Gazette) that the ESC recommended or determined PFiT, TFiT or SFiT
terms and conditions apply to the licensed retailer named in the declaration (ss40M,
40MA and 40MAB). A small number of referrals have been made under this
mechanism.17 The meaning of ‘fair and reasonable’ is discussed in box B.4.
Box B.4
Fair and reasonable feed-in tariff offers
The Department of Primary Industries (DPI) has published criteria for assessing whether
feed-in tariff (FiT) offers are ‘fair and reasonable’. The DPI criteria outline the rights and
obligations of customers and licensed retailers that must be included for a FiT offer to
be ‘fair and reasonable’. The DPI criteria require that an offer must, among other things:

require that the retailer will pay or credit the customer, for electricity supplied under
a FiT contract, at a rate not less than the rate the customer pays to buy electricity
from the retailer

require the FiT will be credited with the same frequency as the customer is billed
and address billing arrangements

outline how the FiT credit will be calculated based on a reading of the customer’s
meter

state all additional costs related to the FiT contract

provide for each parties’ rights and obligations in relation to under and
overpayment of the FiT credit

cover variation and termination of the FiT contract.
In a guidance paper Methodology for Assessment of Fair and Reasonable Feed-in
Tariffs and Terms and Conditions (2008), the Essential Services Commission (ESC)
outlined its approach to evaluating FiT offers referred for assessment under s 40I of the
Electricity Industry Act 2000 (Vic). The ESC has clarified that it will apply the DPI criteria,
plus the following additional criteria, when assessing the fairness and reasonableness of
the terms and conditions of referred retailers’ FiT offers.
17
See the ESC website: esc.vic.gov.au.
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249
Box B.4
Fair and reasonable feed-in tariff offers (cont)
(1) Cost of service provision — any charge and terms and conditions imposed under FiT
offers must be based on the reasonable costs that the retailer incurs in providing
goods or services to small renewable energy generators in relation to the purchase
of energy from such generators.
(2) Cost allocation — the costs that a retailer incurs in accepting supply from a small
renewable generator must not include costs not associated with accepting that
supply and only include an appropriate allocation of any common costs incurred
by the retailer in accepting that supply and in providing any other goods or
services in relation to that supply.
(3) Cost differentials — a retailer’s FiT offer terms and conditions must be the same for
all small renewable energy generators unless there is a material difference in the
cost of accepting supply from and providing associated goods and/or services to
different small renewable energy generators or classes of small renewable energy
generators.
(4) Simplicity — the charges and terms and conditions for the FiT should be simple and
easy to understand.
Source: (ESC 2008, pp.8–12).
Regulation of feed-in tariff schemes after commencement of the NECF
Once the NECF commences in Victoria, the regulation of electricity retailers will be
governed by a national regime and the Victorian retail licensing regime will be
repealed. Current retail licence conditions relating to FiTs will continue to operate
unaffected in a practical sense, as they will be enforced as direct statutory
requirements under the EI Act instead of licence conditions. The National Energy Retail
Law (Victoria) Bill 2012 proposes consequential amendments to the FiT provisions of the
EI Act to reflect the repeal of electricity retail licensing. The Explanatory Memorandum
states:
Currently, the requirement for retailers to comply with the feed-in tariff
schemes is linked to their licences. The effect of the amendments made by
this clause [75], and by clauses 76 to 95, is to create a direct statutory
obligation for retailers to comply instead of the current deemed licence
condition. (Explanatory Memorandum 2012, p.18)
This means that under an amended EI Act:

the FiT scheme provisions — including the eligibility criteria, price, terms and
conditions — will be unchanged

electricity retailers will still be obliged to publish on their websites, and keep
up-to-date, their FiT offer terms and conditions

the ESC will continue to assess whether referred FiT offers are ‘fair and reasonable’.
Publication of feed-in tariff information after commencement of the NECF
After the commencement of the NECF in Victoria, there will be extra obligations on
Victorian electricity retailers to publish pricing information.

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The AER’s ‘Energy Made Easy’ price comparator website became operational for
Tasmanian and ACT energy consumers on 1 July 2012, as part of the retail pricing
information requirements under the NERL (AER 2012f, p.5). Division 11 of the NERL
also requires the AER to publish retail pricing information guidelines. Version 3.0 of
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the AER Retail Pricing Information Guideline (AER 2012a) was released in June 2012.
Victorian electricity retailers will be subject to the AER Retail Pricing Information
Guideline once Victoria applies the NECF. The Guideline aims:
… to assist small customers in readily comparing standing offer prices and
market offer prices offered by retailers, by specifying the manner and form
in which details of standing offer prices and market offer prices are to be
presented by retailers. (AER 2012a, p.2)
The NERL (s 63) and the Guideline require retailers to produce an ‘Energy Price Fact
Sheet’ for each standing and market (contract) offer that a retailer offers to new
small customers on or from 1 July 2012. These Energy Price Fact Sheets are
generated on the AER’s Energy Made Easy price comparator website, allowing
small customers to compare retail offers. Victorian retailers’ standing and market
offers to new small customers will be available to compare on the Energy Made
Easy website once the NECF is applied in Victoria. Retailers are also required to
publish Energy Price Fact Sheets on their websites for each of their contract offers
that are generally available to small customers on or from 1 July 21012. The
Guideline specifies what information must be included on each Energy Price Fact
Sheet and how it should be presented (AER 2012a).
The AER Retail Pricing Information Guideline (AER 2012a) states that:
An Energy Price Fact Sheet must clearly indicate when a contract offer is
available to customers with solar photovoltaic systems. It must also indicate
the solar feed-in tariff (or solar feed-in tariffs if there are more than one)
available to customers entering into the contract offer associated with the
Energy Price Fact Sheet. (AER 2012a, p.8)
The Commission understands that retailers are only required to provide basic solar
FiT offer information on Energy Price Fact Sheets. An example given indicates that
solar FiT information should describe the available tariff(s) and state the tariff
price(s) in cents per kWh exported (inclusive of GST) (AER 2012a, p.10).

Amendments to the EI Act (as proposed in the National Energy Retail Law (Victoria)
Bill 2012) will institute new price comparator requirements (a substituted Division 6).
These provisions will require the ESC to continue to maintain the ‘YourChoice’
website, to assist small customers to compare standing offer and market offer retail
prices required to be presented by the NERL and AER Retail Pricing Information
Guideline (2012a). It will also require that retailers provide the ESC with information
and data about standing and market offer prices (Explanatory Memorandum 2012,
p.20). At the time this report was finalised, the ESC was still considering the ongoing
role of YourChoice now that the NECF has been delayed in Victoria.
Feed-in tariff application process
The process of installing a small renewable energy generation facility or solar PV system
and applying for a FiT can be complex, and the terms and conditions in FiT contracts
vary between retailers. Unlike the process for connecting distributed generation under
the national framework, the process for applying for a Victorian FiT is not provided for
by legislation. The Commission considers that the TFiT application and connection
process for household-scale solar PV is best conceptualised as three separate, but
interrelated, processes that occur side by side.
(1) Physical installation, connection and metering
Installation of solar PV is largely governed by the Electrical Safety Act 1998 (Vic) and
Electricity Safety (Installations) Regulations 2009 (Vic), administered by Energy Safe
Victoria (ESV). ESV regulates the licensing and registration of electricians, and the
issuing and auditing of Certificates of Electrical Safety (CESs), to ensure that electrical
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
251
work is of a satisfactory standard and has been performed by a licensed electrician
(ESV 2012a). The Commonwealth Government’s Small-Scale Renewable Energy
Scheme requires solar PV to be installed by licensed electricians, who are accredited
by the Clean Energy Council (Renewable Energy (Electricity) Regulations (Cth) reg
20AC).
Connection is governed by Victorian regulation covering small embedded generator
connections. This will be replaced by a basic connection service under NER chapter 5A,
when the NECF commences in Victoria. A solar PV customer also needs to complete
the connection and approval processes required by their DNSP (section B.3). The
Commission has been advised that, in practice, household-scale solar PV connections
are generally approved automatically, without lengthy technical site assessments.
Metering provision, installation and maintenance is governed by NER chapter 7.
Metering provision, installation and maintenance for types 1 to 4 metering installations is
a contestable service under the national framework and is the responsibility of the
‘responsible person’ (cl 7.2.2 and 7.2.3) (AEMO 2009, pp.1–2). Except where the
responsible person is also a registered ‘metering provider’, they must contract a
‘metering provider’ to install and maintain the meter (cl 7.4.1). Under the Victorian
advanced metering infrastructure (AMI) jurisdictional derogation, the DNSP is the
‘responsible person’ for relevant metering installations18 in Victoria (cl 9.9B.3) (AEMC
2009e; AEMC 2011f). Once the AMI rollout derogation expires, metering will become
contestable under chapter 7 of the NER. The AMI rollout derogation will expire on 31
December 2013 (the scheduled completion date), or earlier if the NER is amended to
facilitate the rollout of smart meters and transfer regulation of the AMI rollout to the
standard metering requirements under the NER.
(2) Contracting with the retailer
This process is governed by the FiT provisions of the EI Act, Division 5A. Division 5A
requires that household-scale solar PV customers who wish to participate in the TFiT
scheme enter into a TFit (export) contract with their supply retailer. It also mandates
that a TFiT contract will not come into effect — that is, the customer will not receive any
FiT credits for exported electricity — until the solar PV system is installed and connected,
and appropriate metering is in place. Although there is no legal requirement that
Victorian retailers have separate supply and FiT (export) contracts with their customers,
it is industry practice that separate contracts are required.
Many FiT customers find that their supply tariff structure changes once they enter into a
FiT contract with their electricity retailer. The changes usually reflect network tariff
reassignment to time of use (TOU) pricing and loss of current rates for dedicated offpeak loads.19 Although the former Victorian Government announced a moratorium on
TOU pricing on 22 March 2010, the Commission understands that TOU pricing will
become more widely available to Victorian consumers on a voluntary basis in 2013
(Batchelor 2010; DPI 2012g). Under the agreement reached with the Victorian
Government, Victorian DNSPs have discretion to reassign solar PV customers’ network
tariff to TOU pricing at the retailer’s request (on behalf of the customer). Network tariff
reassignment generally occurs after the PV system is connected and the metering
upgrade/reconfiguration is complete. Retailers will generally discuss network tariff
A ‘relevant metering installation’ is a metering installation installed as part of the AMI roll out, for a
connection point in Victoria for customers that consume less than 160 MhW per annum of energy (that is
Victorian residential and most small business customers).
18
Customers lose their current rates for dedicated off-peak loads (off-peak electricity rates for hot water,
heating or air-conditioning) when they enter into a solar FiT arrangement with their supply retailer (DPI 2012f).
19
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POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
reassignment with their customer at the tariff enquiry stage. If the customer consents to
a TOU network tariff, many retailers will also restructure the customer’s retail tariff to TOU
pricing as well.
(3) Applying for Small-Scale Technology Certificates/Solar Credits
Small-scale solar PV customers are generally eligible to receive Small-Scale Technology
Certificates (STCs) under the Commonwealth Renewable Energy Target (RET). The
Renewable Energy (Electricity) Act 2000 (Cth) s 23C and Renewable Energy (Electricity)
Regulations 2001 (Cth) reg 20A govern the process for applying for Small-Scale
Technology Certificates and Solar Credits. Customers can either:

assign the right to create STCs to their solar retailer or installer, in exchange for a
discount on the upfront cost of your system

sell the STCs themselves.
The Commonwealth Government’s Solar Credits scheme also multiplies the number of
certificates for the first 1.5 KW of the installed PV system (DPI 2011i). Customers who
chose to assign the right to create STCs to their solar retailer or installer must sign a Solar
PV STC Assignment Form and a Written Compliance Statement (which verifies that the
small-scale solar panel, wind or hydro installation was installed by an accredited
installer).
Paperwork for solar PV systems
There are several forms — required for solar PV installation and connection, to apply for
any applicable rebates and to participate in a FiT scheme — that must be completed.
All necessary paperwork must be complete for a FiT applicant to participate in a FiT
scheme. These forms include:

a Commonwealth Solar PV STC Assignment and Written Compliance Statement to
assign the right to create Small-Scale Technology Certificates (STCs) to the retailer
or installer, in return for an upfront discount or payment. Note that this is not a
requirement for a Victorian FiT, although most customers will wish to complete this
paperwork to obtain an upfront discount on their solar PV system

a Solar Connection Form to notify the DNSP that a solar PV system will be installed
at the customer's address and to outline customer rights and obligations in relation
to this installation

an Electrical Work Request (EWR) form and CES, which are usually completed by
the installer and forwarded to the retailer, to notify the retailer that the installed
solar PV system has been wired and inspected for safety. The retailer then sends the
EWR and CES (the Service Paperwork) to the DNSP, along with a Service Order
Request for the bi-directional metering to be installed and/or reconfigured

a Victorian FiT contract with an electricity retailer must be entered into. The
customer can sign the FiT contract at the same time as the EWR and CES are
lodged but it does not take effect until appropriate metering is in place and the PV
system is connected to the grid

any other paperwork specific to the retailer and/or DNSP must be completed (CEC
2011b, p.2; CEC 2012c; DPI 2011h).
See below for a flowchart on the high-level connection process for household-scale
solar PV in Victoria, which includes applying for an applicable FiT (figure B.2). The
Commission notes that the detail of the connection process will vary slightly across
individual retailers and DNSPs, and will depend on the type of technology involved. The
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
253
Commission also notes that there are many detailed sub-steps that occur during the
connection process, which are not reflected in figure B.2. These relate to Victorian
electrical safety regulation, AMI installation requirements, and the Use of System
Agreements and Business-to-Business (B2B) Procedures that govern communications
between the retailer and DNSP.20
20
See: Installation Requirements: Installation and Inspection of Grid-connected PV Systems (ESV 2011); Safety
of Solar Panel Installations in Victoria (ESV 2010); and Smart Meters – Installation (DPI 2012b). B2B
Communications between Victorian retailers and DNSPs are governed by State-based Use of System
Agreements and national B2B Procedures developed by the Information Exchange Committee established
by AEMO (NER cl 7.2A). See: B2B Procedures (AEMO 2011b).
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POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Figure B.2
Connection for household-scale solar PV (5 kw or less) in Victoria
Source: Commission analysis, drawing on (CEC 2012c).
APPENDIX B: REGULATION OF THE ELECTRICITY SECTOR
255
Costs associated with participating in a feed-in tariff scheme
The EI Act does not prescribe any fees or charges for applying for and participating in
the PFiT, TFiT or SFiT schemes. However, some electricity retailers may charge
administration fees as part of their FiT electricity contracts (DPI 2011k). The funding and
cost recovery for Victorian FiT schemes was discussed earlier.
Bi-directional metering is required to receive a FiT. Old style accumulation meters are
unable to measure electricity generated and sent into the grid from distributed
generators. Bi-directional meters allow two-way electricity flows and the ability to
record those flows on a half hourly basis (DPI 2011a; DPI 2011b). The Victorian
Government is rolling out AMI (‘smart meters’) across Victoria. The rollout is scheduled to
be complete by 31 December 2013. Once the AMI rollout is complete, new meters will
not need to be installed but installed meters may need to be reconfigured for new solar
PV connections. Victorian DNSPs are able to recover expenditure associated with the
AMI rollout from consumers through metering service charges incorporated into all
Victorian customers’ electricity bills. AER approved meter charges vary across Victorian
DNSPs (AER 2011a).
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