6
Connecting generators to the distribution
network
Although distributed generation can have many advantages, it does not always easily
fit into today’s centralised power systems. Even if overall benefits are positive, additional
network costs can discourage distribution network service providers (DNSPs) from
connecting a distributed generator. It is therefore not surprising that the most commonly
raised immediate barrier to greater adoption of medium-scale distributed generation is
the process for connecting these systems to the electricity network.
Distributed generators require access to distribution networks for a range of reasons
including selling electricity and balancing system loads (ClimateWorks et al. 2011, p.9).
Connecting distributed generation is of particular interest to this inquiry because the
connection processes and costs can have significant impacts on the efficiency and
viability of medium-scale distributed generation projects.
Connection barriers relate to connection costs (chapter 5) and the connection process
(this chapter and chapter 7). Efficient connection would mean DNSPs have incentives to
remove artificial barriers to entry, with efficient costs, timing and risk allocation. Material
barriers to connection can be addressed at two levels:
(1) The connection process: the Commission considers there are clear barriers in the
connection process that could be ameliorated now. These changes are necessary,
would improve competition between distributed generation and other options for
achieving the National Electricity Objective (NEO), and increase the efficient use of
distributed generation. These important barriers are the primary focus for this
chapter and chapter 7.
(2) DNSPs’ incentives to plan and manage the system to make efficient use of
distributed generation: many participants argued that addressing the connection
process alone will not be sufficient to guarantee efficient use of distributed
generation. The Commission considers that some of these DNSP incentive issues are
longer term in nature, but that they have a strong impact on the barriers to
distributed generation. The Commission examines these barriers, recommends some
more immediate actions and identifies areas where longer term action may be
needed in chapter 5.
Such connection barriers indicate a probable underinvestment in distributed
generation in Victoria, primarily at the medium-scale where the connection barriers are
more significant.
The terms of reference of the inquiry ask the Commission to identify barriers to distributed
renewable and low emissions generation in Victoria, including co-generation and
tri-generation. This chapter and chapter 7 examine barriers in the connection process for
medium-scale and ‘household-scale’1 distributed generation respectively. Each has
different connection processes, the proponents have differing capacity to deal with
DNSPs, and scale creates different kinds of network impacts.
This chapter first sets out, in section 6.1, the regulatory context along with work currently
underway to address connection barriers. Section 6.2 describes the benefits of
medium-scale generation and section 6.3 summarises participants’ views on barriers to
‘Household-scale’ includes small-scale distributed generators owned by small business and community
groups.
1
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
87
connecting. The right to connect and export (section 6.4) and the connection process
(section 6.5) are analysed in more detail, followed by section 6.6 which discusses the
impact of implementing the Commission’s recommendations.
6.1
Context
Connection of distributed generation is regulated by national and state arrangements.
The national connection arrangements outlined in section 2.2.3 and appendix B include
the connection elements of the COAG principles for feed-in-tariffs, chapter 5 and 5A of
the National Electricity Rules (NER) and the National Customer Energy Framework
(NECF). Chapter 5A of the NER provides basic, standard and negotiated connection
services. The NECF and chapter 5A are not implemented in Victoria and the
implementation date has not yet been announced.
In 2009, the Australian Energy Market Commission (AEMC) conducted a Review of
Energy Market Frameworks in Light of Climate Change Policies. The AEMC concluded
that regulatory barriers prevent the efficient connection of distributed generators and
that addressing these barriers is likely to further the National Electricity Objective (NEO)
(AEMC 2009c, p.76). Many actions have been implemented or initiated to address
these barriers (table 6.1).
After the introduction of the NECF in Victoria, those seeking medium-scale connection
will follow the process illustrated in figure 6.1. Prior to implementing the NECF in Victoria,
connection is governed by chapter 5 of the NER, and supplemented by Victorian
regulations including Electricity Industry Guideline No. 15: Connection of Embedded
Generation (ESC 2004a), the Electricity Distribution Code (ESC 2012a) and distribution
licences). Chapter 2 and section 6.4 describe the regulatory context in more detail.
88
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Table 6.1
Actions to address barriers to distributed
generator connection
Date
Action
Details
July 2010
AEMO Small Generator
Framework Design
Sets out principles to minimise
barriers to cost-effective
participation by small generators in
the NEM
July 2011
AEMC responded to proposal
by Minister for Energy and
Resources (Victoria) on Total
Factor Productivity (TFP) in
network pricing regulation
Aimed to improve incentives for
DNSPs to invest more efficiently.
AEMC concluded the TFP approach
has merit but practical
implementation issues exist
December
2011
Distributed generators
included in the Demand
Management Incentive
Scheme (DMIS)
The AEMC completed a rule change
process to include distributed
generation in the DMIS
June 2012
Proposal to the AEMC to
amend the NER for connecting
embedded generators
ClimateWorks, Seed and the PCA
proposal to streamline connection
processes and improve DNSP
incentives for engagement
April 2012
AEMC published draft
determination on rule change
proposed by MCE on
Distribution Network Planning
and Expansion Framework
Main components are an annual
planning and reporting process, a
Demand Side Engagement Strategy,
and a Regulatory Investment Test for
Distribution (RIT-D)
June 2012
AER published guidelines on
connection charges
Provides guidance on connection
charges under the new chapter 5A
September
2012
Final AEMC Demand Side
Participation (DSP) Report: The
Power of Choice
Aims to improve opportunities for
DSP
September
2012
Outcome of AEMO Small
Generator Aggregator
Framework rule change
request to AEMC
Aims to simplify registration of
distributed generators
April 2013
Final report of Productivity
Commission inquiry into
electricity network regulation
Seeks, among other things, to
address barriers to distributed
generation
To be
determined
Commencement of Chapter
5A of the NER in Victoria
Expands the NER for connection of
household and medium-scale
distributed generation
Notes:
Australian Energy Market Operator (AEMO), Australian Energy Market Commission (AEMC), Clean
Energy Council (CEC), Ministerial Council on Energy (MCE), National Electricity Market (NEM), Property
Council of Australia (PCA).
Source: Commission analysis.
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
89
Figure 6.1
Connection approval process for medium-scale
distributed generator retail customers (with NECF)
Preliminary inquiry from
potential applicant
wishing to connect
DNSP has 5 days to
provide information
Applicant lodges
application on form
determined by DNSP
Application
incomplete
Additional information required
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
Agree
d
Offer terms form
connection contract
* This applies to negotiation,
not dispute resolution
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
Basic connection
service or standard
connection service
Use agreement
pre-approved by AER
Negotiated
connection offer
Not agreed
Option of dispute
resolution through AER
Legend
AER – Australian Energy
Regulator
DNSP – Distributed
Network Service
Provider
Source: Commission analysis.
90
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
6.2
Benefits of medium-scale distributed generation
Depending on location and operation, medium-scale generators offer several
advantages in network support and electricity supply to the owner and other parties in
the electricity system:

Greater potential for network savings at lower cost than small-scale renewables
because of economies of scale. CSIRO estimates co- and tri-generation could
provide nearly five times more peak generation capacity than local renewables at
one sixth of the cost (Dunstan et al. 2011, pp.12, 68).

With strong demand for green building office space, co-generation can contribute
to national emissions reduction targets and improved green building ratings which
improve rental returns for building owners (ClimateWorks et al. 2011, p.15).

Low transaction costs with less than 100 medium- to large-scale plants making up
295 MW of installed capacity compared with around 50 000 small-scale PV
installations making up around 75 MW of installed capacity in Victoria in 2010.2

Co- and tri-generation plants can switch on at full capacity or switch off unlike solar
PV which cannot guarantee maximum production when the network is constrained
and the electricity spot prices peak (Dunstan et al. 2011, p.74).
The net benefits of medium-scale generation vary by location and operation, and
achieving many of these benefits requires connection to the network. Many
participants were concerned about significant barriers to connecting medium-scale
generators.
6.3
Barriers to medium-scale distributed generation
The Commission consulted with different stakeholder groups during the inquiry.
Medium- scale connection barriers: proponent view
A survey conducted by Senergy of connected distributed generators found a range of
connection issues although the survey did not include the DNSPs (box 6.1).
A separate survey conducted by Entura for Sustainability Victoria (SV) in 2010 found that:

The majority of survey respondents and interviewees found their working
relationship with the DNSP to be average or below normal expectations and
believed that this resulted in longer project implementation times and increased
costs.

There is a clear relationship between the quality of the perceived working
relationship with the DNSPs, and the number of grid connection problems faced,
the technical requirements needed and the cost of grid connection (SV 2010, p.i).

Despite the challenges, ‘there is generally a good success rate in connection to the
grid’ (SV 2010, p.i).
2
Natural gas 133 MW, waste gas 45 MW, black liquor 55 MW, landfill gas 40 MW, sewage gas 22 MW (ESAA
2011, pp.20–21; CEC 2011a).
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
91
Box 6.1
Senergy report on distributed generation
connection experiences
Senergy surveyed distributed generator proponents after the connection process
was completed. Distribution network service providers (DNSP) were not involved in
the survey. The main concerns highlighted by respondents in the interface between
the DNSP and the customer included:

access to the appropriate DNSP representatives for connection related issues
(e.g. legal and technical staff)

excessive response times from DNSPs for apparently straight forward queries

lack of transparency in, and understanding of, connection processes

fear that accessing dispute resolution services would have a negative impact
on a distributed generation project or even the proponent’s distributed
generation project portfolio.
In addition, even though the regulatory instruments define some aspects of the
connection process, respondents said that DNSPs often fail to meet their obligations,
including:

inadequate and/or delayed connection enquiry responses

insufficient detail provided on the DNSP’s management of the process or
scheduling of connection related activities

lack of commitment to firm delivery dates for connection offers, or to meet such
milestones if they are committed to, and a lack of understanding of the
importance of such milestones

inadequate data provision (both in detail and timing) required to fully assess the
commercial significance of a connection offer, despite the National Electricity
Rules requiring this data to be provided

not paying avoided use of system charges as required by the current legislation

issues respondents raised about the negotiation process included:
–
–
–
–
DNSPs using their information to advantage during the connection process
unwillingness to negotiate terms in the offer and significant delays in
responding to requests to reconsider terms, often leading to non-preferred
agreement terms being signed due to external commercial pressures. These
terms included open ended liability on the distributed generator
not providing access to DNSP legal representatives
insufficient information on cost estimates and work scopes for applicants to
assess their fairness or reasonableness.
Source: Senergy 2011, pp.3–4.
Medium-scale connection barriers: DNSP view
Connecting medium-scale distributed generation can also involve significant cost for
DNSPs in understanding network capacity, reinforcing the network and responding to
inquiries. As mentioned in Unlocking the Barriers to Cogeneration, currently the impact
of a proposed distributed generation project on the network is unknown until both the
DNSP and project proponent commit significant time and resources (ClimateWorks et
al. 2011, p.24). Overcoming the technical barriers to connection can involve many
millions of dollars of investment in the network (Senergy 2011, p.12) but DNSPs suggested
there are no simple solutions to some of these problems (UE, sub. 77, p. 5).
92
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
DNSP participants recognised the potential benefits of distributed generation but raised
concerns about the impact on their networks. CitiPower/Powercor ‘support the
connection of distributed generation to their distribution systems, including wind farms,
provided that these connections promote the National Electricity Objective and the
Businesses’ safety obligations’ (sub. 80, attachment 1, p. 5).
While knowledge varies considerably, the distributed generator proponents do not
always have a good understanding of the connection process and requirements
(Senergy 2011, p.19). In the Commission’s roundtables, the DNSPs indicated that they
have a large number of distributed generation inquiries, not all of which have the
resources and knowledge to follow through with a connection. Proponents may also
be operating under some uncertainty:
It is therefore likely that while negotiating with the DNSP, the project owner is
also in negotiations with tenants or other stakeholders on the design of the
building itself. They may not, therefore, be in a position to provide the DNSP
with the required information for the connection application to proceed as
the NER and the DNSPs currently require. (ClimateWorks et al. 2011, p.23)
DNSPs acknowledge better communication with distributed generation proponents
may help to improve proponents’ appreciation of connection challenges:
UE understand that customers perceive these legitimate technical issues as
a barrier to connection and we will be seeking to improve in this area.
(sub. 77, p.5)
There is also a barrier in the economic regulation in that DNSPs face uncertainty about
whether they can receive a return on the cost of studies and time spent responding to
distributed generator inquiries (AEMC 2012f, p.169).
The Commission’s view
Table 6.1 detailed several processes that are in progress or will be implemented to
reduce the barriers to distributed generation connection. The proposed AEMC rule
change by ClimateWorks, Seed and PCA could make significant progress in clarifying
connection processes and rights (box 6.2). The Commission considers that all of the
actions in table 6.1 will reduce connection barriers but some barriers will remain. The key
issues and material barriers to medium-scale distributed generation identified by the
Commission’s analysis and through submissions (chapter 3) are:

information and planning on network capacity (chapter 5)

sharing network costs, benefits and risks (chapter 5)

regulatory incentives for efficient connection (chapter 5)

right to connect and export (this chapter)

process, timelines and uncertainty (this chapter).
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
93
Box 6.2
Proposal to amend the National Electricity Rules
for connecting embedded generators
On 18 April 2012, the AEMC received a rule change request from ClimateWorks
Australia, Seed Advisory and the Property Council of Australia. The applicants
argued that the National Electricity Rules (NER) deter distributed generators from
connecting to the electricity grid, as the connection process is uncertain, complex,
burdensome, time consuming, inefficient and costly.
The application proposed that the NER be amended to:
(1) Provide an automatic right of connection to the grid and standard access
terms. This would apply to generators that meet ‘Automatic Access Standards’.
(2) Enable embedded generators a right to export electricity to the grid.
(3) Provide an improved connection process for embedded generators that are
ineligible for automatic access and a right to export electricity to the grid.
(4) Allow DNSPs to charge an optional fee-for-service. This is to promote
collaboration with proponents during the connection process.
(5) Oblige DNSPs to publish annual network reports identifying where capacity is
limited.
Source: ClimateWorks et al. 2012.
6.4
Right to connect and export
Some proponents of distributed generation argued that there are network access
barriers for medium-scale distributed generators caused by ambiguity around
standards and no obligation on DNSPs to provide an automatic right to connect and
export electricity.
This contrasts with household-scale distributed generation, where systems that meet
AS4777 can automatically connect through Guideline 15 and the Electricity Distribution
Code (ESC 2012a) and there is an automatic right to export through the FiT regulations
(provided FiT eligibility criteria are satisfied). Similarly, for large generators 30 MW or
greater, network connection cannot be refused when they meet the automatic
standards in Schedule 5.2 of the NER. An automatic connection and a right to
negotiate export, subject to transmission network constraints, are granted under
chapter 5 of the NER.
The arrangements for medium-scale generators are not as clear. There is no automatic
right to connect and in the draft report the Commission concluded DNSPs have
discretion to set minimum technical standards. DNSPs have strong incentives to
manage impacts on their network and weak incentives to reduce the cost of
connection to distributed generators who must pay for costly network studies and
network reinforcement. The AEMC concluded this arrangement is a key barrier to
connecting distributed generation (AEMC 2009b, p.28). Many inquiry participants
supported this view:
As a priority, enabling automatic access for cogeneration systems up to
5MW should be immediately implemented because, relative to the size of
their installation, the costs of connection and the current connection
process are very high. (ClimateWorks et al. 2011, p. 36)
94
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Once connected to the network, medium-scale generators can face conditions on
their connection agreement that prevent the export of electricity. A right to export
would allow generators to separately negotiate a price with a retailer or other party,
potentially subject to network constraints, as is the case on the transmission network.
While improving these connection arrangements for medium-scale generators could
present some challenges for DNSPs, the Commission considers that opportunities to
improve the connection process while maintaining appropriate safeguards on the
network should be explored.
Opportunities for improvement
An automatic right of connection and export based on a specific process and
technical standards, as advocated by some participants, is one way to establish an
equivalent connection process across all sizes of generation. In response to the draft
report, however, the CEC stated that the technical standards have been defined in
Electricity Distribution Code (EDC) and that this is not the source of barriers that other
participants have claimed (CEC, sub. DR197, p. 18). The Commission assessed the
clarity of technical standards for medium-scale distributed generators by looking at
relevant State and national regulations.
National minimum technical standards
At the national level, there are no minimum technical standards for non-registered
generators3 in the NERs. In theory the standard connection service that will be available
to distributed generators when chapter 5A is introduced in Victoria would allow DNSPs
to offer a standardised process and automatic connection with specific terms and
conditions that could include minimum technical standards. United Energy (UE),
however, stated it will not establish standard connection offers given the vast
differences between connections:
… there may be a perception that automatic access may be provided via
the NECF standard connection offer contracts. UE has considered this
approach and has not progressed contracts in this area due to the need to
standardise the technical and cost arrangements in these contracts, nor do
we believe that there is a high volume requirement in the UE distribution
area. (sub. 77, p. 5)
If standard connection services are not established through chapter 5A, at the national
level, medium-scale distributed generators would be left to negotiate technical
standards with the DNSPs through chapter 5 or chapter 5A of negotiated connection
service. The general standards in chapter 5 does not apply to these smaller generators:
Chapter 5 of the NER sets out the technical conditions for the connection of
generators. However, these provisions do not apply to generating systems
that are subject to, or eligible for, an exemption from registration. In the
case where the Chapter 5 technical conditions do not apply, the technical
requirements for a connection to the distribution network would be
determined by the relevant distributor in accordance with jurisdictional and
local network requirements. (AEMC 2012a, p.18)
There is a standing exemption from registration for generators under 5 MW, which covers the majority of
medium-scale distributed generators.
3
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
95
Victorian minimum technical standards
At the State level, clause 7 of the Electricity Distribution Code (EDC) details the
technical standards for medium-scale embedded generators. These include
obligations, mainly on the embedded generator, in relation to:

supply frequency

co-ordination and compliance of embedded generating units

minimum requirements for embedded generating units

negative sequence voltage

harmonics

inductive interference

fault levels (ESC 2012a clauses 7.2 to 7.8).
The Victorian Government intends to retain some Victorian-specific regulation relating
to embedded generator connections after the NECF is applied in Victoria (DPI 2011n).
While the CEC considered that the technical standards in the EDC are sufficient, other
participants raised concerns. The EDC standards depend on information the DNSPs hold
on network condition, DNSPs can set more stringent requirements, the EDC is not the
only set of requirements, and there is minimal guidance on how the State requirements
should apply.
Limited information can make it difficult to determine whether a project meets the
clause 7 requirements of the EDC. The Commission understands that fault levels are a
key issue, given they are a strong driver of network reinforcement costs, medium-scale
generators can contribute significantly to fault levels, and fault level ‘headroom’ is
constrained in the Melbourne CBD where many developers wish to install medium-scale
generators. The EDC states that fault levels should not exceed set standards. Some
distributed generator proponents claimed that, with limited information available by
location on network condition and planning for other customers, it is difficult to
determine whether a distributed generator would exceed the fault levels in the EDC. In
2009, the fault levels at some locations were reportedly slightly higher than those
expressed in clause 7.8 and action was being taken to address the issue (SKM 2009,
p.4). Where fault levels are exceeded distributed generators will cause a breach of
clause 7.8. Participants also mentioned the minimum technical requirements of the EDC
have not been changed since 2006 and are out of date.
Clause 7 of the EDC is not the only set of requirements which apply to medium-scale
distributed generators. Entura, in its survey of distributed generators for SV, concluded it
was the complexity and lack of clarity around which standards apply which confuses
proponents:
The problem is not that there aren’t specific requirements existing, it stems
that there are many documents from different sources and the proponents
struggle to identify if a requirement has precedence or which requirement is
for their installation. (SV 2010, p.14)
The AEMC noted that jurisdictional arrangements contain minimal guidance for DNSPs
and embedded generators, giving DNSPs considerable discretion to set the minimum
technical standards (AEMC 2009b, p.45). Distributed generator participants claimed
DNSPs ‘gold plate’ network protection by mandating high levels of protection
equipment for unlikely safety and reliability events. These participants also claimed the
DNSPs show little flexibility to negotiate lower cost solutions to network protection.
96
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
These ambiguities present barriers to medium-scale distributed generators:
[Proponents face] a need to renegotiate all technical requirements for an
identical embedded generator by the same proponent, but in a different
location. While some technical requirements will likely be location specific,
there may be scope for some requirements to be standardised. (NERA 2008,
p.37)4
Developing technical standards
In the Demand Side Participation Stage 2 Review, the AEMC recommended reducing
the barriers to connecting distributed generators. NERA Economic Consulting’s advice
to the AEMC in that review was that ‘the barriers reflected mainly inexperience and a
lack of operating procedures and standards to facilitate the connection of distributed
generators’ and that there was potential to rebalance the discretion DNSPs have in
setting minimum technical standards (NERA 2008, p.37). Accordingly the Demand
Management Incentive Scheme was expanded to include embedded generators. The
AEMC also recommended the reliability panel examine minimum technical standards
for embedded generators.
ClimateWorks, Seed and the PCA recently submitted a rule change request to the
AEMC that proposed developing minimum technical standards for medium-scale
distributed generation (ClimateWorks et al. 2012). The Commission understands they are
also developing a technical brief which outlines the issues that should be examined in
developing a technical standard. The rule change request could be the mechanism
the AEMC uses to address minimum technical standards but the process for
development is not clear:
To provide for greater certainty and timeliness in processing connection
applications for embedded generators, the proponents suggest that
automatic access standards for embedded generators be developed. The
rule change request does not include an actual proposed standard or
suggestions of how it may be developed or by whom. (AEMC 2012b, p.18)
The Commission understands a scoping study on developing a technical standards is
also underway under the auspices of the COAG Select Committee on Climate Change
(SCCC). All jurisdictions (including Victoria) support this work, which will examine
international examples of technical standards to identify options to develop standards
for connecting distributed generation in Australia.
ClimateWorks, Seed and PCA acknowledge that medium-scale systems have more
significant impacts on networks than household-scale inverter connected systems and
that developing standards will be challenging (ClimateWorks et al. 2011, p.41). During
consultation the PCA suggested that not all applications would proceed through an
automatic right of connection with an Australian Standard but that such a standard
would assist some applicants.
The CEC does not consider ambiguity around technical standards is a barrier to
connection, but even if it is, they are sceptical about whether technical standards
would be effective:
4
The CEC (sub. DR197, p. 18) suggested the NERA report is referring to other states but there is evidence of
similar problems in Victoria (NECA, sub. DR174, p. 4) (ClimateWorks et al. 2011, p.11).
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
97
… while the CEC agrees that there may be merit in exploring the avenue of
developing automatic access standards for distributed generation, the
magnitude of the barriers present to the development [of] such an
approach creates extreme uncertainty and complexity. In conjunction, the
CEC is not certain that such an approach will efficiently remove the barriers
to distributed generation which the Commission has identified.
(sub. DR197, p. 5)
The CEC instead emphasises the importance of an improved connection process, with
upfront recognition of the core issues and a program to resolve them, as discussed in
section 6.5.
The SCCC’s scoping study should help to resolve the question of whether it is practical
to develop standards, as should the AEMC’s consideration of the rule change request
by ClimateWorks, Seed and the PCA.
ClimateWorks suggested the Victorian Government could support development of an
Australian Standard for connecting medium-scale distributed generators. In particular
the Victorian Government could assist the SCCC’s scoping study by:

Reviewing the extent to which current Victorian technical requirements differ from
those of other (NEM) states and the magnitude of the task of harmonising
standards. This could include the requirements of the relevant Act(s) and the
Distribution Code, any requirements that Energy Safe Victoria (ESV) imposes on
connections and any requirements imposed by the DNSPs, for example, the Service
Installation Rules (SIRs), which are DNSP defined but have the effect of a regulatory
instrument.

Reviewing the obligations, enforcement and penalties on all parties for safely
connecting distributed generators to the network. DNSPs have taken the stance
that the obligation for ensuring safety rests predominantly with them, but this is
inconsistent with ClimateWorks’ understanding of the regulatory framework more
generally. (ClimateWorks 2012)
If minimum technical standards are established a right to connect would require
legislative obligations on DNSPs to make a connection offer when the standards and
reinforcement costs are met.
Right to export
There is some ambiguity about whether distributed generators have a right to export
electricity to the network through an established connection. The EDC places
obligations on the DNSPs and distributed generators in relation to connection
agreements and export of electricity. Clause 7.1.1 of the EDC appears to provide a
right to export for distributed generators: ‘a distributor must ensure that its distribution
system is able to receive a supply of electricity from an embedded generating unit... in
accordance with an agreement… on the terms and conditions of dispatch,
connection and disconnection’. However:
DG [distributed generator] proponents argued that DNSPs are placing
onerous restrictions on DG proponents in their connection agreements
which can limit their export capability. For example DNSPs may restrict the
operation of DG installations by requiring it to run in 'island mode' (that is,
not synchronised with the network) and this consequently prevents any
energy from being exported. However, DNSPs consider that placing these
terms in the connection agreement is their only opportunity to collectively
98
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
identify and mitigate any technical and performance issues associated with
DG that could arise in the network. (AEMC 2012f, p.176)
Clause 7.8 of the EDC requires embedded generators to design or operate so as not to
cause fault levels in the distribution system to exceed specified levels, which may
negate the apparent right to export in clause 7.1.1. The AER states ‘embedded
generators have no firm right of access to the shared network and are subject to
network constraints for exporting electricity’ (AER 2012d, p.65). Seed submitted to the
AER that ‘to argue that clause 7.8 trumps clause 7.1 in governing the connection of
embedded generators is based on a construction of the intent of the Distribution Code
for which we believe there is no evidence’ (Seed 2012, p.2).
It is unclear whether the barrier to export is in the EDC or the way AER interprets the
EDC. The rule change request by ClimateWorks, Seed and the PCA provides an avenue
to resolve this uncertainty.
The Commission’s view
The Commission considers that ideally medium-scale distributed generators and DNSPs
would have clarity about:

minimum technical standards

network condition

cost sharing arrangements for network reinforcement (chapter 5)

the process that gives a right to connect and export electricity if minimum
standards are met and network reinforcement costs are paid.
In progressing to this ideal, key questions for the Victorian Government include the role
of government in supporting development of a standard, the efficiency of establishing
such an arrangement, and the maintenance of appropriate safeguards for the
network. As highlighted by CitiPower, the impact on all network customers and the cost
sharing arrangements for automatic connection require careful and explicit
consideration (sub. DR184, p. 6). The Commission considered these issues in chapter 5.
Role of Government
The Commission considers that there is only a role for government if there are broad net
benefits to the community or market failures. The beneficiaries of the development of
automatic access standards for medium-scale generators are national energy
consumers, through increased competition, and mainly the distributed generators.
Medium-scale distributed generators should therefore provide the majority of the
funding for the development of the standard. One arguable source of market failure is
a lack of coordination in competing medium-scale generators working together to
develop a standard. If there is a coordination problem any intervention should target
coordination rather than funding. Where there are benefits to national electricity users,
the Victorian Government could support development of the standards along with
other jurisdictions (including the Commonwealth) and the distributed generators.
Efficiency of developing a standard
The Commission considers that if automatic connection based on minimum technical
standards is possible for large- and small-scale generators, then such a process could
be possible for medium-scale. The question is whether the benefits of developing
standards exceed the costs.
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
99
If practical, consistent minimum standards would eliminate the confusion and delay
caused by the DNSPs having discretion to negotiate standards on a case-by-case basis.
Minimum technical standards also provide the developers of distributed generation
unites with the information on DNSP requirements they need to improve system
integration (Bauknecht & Brunekreeft 2008, p.485). Distributed generator proponents
may then make commercial decisions to connect or not connect based on
predetermined standards and the cost of meeting those standards. Those who do not
meet the standards could choose not to connect or negotiate a tailored connection
service.
The SCCC scoping study and the PCA’s technical brief should identify the costs and
benefits and timeframes for developing such a technical standard. The AEMC’s
consideration of the rule change request by ClimateWorks, Seed and the PCA will also
provide useful information. The Commission considers there is merit in exploring the
development of technical standards that apply to Victorian DNSPs for standard types of
distributed generation projects below 5 MW, and using such standards as the basis of
an automatic right to connect.
Safeguards
The highest net benefits would result from an appropriate balance between the
discretion afforded to DNSPs in setting minimum technical standards and maintaining
their flexibility to address technical issues on constrained local networks. To ensure the
safety and reliability of the network, large-scale power stations must do significant
preparatory work to meet the minimum standards that guarantee a right to connect. It
is appropriate that similar but proportional safeguards are established for connecting
medium-scale generators. Net benefits can be maximised by recognising that prudent
risk management does not always require ‘gold plated’ network protection, and would
rather give flexibility to adopt alternative lower cost network protection solutions.
Distributed generators should have a right to export electricity to the network once they
have met the standards for network connection and resolved any reasonable fault
level issues. This would give the distributed generator the opportunity to negotiate with
an aggregator or retailer, or to register and sell through the NEM. Consultation with
participants suggested there was some scope to define minimum technical standards
for distributed generators that would improve information to proponents on network
requirements and network condition, and reduce duplication in considering equivalent
plant in different locations.
Conclusion
If the ClimateWorks, Seed and PCA rule change request to the AEMC is successful it
could result in common standards and an automatic right to connect. In
recommendation 6.1 the Commission proposes that the Victorian Government support
this proposed rule change. Victoria could support this work by making a submission on
the AEMC rule change and compiling and making available information on its own
standards. If the ClimateWorks, Seed and PCA rule change request is unsuccessful, the
Victorian Government could support private sector initiatives to develop agreed
standards, being mindful of the role of state government and the likely beneficiaries of
this work.
100
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
6.5
Process: cost, timelines and uncertainty
The connection process was raised by many participants as a source of uncertainty
and delay and therefore a barrier to distributed generation (details of the
medium-scale connection process are set out in chapter 2 and figure 6.1).
Participants identified key causes of delay and uncertainty at several stages in the
connection process:

Information on the connection process: distributed generator proponents claim
there is a lack of accessible consolidated information on the connection process
including information requirements, national and state regulatory instruments and
the rights and responsibilities of the various parties:
Some jurisdictions have developed guidelines on cogeneration connection,
but there is still no NEM-wide regulated process for cogeneration
connection. A number of processes are underway that could partially
address these issues, like the AEMC’s ‘Comprehensive Technical Standards
Review’, but even if these deliver on their potential there will still be major
gaps. (EEC, sub. DR200, p. 11)
When the NECF is in place in Victoria, some generators would be eligible for
connection through either a standard (if offered by the DNSP) or negotiated
connection service through chapter 5A, or connection through chapter 5.

No standard process: each DNSP has its own process and medium-scale projects
are assessed on a case-by-case basis:
NERA commented that distributors appear to take an ad hoc approach to
each embedded generator connection. (AEMC 2009b, p.45)
This exacerbates the problems caused by uncertainty about minimum technical
standards and a lack of information on network condition.

Engagement between proponent and DNSP: in the Commission’s distributed
generators roundtable, participants identified poor information exchange as a
driver of uncertainty. DNSPs can ask for more information partway through the
process, so distributed generator proponents do not know where they stand. In one
extreme case ‘the owner received approval of its connection application, only to
have it subsequently withdrawn, without explanation for the change of approach’
(ClimateWorks et al. 2011, p.24).
DNSPs also have limited capacity to recover the costs of responding to inquiries
and the regulatory incentives to engage with distributed generator proponents are
not strong (ACIL Tasman 2011b, p.6). Distributed generator participants claimed
that these arrangements have discouraged DNSPs from building or retaining skills in
this area:
Furthermore, the historical focus of [DNSPs] on network augmentation has
left them critically under-skilled in understanding both the potential for DSP
to reliably reduce peak demand, and the options for using DSP effectively.
(EEC, sub. DR200, p. 9)

Connection times: distributed generator participants noted that long delays can
reduce the viability of proposals and increase investment costs with:
Uncertain and often completely unjustifiable timeframes for negotiating an
agreement. In Victoria, the connection approval process is typically more
than
6
months
with
many
taking
12
months
or
longer.
(EEC, sub. DR200, p. 11)
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
101
But a 65 working day timeframe, as proposed by ClimateWorks, Seed and PCA
may not be realistic. DNSPs claim it can take up to 12 months for a simple
connection and up to two years for a more complex one (ClimateWorks et al. 2011,
p.23). While legislation requires DNSPs to make a connection offer within 65 working
days, 40 per cent of distributed generation systems have had a connection period
greater than 12 months (SV 2010, p.i). It is therefore difficult to determine what
timeframe would be realistic. Distributed generator roundtable participants
mentioned that while it can take longer than four years to get a connection, there
are examples of DNSPs providing an answer within two weeks.
The ability to assess appropriate timeframes and DNSPs’ performance against those
timeframes is exacerbated by a lack of reporting. There is no consolidated public
reporting by DNSPs of their performance on timeframes for medium-scale
connection offers. Some participants claimed, however, that connection is more
difficult in Victoria than in other states:
The Council has received informal comments from some members that
connecting cogeneration and trigeneration units in Victoria is more
challenging than in other states. There could be a number of factors that
have driven these Council members’ experiences, including the available
capacity to accommodate cogeneration in central Melbourne.
(EEC, sub. DR200, p. 2)
A key source of delay in the initial inquiry stage is the ability to restart the clock on
decision-making timeframes. If the DNSP requests more information on the 19 th day
of a 20 day decision making period this can restart the timeframes.

Negotiation/arbitration costs and processes: any costs and delays through dispute
resolution add to a process in which cost and delay is already posing barriers to
connection (Senergy 2011, p. 33). Many participants identified that distributed
generator proponents are concerned about the potential adverse ramifications of
using dispute resolution systems through the AER (MEFL, sub. 75, pp. 9–10).
The DNSP may not like the outcome which could in turn have a negative
impact on the project due to adverse ‘retaliation’ from the DNSP. This could
impact the project or even the developer’s project portfolio. While difficult
to prove there is suspicion amongst the industry that this is a real threat.
(CEC, sub. 76, attachment 3, p. 9)
However, one respondent to Entura’s survey for SV escalated issues to the AER and
was satisfied with the outcome:
… we ended up taking them to the regulator [the AER] and although we
never had a hearing, once we got it to that level we had a letter in the post
saying we would be connected for free. (SV 2010, p.13)
Opportunities for improvement
The adverse impact of the inefficient connection process on distributed generation is
generally acknowledged among participants. Some stakeholders responded to the
Commission’s conclusion in the draft report that many of the actions outlined in table
6.1 would help improve connection barriers:
United Energy concurs with the Commission’s conclusion that recently
implemented and proposed changes to the national electricity regulatory
framework will address the perceived barriers to connection of distributed
generation. (UE, sub. DR199, p. 2)
ClimateWorks, the CEC and some other participants, however, claim that even after
the introduction of chapter 5A in Victoria and other changes, barriers to connecting
102
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
medium-scale distributed energy will persist (ClimateWorks et al. 2011, p. 11). The CEC
stated:
… the CEC is of the firm position that this [5A] amendment to the Rules will
not simplify the process at all. Rather, it is expected to only gazette the
barriers which the Commission has identified and introduce further
complexity. (sub. DR197, p. 9)
The ClimateWorks, Seed Advisory and the PCA submitted a rule change request to the
AEMC which aims to streamline the process for distributed generators connecting
through chapter 5 (box 6.3).
Box 6.3
Streamlining connection of embedded
generators
The chart below summarises the proposed new two track connection process
incorporating ClimateWorks, Seed and the Property Council of Australia proposed
rule changes.
Connection
Enquiry
Connection
Application
Automatic
Access
Submit Connection Enquiry
May invite DNSP to advise
on connection issues in
design phase on a fee-forservice basis
Site satisfies automatic
access standards in
amended Ch 5
Negotiated
Access
Submit Connection Enquiry
May invite DNSP to advise
on connection issues in
design phase on a fee-forservice basis
Connection Application
proceeds under specified
timeframe in amended Ch 5
Connection
Agreement
Offer
Received within 20 day
maximum time, as entitled
to automatic connection
for standard fee, amended
in Ch 5
Standard connection
agreement
Offer required to be made
no more than 65 days after
full application
Opt-in boilerplate contract
terms common across
DNSPs
The proposed changes aim to replace case-by-case negotiations with a
standardised process that is clearer, more certain and efficient. The declared
intention of the proposal is to encourage distributed generation without
compromising the integrity of the national electricity grid.
Source: ClimateWorks et al. 2012.
The CEC argued that many distributed generators will still need to connect through the
chapter 5A negotiated connection service even if the changes to chapter 5 proposed
by ClimateWorks, Seed and the PCA succeed (CEC, sub. DR197, p. 4). The CEC
therefore, is considering submitting a rule change proposal to the AEMC to reduce
information asymmetry problem. The proposal would:
… tie all negotiable connection costs to the information provided by the
DNSP at the start of the connection negotiation process. This approach
limits the cost which the DNSP can charge to that which can be revealed
through the information provided. The DNSP then carries the responsibility of
ensuring that the information is complete and accurate and that applicants
are well informed. (CEC, sub. 197, p. 20)
The two requests for rule changes reflect the views of the proponents of rule changes
and other participants that there are opportunities to improve the connection process,
even after the introduction of chapter 5A in Victoria. These opportunities would:
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
103

improve information on connection processes

standardise connection processes

improve engagement and information exchange

reduce connection times

improve dispute resolution.
Improve information on connection processes
The report, Unlocking the Barriers to Cogeneration (UBC) stated that in states other than
Victoria ‘it is almost standard for DNSPs to provide online information, an information line
and a form outlining the connection process’ (ClimateWorks et al. 2011, p.22). Several
bodies have developed connection guidelines to support distributed generator
proponents and DNSPs to navigate the complex connection process, including:

CitiPower/Powercor: Customer Guidelines for Sub-transmission
Embedded Generation (CitiPower & Powercor Australia 2010)
Connected

Electricity Networks Association: ENA Guideline for the Preparation of
Documentation for Connection of Embedded Generation within Distribution
Networks (Energy Networks Australia 2011).
The CEC submission said ‘Sustainability Victoria has developed a Victoria specific
connection guideline intended to assist connection applicants in understanding the
process and the obligations of all relevant parties and to identify risks associated with
the process’ (sub. DR197, p. 5). The CEC believed that this guideline is awaiting
ministerial approval before its release and suggested expediting the release process.
Standardise connection processes
In some other countries there are standardised connection processes and participants
suggested this approach could work in Victoria:
International jurisdictions, such as New Zealand and the United Kingdom,
have implemented and benefited from a requirement by networks to
publish standard connection contracts, standard connection processes
and published connection charges and tariffs. (Exigency, sub. 4, p. 3)
As mentioned, the CEC argued that the majority of distributed generators will connect
through the negotiated connection process which limits the potential for standardising
processes (sub. DR197, p.4). A survey by Entura for SV, however, found that while some
requirements of the application process vary some could be consistent across different
sites:
… the costs for filling out the documentation for the DNSP and conducting
the load flow studies could be standard, however equipment costs and
augmentation required is site specific and as such the costs associated with
these will remain variable. (SV 2010, p.9)
The rule change request by ClimateWorks, Seed and the PCA and many submissions to
this inquiry proposed a national, standardised connection process and practical district
level licensing frameworks. In addition to the calls in this inquiry, the AEMC in its Power of
Choice review received a number of submissions calling for a standardised connection
process (AEMC 2012f, p.166).
104
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Improve engagement and information exchange
ClimateWorks, Seed and the PCA suggested ‘DNSPs do not have a strong incentive to
collaborate in the development and improvement of a connection enquiry or
application’ (ClimateWorks et al. 2012, p.17). Entura, in its survey for SV, highlighted the
importance of early engagement:
… early engagement/communication with the DNSP at the detailed design
stage, rather than later in the design process, may better facilitate a
successful connection of the DG system to the grid. (SV 2010, p.16)
A lack of resources for DNSPs to engage with distributed generators during the preliminary
inquiry stage ‘could be easily resolved, as UBC project owners have indicated they would
be prepared to pay on a fee for service basis to ensure this engagement process
occurred’ (ClimateWorks et al. 2011, p.23). The rule change request by ClimateWorks,
Seed and PCA includes such a proposal (ClimateWorks et al. 2012).
In addition, the interplay between minimum technical standards (section 6.4),
information on network condition and early communication between DNSPs and
distributed generators can have important impacts on project outcomes:
By having set standards for those wishing to install DG projects, project
managers will be able to factor in all possible barriers at the pre-feasibility
stage. This can assist in ensuring they do not reach a point in the project
where they are unable to change things or in a position where they
suddenly find themselves being informed of a new set of standards from the
DNSP that weren’t originally accounted for, thus putting the project on hold.
(SV 2010, p.14)
The CEC similarly argued that earlier and more complete communication about
technical standards, information requirements and network condition would allow
distributed generators to assess the viability of their proposal earlier, reducing costs of
redesign, additional network studies
and progressing unviable projects
(CEC, sub. DR197, p. 14). The CEC argued, however, that it would be difficult to achieve
these savings by setting predetermined standards. Instead the CEC suggested DNSPs
should be obliged to provide the necessary technical information requirements to
applicants in the early stages of a connection application.
Reduce connection times
Distributed generator proponents participating in the inquiry suggested the connection
timeframes should be substantially shortened.
The case study proponents consider that a timeframe of between one and
three months for completing the connection application process would be
consistent with the wider commercial building development process, with
an outer limit of six months in extreme cases. (ClimateWorks et al. 2011, p.23)
The CEC also claims that earlier provision of technical and information requirements
and network condition would save time as well as cost (sub. DR197, p. 14).
The PCA rule change request outlines a 20 day connection decision for standard
connections and a 65 day connection decisions for non-standard connection
(ClimateWorks et al. 2012, p.11).
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
105
Improve dispute resolution
Several participants argued for improved dispute resolution processes. During
consultation the AER indicated its processes encourage alternative dispute resolution
prior to arbitration which offers an avenue to minimise the costs of disputes. The AER’s
processes allow for preliminary consideration prior to formal consideration of disputes,
although legislation allows for formal considerations to take six months or more (AER
2011b, p.6). The Moreland Energy Foundation Ltd (MEFL) recommended that the
government should ‘establish a connection ombudsman or other dispute resolution
process to resolve disputes arising out of connection processes’ (MEFL, sub. 75
attachment 1, p. 2). The Energy Efficiency Council recommended establishing a
distributed generation ombudsman in the AER (EEC, sub. DR200).
The ClimateWorks, Seed and PCA rule change request submitted to the AEMC aims to
address many of the connection process barriers raised in this inquiry. The rule change
request does not, however, address dispute resolution processes (box 6.2).
The Commission’s view
Efficient and clear processes can reduce time and uncertainty and thereby support the
efficient entry of distributed generation, resulting in effective competition in related
markets. The outcomes of efficient connection processes include early withdrawal of
unsound proposals and improvements to sound proposals (such as redesign to reduce,
mitigate or avoid costly network reinforcement). An efficient process would also enable
a progressively sharper focus on the key issues and data collection.
As illustrated in figure 6.2, an efficient process would identify critical issues at the start of
the process and progressively reduce their uncertainty. Distributed generator
proponents normally prefer to delay outlays on the project until such uncertainty is
reduced, to avoid the risk of wasting money if, for example, the assessment indicates
the project needs redesigning or cannot proceed. DNSPs would also benefit as relevant
information would be provided more quickly on higher quality more viable proposals.
Accurate, timely information on network condition, as outlined in chapter 5, is critical to
support investment decisions by distributed generator proponents, and the connection
process.
106
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
Figure 6.2
Framing the connection process from a business
perspective
Current process under Chapter 5A
Unlimited
x 5 days
Preliminary
inquiry
Unlimited
x 10 days
Clock stop/reset with information
request/network study
Information
Application request/site
visit
DNSP advises
standard or
negotd process,
expected costs
Agree
Negotiation
Offer
Dispute
resolution
Possible improvement to the process
One timeframe with no resets, clock stop permitted
Preliminary
inquiry w/better
engagement
Notes:
Information
Application request/
site visit
DNSP advises
standard or
negotd process,
expected costs
Agree
Negotiation Offer
Dispute
resolution
Negotiated (negotd); preliminary inquiry (Prelim. Inq); expected cost (exp. Cost).
Source: Commission analysis.
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
107
The Commission considers the following actions would improve the connection process
for medium-scale distributed generators and reduce uncertainty, timeframes and costs
to business:

Improve information on the connection process: information on minimum technical
standards (section 6.4), network condition, cost sharing (chapter 5) and the process
and information required from distributed generator proponents would help to
streamline connection and reduce uncertainty. In addition to supporting improved
information made available through the ClimateWorks, Seed and PCA rule change
request to the AEMC, the Victorian Government should release Sustainability
Victoria’s connection guidelines for distributed generators.

Standardise connection processes: as medium-scale distributed generators are
treated on a case-by-case basis, the costs of connection could be reduced
significantly by standardising connection processes.

Improve engagement with customers: DNSPs have limited incentive to engage with
distributed generator proponents to help improve their applications and identify
information needs during the preliminary inquiry stage and negotiation. Earlier and
more thorough communication about technical standards, information
requirements and network condition would allow proponents to make earlier
decisions about their projects. This could reduce connection costs by hundreds of
thousands of dollars through reduced network studies, project redesign and
progress of unviable projects. There is a case for examining the incentives and
accountability for DNSPs to provide this information in a timely manner. As noted in
the draft report, 100 per cent pass through of costs creates disincentives for DNSPs
and there are alternative incentive options (DR pp. 74-75).

Clarify timeframes: establishing negotiated, project-specific time limits for each
stage of the connection process, and reporting performance against these time
limits. There is already a requirement for DNSPs to make a connection offer within 65
working days but with 40 per cent of projects taking greater than 12 months (SV
2010, p.i) this suggests the current arrangements could be significantly improved.
The Commission considers there is a role for increased monitoring and reporting of
DNSPs performance on connecting medium-scale embedded generators. Also
establishing processes that allow the ‘clock to stop’ while the distributed generator
proponent responds to information requests, but not to be reset, would encourage
DNSPs to identify and communicate information requirements early so DNSPs retain
sufficient time to subsequently reach a decision.
Shortening the timeframes would improve integration at an operational level, by
allowing the distributed generator connection to progress at the same rate as a
broader commercial building approval process. Timeframes, however, need to
allow DNSPs to perform the tasks required of them and if longer than 65 working
days is required, this should be recognised in the process so developers have clarity
for their decision making.
The Commission considers that the evidence of a problem in conflict resolution
arrangements is not convincing. Responsibility for these arrangements is moving from
the ESC to the AER whose arbitration processes for distributed generation are largely
untested. Resorting to regulated arbitration should be a last resort as using commercial
mediation in advance of arbitration would reduce the costs of dispute resolution and
would help remove barriers to distributed generation. The CEC supported this position
(sub. DR197, p. 24).
With the movement to national regulation of the energy market, national mechanisms
are the preferred avenue for addressing medium-scale connection barriers. The
Commission considers that the Proposal to amend the NERs for connecting embedded
generators by ClimateWorks, Seed and the PCA has the potential to address many of
the opportunities for improvement, including information on processes, standardised
108
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION
processes and specific timeframes (ClimateWorks et al. 2012, pp.7, 15 & 26). As noted
this proposed amendment also has the potential to establish an automatic right to
connect and export for distributed generation projects that conform to specified
standards (section 6.4). The Commission considers the best course is that the Victorian
Government supports those aspects of the rule change request that address the
problems identified in this report.
If the rule change is not implemented by June 2013, the Commission suggests the
Victorian Government expedites options to reduce barriers to distributed generation
using Victorian regulatory instruments that sunset once equivalent national regulatory
instruments are introduced. Options that align with chapter 5A would be consistent with
Victoria’s commitment to work with other jurisdiction to harmonise arrangements prior
to the introduction of chapter 5A and should relieve participant concerns about
national consistency (UE, sub. DR199, p.4). The Victorian Government might consider:

If the NECF has been introduced, using Victorian regulatory instruments (for
example, distribution licences) to require DNSPs in Victoria to establish efficient
connection arrangements by incorporating them into standard connection offers
that are submitted to and approved by the AER.

If the NECF has not been introduced, adding the wording from the relevant clauses
of chapter 5A to the EDC, to establish standard and negotiated connection
services. The Victorian Government could pass legislative amendments to the
Electricity Industry Act 2000 (Vic) to require these to be assessed and approved by
the AER.
The rule change proposal by ClimateWorks, Seed and the PCA came forward
during the course of this inquiry. The CEC’s submission signalled it intends to submit
a rule change and others may come forward in the future. The Victorian
Government should support these initiatives on their merits where they provide
net benefits to the Victorian community.
Recommendation 6.1
That, to facilitate efficient connection of medium-scale distributed generators up to
5 MW, the Victorian Government support initiatives that:

clarify minimum technical standards and cost sharing arrangements that would
support a right to connect and export

improve information on the connection process, including publishing
Sustainability Victoria’s guide to distributed generation connection in Victoria

improve exchange of information and engagement between the distribution
network service provider and distributed generator early in the connection
process

standardise and simplify connection processes and incorporate more reliable
timeframes.
In the first instance, the Victorian Government, through the Department of Primary
Industries (DPI), indicate to the AEMC its support for those aspects of the
ClimateWorks, Seed and PCA Proposal to amend the National Electricity Rules for
connecting embedded generators that progress the above objectives. DPI should
make the AEMC aware of this view during the AEMC’s consultation process on the
rule change proposal.
Should these issues not be resolved through the national rule change process by June
2013, the Government, subject to a positive cost benefit assessment, use Victorian
regulatory instruments such as adding a licence condition requiring distribution
network service providers in Victoria to establish such standards and rights.
CONNECTING GENERATORS TO THE DISTRIBUTION NETWORK
109
6.6
Cost savings from improved medium-scale
connection process
The connection process for medium-scale generators is lengthy, complex and
uncertain and can have a major (but unverified) impact on the financial viability of
projects.
A Property Council of Australia survey of its Victorian members in 2010
indicated that there were 23 co/trigeneration proposals being considered
for implementation in the CBD, Docklands and city fringe areas. Nineteen of
the projects identified were expected to proceed in the relatively short
term. A saving of one week for each of these projects is a reduction of over
$1 million in holding costs alone5. (ClimateWorks et al. 2012, p.19)
There would also be savings in rework and design:
One of the UBC Project members quoted a cost of $200,000 in engineering
design work to rework the design package in response to changes required
by the DNSP. (ClimateWorks et al. 2012, p.19)
There is significant potential for cost-effective distributed energy in Victoria. The Institute
for Sustainable Futures (ISF) claimed that strategically planned and implemented
decentralised energy projects could reduce electricity sector emissions by 6.2 per cent
and save consumers around $437 million per annum by 2020 (ISF 2012). The current
share between household-scale and medium-scale distributed generation suggests
much of this growth would be in medium-scale plant.
In the Commission’s view, while it is difficult to be precise the adverse impact of
connection barriers to medium-scale distributed generation are likely to be material.
While improvement to the connection process would be helpful, it is the efficiency of
incentives for DNSPs to invest in their networks and the cost sharing arrangements
(chapter 5) that are likely to make the most significant difference to removing barriers
to distributed generation.
The PCA assumes holding costs of $50,000 to $70,000 per week for commercial property projects. Nineteen
projects x $50,000 = $1,140,000.
5
110
POWER FROM THE PEOPLE: INQUIRY INTO DISTRIBUTED GENERATION