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Australia – What Is The Future For Qld’s Electricity Sector For The Next 5-yrs & 30-yrs?

30 September, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Energy & Project Finance

 

WHAT YOU NEED TO KNOW

 

  • The Discussion Paper for the 30-Year Electricity Strategy for energy reform in Queensland has been released.
  • The Discussion Paper provides for substantial immediate and long term changes to the electricity industry, particularly for price-setting and monitoring, tariff structures and the frameworks and strategies used to regulate the Queensland electricity market.

WHAT YOU NEED TO DO

 

  • Industry participants should review the Discussion Paper and provide submissions to the Department of Energy and Water Supply by 6 December 2013.

On 11 September 2013, the Queensland Government released the 30 Year Electricity Strategy Discussion Paper (Discussion Paper). The Discussion Paper represents the second stage of reform of Queensland’s electricity system. A full copy of the Discussion Paper can be found here, along with supporting materials here.


The intention of the Discussion Paper is to gauge a response from Queensland consumers and the electricity industry before release of the final strategy in 2014. The Discussion Paper follows the closure of submissions by the public and industry on a Directions Paper in January 2013, which raised issues across all aspects of the electricity supply chain.

 

The 30-Year Electricity Strategy


In May 2012, the Interdepartmental Committee (IDC) on Electricity Sector Reform was established by the Queensland Government, identifying challenges being faced by the electricity sector and making a number of recommendations.
In June 2013, the Queensland Government endorsed the IDC’s strategies to:

 

  • stop building unnecessary infrastructure, improve efficiency;
  • maximise benefits of competition while protecting consumers; and
  • develop a more effective role for government.

The 30-Year Electricity Strategy seeks to further develop these and other recommendations of the IDC.


Objectives of the 30-Year Electricity Strategy


The government’s vision is for Queensland’s electricity supply system to be resilient, cost-effective and customer-focused. To help achieve this vision, the strategy encompasses several objectives, which include ensuring the existence of a competitive market allowing new suppliers entry, whilst encouraging innovation. Part of this requires regulation which does not preclude market entry and reduces government intervention.


Another main objective of the strategy is to ensure a secure, reliable and sustainable electricity supply system which is able to withstand damage and stress, provide sufficient power at a suitable quality and endures over time, as well as mitigating the environmental impacts of electricity use.


The Discussion Paper identifies immediate and future challenges in the electricity industry and proposes possible changes to address these challenges. The Discussion Paper is separated into two parts, immediate challenges for the next 1-5 years and future challenges in the next 6-30 years.


Part 1: Key changes proposed to meet immediate challenges (1-5 years)


The immediate challenges identified and changes proposed for the next five years include the following:


a) Improve competition in retail markets. It is proposed to remove regulated price-setting for the South East Queensland retail electricity market and replace it with price monitoring by 1 July 2015 (subject to certain preconditions). Following the move to price monitoring, the strategy proposes applying additional customer protections (including publishing a standing offer) and moving towards a network-based Community Service Obligation (CSO) subsidy within three years in regional areas (in parallel with Ergon Energy’s retail reforms and to allow access for other retailers). The government will also retain a reserve power to reintroduce a retail price regime.


b) Strengthen customer protections. It is proposed to implement the National Energy Customer Framework in Queensland in 2014.


c) Reform tariffs to address costs and provide greater customer control. It is proposed to develop a long-term electricity tariff strategy by July 2015. A revision of tariffs will allow for real time pricing, critical or dynamic peak pricing, or capacity based tariffs.


d) Develop a demand management and energy efficiency strategy. It is proposed to develop a strategy which can deal effectively with peak demand.


e) Enable improvements in metering services. It is proposed to implement a customer-driven rollout of advanced meters, which could encourage time of use metering and revised tariff mechanisms. A voluntary rather than a mandatory roll out is contemplated.


f) Support customer-focused reliability standards. It is proposed to move towards a customer reliability framework guided by the work of the Australian Energy Market Commission.


g) Improve consultation practices for network extensions. It is proposed to improve the consultation process for network extensions to reduce community disruption without stalling investment.


h) Improve the operation of the gas market. It is proposed to avoid direct intervention in the gas market through use of prescriptive regulatory mechanisms such as reservation policies.


Comments


There are some key issues not dealt with in the Discussion Paper which are likely to arise in the next five year horizon, such as:

 

  • the impact of microgeneration on the network and the subsidies paid by consumers for the already installed units;
  • the analysis of the benefits of privatisation of the government electricity industry;
  • the mechanisms to support environmental outcomes and deal with the Federal carbon and renewables programs;
  • promotion of new technologies into network outcomes; and
  • domestic gas supply arrangements.

A number of these matters are instead identified for the 6-30 year horizon, which raises doubts about the likely progress of necessary significant reform for the sector.


Part 2: Future challenges for the electricity industry (6-30 years)


The 30-Year Electricity Strategy also seeks to develop a robust policy and regulatory framework that will remain effective over the long term. Part 2 of the Discussion Paper identifies future challenges over the next 6-30 years for the electricity industry, using scenario analysis to consider a range of transformative factors and their potential impact on the sector. It includes three possible projection models for the future of the market up to 2042.


In the longer term, the strategy will seek to attract investment, with the potential sale of governmentowned generation businesses such as Stanwell and CS Energy. This will require review of the CSO subsidies currently provided to retailers such as Ergon Energy. It is also proposed to reform the linear supply chain at a national level, through collaboration across National Electricity Market (NEM) jurisdictions.


Next steps


All customers and industry participants should review the Discussion Paper and the implications of the proposed strategy. As appropriate, submissions can be made to the Department of Energy and Water Supply, or via an online survey available here until 6 December 2013. The final strategy will be published in early 2014, including an implementation plan for short to medium term actions and providing for ongoing monitoring of the electricity market. 


To support collaboration across NEM jurisdictions, the Minister for Energy and Water Supply will also host an Electricity and Water Forum in 2014.

 

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For further information, please contact:

 

Paul Newman, Partner, Ashurst
paul.newman@ashurst.com


Peter Limbers, Partner, Ashurst
peter.limbers@ashurst.com


Teresa Scott, Ashurst
teresa.scott@ashurst.com


Richard Robinson, Ashurst
richard.robinson@ashurst.com


Yun Ho, Ashurst
yun.ho@ashurst.com

 

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