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Taking the embedded network industry's pulse: An exemption analysis

Updated: Aug 24, 2020

It’s well established that embedded networks can be a win for customers through reduced power bills, increased solar penetration, and easier carbon offsetting (to name just a few things). But…

  • how popular are they, really?

  • And, what kind of interesting stuff are they enabling?

We set out to answer these questions by analysing the Australian Energy Regulator’s (AER’s) public registers of exemptions, and in the process we uncovered some interesting insights:

  • Who the biggest embedded network operators are

  • Which property trusts have the most embedded networks

  • Which states love embedded networks the most

  • And all the imaginative stuff going on that are using individual exemptions

Read on for the full breakdown!

Why analyse exemptions, and what are they?

Exemption data is interesting because it provides some insight into the market activity of embedded networks.

Today, someone that owns, controls or operates an embedded network that supplies electricity to a third party must operate under a network exemption (or be an authorised distributor). And in addition, someone who sells energy (this includes, but is not limited to, gas and electricity) to a third party within an embedded network must do so under a retail exemption (or be an authorised retailer).

Exemptions can be deemed, registrable, or individual.

  • Deemed exemptions are for smaller embedded networks - generally fewer than ten customers

  • Registrable exemptions are generally for larger embedded networks and must be applied for with the AER. A registrable exemption must be published on the AER’s public register of exemptions in order for it to come into effect.

  • Individual exemptions are for those activities which are applicable to neither the deemed nor registrable exemption classes. These are very novel situations and are quite rare.

We are most interested in registrable and individual exemptions. Registrable exemptions, especially network exemptions, are a reasonable predictor of the market. I say reasonable because there is likely a degree of non-compliance in the market.

Network exemptions are more telling than retail exemptions as every private network that supplies energy to greater than 10 customer in all states of the National Electricity Market (i.e. NSW, VIC, QLD, SA and TAS) must be registered.

Retail exemptions are less interesting as they don’t give you a full picture of the market. This is because:

  1. Victoria has not adopted the National Energy Retail Law and hence the national exemption framework, and

  2. Embedded networks who are authorised retailers (i.e. hold a retail license) can sell without an exemption.

Individual exemptions are also particularly interesting as they provide insight into the innovative thinking going on in the market.

What are the registrable exemption trends?

We were interested to see the market trend of both residential and commercial embedded networks. To do this we looked at:

  • Residential: class NR2 for network exemptions and class R2 for retail exemptions

  • Commercial and Industrial (C&I): classes NR1 and NR5 for small and large customer network exemptions and classes R1 and R5 for small and large customer retail exemptions

To do this we scraped the data from the AER’s public registers of network exemptions and retail exemptions.

Our findings are below:

C&I exemptions are most popular, but residential exemptions are catching up

Immediately, we can see that C&I networks are more common than residential, but residential networks are trending upward with an annual growth rate of 67% in exemption registrations between 2014 and 2019. Residential embedded networks look set to be more common than commercial embedded networks within a few years. We note though that it is not uncommon for an exemption to have both residential and commercial elements as shown below. Additionally, a site may have separate exemption applications for residential and C&I, which we have not accounted for.

Most embedded network applications are C&I-only or residential-only

We can see that there’s a slowdown in the number of exemptions coming into 2019. We have two thoughts on why this might be the case:

  • A backlog of exemptions being processed by the AER is the most likely cause. This was semi-confirmed by sources at the AER.

  • Residential construction hit its peak in 2017. Given that there’s generally a delay of a couple of years between construction starting and exemptions being sought, it could be the result of a construction slowdown. It will be interesting to see next year’s numbers to see if there is a bounce to confirm this hunch.

(All-in-all, we see the industry as very much alive and well!)

Another interesting feature was the sudden increase in the number of retail exemptions in 2015. This was a result of the National Energy Customer Framework coming into effect in Queensland on the 1st of July 2015 - meaning a sudden influx of retail exemptions for existing sites.

The difference between the number of network and retail exemptions (for states other than VIC) provides an indication of the prevalence of embedded network operators who are authorised retailers selling energy within embedded networks. The graph below highlights this difference. As of 2020, it appears that C&I embedded networks usually rely on retail exemptions. In our view this is because most C&I property owners want to capture the full value of the embedded network themselves and have the required skillset. On the other hand, residential embedded networks rely on a retail exemption only about two thirds of the time, showing a lower number of self-run embedded networks and a large market share for Origin, WinConnect, Momentum, Evergy, and other embedded network operators with retail authorisations.

(VIC excluded) There's a one-to-one ratio for C&I retail/network exemptions, compared to 2:3 for residential

Where are exemption holders located?

Looking at the breakdown by state, below, we can see that embedded networks are most common in Queensland, followed by Victoria and then New South Wales (based on only network exemptions, since not all embedded networks have a retail exemption, as described above).

Queensland is by far the dominant embedded network market

Who are the biggest exemption holders?

Using the ABNs in the register we can perform an analysis of who’s operating embedded networks. The plot below shows the number of retail exemption applications made by the most prolific companies. The values shown are lower bounds only, as most companies use multiple ABNs and we may have missed some. This doesn’t show any large ENOs because they don’t need to obtain retail exemptions or might only be providing billing and customer service functions.

The top retail exemption holders tend to be property trusts

We’ve performed the same analysis for network exemptions, below. This gives us an indication of who’s operating embedded networks, not just performing billing for them. You’ll notice that for network exemptions we see the big players – WinConnect, OC Energy, Origin, etc. – because every embedded network with over ten dwellings must have a network exemption.

From this we also conclude that Origin Energy (having acquired OC Energy) is firmly the biggest player in the market, with WinConnect coming in second.

The list of top network exemption holders clearly highlights the industry incumbents

What’s happening with individual exemptions?

In the public registers of exemptions there are only 237 individual exemptions, of 9027 total. These hold some interesting insight into innovation in the energy market.

Of the 237 individual exemptions:

  • 41 are for network and 196 are for retail.

  • 230 are for electricity, 6 are for gas, and 1 is for both (an islanded microgrid).

  • 100 are retail exemptions for power purchase agreements (PPAs) obtained from December 2013 to September 2016. The AER eventually introduced a registrable exemption class in 2016 which covers this activity.

  • 57 are retail exemptions for brownfield embedded networks, established after January 1st, 2015. This shows that the number of brownfield embedded networks is still pretty low. This is unsurprising to us given they are pretty damn hard to establish due to the requirement for a large majority of end customers to agree to establish them.

  • 9 (at least) are related to mines, one of which is not connected to the main grid.

  • 4 are used by transmission and distribution businesses for asset structuring.

  • 4 are for islanded microgrids, three of which are for island-based resorts, and one of which is for an industrial area. At this point it is worth noting that an exemption for an islanded grid is only required in Queensland. Otherwise, if you are not connected to the national grid then the National Electricity Law does not apply.

  • 5 are related to energy export into the main grid. For example, a smelter obtained an exemption covering their switchyard in the event that their on-site generation was exported to the grid.

  • 2 are requests for confirmation from the AER that a registrable exemption is appropriate, but which were granted an individual exemption. Seems like over kill to us.

  • The remaining individual exemptions are for various scenarios unrelated to embedded networks. Nearly all are legacy or now covered by registrable exemption classes. Examples of the remaining individual exemptions are large industrials selling to adjacent sites or PPAs with terms longer than ten years.

There are two individual exemptions that specifically caught our eye.

There was an individual exemption granted to Enwave Tonsley in September 2019 in order for them to provide a retailer of last resort for their gas embedded network in the event that Tas Gas Retail should fail. What’s notable about this exemption is that it provides some precedence for use of the exemption framework to enable cross-boundary supply. All deemed and registrable exemption classes allow for a single site only.

An exemption was denied to GridX in May 2007 for an embedded network that was able to export but not import from the main grid. The embedded network was to be powered by buried gas-fired generators located on-site. There would be no mechanism for customers to obtain their energy from any source other than GridX.

There’s a trove of additional data in the public registers. Here at NEV we love this kind of analysis, and we’d love to help you unpack this data further. If you’re interested in additional analysis - get in touch with Michael via email:



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