With Labour announcing a shake up of embedded network competition rules, we dissect what the implications might be for embedded network owners and operators.
Last month, Victorian Planning minister Richard Wynne announced that a re-elected Labour government would introduce a ban on developers locking in their customers to the same electricity and gas contracts.
This has been dubbed by some as a "ban on embedded networks".
Other than details provided at a press conference, details on the policy are sparse. It is not clear what is meant by a ban on "single network providers". Given that the whole distribution and transmission system currently relies on single network providers for specific areas, this needs further explanation.
So what has triggered this political response?
The justification of policy response is clear. Embedded networks providers in Victoria and other states have been notorious for putting profit before customers. Currently, an embedded network operator can not charge more than "the relevant maximum price formulated by the Essential Services Commission". This is a relative weak customer protection, with the ceiling set at or close to standing offer rates, which are about 20-30% higher than market offers that most customers are typically on.
But residents of apartment buildings powered by embedded networks now enjoy the protections of Power of Choice rules introduced late 2017. Under these protections, residents can seek offers from other retailers and "churn" from an embedded network onto an typical market offer. We have yet to see this tested but customers are no longer "locked into deals they can't get out of".
Bolster consumer protections instead of banning embedded networks
We see this policy announcement as an over reaction and that cooler heads will prevail. In our view, the Victorian government should look to bolster protections for customers of embedded networks rather than banning them altogether. One way this might be achieved is by further integrating embedded network operators into the australian energy market with B2B integration, thus making it easier for retailers to bill embedded network customers and further reducing the barriers to churn away customers.
From our experience, embedded network can deliver sustainable income to embedded network operators and very affordable and competitive energy to residents.
...embedded networks enable renewables to be offered to people that otherwise would not have access to it.
In addition, embedded networks enable renewable energy to be provided to people that otherwise would not have access to it. This is at odds with the Victorian government's very pro-renewables agenda.
With Labour now firmly elected and the policy details still to be refined, we are confident that a less draconian approach to protecting customers will be found.
James Allston is the Managing Director of New Energy Ventures, a Melbourne-based management consulting firm who advises developers on how to set up embedded networks to benefit all stakeholders.