The City of Sydney has slammed the Australian Energy Market Commission’s decision to dismiss a rule change request designed to incentivise local energy generation and sharing, which was put forward by the City, Property Council and Total Environment Centre.

Sydney Lord Mayor Clover Moore said she was “dumbfounded” by the AEMC response to completely dismiss the rule change on the basis of costs, particularly as modelling from the University of Technology Sydney’s Institute of Sustainable Futures showed a similar proposal could save more that $1 billion by 2050.

The rule change proposed a system of Local Generation Network Credits designed to reward local generators for benefits they provide in supplying electricity during peak demand and reducing the need for network augmentation. The City of Sydney said the credits to local generators such as trigen plants and renewable installations would cost “significantly less” than building new power lines, and would help to create a modern decentralised renewable energy system.

Much of the argument has come down to cost, and the modelling used to estimate it.

Unlike the ISF modelling, which excluded small solar systems (as there was found to be little benefit rewarding household systems that would likely be installed regardless) the rule change request put forward didn’t expressly limit which systems could apply. The AECOM modelling used by the AEMC to make its draft determination thus didn’t limit system size. It also only considered solar systems in its modelling because they were seen to be the main beneficiary.

The City of Sydney has now put in a submission in response to the draft determination, saying that other energy sources like trigen, wind and bioenergy need to be considered, and if solar system eligibility were limited then small-scale solar would not be the biggest beneficiary. It said it was “irrational” to have dismissed the ISF modelling for the “selective” AECOM analysis.

The City has recommended the AEMC consider solar system size limitations in its final determination.

Another reason the ISF’s $1.2 billion benefits were not accepted by the AEMC was due to different assumptions in the rate of growth in peak electricity demand to 2050, with the ISF assuming a 0.6 per cent rise a year and the AEMC using a 0.2 per cent rise, based on Australian Energy Market Operator predictions.

“Another way of expressing this is that the Commission’s choice to not implement an LGNC will lead to higher consumer prices unless peak demand is almost static for the next three and a half decades,” the City’s submission said.

“Given the significant errors in recent forecasts of peak demand, the timeframe of these forecasts and the major changes to energy markets that can be expected by 2050, we do not consider that this is a credible basis for rejecting the findings of a net benefit by the ISF.”

Ms Moore said the recent South Australian storm events provided an example of why change was needed.

“As we recently saw in South Australia, cities like Sydney cannot be too reliant on centralised energy networks. We need decentralised alternative options,” she said.

“Our population is growing, especially in the capital cities and urban centres. As demand for electricity grows and our infrastructure continues to age, we should be doing all we can to ensure catastrophes such as we recently saw in South Australia don’t happen again.”

She said energy regulators also needed to catch up with changing preferences and technologies, or face the consequences, which could include grid defection.

“Our current regulatory regime was designed for the 20th century, where one-way centralised energy supply was the only way to go.

“Currently decentralised energy projects are not able to access funding for the value they provide to the network. This makes them more costly to get off the ground.

“If networks don’t develop fair, efficient pricing for local generation, consumers will increasingly avoid the network by locating generation off-the-grid – increasing prices for the customers who remain and have to pay for the poles and wires already installed.”

Like many other energy commentators, Ms Moore said climate change also needed to be included in the National Electricity Objective “so climate policy and energy markets start working together”.

“The Commission needs to properly address the inadequacies of its draft determination, better consider alternative proposals, and wait for the outcomes of the independent review into the National Electricity Market which is underway,” she said.

“Our growing population and aging electricity network need more reliability and the answer lies in alternative, decentralised energy sources such as trigeneration and solar power.

“This is a great opportunity to modernise Australia’s energy regulations, encourage alternative cleaner sources of energy and offer our aging electricity networks more reliability.”

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