Lyle De Sousa

Collaborate with regulators and networks for some good results in renewable energy

There’s been bad news on the carbon tax and on the Renewable Energy Target, but at the same time we are about to enter a fascinating period with a raft of changes that include energy storage purchase agreements, aggregation, electric vehicles and new draft rules from the Australian Energy Market Commission on how distribution businesses can charge for network access, according to Lyle De Sousa who will speak on these issues at the All-Energy Australia 2014 event in Melbourne on 15 and 16 October.

Australia’s model of electricity regulation is admired across the world – our eastern seaboard’s pioneering National Electricity Market being the shining star. But, aspects of our current regulatory model are challenged by the renewable energy sector.

Inception of new commercial models related to retail, generation, storage, control protocols and metering throw up difficult questions. The renewables industry shows the potential for new ways to give consumers more certainty over cost and security of electricity supply.

The speed and smoothness with which this potential can be realised depends on renewable project developers learning to collaborate and negotiate more effectively with network businesses and regulators.

Each side needs to have a better understanding of the other’s drivers. It also means working within, and sometimes taking a more creative approach to, the existing regulatory framework.

Relationship management is central. Failure to engage properly with network operators and regulators is a key project risk. Projects have foundered or been exposed to significantly inflated project costs because of this.

Some blame rests with incumbent organisations, which could be more customer-focused. But, project developers and their engineering consultants regularly trip themselves up. Often they are not sufficiently resourced to navigate and negotiate the complexity of their regulatory, commercial and engineering obligations.

Take, for example, a project involving network connection. It pays to remember the network business’ raison d’être is to provide reliable and secure supply to all customers in the franchised area. An application for connection should never be viewed merely as anexercise in “ticking the boxes”. It is a process of establishing a deep professional working relationship with the relevant personnel within the network business itself. The larger and more centrally located the project, the more important this objective is.

You will need not only to understand basic issues like the network’s existing fault level constraints and power factor requirements, but also questions such as the network’s land access needs. Negotiations on prudential and financing issues can also be thorny.

It is therefore essential to develop rapport with network personnel in relevant subject-matter areas and within the organisational hierarchy. Project management expertise should support this process.

It is comforting to know some network businesses themselves are slowly, but surely, adapting. Renewable energy project developers should be heartened. For example, Citipower/Powercor’s new chief executive, Timothy Rourke, is overseeing a gradual restructure. He wants to ensure his organisation is customer-focused and ready to meet the challenges of the coming century.

Regulatory change in the sector also is a constant. The renewables sector ignores this fact at its peril. Recently, the Australian Energy Market Commission issued its draft rules on how distribution businesses can charge for network access. Amendments such as this have a direct impact on the viability of renewable energy projects.

However, rule variations do not happen in isolation. The renewable energy sector has the ability to not only provide direct input to regulatory processes, but initiate revisions to the regulatory regime. The industry needs to be more cohesive, educated and professional in its approach to do this effectively.

Despite the demise of the carbon tax and the cloud over the Renewable Energy Target, we are about to enter a fascinating period. Ever newer commercial models such as storage power purchase agreements, aggregation of small generation and energy storage, and innovative retail services are emerging. Deployment of electric vehicles is on the horizon.

To succeed now and into the future, the renewables industry needs to work with the regulatory framework we have. Commercial, engineering and regulatory realities must be confronted and creatively addressed.

Developing workable relationships with existing network businesses and regulators is essential. This will require greater professionalism and acumen from the renewable energy sector.

The renewable energy industry will thrive if it does this well.

Lyle De Sousa is principal of Legal Energy Lawyers & Consultants and has previously worked with the Australian Energy Market Operator (and its predecessor, VENCorp) and has also been engaged by the Australian Energy Market Commission to help draft aspects of the National Electricity Rules in relation to connection of embedded generators and in developing transmission network connection policy.