To investigate the regulation of clean, smart, customer-centric energy networks

The most important conclusion from my Churchill Fellowship is where there is the clearest vision, articulated at the political, policy and regulatory levels, there is the most progress in developing clean, smart, customer-centric electricity networks.

Innovation and the decarbonisation of the energy system cannot succeed in the time required without a long-term strategic vision. Australian government leadership is necessary to decarbonise energy systems and deliver better outcomes for consumers. Both the policy-making and regulatory bodies need to be ‘strategic, mission-oriented public institutions’ where the mission is decarbonisation with improved outcomes for consumers.

Simplified governance by creating a lead policy maker can support clearer accountability. In the UK, the IGov project at the University of Essex has advocated an ‘Energy System Transformation Commission’ while New York State’s Public Service Commission has provided the clearest articulation of the three future roles of what is generally being termed a Distribution System Operator (DSO).

There is some support for planning being undertaken by an independent body, as is already the case for transmission in many jurisdictions. The clear need to realign the objectives of distribution network owners with decarbonisation and consumer objectives suggests that performance-based regulation is a better model for the energy transformation than traditional rate-based economic regulation.

Performance-based regulation needs to enable innovation and risk-and-reward sharing between distribution businesses and consumers (or taxpayers). In Australia we are a long way from the static networks for which the current form of CPI-X revenue regulation was developed.

Policy and regulation can set a direction, but distribution businesses are not passive recipients and have the potential to shape their own business model, speed of decarbonisation and modernisation. This report makes some very tentative observations about cultural change in utilities, but deeper research is required. In Australia there is a need for systems thinking and for the Australian government to articulate a vision for this massive and ongoing energy transition.

My Fellowship suggests considerable deliberation on the type of institutions, governance, visions for electricity distribution networks and the corresponding revenue regulation in Australia that would enable energy transition and rapidly reduce greenhouse gas emissions.

Keywords: Electricity, distribution networks, regulation, distributed energy resources, distribution system operator, institutions, decarbonisation, electrification, public interest, utilities, poles and wires, climate change, energy, renewable energy. Relevant Media Articles 2019-03-05, Forbes (Online) - Maximizing Distributed Energy Resources: Global Insight On Distribution Grid Regulations