September 13, 2021
Australia’s energy sector is in the throes of an energy transition to reach net-zero emissions by 2050 and is being driven by the evolving power supply mix, ageing infrastructure, weather, changing technologies and consumer preferences. It is critical for all energy participants to understand the regulatory and enforcement frameworks within the energy sector to increase certainty and maximise compliance.
Australia’s Commonwealth, State and Territory governments entered the Australian Energy Market Agreement (as amended in December 2013) which aims to establish a regulatory framework that:
- strengthens the quality, timeliness, and national character of governance of the energy markets to improve the climate of investment; and
- streamline and improve the quality of economic regulation across the energy markets to lower the cost and complexity of regulation facing investors, enhance regulatory certainty and lower barriers to competition.
Regulatory Framework
In May 2020, the former Council of Australian Governments Energy Council was replaced by the Energy National Cabinet Reform Committee (ENCRC). The ENCRC implements national energy legislation in each participating State and Territory and establishes three separate national energy market institutions:
- The Australian Energy Regulator (AER): Regulates the wholesale electricity and gas markets in all jurisdictions (except Western Australia). The AER operates under the Australian Competition and Consumer Act 2010 (Cth) and enforces the rules established by the AEMC.
- The Australian Energy Market Commission (AEMC): Develops the market rules by which the market must operate. Specifically, the AEMC makes and amends the National Electricity Laws, National Gas Laws and National Energy Retail Laws. The AEMC is also the energy advisor to Australian governments.
- The Australian Energy Market Operator (AEMO): Manages the day-to-day operation of the energy markets to allow energy, or other energy related services, to be brought and sold in a competitive environment. The AEMO also proactively shapes Australia’s energy future to support efficient investment, operations, and policy decisions.
The structure of the above government bodies is designed to provide for institutional separation of powers and responsibilities.
The Australian Renewable Energy Agency (ARENA) was introduced as a statutory body responsible for the funding and administration of existing renewable energy funding and technology innovation projects. Last year, the Australian Government announced a total funding package of $1.62 billion for ARENA including guaranteed baseline funding of $1.43 billion over the next ten years. The funding will facilitate critical innovation in Australia’s energy markets.
How is the energy regulation aligning with the energy transition?
As discussed in Going green – the energy transition there are many challenges in delivering new technologies to the market via construction projects which requires considered legal and strategic approaches. Energy participants should take steps now to ensure that projects transitioning to newer technologies remain effective and cost efficient.
Developments to the National Electricity Market
On 26 August 2021, The Energy Security Board (ESB) provided its advice to the ENCRC on the redesign of the National Electricity Market (NEM).
The ESB recommended:
- Four pathways to manage the energy transition by: (a) Providing the governments with tools to organise extra supply through a new-opt in strategic reserve; (b) Triggering the current retailer reliability obligation; (c) Incentivising the market to bring forward the right energy mix; and (d) Increasing transparency to the market by requiring generators to provide more information about early exit and power supply status;
- Build new transmission projects through the actionable Integrated System Plan with a congestion management mechanism to encourage more generation into renewable energy zones that share costs;
- Properly harnessing latent demand side flexibility and solar PV that will make the electrical grid more productive; and
- Strengthening the power system with new technologies like large-scale batteries and flexible demand.
Developments to National Gas Laws
On 3 May 2021, the Decision Regulation Impact Statement – Options to Improve Gas Pipeline Regulation was released identifying a package of reforms to gas pipeline regulation.
The preferred Option 3B (if implemented) will, among other things:
- Require all gas pipelines to provide third party access;
- All pipelines will be subject to two forms of regulation (either stronger or lighter);
- Likely to increase investigations and assessments through the relevant regulator if market power is suspected of being exercised;
- Increase in administrative burdens and costs for compliance as all market operators will be required to publish information (unless exempt); and
- Facilitate joint dispute hearings by requiring the existence of a dispute to be made public and setting out the process for joining parties.
Stakeholder feedback on the reform package is sought by 14 October 2021.
New penalties to be aware of
The Statutes Amendment (National Energy Laws) (Penalties and Enforcement) Act 2020 (SA) came into effect by proclamation on 29 January 2021 amending National Energy Laws.
The new provisions will:
- Unify national electricity, gas and energy retail regulations through a three-tiered penalty structure that will see increased penalties of up to $10 million (or more for larger companies) for non-compliances;
- Implement respective infringement notices to apply for each penalty Tier; and
- Provide the AER with wider powers to compel a person to appear before it to provide information, evidence or documents.
The significant amendments to penalties and looming energy reforms reinforces the requirement for energy participants to act now to ensure that they remain compliant with the evolving and complex frameworks.
Lamont Project & Construction Lawyers
Our Team have the industry knowledge and experience to assist both Principals and Contractors in all major projects, including the energy sector. If you would like to discuss any matters raised in the above article or the forthcoming series as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Natalie McNeill
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