Generation, Distribution, Retail.
There are three (3) key elements to electricity supply: Generation, which involves the power stations that generate electricity; Distribution, which is the network of poles and wires that take the supply from the generators and deliver it to the end consumer premises, both residential and commercial; and Retail, who are the companies that connect you to the distribution network and provide your power bills.
Market Overview
The Australian Energy Market itself is a complex system with different requirements from State to State, with various forms of deregulation impacting electricity supply.
Nationally, the market is controlled at a Federal level by several different government bodies, the Australian Energy Market Commission (AEMC), the Australian Energy Market Operator (AEMO), and the Australian Energy Regulator (AER). Each of these bodies has a responsibility to the Energy and Climate Change Ministerial Council, a Ministerial forum for the Commonwealth, States and territories to work together for national energy reforms.
The legislative framework is governed by the National Energy Rules (NER) as well as specific requirements within each of the States, as not all fully participate in the National Scheme. Victoria is an example of this and the energy industry is governed by the Energy Retail Code, developed by the Essential Services Commission Victoria (ESC Vic).
The Victorian Default Offer
The ESC independently regulates essential services in Victoria. Primarily, the ESC is responsible for protecting customers by watching over the pricing, quality, and reliability of these services. The Victorian Default Offer (VDO) is a simple and trusted electricity price set by the ESC, not energy companies. It’s designed to be affordable for all customers and acts as a price ceiling: no matter what retailer you are will, they must offer this price as part of their plans. This incentivises retailers to try and make their rates cheaper as a means of attracting more customers. VDO prices are the maximum price for all residential and small business customers (those who consume less than 40-megawatt hours of electricity per year) in Victoria, which also applies within Embedded Networks.
The VDO is generally considered to be the most important piece of Energy Regulation that customers should be aware of. Whilst the VDO is exclusively applicable to Victoria, states that are a part of the National Energy Market (NSW, Queensland, SA, and Tasmania), a Default Market Offer (DMO) may apply to energy costs.
Local Energy Networks/ Electrical Embedded Network
A Local Energy Network (LEN, previously known as an Embedded Network) can often be found in multi-tenant developments such as shopping centres, apartment buildings, retirement complexes, and industrial estates. These are private electricity networks that are generally owned by the owners of the multi-tenant development and operated by companies such as Energy On.
LENs operate under exemptions from the requirement to have a Retail License for selling energy, issued by the AER nationally and the ESC in Victoria. These exemptions authorise the embedded network to replace both the Distribution and Retail components of the Australian electricity market.
LENs must operate under the same rules as the rest of the electricity market and, when operated properly, provide competition to both Distributors and Retailers. This competition is designed to provide value to the owners of the network as well as to those who occupy premises within these networks.
For more information about LENs, please visit our website. For general information about Embedded Networks, you can also visit our website here.
