Embedded generation is a form of electricity generating plant that is connected to the electricity distribution networks. These are owned and operated by Distribution Network Service Providers (DNSPs). These so-called 'embedded generators' produce power from a broad range of sources, including natural gas, solar and wind. They may be used to power commercial buildings, shopping centres, recreational facilities such as swimming pools, or entire precincts.

Embedded generators offer a wide range of benefits, including:

  • the opportunity to reduce investment in network infrastructure
  • an energy source that is more efficient than most conventional energy sources
  • reduction in greenhouse gas emissions
  • the potential for enhanced security of supply.

In order to fully meet the energy needs of the facilities that they serve, embedded generators may need to obtain supplementary power from the national electricity grid. In addition, when an embedded generator has produced surplus power, there may be benefits in exporting this surplus to the grid for sale on the National Electricity Market (NEM). Connection of embedded generators to the grid is necessary in both cases.

Maddocks was involved in the preparation of a proposal made in 2012 by ClimateWorks Australia, Seed Advisory and the Property Council of Australia to the Australian Energy Market Commission (AEMC) to amend the National Electricity Rules (NER) to facilitate connection of embedded generators to the national electricity grid. 

On 17 April 2014, the AEMC released a new rule for connection of embedded generators based on this proposal. By way of context for the new rule, the AEMC explained that it has sought to balance the needs of proponents of embedded generation and the obligations imposed on distributors to maintain safe, secure and reliable networks. The AEMC also noted that the uptake of embedded generation is increasing over time, with some variation in the technology and capabilities. There is also variation in technical requirements across the distribution network. The main elements of the new rule are explained below.

Details of rule change proposal

The rule change proposal which precipitated the rule change Proposal to amend the National Electricity Rules for connecting embedded generators was borne out of a series of case-studies, which were analysed as part of the Unlocking Barriers to Cogeneration (UBC) Project. The main objective of the UBC Project was to identify barriers facing the deployment of cogeneration and to determine ways in which these barriers could be addressed.

The UBC Project indicated a largely unregulated process for connection of embedded generators to the grid, characterised by uncertainty around:\

  • steps that will be followed as part of that process
  • timelines within which those steps will be undertaken
  • information that is required in order to achieve connection
  • technical requirements imposed on generators as a condition of connection
  • costs of connection
  • terms of connection.

Based upon the results of the UBC Project, the rule change proposal sought to address these issues by proposing the following amendments to Chapter 5 of the NER, which deals with generator connection:

  • establishment of an automatic right of connection to the grid and standard access terms for embedded generators that meet pre-established technical standards
  • improved connection process for embedded generators that are ineligible for automatic access
  • provision of a right for embedded generators to export electricity to the grid
  • authorisation of DNSPs to charge an optional fee-for-service to promote collaboration with proponents during the connection process
  • obligation imposed on DNSPs to publish annual network reports identifying where capacity is limited
  • exemption of embedded generators from shared augmentation network costs.

Main elements of the new rule for the connection of embedded generators

The main elements of the new rule for connection of embedded generators are as follows.

  • Information pack: each DNSP must publish an ‘information pack’ setting out information to guide generation proponents on the connection process, provide example costs associated with connection and provide a model connection agreement.
  • Staged enquiry process: a new two-stage connection enquiry process has been established, including a preliminary enquiry and a detailed enquiry. If the distributor agrees, the proponent may skip the preliminary enquiry stage. Otherwise, a distributor has 15 business days to respond to the proponent during this stage. The detailed enquiry is to be completed within 30 business days, although this timeframe may be extended with agreement of the parties. 
  • Application process: following the enquiry stage, the proponent may lodge a connection application. A distributor will be required to make a connection offer within four months of receiving an application. The proponent then has 20 business days to accept the connection offer. These timeframes may also be extended with agreement of the parties.
  • Technical information: distributors must publish a register of generating plant that has successfully connected to the network in the preceding five years to enable proponents to better understand the technical requirements associated with connection. 
  • Enquiry fee: distributors will be able to charge an enquiry fee for preparing detailed enquiry responses to cover the reasonable costs incurred by the distributor.
  • Exporting to the grid: no changes have been made to provide embedded generators with an automatic right to export electricity to the grid. In practice, this means that the distributor must decide whether or not the network is able to safely and reliably accommodate electricity export by an embedded generator during the connection application process. Distributors are required to use reasonable endeavours to provide proponents with access in these cases.
  • Shared network augmentation costs: no changes have been made to exempt embedded generators from contributing to shared network augmentation costs. The AEMC has noted that if embedded generators were exempt from contributing to shared network augmentation costs, end-use customers would have to bear these costs.

The new rule on connection of embedded generators will commence on 1 October 2014. Only time will tell whether it strikes an effective balance between the needs of proponents of embedded generation facilities, and the technical obligations on distributors to ensure safe, secure and reliable networks.