Explainer: Energy regulation in Australia

energy-regulation-explainer

Whether or not you like to keep up with international news, it would have been hard to miss what went down in Texas last week. But just in case you haven’t, the US state was randomly hit with a massive cold snap, now recognised as ‘the big freeze’. As a result, power plants were frozen, cutting off electricity supply to many households. 

Texas has a highly deregulated energy market, where customers choose their electricity provider between a set of scores. And many of these retailers charge electricity at wholesale prices that fluctuate in sync with demand. So, once the ‘big freeze hit’, households who had access to electricity found themselves with energy bills that were hitting $US1,000 a day ($1,289 AUD).

How did this happen you may be asking? Well, many experts are arguing poor preparation and planning on behalf of the retailers. 

While Australia doesn’t get snow storms, you might be wondering what energy regulation looks like in your state and whether something like the Texas big freeze could occur down under. So without further ado, check out our guide to understanding energy regulation.

How is energy governed in Australia?

Australia’s power system is known as the National Electricity Market (NEM), with its assets owned by either the state government or privately owned entities. 

The NEM is governed by the National Electricity Law (NEL), the National Electricity Rules (NER), the National Energy Retail Law (NERL), Part IIIAA of the Competition and Consumer Act 2010 (Cth) and the Australian Energy Market Commission Establishment Act 2004 (SA). 

In addition to the NEM framework, each participating state also has their own electricity regulations to manage. 

FYI, Western Australia and the Northern Territory are not a part of the NEM and have their power supplied via another electricity market. In WA, it’s known as the Wholesale Electricity Market (WEM) and the Northern Territory Electricity Market (I-NTEM) in NT. 

To ensure the NEM is effectively being looked after, there are a number of authoritative bodies that govern it, some of which you may have already heard of. They are:

  • The Australian Energy Market Commission (AEMC): Conducts reviews of the energy market in all jurisdictions and provides advice to the government on how to develop these markets.
  • The Australian Energy Regulator (AER): Moderates the revenues of electricity network operators, manages the compliance of retailers in the wholesale electricity and gas markets and enforces penalties for those not complying with the energy laws. 
  • Australian Energy Market Operator (AEMO): Day-to-day management of wholesale and retail energy market operations.

As you can see, there are a number of laws and regulations put in place to help monitor and manage the NEM. However, almost all states across the country operate as a deregulated market.

What does energy regulation look like in my state?

New South Wales, Victoria, South-East Queensland, Tasmania and South Australia all operate as a deregulated energy market. This means that any approved energy retailer is allowed to enter into the market and set their own prices for customers. 

Fun fact:
Victoria was the first state to completely deregulate their energy market in 2009 before other states shortly followed. 

Extra fun fact:
In 2020, the VIC government passed legislation that would allow the state to operate outside the rules of the NEM and the NEL in order to fast-track renewable energy projects and upgrade its energy transmission networks. However, it is still a deregulated energy market. Victoria energy minister, Lily D’Ambrosio said at the time:

“The existing national energy laws have let us down – they have failed to drive investment in our electricity system or provide a 21st century grid for all Victorians,” she said. “These reforms will help keep our energy system resilient as we face hotter summers, longer bushfire seasons, and increasingly unreliable coal-powered generators.”

What is the benefit of living in a deregulated energy market?

You might think that allowing energy retailers to set their own offers could lead to painful energy prices - but it’s actually quite the opposite (and one of the biggest benefits to having a deregulated energy market). Giving retailers this power means they’ll have to compete for market share by setting lower prices and improving their service to customers. 

The result? 

Households and small businesses will have the ability to shop around to get themselves on the best deal. 

That’s why you may have noticed a flurry of new energy retailers entering the market in the last few years. It’s hoped that having a range of retailers active in the NEM will drive down prices for customers.

Will Australia ever experience anything similar to the Texas big freeze?

Well, we already have!

In 2016, South Australia experienced a widespread power outage that lasted for almost 46 hours, affecting close to 850,000 SA households. The blackout was caused by damage to the electricity transmission infrastructure during a massive storm. 

Then in 2017, more than 90,000 households in Adelaide lost power for around 45 minutes during the height of a major heatwave. And more recently in 2019, households and small businesses in Melbourne and regional Victoria lost power due to record breaking demand on the grid during soaring temperatures. 

Blackouts typically occur during summer in Australia, and thankfully, don’t happen all that often. But if your household does wind up stuck in a blackout in the near future, our quick guide will help you with what to do. 

While you might not be able to control blackouts, you can control who supplies your home with electricity. If you think you could be getting a better deal, make your next stop our electricity comparison tool.

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