Submission to the Essential Services Commission Modernising Victoria s Energy Licence Framework Issues Paper Executive Summary Clean Energy Council (CEC) welcomes the review of Victoria s regulatory framework for providers of solar power purchase agreements (solar PPAs or SPPAs) and solar leases. The Victorian regulatory framework for solar PPAs and solar leases is obsolete and has become a barrier to business. Retail licensing of providers of solar PPAs and solar leases is unnecessary. No other jurisdiction is Australia requires alternative energy sellers to obtain a retail licence or retail authorisation. The National Energy Customer Framework (NECF) enables alternative energy sellers to do business using an authorisation exemption approach. The Western Australian Department of Finance Public Utilities Office has recommended a class retail exemption for providers of solar PPAs and solar leases, subject to conditions regarding disclosure and reporting. The Essential Services Commission (ESC) has not provided evidence indicating that there is a problem requiring government intervention in the form of licencing. Regulation of providers of solar PPAs and solar leases by the ESC will possibly hinder innovation and delay entrants into the market in Victoria. Key recommendations Licencing or authorisation of providers of solar PPAs and solar leases in Victoria by the Essential Services Commission is unnecessary. Providers of solar PPAs and solar leases in Victoria should be regulated using either an individual authorisation exemption approach (as is the case in New South Wales, Queensland, South Australia, Tasmania and ACT) or using a class retail exemption approach (as has been proposed by the Western Australian Department of Finance). Note that the solar PV industry has developed an ACCC-approved Code of Conduct to address consumer protection issues in relation to standards of service and product quality and that CEC is seeking ACCC authorisation to extend the scope of the Code to alternative energy sellers.
Victorian regulations have stifled the alternative energy selling sector Victoria s approach to regulating the alternative energy selling industry is heavy-handed and dysfunctional. Victorian regulations are the main reason why the alternative energy selling business model has been so slow to take off in Victoria, compared with other states. It is part of the reason why Sydney has become the centre for innovation in solar financing and new business models while Victoria has languished. Victoria is losing investment and employment opportunities due to a moribund, unworkable regulatory framework. We concur with the ESC s concern that the current regulatory framework is limiting innovation, stifling competition and contributing to higher energy prices. The regulatory framework should not be replaced with a licencing system that is special and unique to Victoria. The Victorian Government has chosen not to adopt the NECF. It is incumbent upon Victorian policy makers to ensure that their regulatory framework is at least as simple and inexpensive as the NECF approach. Victorian policy makers should learn from the experience of their colleagues in other jurisdictions, where the alternative energy selling industry is already well established and well regulated. Table 1 - Key features of regulation of providers of solar PPA and solar leases in various jurisdictions Jurisdiction NECF states NSW, Queensland, SA, ACT and Tasmania Regulatory approach to alternative energy sellers Individual exemption Cost Free of charge WA Class exemption (proposed) Free of charge Victoria (current) Victoria (proposed) Moribund a unique and dysfunctional mixture of ESC licences and exemptions under the General Exemption Order Unclear - Possibly a mixture of small-scale licences and exemptions Prohibitive $500 to $3,000 Comments Alternative energy selling sector is well established in NECF states Alternative energy selling sector is well established in WA Regulation has strangled the emergence of the alternative energy selling sector in Victoria The NECF approach is working The National Energy Customer Framework (NECF) regulates alternative energy sellers using an individual authorisation exemption approach. This approach provides appropriate regulatory oversight of alternative energy sellers. There are dozens of companies offering solar PPAs in NECF jurisdictions. In contrast, there are very few companies able to offer solar PPAs in Victoria. The main reason for the difference is the barrier to business created by the ESC s regulations and Victorian legislation.
CEC concurs with the view of the Australian Energy Regulator (AER), that when an SPPA provider contracts with a customer to provide an additional service, an authorisation is not practical or warranted. Exemptions are a better regulatory fit for many kinds of alternative energy selling, including the sale of energy through SPPAs. Regulation using a class exemption approach should be considered The WA Department of Finance s Public Utilities Office (PUO) has recommended class licence exemptions for persons who sell electricity to customers under a solar PPA or solar leasing arrangement. CEC s supports the view of the PUO that, as this is an emerging market, without evidence indicating there is a problem requiring government intervention, there is no clear case for additional regulatory protections and monitoring through a retail licence. It is likely there will be increased consumer demand for arrangements such as SPPAs as consumers look for alternative means of accessing solar power without the costly initial outlay required to install a new system. As demand increases, the question arises as to whether to regulate this new type of business model. In practice, the cost of licensing under the current retail licence regime is likely to be prohibitive for prospective SPPA providers, and may restrict entry into the market In relation to SPPA providers, licensing is likely to result in increased regulatory cost without any clear benefit to consumers or industry. Until there is evidence demonstrating the existence of a problem that requires redress through regulation, the ACL [Australian Consumer Law] will be able to provide sufficient deterrents against unscrupulous behaviour, and provide adequate consumer protections to residential and commercial customers. CEC endorses the PUO recommendations, which would: Allow for a class exemption for providers of solar PPAs and solar leases, thereby removing any requirement to apply for either a retailer licence or a retailer licence exemption; Require a product disclosure statement be given to all solar PPA customers; and Require SPPA providers to register with the PUO upon commencing its business and submit an annual summary report of its operations. This approach would reduce red tape for providers of solar PPAs and leases. CEC s Solar PV Retailer Code of Conduct includes best practice disclosure requirements for solar PPA providers. CEC recommends the Victorian Government consider the approach proposed for WA, using a class exemption approach with mandatory product disclosure requirements based on the best practice approach described in the CEC Solar PV Retailer Code of Conduct.
Solar PV Retailer Code of Conduct To improve customer service and industry standards, the CEC established the Solar PV Retailer Code of Conduct in 2013. CEC s Solar PV Retailer Code of Conduct is a voluntary scheme for retail businesses selling solar PV systems to households and businesses. It is authorised by the Australian Competition and Consumer Commission (ACCC). The Code aims to lift the bar higher than the minimum requirements set by government and regulations and bring about a better standard of service within the solar industry. When authorising the code in 2013, ACCC Commissioner Dr Jill Walker said: "The Code will allow for the regulation of retailers of solar PV systems to ensure that retailers maintain a standard that will benefit consumers and the industry. The Code will promote confidence in the PV sector by giving information to consumers to assist in purchasing decisions. The Code will also promote compliance by PV retailers through sanctions and public reporting mechanisms." The CEC manages the code of conduct and ensures that signatories comply with its strict requirements. To obtain approval, retailers must demonstrate compliance with all relevant consumer protection laws. There are a number of additional requirements including the demonstration of best practice pre- and post-sale activities; documentation; general business practices; and provision of a five-year, whole-of-system warranty. The independent Code Review Panel is headed by the CEO of the Consumer Advocacy Law Centre, Gerard Brody Further information about the Solar PV Retailer Code of Conduct is available from the CEC web site at http://www.solaraccreditation.com.au/retailers.html. The Code applies to the sale of solar PV systems, solar leases and solar PPAs. Approved Retailers (ie, signatories to the Code of Conduct) are required to clearly provide accurate information about the total cost over the financing term of solar PV systems sold under finance arrangements including, without limitation, leases and power purchase agreements (PPAs). When advertising, or offering to a consumer, a finance arrangement that provides an alternative to initial outright purchase, Approved Retailers are required to provide the following information in their contracts of sale: the name of the lender to whom the consumer will be contracted; a clear statement that the periodic payments are available only if the consumer wishes to take advantage of the finance model; the comparative cost of that same product if the consumer was to purchase it outright on that day; a clear statement that fees and charges apply in relation to the finance arrangement, including: o the dollar amount of fees and charges applied under the finance arrangement and what each fee and charge represents; o whether the fees are fixed and, if not, details of escalation rates; and o where and in what form the consumer can expect the fees and charges to appear in the finance contract;
under a solar leasing offer, the aggregate amount payable over the life of the financing term; under a PPA, the aggregate amount over the financing term based on a reasonable and stated estimate of the solar-generated electricity consumed by the consumer; details of any exit payments or penalties associated with the finance arrangement; a statement as to whether the consumer owns the system at the conclusion of any plan or agreement under the terms of the finance arrangement and/or details, including any associated costs and/or fees, of any option or options available to the consumer to purchase the system at the end of the term; and a statement that questions and complaints about the finance arrangement should be directed to the lender with whom the consumer is or will be contracted and, where relevant, to the Australian Securities & Investments Commission or the financier s external dispute resolution provider. It is our understanding that credit providers operating in Australia are governed by the National Consumer Credit Protection Act 2009 (Cth) ( the NCCP Act ). Under the Code of Conduct, Approved Retailers must make reasonable enquiries as to whether the lender (ie. the finance company to whom it is introducing consumers) is a credit provider as defined by the NCCP Act. If the finance company is not or states that it is not a credit provider as defined in the NCCP Act, the Approved Retailer must ensure that the relevant contract includes a provision substantially in the following form: The consumer acknowledges that the lender is not, or may not be, subject to the National Consumer Credit Protection Act 2009 (Cth) ( the NCCP Act ) and accordingly the consumer may not have the benefit of the statutory protections afforded to consumers under the NCCP Act including, without limitation: o access to the services of the Financial Services Ombudsman; o access to dispute resolution services; o access to a streamlined court procedure for small claims; o a right to seek compensation; o applications for hardship variations or stays of enforcement; and o receiving information from the Credit Provider when a consumer defaults on their contract or a debit is dishonoured. This clause would need to be signed by the consumer as an acknowledgment that the consumer is or may be waiving certain statutory rights.
Responses to Questions raised in the Issues Paper Q1 - Does the Framework need to be improved to facilitate the development of new energy technologies and business models? If so, what improvements are needed? The ESC has not demonstrated the existence of a market failure or other problem that would justify regulation of alternative energy sellers through retail licensing. CEC s preference would be for the ESC to cease regulating providers of solar PPAs and solar leases through a licensing framework. We would prefer regulation to be undertaken through either an individual authorisation exemption framework (consistent with NECF jurisdictions) or through a class authorisation exemption (as proposed by the WA Department of Finance). If the ESC decides to continue regulating alternative energy sellers through a licensing framework then there is a very clear need to improve that regulatory framework. Q2 - Are there any particular areas of duplication or inconsistency between the Framework and the National regulations that need to be addressed? Yes. The Victorian approach to regulation of solar PPAs and solar leases has stifled the development of the alternative energy selling sector in Victoria. The Victorian approach should be made at least as simple as the AER approach, which is based on an individual exemption framework. CEC would also support regulation of alternative energy sellers through a class exemption framework, which is the approach proposed by the WA Department of Finance. Q3 - What are the consequences, for the industry and consumers, of licensees having different obligations to make a standing offer? This is not applicable in the case of regulation of alternative energy sellers. We urge the ESC to consider the views of the Australian Energy regulator, which has stated that, The AER s view is that when an SPPA provider contracts with a customer to provide an additional service, an authorisation is not practical or warranted. Several Retail Law retailer obligations are inappropriate, for example participation in the Retailer of Last resort scheme, and obligations to provide standing offers. Q4 - What are the consequences, for the industry and consumers, of licensees performing the same activity but being subject to different licence obligations? The ESC s proposed Licence to small-scale activities appears to allow for activity-specific conditions that would enable the regulator to apply different licence obligations to licensees performing the same activities. This is unnecessary. Indeed, regulators in other Australian jurisdictions consider an electricity license framework for alternative energy sellers to be unnecessary. We recommend the ESC withdraw its proposal for a new small-scale licence framework for solar PPA providers and instead adopt either an individual or class exemption approach.
Q5 - What are the consequences for the industry and consumers of a lack of clarity and consistency in the capacities licensees must maintain? We urge the ESC to consider the approach used in NECF jurisdictions. The NECF approach is working. The Victorian approach has stifled the alternative energy selling sector. Q8 - To what extent do current differences between licences affect competition? Victoria has the least competitive alternative energy selling sector of any jurisdiction in Australia. This is directly attributable to the moribund regulatory framework applying to that sector. We urge the ESC to remove itself from the equation and leave the regulation to an individual or class exemption approach, as is the case in other jurisdictions. Q9 - To what extent are inconsistent and unclear licence conditions adding cost to industry and consumers? We concur with the ESC s concern that the current regulatory framework is limiting innovation, stifling competition and contributing to higher energy prices. The ESC has not established the need for a licensing framework for providers of solar PPAs and solar leases. This question should not be applicable to the alternative energy selling sector because it should not be subject to licensing by the ESC. Q10 - To what extent do the Commission s current guidance notes lack relevant information and add cost to licence applicants? We are not aware of any written guidance notes directed toward companies that wish to offer solar PPAs in Victoria. We concur with the ESC s observation that the process is unnecessarily costly and time consuming for both licence applicants and the Commission. Q11 - What are the main costs to applicants from the current licence application process? Could these costs be reduced without reducing the quality of the application process? The Victorian regulatory framework for electricity retailing effectively prevents companies from offering solar PPAs in Victoria. The regulatory barrier to business is the main cost that is currently incurred by the solar industry in Victoria. It is extremely difficult to estimate the cost of obtaining a licence to offer solar PPAs in Victoria because, to our knowledge, no company has yet been able to successfully navigate the complex set of regulations unique to Victoria. Q12 - Should a cost reflective licence application fee be introduced? Licensing of alternative energy sellers is not required in any other jurisdiction in Australia. Providers of solar PPAs and solar leases in Victoria should be regulated using either an individual authorisation exemption approach (as is the case in New South Wales, Queensland, South Australia, Tasmania and ACT) or using a class retail exemption approach (as has been proposed by the Western Australian Department of Finance).
There is no fee charged when companies apply to the AER for an individual exemption. There are no fees involved in obtaining an individual exemption in WA and the process in WA could be further streamlined in future if the proposed class exemption approach is adopted. Victoria is the only jurisdiction considering levying fees on providers of solar PPAs. There should be no requirement for a licence and therefore no licence application fee for alternative energy sellers in Victoria. Q13 - How could the compliance monitoring and reporting obligations be made more proactive? Refer to Q12. There should be no requirement for a licence for alternative energy sellers in Victoria and therefore no need to consider the most appropriate approach to monitoring by ESC. Q 14 Should the system for setting annual licence fees be amended to reflect the actual cost to the Commission of monitoring compliance, and addressing individual noncompliance? Refer to Q12. There should be no requirement for a licence for alternative energy sellers in Victoria and therefore no ESC licence application fee. Q15 - Are there potential benefits from moving to a single flexible Victorian energy licence? The Victorian regulatory framework effectively prevents alternative energy sellers from offering solar PPAs in Victoria. If the ESC were to move to a single flexible Victorian energy licence and if, by doing so, companies in Victoria are able to offer solar PPAs that would certainly be a benefit. However, we remain unconvinced that there is a need for the ESC to licence solar PPA providers at all. The main problems are due to the Victorian regulations and it is not clear that a new licencing regime is the only way or the best way to address the problems caused by Victorian regulations. Q16 - Does the draft licence structure create any additional costs? The ESC has proposed a licence application fee of $500 to $3,000 for small-scale energy supply. It is difficult to compare this with current licence fees for alternative energy sellers because, to our knowledge, there has not yet been an example of a company successfully navigating its way through the Victorian regulatory process for licencing or exemptions for solar PPAs. The additional administrative costs of a new licencing system are likely to be substantially less than the opportunity costs being faced by Victorian businesses and households due to the barriers to solar PPAs perpetuated by the current regulations. Q17 What would be the costs and benefits of introducing the proposed draft conditions, including those relating to small-scale activity? The Victorian regulatory framework effectively prevents alternative energy sellers from offering solar PPAs in Victoria. If the ESC were to move to a single flexible Victorian energy licence and if, by doing so, companies in Victoria are able to offer solar PPAs that would certainly be a benefit.
However, we remain unconvinced that there is a need for the ESC to licence solar PPA providers at all. The main problems are due to the Victorian regulations and it is not clear that a new licencing regime is the only way or the best way to address the problems caused by Victorian regulations. Some aspects of the proposed small-scale licence require clarification. For example, section 12 states that, The Licensee must have an agreement with the Local Distributor under which the Local Distributor provides Connection Services so as to allow the supply of electricity: (a) from the Local Distributor s Distribution System to the Licensed Small-Scale Distribution System; and (b) from the Small-Scale Generation Facilities to the Local Distributor s Distribution System. The rationale for and implications of these requirements are unclear. In some states distribution businesses prevent the export of electricity to the distribution system. Would the absence of an agreement to supply electricity to the distribution system prevent a solar PPA behind the meter? Does section 12 effectively prohibit solar PPAs to customers who are not connected to the grid or who propose to disconnect from the grid? Q18 - What are the benefits of adopting the revised application process? The Victorian regulatory framework effectively prevents alternative energy sellers from offering solar PPAs in Victoria. If the revised application process means that companies are able to offer solar PPAs in Victoria, that would constitute a benefit. Q19 - Would the revised process introduce any unnecessary costs? Yes. The AER already has a process to provide individual exemptions for alternative energy sellers. The AER process is working. The least costly, least administratively burdensome way to enable solar PPAs to be provided in Victoria would be for Victoria to agree to the provisions of the NECF as they relate to alternative energy sellers. Failing that, we would suggest that the Victorian government should benchmark itself against the AER and compare any licencing or exemption process it might propose for alternative energy sellers against the AER approach. Any new Victorian regulatory framework for alternative energy sellers should be better for businesses and consumers than the AER s approach. The ESC has not provided any rationale for Victoria to retain a unique approach that is more cumbersome and expensive than the approach taken by the AER. Q20 What benefits and costs would arise following the introduction of a preliminary assessment? It is difficult to assess the benefits and costs of a preliminary assessment because this begs the question, Compared to what? Compared with the current system, any change that allows solar PPAs would be beneficial. As outlined above, we would suggest that any new proposals should be benchmarked against the AER framework (which is working) rather than the current Victorian framework (which is not working).
Q21 - What could be the benefits of introducing this type of application fee structure? As previously noted: other jurisdictions do not charge an application fee for alternative energy sellers; a new framework that allows solar PPAs to be offered in Victoria would be beneficial in comparison with the current framework, which effectively prevents alternative energy sellers from operating in Victoria; and any new regulatory framework should be benchmarked against a system that works (such as the AER or WA) rather than the current Victorian system (which is dysfunctional). Q23 - What would be the benefits of introducing an indicative timeframe for assessing licence applications, following the preliminary assessment? This would assist with business planning. Q24 - Are there other potential approaches to setting licence fees, that align licence fees with incentives to comply with licence conditions thereby rewarding compliance and ensuring non-compliant licensees bear the cost of their non-compliance? It is unclear from the Issues Paper whether this approach would be applied to licencing of small-scale energy supply activities. The approach sounds attractive in principle, but care would need to be taken to ensure that this approach is less complex than the alternatives. A new approach to licencing small-scale energy supply activities should be benchmarked against a functional system, such as the AER framework. Q25 - What costs and benefits are involved for consumers, existing licensees and licence applicants of each of the options for implementing a modernised Framework? The options have implications for existing licensees and are essentially the same for new licensees. To our knowledge there are no companies currently licenced to offer solar PPAs in Victoria. The question is therefore largely irrelevant, with respect to companies not yet licenced to offer solar PPAs in Victoria. References Australian Energy Regulator (2014), AER Statement of Approach: Regulation of alternative energy sellers under the National Energy Retail Law Department of Economic Development, Jobs, Transport and Resources (2015), Review of the General Exemption Order Issues Paper Essential Services Commission (2015), Modernising Victoria s Energy Licence Framework: Issues Paper Government of Western Australia Department of Finance Public Utilities Office (2015), Retail licence exemptions for Solar Power Purchase Agreements: Draft Recommendations Report