Stretching the Bandwidth? Energy Reform in Lockdown and Beyond
Across Australia, millions of businesses, families and organisations are working out how to flexibly adjust to the impact of COVID-19 and the uncertain pathways ahead.
One question facing the entire energy sector is how a crowded energy reform agenda and dozens of business-as-usual reviews will work in this new era.
It is an issue that energy market institutions and regulators around the world are grappling with. The typical first step has been to provide clarity around priorities, given the significant additional pressures on the industry to safely and reliably keep delivering energy for all customers in periods of lockdown and beyond.
This recognises that across the sector, significant resources are being applied to manage a range of urgent operational and day-to-day management issues related to existing COVID-19 measures.
Prioritising reform initiatives – what can wait?
In Australia, this has brought the key energy market institutions together to develop a ‘Regulatory Prioritisation Process’ to seek to determine how the more than 60 reforms and review processes that are currently on foot should be approached in this period. The broad options are to progress as planned, to progress but on a delayed timeframe, or to postpone.
These decisions should clearly be informed by what is feasible to progress, a realistic view of the likely customer benefits linked to particular reforms, and the capacity of stakeholders to follow and provide meaningful input into the various processes.
Complicating the picture, sometimes these factors will interact. Just like any normal building project, delays in reform processes that involve building supporting systems and processes do not always necessarily result in lower costs. Conversely, rapidly progressing with complex market designs where stakeholders have limited bandwidth to provide critical insights and guidance can heighten the risk of policy or regulatory errors that could end up costing customers.
This is an issue that is shared globally, and regulators around the world are also acting. The UK regulator Ofgem was one of the first to react and is deferring consultation on a range of reform initiatives, including changes to market settlement, distribution system operation arrangements and smart meter rollout priorities.
Similarly, New Zealand’s Commerce Commission is indicating that its standard regulatory tools will need to change, including taking a pragmatic approach to enforcement. Across sectors, other utility regulators are also seeking to answer the question: in an essential services sector, what are the truly essential priorities? Many have rightly focused on targeted measures and policies around protecting vulnerable consumers.
Setting expectations during COVID-19 and beyond
The Australian Energy Regulator’s Statement of Expectations has highlighted some of the same issues, and COVID-19 continues to impact on its processes in a way that challenges ‘business as usual’ approaches. Network revenue determination consultations that were once large-scale public forums have shifted to online channels. A small number of network determination processes have been delayed due to heightened uncertainties and questions around key macroeconomic forecasts.
Tailoring these immediate responses on the pathway from the crisis to recovery phase will be critical. An initial plan to delay or defer just 10 out of 60 processes appeared ambitious, given the circumstances of a range of stakeholders.
Making customer-centred calls on reform timings
In this regard, a critical question must be – what will this reform initiative deliver in costs and benefits to customers over time, and what are the potential risks, or benefits, to delay?
The challenge in making these calls is made even more difficult by the interdependent nature of many of the reforms. This requires careful thought not just about the decision to proceed or not, but around sequencing and coordination of individual reforms.
Just as governments are needing to plan flexible roadmaps for an unknown recovery pathway ahead, energy market bodies will need to build in optionality and flexibility in their priorities. Having a single inflexible approach designed in a crisis phase risks locking in the wrong approach in a more positive recovery phase. This suggests a process of iterative consultation and feedback with customers, industry and other stakeholders on reform priorities as events progress.
In this way, we can make the most of this time, without energy reform bandwidth running short just as key reforms are being shaped and resolved.