Planning the grid for a customer led energy transition

Australia’s energy networks are preparing for a fundamental shift in how they plan for the future., The Australian Energy Market Commission’s (AEMCs) rule change is now under way to reshape how distribution networks set out their long-term investment strategies. In April this year, the AEMC released its draft determination and more preferable draft rule on the Enhancing distribution network planning & reporting rule change, responding to a proposal from Energy Consumers Australia. The draft determination proposes replacing the compliance obligation of developing a Distribution Annual Planning Report (DAPR) with a more strategically aligned Distribution Network Development Plan (DNDP), published on a five year cycle and supported by annual updates.  

The proposed DNDP reflects the growing call for a better standard of public planning documents as rooftop solar, electric vehicles and home batteries rapidly transform the electricity system. It is designed to shift planning from a backward-looking compliance report to a forward-looking, integrated investment strategy for managing two-way power flows amidst continued rapid growth in CER deployment across Australia. The DNDP is set on a 20 year planning horizon, consistent with the Transmission focussed Integrated System Plan (ISP). It would provide a greater level of data granularity and planning direction of distribution network service providers (DNSPs) investments.  

Pivotal to the success of this rule change, is the weight that is given in regulatory decisions. Without stronger rules to enforce this, the opportunity for strategic and integrated planning to provide a lower cost energy transition will pass us by. 

Consistency across energy planning 

DNSPs already undertake long-term planning, including to support developing revenue proposals. These plans are typically internal-facing or differ in time horizon and content across DNSPs and broader planning reports. What this rule change seeks to do is increase consistency between DNSPs planning, including bringing all DNSPs to the same forecast timelines and a minimum standard of data inclusions.  

A core component of this rule change is to improve consistency with the ISP. Not only is the DNDP proposed to be based on the same forecast horizon, but it is also proposed to draw on the same inputs, assumptions and scenarios used to develop the ISP. This should support a more coordinated view of future network needs across transmission and distribution planning.  

Strengthening consistency between DNSPs and TNSPs planning can support more efficient and coordinated investment across the whole system based on the same underlying view of what the future will look like. This is particularly important as the energy system transitions toward net zero and becomes increasingly shaped by electrification, CER deployment and demand flexibility. 

This rule change joins a range of work programs to support integration of energy system planning. One example is AEMO’s increasing incorporation of demand-side factors into the ISP, including the influence of consumer energy resources (CER), demand flexibility, electrification, and energy efficiency on the optimal development pathway.  

With more consistent and transparent long-term distribution planning, stakeholders are empowered to make informed investment decisions. Greater availability of planning data should help third-party investors better understand hosting capacity and network needs when considering connection applications, and help consumers understand potential future upgrades that may inform CER investment decisions.

Role in revenue decisions  

Every five years, network businesses propose an investment and pricing structure to the regulator for approval, which sets the revenue allowance for the next five years. The DNDP will be used as supporting information in a DNSPs revenue proposal to provide the long-term context to justify the more short-term investments. In this way, the DNDP has the potential to act as a bridge between long-term strategic planning and near-term regulatory proposals. 

Producing more detailed long-term plans alone is not enough. For the reform to succeed, the Australian Energy Regulator (AER) must give meaningful consideration to these plans when assessing network revenue proposals. As yet, the AEMC has not proposed any explicit obligation for the AER to consider or make decisions with reference to the proposed DNDP. 

Ensuring that regulatory processes properly consider long-term planning is essential to delivering a more efficient and lower-cost transition for customers. Considering the potential benefits from aligning revenue decisions with long-term planning, it would be a major missed opportunity not to strengthen the linkage in the National Electricity Rules as far as practicable.  

Without such action, the risk is that the DNDP becomes only a strategically framed replacement for the soon-to-be-replaced compliance focussed DAPR.  

Planning in the context of the energy transition 

The energy transition is a long-term move towards a renewable future, relying significantly on the household adoption of CER and the network investments to manage it. Decisions made today will shape costs and reliability for years to come.  

New planning through the DNDP presents the opportunity to link long-term forecasts of CER adoption and network planning to effective regulatory decisions, with a lower cost energy transition at the forefront. This is particularly important where early investment or new operating approaches may deliver stronger customer outcomes over time, even if their benefits are not fully captured through a short-term assessment lens. 

Regulatory decisions made without consideration of the long-term, risk undervaluing investments that can bring overall benefits. For example, near-term investment to implement approaches to procure flexibility services may not meet the required standard when looked at with a shorter-term lens. But when considered on a 20-year horizon, these approaches may deliver longer-term efficiencies in service delivery and reduce total system costs for customers. 

As the AEMC moves toward a final determination, ENA will continue to advocate for a framework that gives the DNDP a clear and practical role in regulatory decision-making. Embedding long-term planning into the regulatory process will be key to aligning investment with the future needs of the energy system and delivering better outcomes for all customers. 

By planning the grid for a truly consumer-led energy transition, this reform can help ensure that long-term network decisions unlock the full value of consumer energy resources, giving households and businesses more choice, more control and better outcomes from the energy system they help to power.