Victoria bans ‘unfair’ embedded power networks from 2023

Embedded power networks will soon be banned in Victorian new-builds after an expert-led review revealed these networks may be leaving customers vulnerable to higher electricity prices.

The Victorian Government will ban private electricity networks from being implemented in new apartment builds or similar in Victoria from January 2023, unless the system runs off 100 per cent renewable energy and can be clearly shown to benefit residents. 

Embedded networks are often used to supply electricity within multi-residential complexes, such as apartment buildings, retirement homes, social housing or caravan parks. With an embedded network, customers are unable to choose their own electricity provider and must use power from the embedded network at a cost set by the network provider. 

The state government’s decision follows recommendations from an expert advisory group’s Embedded Networks Review that found the embedded electricity network market in Victoria was not working in the best interest of energy customers. 

The review was initiated in response to long-running concerns that customers living in these kinds of dwellings were paying higher prices for power. There were also concerns that these customers were not as well-protected as other energy consumers. 

The new reform will help bring more choice to residents in these dwellings, as well as improve protections for energy customers within these networks, Gerard Brody, the CEO of Consumer Action, a community legal centre that advocates for consumers, said.

“This is a really positive step which will mean more Victorians can access more competitive deals and save on their energy bills,” he said. “The government’s announcement is very welcome as it will ban embedded networks and only allow an apartment/group living arrangement to offer group purchased electricity if they deliver renewable electricity and pass any benefits on to consumers.”

In addition to the ban on embedded networks, regulatory amendments are also anticipated for existing embedded networks, particularly in regard to licensing and authorisation. 

While embedded network energy suppliers are currently required to register with their state’s relevant regulator, these companies are eligible for an exemption from registering as a network service provider with the Australian Energy Market Operator (AEMO), which is the group in charge of Australia’s main power network, the National Electricity Market (NEM). 

These companies are also eligible for an exemption from registering as an authorised retailer with the Australian Energy Regulator (AER) and Essential Services Commission (ESC), which is Victoria’s independent energy regulator.

Mr Brody, who sat on the panel for the Embedded Networks Review, said the current system had left people living in these dwellings without easy access to affordable energy for far too long.

“The fact is the exemption from licensing for embedded networks should never have been allowed in the first place. It enabled an unfair business model that removed choice and important consumer protections. I hope we’ve learnt our lesson that we should no longer allow specific exemptions from consumer protections.”

Lily D’Ambrosio, Victoria’s State Energy Minister, said that more than 140,000 Victorians living in residential embedded networks would soon have greater access to competitive market offers as a result of the reform.

“We’re banning embedded networks because all Victorians deserve to get the same competitive energy deals and have the same protections, driving down the cost of living when people need it most,” she said.

“We’ve already delivered energy market reforms, banned door-to-door sales and cold calling, and increased penalties for retailers who engage in dodgy behaviour. This is delivering a better deal for all Victorians.”

Existing embedded networks were price-capped during the change of Victorian Default Offer (VDO) in 2020. 

Reforms for Victoria’s embedded network market were first pledged during the 2018 state election. 

Compare Electricity Prices in Victoria

How does an embedded network operate?

An embedded network effectively operates as a private electricity network for multi-residential complexes. The networks are operated by the building owner and their chosen energy retailer, usually through a negotiated contract. The retailer then supplies power to the entire building at a bulk-supply price.

All electricity for the building is typically fed through one meter with an embedded network, with tenants’ individual costs calculated through the use of sub-meters that measure their home’s specific power use. Since electricity for the entire building is fed through a single meter, residents or business owners in the building all have to use the same electricity provider, which leaves little room for choice, price competition or renewable energy options.  

The Australian Energy Market Commission (AEMC) – the rule maker for Australia’s electricity and natural gas markets – estimates that there are currently more than 500,000 energy customers using an embedded network in Australia. 

Image credit: Elias Bitar/Shutterstock.com