Ban of embedded networks in Victoria

6 minute read  26.04.2022 Joel Reid, Fiona Lewis, Tia Shadford, Sylva Guo and Ryan Gale

The Victorian Government intends to reform the regulatory framework for embedded networks in residential sites. We summarise key recommendations of its Embedded Networks Review Final Recommendation Report.


Key takeouts


  • The reforms will require new conditions regarding renewable energy and consumer protection to be met for an embedded network to operate legally.
  • A new licensing regime would require anyone who supplies and sells electricity in new residential sites containing an embedded network to obtain a Local Energy Services licence.
  • The proposed timing for meeting the new conditions varies for new and existing embedded networks, with the reforms to be achieved through a staged approach.

The Victorian Government intends to reform the regulatory framework for embedded networks in residential sites (including apartment buildings, social housing, retirement villages, and residential parks) to enable competitive retail offers and enhanced consumer protections.

The Victorian Government's Expert Panel report entitled 'Embedded Networks Review Final Recommendations Report' (Report) was released in January 2022. It contains a comprehensive reform program with 16 core recommendations.  

Whilst it is not yet known whether the Government will adopt all or any of the recommendations in the Report, the proposed changes if implemented, will likely have a significant impact on proposed and existing embedded networks in Victoria.

Key stakeholders, including new and existing embedded network operators, third-party service providers, residential property developers and owners' corporations, will need to monitor the development of the reforms and consider the potential legal and practical risks associated with the reforms and how to manage them for their respective project(s).

In this alert, we summarise many of the key recommendations of the Report and the proposed implementation timeframe.

New conditions for embedded networks

The reforms will require two new Conditions to be met for an embedded network for a residential site to operate legally:

  • At least 50% or more of electricity consumed at the site must be generated from ‘on-site’ renewable sources, with operators to show how renewable or clean energy benefits are passed on to consumers (Renewable Energy Requirements).

The Report acknowledges that some legacy (i.e. existing) sites may not be suitable for renewable energy technologies to be retrofitted. In this situation, compliance may be achieved by providing some ‘market sourced renewable energy options’ to the customers within those sites, or by removing the local energy network and connecting individual dwellings directly to the grid.

  • Expanded consumer protection obligations including 'equal or equivalent customer protection obligations to those provided to on-market customers' (e.g. ensuring same access to billing concessions) and additional regulatory oversight (Enhanced Consumer Protection Requirements).

It is expected that the current Electricity General Exemption Order (GEO) will be revised in mid-2022 for the reforms to be implemented from 1 January 2023.

New licensing regime

In the longer term, the government proposes to roll out a new licensing regime requiring anyone who supplies and sells electricity in new residential sites containing an embedded network to obtain a specific Local Energy Services (LES) licence (instead of the current class exemptions under the GEO) from the Essential Services Commission (ESC) (Licensing Regime). Licensing conditions will require licensees to demonstrate compliance with the Renewable Energy Requirements and other benefits from the network to customers.

The Licensing Regime intends to capture bodies that supply and sell electricity as their core business, including third-party service providers/entities whose business model exists to provide services relating to the distribution, supply and sale of energy (e.g. metering entities). Asset owners, such as owners' corporations, are not intended to be required to hold this licence. However, they may require an LES licence if they intend to supply and sell energy within the local energy network on their own and will not contract this function out.

Access to competitive retail offers

The Report recommends measures to facilitate ready access to alternative on-market retailers for embedded network customers. These measures will apply notwithstanding that an embedded network customer already has a right to choose to purchase their electricity from a licensed retailer.

Metering and/or internal infrastructure within existing and new embedded networks will need to be National Electricity Market compliant to enable 'unencumbered access to the electricity retail market'. For example, issue all child meters within embedded networks with a National Meter Identifier. Upgrading or changing the metering and/or other internal infrastructure be implemented without imposing a direct cost burden on residential customers.

Increased disclosure obligations

The Report proposes that prospective purchasers and owners of residential apartments be given further information on the existence and details of the local energy network and their associated rights and obligations. This disclosure requirement:

  • extends to matters including the ownership of critical infrastructure and assets at the site and/or buy-out provisions, as well as supplementary vendor disclosure where a local energy network is installed following a sale where no such regime was initially contemplated;
  • could, for example, be included in the Vendor's Statement as required under the Sale of Land Act 1962; and
  • will apply to both existing and new local energy networks.

Implementation and key dates

The proposed timing for meeting the new Conditions varies for new and existing embedded networks, with the reforms to be achieved through a staged approach.

New local energy networks which register their electricity exemption registration(s) (Registration) with the ESC on or after 1 January 2023 (New Local Energy Networks) will need to comply with the new Conditions immediately.

Existing local energy networks will be required to update their Registration with the ESC by 31 December 2022. This registration includes a declaration that they can comply with relevant requirements, including the ability to meet the renewable energy requirement within three years after the Licensing Regime is established (i.e. by 2027). Existing local energy networks that:

  • do not update their Registration before the cut-off date of 31 December 2022 will be subject to the same regulatory requirements as New Local Energy Networks.
  • register for electricity exemptions by 31 December 2022 (Registered Existing Embedded Networks) will not need to meet the Renewable Energy Requirement immediately, but they will likely be required to meet the Enhanced Consumer Protection Requirements immediately.

A summary of key dates regarding the proposed changes can be found below:

  • Mid 2022 - Publication of government response to Report.
  • 30 June 2022 - Revision of GEO to take place.
  • 31 December 2022 - Cut-off for existing residential embedded networks to update their Registration with the ESC to avoid obligations to comply with the Conditions from 1 January 2023.
  • 1 January 2023 - Amendments to the GEO commence. All New Local Energy Networks and existing local energy networks who did not register or update their Registration with the ESC by 31 December 2022 must comply with the Conditions (i.e. Renewable Energy Requirements and Enhanced Consumer Protection Requirements). Registered Existing Embedded Networks must comply with the Enhanced Consumer Protection Requirements.
  • Early 2024 - Licensing Regime comes into effect.
    All New Local Energy Networks and existing local energy networks who did not register or update their Registration with the ESC by 31 December 2022 must apply for an LES licence within 6 months of this coming into effect.
  • Mid 2024 (6 months after Licensing Regime comes into effect) - Cut-off for all New Local Energy Networks and existing local energy networks who did not register or update their Registration with the ESC by 31 December 2022 to have applied for an LES licence.
  • Around 2027 (3 years after Licensing Regime comes into effect) - Cut-off for Registered Existing Embedded Networks to have complied with the Renewable Energy Requirements and applied for an LES licence. From this point, all embedded networks should be required to obtain an LES licence.

Please get in contact with us if you have any questions or would like to discuss how any of the proposed reforms could impact your business. We will provide further updates once the Victorian Government has published their formal response to the Report.

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