September 9, 2016
An Embedded Network is a privately owned and operated embedded electricity network at a site that has multiple customers. The customers’ consumption is ‘consolidated’ to a single connection to a Retailer in the National Electricity Market (NEM); and is used to purchase all electricity. The electricity is then ‘on-sold’ to each of the customers at the site based on their measured consumption.
The purchasing of electricity through a single connection can reduce the ‘total cost’ of electricity at the site. Once on-sold to customers, this reduced cost can result in a substantial ‘surplus’ of funds available to the site. The use of the surplus is generally determined by the Network Owner; however, may include reducing customer rates, reducing owner fees, purchasing electricity from renewable sources and investing in other initiatives – such as Solar (PV) Array and Battery Technology at the site.
Embedded Networks are frequently found in Apartment Buildings, Commercial Buildings, Retirement Villages, Shopping Centres, Industrial Estates, Airports, Caravan Parks, Hotels and Resorts.
An Embedded Network consolidates all consumption by customers at a site to a single electricity meter – called the Parent Meter. The Owner of the Embedded Network, which may be the Body Corporate, Owners Corporation, a single Site Owner or the operator, then purchases electricity for the whole site at a reduced cost through a Retailer in the NEM. This reduced cost is relative to the cost of each customer having their own individual connection to a Retailer in the NEM; and is a result of the bulk purchasing of embedded electricity network, the consolidation of metering and the reduction in other costs.
The operator of the site is called the Embedded Network Operator (ENO) and is responsible for providing the services associated with the on-selling of electricity at a site. The Owner of the Network may operate the site themselves or they may appoint a representative.
Electricity is on-sold by the ENO to all customers within the Embedded Network. Each customer has their own individual electricity meter, identified by a unique ‘meter number’, that is used to measure consumption periodically. The ENO then applies the electricity rates that have been set for the site to invoice customers. The electricity rates set by the ENO are generally comparable with the Retail offers in the NEM; however, there is no requirement for the ‘reduced cost’ at the Parent Meter to be passed on to customers.
The revenue received from the customers of the Embedded and Solar Network, less the expense of purchasing electricity for the site as a whole, less other associated costs, generates a surplus of funds. The surplus can be utilised by the site in many ways, and can include reducing customer electricity rates, repayment of ‘retrofitting’ an Embedded Network and supporting other site initiatives – such as Solar (PV) Array and Battery Technology. Ultimately, the additional funds available can reduce the site requirement on capital contributions, owner levies, sinking funds and external financing sources.
The Owner of the Embedded Network may be in the fortunate position of choosing the best way to benefit their site through the surplus of funds. They can choose to:
As a customer of an Embedded Network, the primary benefit is the reduction in the electricity rates; better than Retail offers in the NEM. Customers can also benefit through:
In some scenarios, the ’benefiting party’ may not be the Owner of the Embedded Network, the site itself, or the ENO. The distribution of the surplus may be based on an Agreement which stipulates that the funds go to a specified party. This party may be associated with the on-sale of electricity at the site, or may be the party that implemented the Embedded Network. When this is the case, the benefits discussed may not always apply to the site and the customers.
The process of on-selling electricity has various risks which must be understood for an Embedded Network to operate effectively. Two broad categories may be used: Financial Risk and Regulatory Risk. Financial Risk stems from the risks of purchasing electricity and on selling electricity to customers, with the intent to create a surplus. Surplus is not guaranteed, not all sites are feasible and there are a lot of variables. Regulatory Risk encompasses compliance with various rules and regulations for Embedded Networks.
Understanding the basis of a healthy and feasible Embedded Network and complying with the rules and regulations is the key to success. Our industry tested model has been proven to provide reliable financial projections for sites with an existing Embedded Network and for sites looking to ‘retrofit’. If you would like to find out more about feasibility or compliance at your site, please Contact Us.
