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Electricity generation

Generators produce electricity from fossil fuels, including coal and gas, and renewable energy sources, including water (for hydro-electricity), wind (for wind power) and sunlight (for solar photovoltaics (PV) panels).

Although most of Victoria’s power still comes from coal, this is rapidly changing as Victoria progresses toward its Renewable Energy Targets of 40% by 2025 and 50% by 2030, in line with the Victorian Government’s Climate Change Strategy.

Distributed energy resources

Many households and businesses are now generating their own renewable energy, for example, by installing a solar PV system. These smaller points of electricity generation are called distributed energy resources.

Households that have small renewable generators use them to supply their own energy. They can receive payments from their electricity provider for exporting extra energy they generate back to the electricity grid (the electricity grid is the poles and wires that transport electricity from generators to points of consumption). This payment is called a feed-in tariff .

Microgrids

The Victorian Government is also supporting and developing microgrids . These small electricity networks can operate “off the grid”, largely on renewable energy. A microgrid generally operates while connected to the grid. It can break off and operate on its own - effectively becoming an ‘island’, using local energy generation.

A microgrid can be powered by distributed energy resources. This includes batteries or renewable resources like solar panels and wind turbines. Communities living in regional and rural settings can use microgrids to meet their power needs by local generation.

Electricity transmission

Once electricity is generated at a power station, it is transported to load centres in metropolitan and regional areas by a network of high voltage transmission lines. Low voltage distribution networks transport it from the transmission lines to customers.

Victoria’s 6,000 kilometre high-voltage electricity transmission system is owned and maintained by AusNet Services. However, the transmission system is subject to the operational control of the Australian Energy Market Operator (AEMO), the national market and system operator.

AEMO's role

AEMO's role is to ensure the system's integrity and operate the National Electricity Market (NEM). This is a wholesale market. It is one of the largest interconnected electricity systems in the world. It allows electricity to be traded between Victoria and 5 other eastern and southern states and territories of Australia.

Electricity distribution

In Victoria, 5 electricity distribution businesses own and manage the low voltage power poles, wires and meters which deliver power to homes and businesses across the state. Distributors have a responsibility to:

  • deliver reliable electricity supply to customers
  • connect homes to the grid
  • maintain infrastructure.

Distributors are therefore different to energy retailers, as retailers sell energy to customers. Find out who your electricity distributor is.

Electricity retail market

Electricity retailers sell electricity to household and business customers. Retailers are businesses that pay the different costs involved in supplying electricity and then sell electricity to customers as a packaged offer. Retailers are responsible for billing, customer service and helping arrange network services.

Retailers purchase electricity in the National Electricity Market (or NEM) using a combination of ‘hedging contracts’ or futures. This is where they negotiate the price they will pay for electricity in the future as well as from the ‘spot’ market (where they purchase a portion of electricity for immediate supply). Retailers also pay network costs. These are the costs to build and maintain the poles and wires that transmit and distribute electricity) charged by electricity distributors. Retailers add these costs together with their own operating costs and profit margin and offer electricity contracts to customers.

Customers can choose to buy their gas and electricity from a range of different offers that have different prices and conditions. Customers can compare energy offers on Victorian Energy Compare. Find out more information about the gas sector.

Regulation

Energy businesses must hold a licence or be exempt from holding a licence to generate, transmit, supply or sell energy in Victoria. The Essential Services Commission (ESC) is Victoria’s independent regulator for the electricity and gas sectors. It is responsible for granting licences or exemptions.

The ESC has the power to investigate energy businesses and determine whether they are complying with the rules. If a business is not compliant, the ESC has enforcement powers. These include the ability to:

  • issue penalty notices (fines)
  • issue enforceable orders and undertakings
  • revoke business licenses.

The ESC can also create new rules.

Embedded networks

Embedded networks are private electricity networks that sell and supply electricity to multiple customers within a building or self-contained site. They are common in multiple occupancy developments, such as:

  • apartment buildings
  • retirement villages
  • social housing
  • caravan parks
  • shopping centres.

In Victoria, people or companies can sell or supply electricity if they have a licence or if they are exempt from the requirement to have a licence. Many embedded network operators are exempt from holding a licence. But there are still laws and regulations which apply to them.

There are ongoing concerns that customers living in embedded networks pay higher prices. Also that they don't have the same consumer protections as other Victorians. That's why the Victorian Government plans to ban embedded networks in new residential apartment buildings.

An expert panel was appointed to lead the Embedded Networks Review and provide recommendations to the Victorian Government on implementing the ban. The panel released its Final Recommendations Report in January 2022. It outlines a comprehensive set of recommendations for customers living in both new apartment buildings and existing embedded networks.

The Engage Victoria website has up-to-date information about the panel’s final recommendations and the Victorian Government’s next steps.

Recent policy and regulatory improvements for residents of embedded networks include:

  • setting the Victorian Default Offer (VDO) as the maximum price
  • providing most embedded network customers access free and independent dispute resolution via the Energy and Water Ombudsman Victoria.

Page last updated: 12/09/22