The City of Sydney is making a second attempt to try and convince Australia’s energy rule maker to encourage decentralised energy – such as solar and battery storage – by removing some of the market barriers and making the rules fairer.

City of Sydney had joined forces with the Total Environment Centre and the Property Council of Australia to argue that local generators should attack allow lower network charges, in a move that could have saved billions in network costs and make the grid more resilient.

But in a ruling that dumbfounded the proponents and its supporters, the proposal was rejected by the Australian Energy Market Commission. Networks and large generation interests had argued against the change.

The AEMC and other regulators have been cited as one of the principal barriers to modernising Australia’s energy system because of their attachment to the “old way” of running electricity markets and the influence over the regulators and rule makers by incumbent business interests.

However, since the South Australian blackout highlighted the ageing nature of Australia’s grid – both in its hardware and the way it is operated – new pressure has come on the regulators and rule makers, and the AEMC in particular, to modernise their approach.

Currently, consumers who buy electricity from a local generator, such as a rooftop solar system on a roof across the street, pay the same network charges as a consumer buying electricity from a coal generator hundreds of kilometres away.

“It’s time Australia’s energy regulators caught up with changing technologies and customer preferences,” Lord Mayor Clover Moore said in a statement.

“Our population is growing, especially in the capital cities and urban centres. As demand for electricity grows and our infrastructure continues to age, we should be doing all we can to ensure catastrophes such as we recently saw in South Australia don’t happen again.

“I was dumbfounded by the Australian Energy Market Commission’s dismissal of our proposal on cost grounds, particularly when modelling from the Institute of Sustainable Futures showed a proposal similar to this could save more than $1 billion by 2050.

Jay Rutovitz, from the Institute of Sustainable Futures, described the modelling and the decision of the AEMC as “laughable” and staggering, while the TEC’s Mark Byrne said the ruling would likely cause prosumers to reduce their use of the grid, to look at private wires and microgrids, and potentially to disconnect.

Energy experts, including the head of Australia’s largest electricity generator, AGL Energy, have admitted that the best way to provide electricity security is to introduce local generation, which would normally be renewables, in the form of mini grids, or micro grids.

Many network operators and consumer groups also argue that these are cheaper, more efficient and more secure.

“We’re doing what we can,” Moore said. “We’ve put more than half a megawatt of solar panels on our building roofs – equivalent to more than 200 household solar PV systems, switched on a trigeneration plant at Town Hall House and we’re also installing a low-carbon cogeneration plant at the Ian Thorpe Aquatic Centre in Ultimo.

“As we recently saw in South Australia, cities like Sydney cannot be too reliant on centralised energy networks. We need decentralised alternative options.

“Our current regulatory regime was designed for the 20th century, where one-way centralised energy supply was the only way to go.

“Currently decentralised energy projects are not able to access funding for the value they provide to the network. This makes them more costly to get off the ground.

“If networks don’t develop fair, efficient pricing for local generation, consumers will increasingly avoid the network by locating generation off-the-grid – increasing prices for the customers who remain and have to pay for the poles and wires already installed.”

Moore said it was “not credible” to argue, as the Commission has, that existing mechanisms, specifically network support payments by the energy utilities, are working to support local energy generation – these payments amount to less than 0.03 per cent of total network expenditure.

“Unfortunately, the Commission has decided it cannot consider climate change because it is not part of the National Electricity Objective – which means they are not planning for the electricity grid of the future as we move to zero emissions by 2050.”

“We need to include climate change in the National Electricity Objective so climate policy and energy markets start working together.”