Victorian power company AusNet Services has warned the increasing number of customers choosing to disconnect from the grid will push up the cost of electricity for those still on the network.

Key points: AusNet Services says the industry is changing rapidly and regulation needs to keep up

AusNet Services says the industry is changing rapidly and regulation needs to keep up It warns people who cannot afford solar cells or battery storage will be disadvantaged if others that can disconnect from the grid

It warns people who cannot afford solar cells or battery storage will be disadvantaged if others that can disconnect from the grid Electricity pricing and supply has become a heated issue for the Federal Government, with the PM holding meetings with energy retailers

The company is giving evidence to a federal parliamentary inquiry into modernising the electricity network, which is sitting in Melbourne today.

AusNet Services is one of five electricity distributors in Victoria. It covers Melbourne's outer northern and eastern suburbs, and the eastern half of the state.

In its submission to the inquiry, the company said the sector is facing rapid change, and the regulatory framework needed to keep up.

"One of the chief concerns in relation to grid modernisation is that new developments in the electricity sector could leave some customers behind, forced to shoulder an increasing share of the costs," it said.

The submission points to "grid defection" as an issue which may drive up costs for customers, as more and more households make the switch to solar and battery storage systems:

"Grid defection — whereby some customers choose to disconnect from the grid and purchase alternative sources of energy (e.g. a combination of battery storage and local generation such as solar PV). Customer disconnections will generally raise the cost of electricity network services to remaining customers. This is because there are little savings from having fewer customers connected to an existing network, and the costs of the system have to be recovered from fewer people. Because not all customers will be able to go off-grid (e.g. due to financial constraints, or because they rent or live in an apartment), trends that see significant numbers of people going off-grid will raise the costs to certain customers, including disadvantaged and low-income customers."

Solar and battery won't work for everyone

AusNet Services' Alistair Parker said every household would not be a contender for solar and battery storage, and those customers should not be worse off.

AusNet Services says it expects to see more consumers using solar and battery storage. ( ABC News: Alex Mann )

"There are still going to be houses and flats and apartments when just physically it's not going to be possible," he said.

"So I think we really need to have something that works for everybody, and kind of rewards consumers who are able to provide resources to the benefit of everybody."

He denied the company's position was just about protecting its interests.

"We expect our customers to adopt these new technologies: we expect them to get electric cars, we expect them to get batteries, we expect them to get solar panels," Mr Parker said.

"Over the next 20 years, customers will actually drive a massive amount of investment in the energy system, and we want to make sure that's fairly rewarded.

"This isn't sort of about us feathering our nest, or stopping people from doing what they want, but making sure when they do what they want it's for the benefit of everybody."

'Horrendously slow' progress on issue

David Blowers, an energy fellow at the Grattan Institute, said the risks of grid defection were low, since the cost of disconnecting was so high.

However, he said increased use of solar panels and batteries could have adverse effects on people already experiencing disadvantage.

"The danger is if more and more people use less and less electricity from the grid [and] this grows over time," he said.

"Because putting solar panels on your roofs or buying batteries costs significant amounts of money, then generally those that are most disadvantaged are not going to be able to do so.

"Hence they will end up covering more of the costs of the network than those people who have solar and batteries, and this could be seen as being unfair."

David Blowers from the Grattan Institute says low-income households may not be able to afford solar and battery storage. ( Flickr: OregonDOT )

Mr Blowers said the issue had been discussed in the sector for many years, and appeared to have been put to bed three years ago when governments agreed to introduce cost-reflective pricing.

That would mean the price of electricity would more accurately reflect the actual cost of generation and supply, rather than fixed charges.

However, he said in the three years since there had been little change.

"Progress has been horrendously slow, and there have been barriers put in place," Mr Blowers said.

"Really it would be good to see this inquiry reopen this issue and actually force politicians to act."

Increasing power prices have become a major political issue for the Federal Government, and Prime Minister Malcolm Turnbull has held two meetings with energy retailers this month to address rising bills.