The Australian Energy Market Commission (AEMC) has released a draft rule enhancing the reliability and reserve trader (RERT) to effectively protect the reliability of the national electricity market at the lowest cost possible to consumers.
The AEMC is calling for public submissions on the recommendations to tighten the rules so they set clear requirements for industry to step up and offer least-cost supplies to the market so the RERT can be an effective tool in keeping the lights on during extreme weather events and emergencies.
AEMC Chairman, John Pierce AO, said more needs to be done by governments and the power sector as a whole to improve reliability. Procuring emergency reserves is only one part of a comprehensive framework that is designed to provide enough capacity to meet the reliability standard.
“Emergency reserves are just that – for emergencies. Price signals through the spot and contract markets, along with forecasts and notices from AEMO, give the market incentives and information to supply longer-term generation and demand response when and where it is needed,” Mr Pierce.
“Emergency reserves are more expensive, which is why we need to keep them to a minimum. That’s why we also need a well-functioning market with clear price signals and information, backed up by policy certainty from governments, with tools like the retailer reliability obligation which is being developed by the Energy Security Board right now.”
The draft rule makes a range of enhancements to the RERT process to lower procurement costs and improve transparency. Key changes include:
- Improving incentives for customers to reduce demand to minimise the need for emergency reserves: for example, retailers encouraging their customers to reduce energy use during heatwaves.
- Increasing transparency and awareness of options for emergency reserves supply: AEMO would provide regular updates on how the RERT is procured and how much emergency reserves cost.
- Clarifying the trigger: the RERT can be triggered if AEMO forecasts a breach of the reliability standard, which requires enough generation to service 99.998 per cent of consumer demand.
- Increasing the lead time to buy reserves from nine to twelve months: with a longer lead time, AEMO can get better deals from a larger pool of providers, including demand response providers.
- Providing a price guide for emergency reserves: the price should typically be less than the cost of load shedding. AEMO will use the AER’s assessment of the value customers place on reliability as an input.
- Encouraging a lower-cost competitive market response: by only letting providers enter into contracts for emergency reserves if they have not been in the market for the past 12 months. This avoids a more expensive “RERT-only market” developing.
If approved by the COAG Energy Council as planned, the retailer reliability obligation could be in place by mid-year.
The Energy Security Board is conducting public consultation on the obligation. Mr Pierce said the draft rule would help address risks to power system reliability that are being caused by the changing characteristics of the power system as lower emission and non-synchronous, weather-driven generation like wind and solar connects to the grid while synchronous generators are closing.
The Australian Energy Council’s General Manager Policy, Ben Skinner, said that the Draft Determination sought to balance the need to have sufficient reserves in place when needed, whilst minimising costs to energy users.
Energy Users’ Association of Australia (EUAA) Chief Executive Officer, Andrew Richards, has also welcomed the draft determination.
“The RERT Mechanism is a valuable tool to manage emergencies but it is costly with just one instance last year leaving energy users with a $52 million bill.
“We note the determination makes an important reference to the Retailer Reliability Obligation which is currently being investigated by the Federal Government and is aimed at ensuring the market efficiently meets the Reliability Standard without the need to call on RERT.”
Submissions on the draft determination are due by 21 March 2019.
