A reliable power system has enough generation, demand response and network capacity to supply customers with the energy that they demand with a very high degree of confidence. This requires:
- well-functioning electricity spot and contract markets providing clear price signals, along with forecasts and notices from the system operator, AEMO, backed up by policy certainty from governments. This gives market participants incentives and information to supply generation and demand response when and where it is needed.
- a reliable transmission and distribution network (the poles and wires)
- the system being in a secure operating state, that is, able to withstand shocks to its technical equilibrium.
What is the Reliability Standard?
The reliability standard requires at least 99.998 per cent of forecast customer demand to be met each year. It is reviewed by the independent Reliability Panel, which includes large energy users, consumer groups, industry and the Australian Energy Market Operator (AEMO).
The reliability standard is set in the National Electricity Rules (NER) and was last reviewed in 2018. The standard is informed by the value customers place on a reliability supply of power, known as the value of customer reliability (VCR). The Australian Energy Regulator released a final report on Values of Customer Reliability in December 2019.
Setting the standard is about striking a balance between having enough generation available to meet consumer demand for the vast majority of scenarios, and keeping costs as low as possible for consumers. The higher the reliability standard, the higher the cost for consumers.
For example, it may be far too expensive to plan for a very rare, say one-in-ten year event, by building a new generator and more poles and wires to support it – particularly when it may never even be used.
The alternative way to manage rare events is for AEMO to buy emergency reserves using the market's reliability and emergency reserve trader mechanism (RERT). The RERT is a type of strategic reserve that allows AEMO to pay a premium for additional capacity to be on standby in case of emergencies when the demand and supply balance is tight.
AEMO can also issue directions to generators to turn on, if the market hasn’t responded.
In March 2020, the Panel published a short information paper and accompanying fact sheet explaining how the reliability standard operates. This is an early first step towards the Panel’s next statutory review of the reliability standard and settings, which must be completed by 2022 at the latest.
At its meeting on 20 March, the COAG Energy Council considered advice from the Energy Security Board (ESB) aimed at improving the reliability (resource adequacy) of the electricity system. The Council agreed to implement interim measures to deliver further reliability by establishing an out-of-market capacity reserve and amending triggering arrangements for the Retailer Reliability Obligation (RRO). Both measures will be triggered to keep unserved energy to no more than 0.0006% in any region in any year.
How does the market respond to meet consumer demand?
Market participants respond to price signals and information published by AEMO to provide the level of reliability that is expected by the reliability standard.
Spot and contract markets for electricity provide price signals to the market about how much power is needed. For example, when the spot price is increasing, generators ramp up their output or more expensive generators turn on to sell extra power to the market. For example, a gas peaker or pumped hydro plant may jump in.
The market is also guided by AEMO's regular short, medium and longer term forecasts of when reserves may be running low:
- AEMO’s Electricity Statement of Opportunities (ESOO) assesses supply adequacy across the national electricity market over the next ten years, taking into account any significant developments, such as the closure of a large power station.
- In the short and medium term, AEMO assesses supply adequacy through its Projected Assessments of System Adequacy (PASA) process. This involves collecting information and analysing if the electricity supply can meet the reliability standard in the short term (a one week outlook) and medium term (a two year outlook, however under our final rule on improving transparency and extending duration of MT PASA, the period generation availability is published has been extended from two to three years.
If the market response isn’t enough, AEMO can intervene by contracting for emergency reserves to be on standby using the RERT. AEMO can procure reserves up to twelve months in advance of a forecast shortfall, as set out in the AEMC's final rule on enhancements to the RERT.
As forecasts are updated, AEMO may set up a panel of RERT providers in the medium term (between ten weeks’ and one week’s notice of a projected shortfall) and in the short term (between seven days’ and three hours’ notice of a projected shortfall). AEMO will seek additional reserves from these medium and short-notice RERT panels if the forecast gap in the medium or short term is more than it had contracted for through the long-notice RERT.
If supply continues to tighten, AEMO issues notices to the market to encourage more generation or demand response. If there is not enough response to these notices, AEMO can dispatch emergency (RERT) reserves.
AEMO can also:
- direct a generator to increase its output, but only if this is possible and can be done safely. To be effective, the generator must have enough time to ‘ramp up’. If the generating unit is not already generating, it can take time for it to connect to the network and begin to ramp up. Gas generating units can usually turn on within a few hours if they have fuel available. Hydro plant can connect and ramp up faster than this, whereas coal generators can take several days.
- direct a large energy user, such as an aluminium smelter, to temporarily disconnect its load or reduce demand. This only applies to large users who are registered market participants.
Controlled load shedding
As a last resort, if there is no more generation or demand response available, controlled load shedding is used. This is when AEMO directs network businesses to interrupt supply to some customers to bring supply and demand back into balance and help avoid a system-wide blackout.
It works by interrupting supply to a group of customers for say, up to half an hour, then rolling on to a different group.
Importantly, controlled load shedding does not include sensitive groups such as hospitals and emergency services. Also, businesses or energy users that need continuous energy supply, such as data centres and customers on life support, have their own back-up plans, for example on-site diesel generators.
This has happened on a few days in the past decade, most recently in Victoria in January 2019, all during extreme heatwaves.
The reliability framework says AEMO should target zero load shedding in real time.
What about interruptions caused by network and technical problems?
While there’s almost always enough generation capacity in the power system to meet consumers’ needs, sometimes that power can’t get to consumers due to system stability issues or faults in electricity poles and wires.
In fact, almost all interruptions to customers’ power supplies – around 96% - are due to problems in the grid, for example when a pole is knocked down in a storm or power lines are damaged in bushfires.
Network reliability standards guide how much investment in poles and wires is needed to deliver a specified level of supply to consumers. These are set by state and territory governments.
Investments in transmission and distribution reliability are ongoing and involve a trade-off between the cost of building and maintaining networks, which is ultimately paid for by consumers through their bills, and the value placed on reliability by consumers.
Technical problems – also known as system security events – are mostly caused by sudden equipment failure that results in the system operating outside its technical operating limits, such as voltage and frequency. With more wind and solar connecting to the grid, the technical characteristics of the system are changing. In particular, it is becoming harder for the system to withstand disturbances such as a change in demand or supply.
Work to strengthen system security is ongoing to reduce the risk of widespread outages. This includes new requirements for networks to provide minimum levels of inertia and system strength, and enhanced technical performance standards for new generators.
AEMC’s role in system security and reliability
The AEMC’s system security and reliability work program is focused on developing market frameworks which allow continued take-up of new generating technologies while keeping the lights on at the least cost to consumers. Learn more about our work to help keep the energy system secure and reliable.