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 several elements:

  • efficient investment, retirement and operational decisions by market participants resulting in an adequate supply of capacity to meet demand plus a sufficient level of reserves
  • a reliable transmission network
  • a reliable distribution network, as well as
  • the system being in a secure operating state, that is, one where the power system is in, or will return to, a satisfactory operating state within 30 minutes.

As a result, a reliable supply of electricity to customers requires adequate network planning, generation capacity availability, maintenance of all parts of the electricity supply chain and a properly functioning market as investment, which is required to provide reliability in the National Electricity Market (NEM), is driven by the market.

Reliability standard

The reliability standard currently requires that there be sufficient generation and transmission interconnection such that 99.998% of annual demand for electricity is expected to be supplied.

Put another way, the standard specifies the maximum expected unserved energy (USE), or the amount of electricity demanded by customers which is at risk of not being supplied. It is currently set at 0.002% of the region’s annual energy consumption in a financial year.

It is not a regulatory or performance standard that is ‘enforced’, nor is it a test against which the market is formally assessed after the fact. Rather it expresses the level of reliability sought from the NEM’s generation and transmission interconnector assets

The reliability standard is set in the National Electricity Rules (NER). It is reviewed by the AEMC’s Reliability Panel every four years, along with the associated reliability settings.

The Australian Energy Market Operator (AEMO) is responsible under the NER for maintaining security and implementing reliability across the power system in accordance with standards and guidelines.

State and territory governments set the level of reliability that must be provided by transmission and distribution networks (‘poles and wires’).

Generation reliability

AEMO must continuously monitor levels of generation as generators retire from the market and new generators take their place.

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 Hazelwood Power Station in Victoria. The ESOO is an information tool providing information that can help stakeholders plan their operations over a ten-year outlook period, including information about the future supply demand balance.

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).

There are mechanisms in the NER which enable AEMO to take action if it believes the balance of electricity supply and demand will not meet the reliability standard.

First, AEMO will notify the market that there is a projected shortfall in supply, by issuing a market notice, the purpose of which is to seek a market response:

  • inviting generators to bid any spare supply into the market, o
  • load to reduce their consumption in the market.

By this stage, spot prices are usually very high due to the shortage of supply relative to demand, which is an incentive for generators to offer their supply and for load to reduce their supply. This is how the market is designed to work.

  • activate the reliability and emergency reserve trader (RERT) mechanism (see below), which allows AEMO to contract for (or ‘lock in’) electricity reserves ahead of a period where it projects a shortage.
  • 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.

If there continues to be a supply shortfall, AEMO may require involuntary load shedding as a last resort to avoid the risk of a wider system blackout or damage to generators or networks. Network businesses shed this load following schedules provided by the relevant state government.

Power outages

Outages can be planned or unplanned. Planned outages generally occur so that maintenance or construction can be undertaken on generators or loads or the transmission or distribution networks. Unplanned outages occur when equipment failure causes electricity to be disconnected unexpectedly.

The reliability that customers experience is a combination of the service provided by generators, transmission networks and distribution networks. However, most of the outages that customers experience are due to issues on the distribution networks.

Distribution businesses must provide a safe, secure and reliable supply to consumers to ensure a reliable supply of electricity. While the level of reliability experienced by customers can vary for different areas of the network, average reliability is at a high level. To further improve current average levels of reliability, significantly more expenditure would be needed. As a result, it would not be cost efficient to try to remove all outages on the distribution networks (discussed further below).

There are also a number of factors which can lead to unplanned outages, which distribution networks have only a limited control over. This includes factors such as birds or possums on lines, or extreme weather such as storms, which may bring lines down.

Reliability and Emergency Reserve Trader

The Reliability and Emergency Reserve Trader (RERT) allows AEMO to contract for electricity reserves ahead of a period where AEMO projects an insufficient amount of supply to meet the reliability standard.

AEMO is able to dispatch RERT reserves to manage power system reliability and, where practicable, system security.

It is one of a few mechanisms available to AEMO to intervene in the market to address potential shortfalls of supply. 

The NER require the Reliability Panel to produce guidelines that AEMO must take into account when using the RERT. In addition, AEMO is required to develop procedures that detail how AEMO intends to exercise the RERT.

When exercising the RERT, AEMO must aim to have the least distortionary effect on the operation of the market and the least cost to end use consumers of electricity.

AEMO must also follow the RERT guidelines when contracting for reserves which cover:

  • the information AEMO must take into account when deciding whether to exercise the RERT
  • actions that AEMO may take to be satisfied that the shortfall is unlikely to be addressed by the market
  • the process AEMO should follow when contracting for reserves under the RERT.

Network reliability

Each state and territory government retains control over how transmission and distribution reliability is regulated and the level of reliability that must be provided.

Investments in transmission and distribution networks are ongoing and involve a trade-off between the cost of building and maintaining the networks and the value placed on reliability by customers.

Understanding how customers value reliability is an important consideration when planning new network infrastructure. A reliable supply of electricity is important to everyone: electricity interruptions can be costly, but it can also be disproportionately expensive to try to avoid them completely.

There is a trade-off between cost and reliability:

  • high reliability levels are expensive to provide, but result in lower interruption costs to customers
  • low reliability levels are cheaper to provide, but result in higher interruption costs to customers.

The key is to strike a balance between delivering secure and reliable electricity supplies, and maintaining reasonable costs for electricity customers.

A value of customer reliability (VCR) measure, represented in dollars per kilowatt-hour, indicates the value different types of customers place on having reliable electricity supplies under different conditions. VCR surveys can help guide electricity planning and decisions on investments by energy businesses, governments and regulatory authorities.

AEMC’s role in reliability

The AEMC’s reliability work program includes:

  • Reliability frameworks review - which is considering the regulatory and market frameworks needed to support a reliable supply of electricity as the power system transforms to include more variable, intermittent generation and demand-side innovation. A final report is due in mid 2018.
  • AEMC's Reliability Panel's four yearly review of the reliability standard and market price settings – a set of parameters that bear on price, investment and ultimately reliability in the national electricity market. The final report was published in April 2018.
  • Review into the coordination of generation and transmission investment - which is investigating options to improve the coordination of generation and network investment, including potential renewable energy zones, transmission pricing and access. A final report is due in mid 2018.

In addition, the AEMC’s Reliability Panel determines standards and some of the guidelines for maintaining a secure and reliable power system, as well as reviewing, monitoring and reporting on system performance.