Market Review: Open
The Australian Energy Market Commission (AEMC) is commencing a review of the operation of the Retailer Reliability Obligation (RRO). The AEMC must review the RRO under Chapter 4A of the National Electricity Rules (NER) to ensure that it operates as intended and to consider any necessary amendments.
Stakeholders are invited to respond to the consultation paper by 4 May 2023.
The RRO is one of several measures to support reliability in the national electricity market (NEM). It commenced on 1 July 2019, with the aim of providing 'stronger incentives for market participants to invest in the right technologies in regions where it is needed'.
This review will consider the operational aspects of the RRO to ensure that the scheme is operating as intended, including but not limited to:
the processes for the T-3 and T-1 triggers
the Market Liquidity Obligation
the voluntary Book Build Mechanism
any relevant definitions such as qualifying contracts and thresholds, including the threshold for liable entities
the role of the opt-in mechanism.
The AEMC will consider the national electricity objective (NEO) when making any recommendations.
On 23 March 2023, the AEMC published the terms of reference for the self-initiated review to facilitate stakeholder consultation.
In relation to the scope of the review, the Commission is carrying out the review of the operational aspects of the RRO consistent with the 2018 decision Regulation Impact Statement (RIS) to the RRO. This sets out that: ‘The review is not intended to assess the overall efficiency of the Obligation, as determining the overall impact of the scheme would likely require a longer assessment horizon'.
The Commission has decided to carry out the review over a longer timeframe than required under the NER, with a final report to be released in early 2024. This will ensure that the Commission can consider the initial operational lessons learnt from the initial T-1 trigger event in South Australia. The Commission will also be able to consider the AER's final recommendations from its Retailer Reliability Obligation Compliance Procedures and Guidelines which are due to be published in mid-2023.
In 2019, Energy Ministers, on the advice of the Energy Security Board (ESB), agreed to the RRO to supplement the reliability standard in supporting reliability outcomes in the NEM, to encourage new investment in dispatchable energy such that the electricity system operates reliably.
Specifically, energy ministers were concerned that the reduction in dispatchable coal and gas generation and the greater penetration of intermittent technologies such as solar and wind generation present risks to the NEM's reliability.
The RRO requires retailers to obtain contracts that cover their expected demand in a potential reliability gap period. This, in turn, is intended to provide market participants with the necessary confidence to invest in firm generation technology to support a reliable electricity supply in the NEM. It was intended to be a long-term solution to ensuring reliability at the lowest cost by preparing for and eliminating forecast reliability gaps before they occur.