Market Review: Completed

Overview

On 30 April 2010, the Reliability Panel published its Final Report for the Review of the Reliability Standard and Reliability Settings. This report specifies the final recommendations and reasoning of the Panel. In making these recommendations, the Panel has had regard to modelling work undertaken by ROAM Consulting which was to provide analyses and recommendations on the values of the Reliability Settings to apply from 1 July 2012 such that the Reliability Standard is met.
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<p>
On 30 April 2010, the Reliability Panel published its Final Report for the Review of the Reliability Standard and Reliability Settings. This report specifies the final recommendations and reasoning of the Panel. In making these recommendations, the Panel has had regard to modelling work undertaken by ROAM Consulting which was to provide analyses and recommendations on the values of the Reliability Settings to apply from 1 July 2012 such that the Reliability Standard is met.</p>
<p>
With regard to the Reliability Standard, the Panel has determined to:</p>
<ul>
<li>
retain the unserved energy (USE) form of the reliability standard;</li>
<li>
leave the level of the standard at 0.002% USE per annum for each region, and therefore for the NEM as a whole;</li>
<li>
retain the current scope of the reliability standard in terms of excluding system security events, industrial action and &lsquo;acts of God&#39;;</li>
<li>
retain the current operational approach of targeting to achieve an expectation of no greater than 0.002% USE each year and in each region, and in the NEM as a whole; and</li>
<li>
consider performance against the standard each year with the objective of providing continuous improvement to the processes that monitor and maintain reliability in the NEM, rather than the current practice of measuring compliance with the Reliability Standard over a ten year moving average.</li>
</ul>
<p>
With regard to the Reliability Settings, the Panel recommends that:</p>
<ul>
<li>
Starting on 1 July 2012, the value of the MPC is increased annually in real terms from $12 500/MWh according to the change in the Stage 2 (intermediate) Producer Price Index (PPI).</li>
<li>
Starting on 1 July 2012, the value of the CPT is increased from $187 500/MWh annually according to the same index that is applied to the MPC.</li>
<li>
The Panel maintains an annual review process to determine whether higher increases in the MPC or CPT are necessary, and whether there are any significant changes that occurred to the economics and mechanism for delivering the Reliability Standard.</li>
<li>
The MPC and CPT will continue to be indexed according to this process as long as appropriate, given the Panel annual review process.</li>
<li>
The market floor price is maintained at -$1 000/MWh.</li>
</ul>
<h2>
Background</h2>
<p>
On 3 March 2009 the AEMC approved terms of reference requesting the Panel to commence a review of the &lsquo;Reliability Standard and settings&#39; in accordance with clause 3.9.3A(a) of the National Electricity Rules (Rules), following the Rules consultation procedure.</p>
<h3>
Issues paper</h3>
<p>
On 26 June 2009, the Reliability Panel published an Issues Paper in respect of its Review of the Reliability Standard and Settings (the Review). An explanatory note was also published to highlight the interaction between the Review and the Panel&#39;s interrelated <a href="~/Redirect.aspx?cid=85473cf0-866c-4629-9986-770c142505ee">Review of the Operational Arrangements for the Reliability Standards</a>. The Review&nbsp;focused on the longer term issues of:</p>
<ul type="disc">
<li>
the form and level of the existing Reliability Standard, and whether these were still appropriate for current market arrangements, given that more than 0.002% of annual (but not ten year) unserved energy was observed during the high temperature incidents in Victoria and South Australia on 29 and 30&nbsp;January 2009; and</li>
<li>
the recommended market price cap (MPC), cumulative price threshold (CPT) and market floor price necessary to achieve the Reliability Standard.</li>
</ul>
<p>
Submissions on the Issues Paper&nbsp;closed on Friday, 14&nbsp;August 2009.</p>
<h3>
Public Forum</h3>
<p>
The Panel held a combined public forum for the Review of Operational Arrangements for the Reliability Standard and the Review of the Reliability Standard and Settings on Monday, 13 July 2009 in Sydney. At the forum, presentations were given by the Panel and AEMO.</p>
<h3>
Draft Report</h3>
<p>
On 23 December 2009 the Panel published its Draft Report. In this report, the Panel proposed to:</p>
<ul type="disc">
<li>
retain the unserved energy form of the reliability standard;</li>
<li>
leave the level of the standard at 0.002% unserved energy for each region, and for the NEM as a whole;</li>
<li>
retain the current scope of the reliability standard in terms of system security events, industrial action and &lsquo;acts of God&#39;;</li>
<li>
retain the current operational approach of targeting to achieve an expectation of no greater than 0.002% unserved energy each year and in each region, and in the NEM as a whole; and</li>
<li>
consider compliance with the standard each year with the objective of providing continuous improvement to the processes that monitor and maintain reliability in the NEM.</li>
</ul>
<p>
Submissions on the Draft Report closed on 23&nbsp;February&nbsp;2010.</p>
<p>
In addition, the Panel published a Draft Report from ROAM Consulting which provided analysis and recommendations on the values of the Reliability Settings to apply from 1 July 2012 such that the Reliability Standard is met. In particular, the initial findings from ROAM Consulting suggested that:</p>
<ul type="disc">
<li>
the level of the market price cap (MPC) should be increased to approximately $20&nbsp;000/MWh in order to meet the Reliability Standard;</li>
<li>
the level of the cumulative price threshold (CPT) is likely to need to be increased to $300&nbsp;000/MWh to avoid increasing the number of MPC events which are affected by the administered price cap; and</li>
<li>
there is no justification for recommending any change to the market floor price.</li>
</ul>
<p>
On 15 January 2010 the Reliability Panel published a revised draft report by ROAM Consulting which was previously published on 23&nbsp;December&nbsp;2009.</p>
<p>
The revised report was issued as a calculation error was found in the modelling, subsequent to the publication of its draft report. The revised calculation resulted in a change to the recommended MPC levels. ROAM also undertook further modelling using 100 iterations of random outages.</p>
<p>
The Reliability Panel&#39;s Draft Report relied on the modelling undertaken by ROAM Consulting. The Panel noted that ROAM revised its recommendation, such that the level of the MPC should be approximately $16&nbsp;000/MWh for the 2012/13 and 2013/14 financial years. The Panel also noted that ROAMs revised recommendation was for a CPT of $240&nbsp;000 for these years. Stakeholders were asked to consider ROAM&#39;s revised draft report when making a submission on the Draft Report, or preparing a presentation for the second Public Forum.</p>
<h3>
Second Public Forum</h3>
<p>
The Panel held a second Public Forum in Melbourne on 12 February 2010. The Public Forum provided an opportunity for interested stakeholders to present their comments on the Draft Report to the Reliability Panel. Registration for the public forum closed on Friday 5 February 2010. Presentations from stakeholders are available below.</p>

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