The Australian Energy Market Operator today provided supplementary information to the Enhancement to the Reliability and emergency reserve trader rule change request. This information, which addresses the appropriateness of the reliability standard, builds on AEMO’s proposed changes to the market’s strategic reserve mechanism – the Reliability and emergency reserve trader (RERT).
The current RERT procurement framework has been designed to balance the benefits to consumers of having reliable electricity supply against the costs associated with increasing the levels of reliability in the national electricity market.
The appropriateness of the reliability standard and these trade-offs are key considerations for this rule change. If the trade-offs are not effectively balanced, then consumers will end up paying more.
AEMO’s key views are that:
- the risk of supply interruptions in the national electricity market is increasing
- the existing reliability standard is not suited to increasing risk and uncertainty
- the RERT should be delinked from the reliability standard and that a standing reserve should be created to provide an insurance function in the reliability framework.
AEMO will present its views at a public workshop to be held by the AEMC in Sydney on Monday 12 November 2018.
The AEMC will also discuss its recently-published options paper at the workshop. A question and answer session for stakeholders will follow the presentations.
Date: Monday 12 November 2018
Time: 1pm to 4pm AEDT (Sydney/Melbourne time)
Location: Rydges Sydney Central, 28 Albion St, Surry Hills
Register to attend the workshop in person by Friday 9 November 2018.
Webcast: The workshop will be webcast live (audio only) for stakeholders who are unable to attend in person. You can register for the webcast here. Webcast participants will be able to submit questions online.
Stakeholders are invited to provide feedback on the options paper, as part of the AEMC’s consideration of broad changes to the RERT framework proposed by AEMO. The options paper considers:
- how the RERT procurement trigger could be designed
- how the RERT procurement volumes could be set
- how we will consider the appropriateness of the reliability standard, including how we will incorporate AEMO’s views on this matter.
A draft determination on the rule change request is due to be published on 31 January 2019.
This rule change request is being progressed as part of the Commission’s broader system security and reliability work program. This includes an urgent rule we made in June 2018 to extend the period allowed for AEMO to contract for reserves ahead of a shortfall, so that is in place for this summer if needed.
Media: Prudence Anderson, Communication Director, 0404 821 935 or (02) 8296 7817
What is the RERT?
The RERT is one of the tools available to AEMO to help avoid blackouts. It is a type of strategic reserve that allows AEMO to pay a premium for additional generation or demand response that is not already in the market to be on stand-by when shortages are projected.
It is an important part of the regulatory framework that AEMO uses as a safety net at times when a supply shortfall is forecast, or, where practicable for power system security. These additional reserves may only be used as a last resort to avoid unnecessary blackouts, typically during summer when the demand and supply balance is tight.
Prior to 2017, AEMO had only entered into RERT contracts three times and it had never been dispatched. This changed in 2017, when AEMO entered into a number of reserve contracts and dispatched the RERT twice – once in November 2017 and once in January 2018.
Some form of mechanism that allows the operator to contract for reserves has existed since the start of the national electricity market and has underpinned the high levels of reliability experienced to date.
What are the costs of the RERT?
The RERT is an important safety net that underpins reliable electricity supply; however it does carry direct and indirect costs. The direct costs of the RERT last summer amounted to $51.3 million. The indirect costs are due to the distortionary effects the RERT can have on market outcomes - for example if a generator which would otherwise have participated in the wholesale market withdraws to offer its capacity to the RERT instead. This could lead to increased costs for consumers – both from the costs of the RERT, as well as higher wholesale prices due to a reduction in supply.
The RERT has been designed to minimise these costs. Importantly, the RERT may only be used for reliability purposes if AEMO identifies a breach of the reliability standard. The reliability standard has been set to balance the prices paid for electricity and the cost of not having energy when it is needed.