The AEMC has made a final rule to require the Australian Energy Market Operator (AEMO) to minimise costs to consumers when it is necessary to intervene in the electricity market.
There has been a significant increase in the use of intervention mechanisms by AEMO over the last three years, primarily in response to system security issues such as inadequate system strength in South Australia. In response to this increased reliance on intervention mechanisms, AEMO and the AEMC have undertaken reviews relating to intervention pricing and the interventions framework, resulting in a number of recommended changes to the interventions framework.
The final rule removes the current hierarchy for the use of mechanisms for managing supply scarcity and improves AEMO's ability to manage the power system efficiently and flexibly.
Currently the National Electricity Rules (NER) arrangements set out that in times of "supply scarcity", after dispatching all valid bids and offers, the Australian Energy Market Operator (AEMO) must use reasonable endeavours to first activate or dispatch the Reliability and Emergency Reserve Trader (RERT) and then, if necessary, issue either directions or instructions.
The Commission considers the existing requirements preclude lower cost and more effective options for managing supply scarcity, under some circumstances leading to higher costs for consumers.
This final determination replaces the existing requirements with a principle that AEMO must use reasonable endeavours to select effective mechanisms for addressing supply scarcity that minimise direct and indirect costs. This will improve AEMO’s ability to manage the power system efficiently and flexibly, lowering costs to consumers.
This final determination actions a recommendation made by the Commission in its August 2019 Investigation into intervention mechanisms in the NEM final report. Following this report, AEMO submitted a rule change request on 28 November 2019 to action this recommendation. The rule change request was fast-tracked as stakeholder feedback on this issue was initially sought and received in 2019 as part of the AEMC’s earlier work.
The final rule also applies transparency and accountability requirements to cover the additional discretion provided to AEMO on the choice of intervention mechanisms. The Commission considers it is important that market participants and other stakeholders should have an ability to reasonable predict how AEMO will intervene in the market.
Media: Kellie Bisset, Media and Content Manager, 0438 490 041 or (02) 8296 7813