The AEMC today released a draft determination to provide the Australian Energy Market Operator (AEMO) with the flexibility to enter into multi-year contracts under the Reliability and Emergency Reserve Trader (RERT) mechanism in Victoria. The draft rule will help address the short to medium term reliability challenges facing that state. The time limited derogation will end in June 2023 and apply only in Victoria.

While out-of-market responses to reliability challenges are not ideal, they are necessary as a last resort should the market fail to respond. Stakeholder feedback is being sought on the AEMC’s draft decision to provide AEMO with an additional tool to have at its disposal for the state of Victoria, for a limited time. 

It is important that the introduction of multi-year contracting in Victoria does not result in unnecessary or inefficient procurement of RERT, the costs of which would be recovered from Victorian consumers. The draft rule contains robust checks and balances so that multi-year contracts are only entered into in circumstances where they would be a more cost-effective option.

Under the draft rule multi-year contracting will be subject to key changes made under the Enhancement to the RERT rule change. This means that the RERT principles that seek to minimise impacts on customer bills, keep RERT procurement costs under the Value of Customer Reliability (VCR) and minimise market distortions, will apply to decisions about whether to enter into multi-year contracts.

The Commission is proposing a more preferable draft rule in order to address the risk that the introduction of multi-year contracting could see unnecessary volumes of emergency reserves procured which would be passed onto consumers in Victoria. It contains the following checks and balances:

  • The trigger for procuring emergency reserves under the Enhancement to the RERT rule would apply to the first year before AEMO were to enter into a multi-year contract; this is an expected breach of the reliability standard. However, the trigger would not be required to be met in years two and three. Instead, under the draft rule, prior to entering into a multi-year contract, AEMO would need to consider what the appropriate term and structure of a Victorian reserve contract would be, including the appropriate volume of emergency reserves procured.
  • The length of the contract is to be based on the duration of time AEMO reasonably expects that the emergency reserves would be available - where emergency reserves are expected to be required for a period less than three years, then the contract term should be for that lesser period, thereby avoiding the cost risk of unnecessarily procured RERT. 
  • In addition to the reporting that is now required for all RERT contracts, such as the payments made in respect of each contract, there will also be specific reporting requirements for multi-year contracting that require AEMO to provide the reasons it considered it necessary to enter into a multi-year contract.  

The derogation would be in place for approximately three years, rather than five as proposed by the Victorian Government, and end on 30 June 2023. This gives AEMO flexibility to enter into multi-year contracts up until such time the RRO could next address reliability issues, for the summer of 2023-24.
The rule change request and process  

The AEMC received this rule change request from the Hon Lily D’Ambrosio MP, Minister for Energy, Environment and Climate Change, Minister for Solar Homes (Victoria), to amend the National Electricity Rules (NER). The rule change request arrived on 8 October 2019 and was initiated as an urgent rule under the expedited process. 

The rule change is now being assessed under the standard process following the lodgement of valid objections to the expedited process. However, given the Commission recognises the Victorian Government’s concerns about reliability in Victoria this summer, it will be working to deliver all milestones in the fastest timeframe possible.
Submissions to the draft determination are due by 30 January 2020

Media: Kellie Bisset, Media and Content Manager, 0438 490 041; (02) 8296 7813