The Commission is asking stakeholders for feedback on a rule change request from the Australian Energy Market Operator (AEMO) that seeks broad changes to the Reliability and Emergency Reserve Trader (RERT) framework.
The RERT is one of the tools available to AEMO to help avoid blackouts.
When power shortages are projected, AEMO can use the RERT - a type of strategic reserve - by paying a premium for additional generation or demand response to be on stand-by.
Mechanisms that allow the operator to contract for out-of-market reserves to act as a safety net, has been a feature of the national electricity market (NEM) since its commencement. Strategic reserves remain an important feature of the framework as one of the last resort alternatives to involuntary load shedding.
AEMO considers that changes to the RERT framework will help manage the risk of shortfalls in light of greater uncertainty and a tightening supply-demand balance. AEMO has proposed changes to how the RERT is triggered and how far in advance of a projected shortfall AEMO can enter into RERT contracts. It has also proposed the introduction of standardised RERT products to make offers easier to compare, reduce complexity and provide certainty and clarity.
The current RERT framework, with the procurement trigger being based on the reliability standard or power system security, 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 NEM. The appropriateness of the reliability standard and these trade-offs will be considered through this rule change. If the trade-offs are not effectively balanced then consumers will end up paying more.
Stakeholders are encouraged to provide views on these trade-offs and to comment on broader aspects of the RERT framework. This may include views on how the current framework works.
Submissions on the consultation paper are due by 26 July 2018.
This rule change request is part of the AEMC’s security and reliability action plan.
Media: Bronwyn Rosser, Communication Specialist, 0423 280 341, firstname.lastname@example.org
What is the RERT?
The RERT is an existing intervention mechanism that allows AEMO to contract for additional reserves such as generation or demand response that is not otherwise available in the market. 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 are called emergency reserves or strategic reserves as they 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 NEM and has underpinned the high levels of reliability experienced in the NEM.
What are the costs of the RERT?
The RERT is an important safety net that underpins reliable electricity supply in the NEM; 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 who would otherwise have be participating in the wholesale market withdrew in order to offer their 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 resulting from 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.
What is the interaction between the RERT and the National Energy Guarantee?
The Energy Security Board is currently developing the National Energy Guarantee (Guarantee). The proposed “procurer of last resort” function of the reliability requirement of the Guarantee would use the RERT mechanism if there is an expected shortfall relative to the reliability requirement. Put another way, the Guarantee will set the trigger for the procurer of last resort in the context of the reliability requirement of the Guarantee, and the RERT framework will be used to procure reserves through the procurer of last resort.
This rule change request will consider changes to the RERT framework. Stakeholders should bear the detailed design of the Guarantee in mind when responding to this consultation paper. The AEMC is also working closely with the ESB as the design of the NEG progresses.