The AEMC has published discussion notes from the third meeting of the technical working group which is helping to inform the AEMC’s assessment of the Enhancement to the reliability and emergency reserve trader (RERT) rule change request. This project is looking at how AEMO can procure "standby" electricity reserves at the lowest cost to consumers when a supply shortfall is forecast.
Members of the group are experts from generators, network businesses, retailers, consumer groups and AEMO. At the meeting on 14 December the group had further discussions on the appropriateness of the reliability standard – in particular the additional information provided by AEMO on 8 November 2018 – as well as stakeholder feedback on the three options set out by the Commission for how the RERT procurement trigger could be designed and volumes set. The three options are:
- Option one – linking the procurement trigger explicitly to the reliability standard and setting the procurement volume to the gap identified by a breach of the reliability standard.
- Option two – removing the procurement trigger, and allowing AEMO to make procurement trigger and volume decisions through its assessment model.
- Option three – changes as per option one, but also providing additional guidance to AEMO on how to operationalise the reliability standard.
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.
A draft determination on the rule change request is due to be published on 31 January 2019.
Media: Prudence Anderson, Communication Director, 0404 821 935 or (02) 8296 7817
What is reliability?
"Reliability" of the power system, at a wholesale level, is about having sufficient physical capacity in the system, through generation and demand response, to supply customers with the energy they demand with a very high degree of confidence. Over the last 10 years wholesale reliability events have only contributed to about 0.23% of all customer interruptions.
What is the reliability standard?
The reliability standard expresses the level of reliability sought from the national electricity market’s generation and transmission interconnector assets. The reliability standard also guides various decisions made by AEMO in its role as the system operator. It is AEMO's responsibility to incorporate the reliability standard within its day-to-day operation of the market and to inform the market of any projection that the reliability standard is expected to not be met. If a market response to a projected expectation that the reliability standard will not be met is not forthcoming, then AEMO may intervene through the intervention mechanisms that are part of the current frameworks.
The current standard, expressed in terms of the maximum expected unserved energy (USE), is set at a maximum expected USE of 0.002 per cent of the total energy demanded in each region per financial year.
"Unserved energy" means the amount of customer demand that cannot be supplied within a region of the NEM due to a shortage of generation or interconnector capacity. The term "expected" is important – it means a statistical expectation of a future state; an average across a range of future scenarios, weighted for probability.
Setting the level of the reliability standard involves a trade-off, made on behalf of consumers, between the prices paid for electricity and the cost of not having energy when we need it. The trade-off is between two sets of costs, both of which are ultimately borne by consumers. The key in setting the reliability standard is to strike a balance between delivering reliable electricity supplies and maintaining reasonable costs for customers.
The reliability standard does not address the reliability provided by the electricity transmission and distribution networks as this is the responsibility of jurisdictional governments. Distribution events are by far the largest cause of customer interruptions.
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. AEMO has since entered into a number of reserve contracts in 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 $52 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.