Submissions to the Enhancement to the Reliability and Emergency Reserve Trader (RERT) consultation paper are now available on the AEMC’s website.
The rule change request from the Australian Energy Market Operator (AEMO) seeks broad changes to the RERT framework.
There has been strong interest in this rule change, with 23 submissions received to date from a range of stakeholders.
Consumer representatives, new technology companies, generators, retailers, industry associations as well as AEMO, the rule change proponent, have provided feedback in their submissions on a number of key areas.
Changes to the procurement lead time
AEMO proposed increasing the procurement lead time to one year, as well as allowing three-year contracting in circumstances where there is an identified multi-year gap and when it would be cheaper to contract over three years.
On balance, stakeholders supported increasing the procurement lead time from nine months (i.e. the amount of time in advance of a projected shortfall that AEMO can enter into a contract) to one year.
There were, however, mixed views on multi-year contracting due to the associated costs, with stakeholders noting the potential for distortions to the market.
A broader risk assessment framework
AEMO proposed that the procurement process should take into account a broader risk assessment framework than the existing procurement trigger, the reliability standard.
Most stakeholders were not supportive of moving away from the reliability standard as a risk assessment framework for the RERT. Stakeholders were of the view that the reliability standard is appropriate as it balances the costs and benefits trade-offs of reliability.
Some stakeholders also noted there is no evidence that community expectations around reliability have changed – so there is no justification for changing the reliability standard.
In its submission to the consultation paper, AEMO recommends removing the explicit RERT procurement trigger and assessing whether or not reserves need to be procured based on a broader assessment framework implying that in some years, the amount procured may be zero. Stakeholders were keen to better understand what it is AEMO means by a broader assessment framework and its benefits compared to the current framework.
Standardisation of RERT products
There was general support from stakeholders on AEMO’s proposal to standardise products, which does not require specific changes to the national electricity rules.
Stakeholders did not support being prescriptive in the rules in terms of standardised product specifications, preferring instead for the details of the prescription to be in guidelines.
Transparency and governance
There was overall support for the need for more transparency and reporting requirements, particularly around the volume of reserves procured and AEMO’s rationale behind the amount procured.
Some stakeholders proposed additional governance frameworks, such as an independent oversight of the procurement trigger for the RERT or a role for the Reliability Panel in terms of operationalising the reliability standard.
The Commission is now preparing a draft determination which is due in early October 2018. We encourage stakeholders to meet with us on this rule change – please contact Sarah-Jane Derby on 02 8296 7823 or firstname.lastname@example.org to arrange a meeting.
This rule change request is being progressed as part of the Commission’s broader system security and reliability work program.
Media: Prudence Anderson, Communication Director, 0404 821 935 or (02) 8296 7817.
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. The AEMC is also working closely with the ESB as the design of the NEG progresses.