Submissions to the Enhancement to the Reliability and Emergency Reserve Trader (RERT) draft determination are now available on the AEMC’s website.

This rule change request from the Australian Energy Market Operator (AEMO) seeks broad changes to the framework for emergency reserves.

The draft rule aims to boost the power system’s strategic reserve mechanism so it has the flexibility to effectively protect the reliability of the national electricity market at the lowest cost possible to consumers.

The AEMC has received 21 submissions to date from a range of stakeholders including consumer representatives, new technology companies, generators, industry associations, jurisdictional governments as well as AEMO, the rule change proponent. 

Submissions provided comprehensive feedback on the entire RERT framework. The key areas were:

1. Appropriateness of the reliability standard

The current RERT procurement framework 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 national electricity market. 

The appropriateness of the reliability standard and these trade-offs are key considerations for this rule change. If the trade-offs are not effectively balanced, then consumers will end up paying more. 

In the draft determination, we considered that the reliability standard remains appropriate, adequately captures risk management and balances the trade-offs between higher reliability and the costs of providing more reliability, on behalf of consumers. 

AEMO considers that the reliability standard is inadequate in protecting consumers from tail-end reliability risks because it uses an average metric for unserved energy rather than an explicit risk metric. However, in their submissions most stakeholders continued to overwhelmingly support the reliability standard, stating there was no clear evidence that the reliability standard is no longer appropriate or that consumers want a higher level of reliability. 

2. Clarifying the procurement trigger

The draft rule clarifies that the RERT can be triggered if AEMO forecasts a breach of the reliability standard which requires enough generation to service 99.998% of consumer demand. This clarity helps the market plan operations and budgets. 

Stakeholders overwhelmingly supported this aspect of the draft rule as it would maintain consistency with the market, minimise the potential for distortions and thereby lower costs for consumers. Two stakeholders maintained their support for standing reserves as a way of providing greater certainty.

However, others said that the more flexible RERT was preferable as it meant emergency reserves would only be procured when a shortfall was identified, not all the time.

3.    Increasing transparency and awareness of options for emergency reserves supply

The draft rule requires AEMO to provide regular updates on the RERT, including how the RERT is procured and how much emergency reserves cost. 

Retailers, generators and consumer representatives overwhelmingly supported the enhanced reporting requirements proposed in the draft rule and noted that the additional transparency would help with managing risk, operational decisions and budgeting.

4.    Increasing the lead time to buy reserves from nine to twelve months 

With a longer lead time, AEMO can get better deals from a larger pool of providers, including demand response providers. This should ultimately lead to lower costs for consumers.

Stakeholders generally supported or did not oppose increasing the procurement lead time to 12 months from nine months for consistency with the Retailer Reliability Obligation (RRO) and to increase the pool of RERT providers. 

However, some stakeholders were concerned that there could still be inconsistency with the RRO as AEMO would be able to start contract negotiations beyond 12 months, including while retailers are finalising contracts under the RRO.

5.    Encouraging a lower-cost competitive market response

By only letting providers enter into contracts for emergency reserves if they have not been in the market for the past 12 months, the draft rule encourages a market response first. This is designed to avoid a more expensive "RERT-only market" developing. The draft rule also clarifies the definition of “market”. 

Stakeholder views on this aspect of the draft determination were mixed – some explicitly supported the provisions, some wanted more clarity and flexibility, while others strongly opposed the changes. 

Stakeholders were particularly concerned about the lack of flexibility introduced by the draft rule, which was partly aimed at improving clarity and removing ambiguity – particularly for those customers in demand response arrangements. They were also concerned that this inflexibility would severely limit RERT participation. 

6.    Providing a price guide for emergency reserves

The price of RERT should typically be less than the cost of load shedding. AEMO would use the AER’s assessment of the value customers place on reliability as an input.

Stakeholders generally supported a payment guide due to cost concerns and for transparency purposes.

7.    Improving incentives for customers to reduce demand to minimise the need for emergency reserves

Changes to the cost recovery arrangements provide incentives for demand response – for example, retailers encouraging their customers to reduce energy use during heatwaves. To provide this incentive, the costs of emergency reserves would be recovered, where possible, from customers who were using electricity during the RERT event.

Stakeholders supported the draft rule in principle given that the changes would, where possible, recover costs from those who were consuming at the time of the RERT event. 

While expressing support, some stakeholders raised some practical concerns around the draft rule, such as the lack of clarity on how demand response is accounted for in the cost allocation calculation.

Stakeholder submissions can be found on the project page.

A final determination on the rule change request is due to be published on 2 May 2019. 

Media: Prudence Anderson, Communication Director, 0404 821 935 or (02) 8296 7817