Rule Change: Completed

Overview

On 2 May 2019 the Commission made a final rule to boost the power system’s emergency reserve mechanism - the reliability and emergency reserve trader (RERT) - so AEMO has the flexibility to effectively protect the reliability of the national electricity market while minimising costs to consumers. The changes will also underpin the proposed retailer reliability obligation which aims to encourage the right amount of investment in the power system’s long-term capacity so AEMO is not forced to intervene more than necessary with higher cost safety-net options.
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On 2 May 2019 the Commission made a final rule to boost the power system’s emergency reserve mechanism - the reliability and emergency reserve trader (RERT) - so AEMO has the flexibility to effectively protect the reliability of the national electricity market while minimising costs to consumers. The changes will also underpin the proposed retailer reliability obligation which aims to encourage the right amount of investment in the power system’s long-term capacity so AEMO is not forced to intervene more than necessary with higher cost safety-net options.

The RERT is a last resort mechanism that allows AEMO to pay a premium for additional capacity to be on stand-by in case of emergencies when the demand and supply balance is tight. 

Final determination

The Commission has made a final rule that is a more preferable rule. 

The final rule enhances the flexibility for AEMO to procure emergency reserves to meet extreme weather events, while recognising the need to minimise the direct and indirect costs of the RERT by:

  • linking the RERT procurement trigger and volume to the reliability standard, providing transparency to market participants of when and how RERT will be used, as well as providing flexibility to AEMO as to how many reserves it can procure
  • increasing the procurement lead time from nine to 12 months, which will broaden the pool of RERT providers, allowing emergency reserves to be procured at lower cost for consumers. It also promotes consistency with the retailer reliability obligation.
  • clarifying the out-of-market provisions - so that reliability is delivered at lowest cost to consumers, including by minimising the risk of gaming by reserve providers  provides additional guidance to AEMO when entering into emergency reserve contracts around the appropriate cost of these
  • aligning the cost of emergency reserves with, where possible, those customers who caused the need for the RERT 
  • increasing transparency and reporting, to assist market participants and consumers in planning for RERT costs. 

There is no change to the reliability standard as part of this final rule. Consideration of what the reliability standard should be is separate to the consideration of the tools and enablers that the system operator has to maintain reliability, including the RERT. 

Specifically, questions about the reliability standard and what it should be are dealt with by the Reliability Panel as part of its regular review of the Reliability standard and settings. Stakeholders can raise issues directly with the Panel if at any time there is an informed position that consumers value reliability more than the level reflected in the reliability standard.

Stakeholder workshop

The AEMC held a public workshop for stakeholders on Monday 12 November 2018 in Sydney. 

At the workshop, the AEMC discussed the options paper and gathered feedback from participants. AEMO also discussed its views on the appropriateness of the reliability standard, building on its views set out in the rule change request.

A recording of the webcast is available here. A copy of the slides are available below.

Technical working group

A technical working group helped to inform the AEMC’s assessment of this rule change request. The group comprised experts from generators, network businesses, retailers, consumer groups and AEMO. 

Meetings were held on 4 September 2018, 20 November 2018, 14 December 2018 and 5 April 2019. Minutes of these meetings can be found below. 

Background 

Consultation paper
On 21 June 2018 the Commission initiated its assessment of the proposed rule with the publication of a consultation paper for stakeholder comment.  Twenty-five submissions were received. All public submissions can be found below.

Extension
On 4 October 2018 the Commission extended the period of time to make the draft determination to 31 January 2019. The Commission considered that this extension was necessary due to the complexity and cost implications of the issues considered, and to allow time for other key inputs to the request to be received.

On 31 January 2019 the Commission further extended the period of time to make the draft determination to 7 February 2019, under section 107 of the National Electricity Law. The Commission considers that this extension is necessary due to complexity of drafting associated with rules implementation.

Options paper
On 18 October 2018 the Commission published an options paper. The options paper outlined ways the RERT procurement trigger and procurement volumes could be designed and sought stakeholder feedback on these. It also set out how we considered the appropriateness of the reliability standard. All public submissions to the options paper can be found below.

Draft determination
On 7 February 2019 the Commission published a draft determination for this rule change request. The draft determination set out a series of changes that will provide AEMO with the flexibility it needs to use the RERT to manage the transition in the power system, while doing so at least cost to consumers. All public submissions to the draft determination can be found below.

AEMO’s RERT rule change requests
On 9 March 2018 AEMO submitted two rule change requests to the AEMC in relation to the RERT: 

  • the first rule change request sought to extend the period allowed for AEMO to contract for reserves ahead of a projected shortfall, in effect, reinstating the long-notice RERT. The Commission considered this as an urgent request, and made a final rule to reinstate the long-notice RERT on 21 June 2018. This allows AEMO to use the long-notice RERT to procure reserves for the upcoming summer.
  • the second rule change request (i.e. this rule change request) proposes broader changes to the RERT framework and is subject to a separate rule change request process. This was initiated on 21 June 2018.
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