Market Reviews: Completed

Advice on linking the reliability standard and reliability settings with VCR

Reference:
EMO0026
Reviewed by:
AEMC
Date completed:
20-Dec-2013
Overview

On 20 December 2013, the Australian Energy Market Commission (AEMC) published its final advice to the Standing Council on Energy and Resources (SCER) on linking the reliability standard and reliability settings in the wholesale electricity market with a value of customer reliability (VCR).

On 20 December 2013, the Australian Energy Market Commission (AEMC) published its final advice to the Standing Council on Energy and Resources (SCER) on linking the reliability standard and reliability settings in the wholesale electricity market with a value of customer reliability (VCR).

The AEMC’s preferred approach is similar to the current process for determining the wholesale electricity market reliability standard and reliability settings. The key difference is the inclusion of a requirement for a VCR, estimated for the customers most affected by a supply shortfall, to be used as a cross-check on the reliability standard.

This approach provides for the level of supply reliability to customers from the generation and bulk-transmission sectors of the national electricity market (NEM) to broadly reflect the value that customers place on receiving a reliable supply of electricity. This will promote efficient market outcomes that are at least consistent with those delivered by the NEM’s current reliability standard and settings.

Consultation paper

On 29 October 2013, the AEMC published a consultation paper as the first step to developing advice to tSCER on linking the national electricity market reliability standard and reliability settings in the wholesale market with a VCR.

The purpose of the consultation paper was to invite stakeholder views on a number of issues associated with linking the reliability standard and settings with a VCR. Responses to the consultation paper have been used to inform and enhance the AEMC's understanding of the key issues relevant to this advice.

Submissions closed on 26 November 2013. Six submissions were received.

Request for advice

SCER requested this advice in response to the AEMC’s review of the effectiveness of NEM security and reliability arrangements in light of extreme weather events (extreme weather review). The final report for this review was published in May 2010.

In the review, the AEMC made a number of recommendations, including that a new requirement be included in the National Electricity Rules for a VCR, based on the residential consumer class, to be considered when determining the levels for the NEM reliability standard and reliability settings.

In June 2012, SCER provided a response to the AEMC’s final recommendations for that review. While the majority of the recommendations were endorsed, SCER requested additional advice on the matter of setting the reliability standard and reliability settings with reference to an agreed VCR.

The AEMC received terms of reference from SCER in January 2013.

Approach to the advice

The AEMC adopted the following approach to develop its advice:

•     Having regard to the national electricity objective (NEO), identify an assessment framework to guide the evaluation of possible approaches to linking the reliability standard and reliability settings with VCR.

•     Explore the link between the reliability standard and reliability settings, and VCR. This will include discussion around why reliability mechanisms are needed in energy-only markets.

•     Identify possible approaches to linking the reliability standard and reliability settings with VCR.

•     Using the assessment framework, evaluate each of the approaches identified to determine whether they are likely to satisfy the NEO.

As requested by SCER, the AEMC was required identify i a preferred approach to linking the reliability standard and reliability settings with a VCR.

The AEMC's recommended approach is contained in the final report.

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