Market Review: Open
The Australian Energy Market Commission (AEMC) has initiated a review into the interim reliability measure (IRM). On 9 March 2023, the AEMC released a draft report recommending that the application of IRM to the retailer reliability obligation (RRO) be extended to 1 July 2028.
Stakeholders are invited to respond to the AEMC draft recommendation by 13 April 2023.
The AEMC’s draft report recommends continuing the application of the IRM to the RRO to 30 June 2028. The AEMC will also consider reviewing the need for the IRM past 2028 following the 2026 Reliability Standards and Settings Review.
As the power system transitions to a high variable renewable energy power system, reliability risk, particularly tail risk, must be characterised differently. This tail risk represents low-probability events that could have a high impact on reliability outcomes.
In making its draft recommendations, the AEMC considers that removing the IRM as the trigger for the RRO between 1 July 2025 and 30 June 2028 could increase uncertainty about the reliability framework and how tail risk is being managed as the power system transitions to a high VRE power system. Given the size and pace of the energy market transition between now and 2028, the AEMC does not consider the removal of the IRM which is a risk management tool, as being in the best interests of consumers.
In recommending an extension of the IRM by three years the AEMC has considered several factors:
- The Reliability Panel is about to begin work to develop a new form of the reliability standard to more comprehensively address 'tail risk'. However, this will be in place on 1 July 2028.
- The original decision by Energy Ministers was to introduce the IRM as a risk management measure to address reliability during a 1 in 10-year summer. Risks to reliability remain as the national electricity market (NEM) moves to a high VRE power system. The outcomes of the Panel's review of the form of the standard will be important to any future recommendations around removing the IRM as a trigger for the RRO.
- Energy Ministers have already agreed to extend some triggering arrangements for the IRR and RRO. Energy Ministers in all NEM jurisdictions will shortly be able to trigger T-3 reliability instruments at any time without linking the instrument to the IRM or reliability standard. Further, AEMO can also enter multi-year IRR contracts triggered by the IRM to 2028.
The Commission is required to review the IRM as part of its obligations under the National Electricity Rules (NER).
On 9 March 2023, the AEMC published the terms of reference for the self-initiated review and draft recommendations to facilitate stakeholder consultation.
The AEMC review seeks to determine whether the IRM should be extended to 30 June 2028, to align with the commencement of a new form of the reliability standard.
The IRM was introduced to improve reliability during the transition to the Post‑2025 market design, maintaining community confidence in the NEM and to support the transition towards renewable generation. The IRM supplements the Reliability Standard and comprises two triggers for:
- the RRO based on a breach of 0.0006 per cent USE
- an out-of-market capacity reserve (an ‘Interim Reliability Reserve’) to keep unserved energy (USE) to no more than 0.0006 per cent in any region in any year.
AEMO identifies any potential reliability gaps in each NEM region in the coming five years using the ESOO. If AEMO identifies a material gap three years and three months out, it will apply to the AER to trigger the RRO by making a reliability instrument.
The IRR is an out-of-market reserve that AEMO can procure and use to avoid load shedding. They aim to help address reliability gaps that may occur by providing greater flexibility in procuring backup supplies. It replaces long-term RERT.
The Reliability Panel’s 2022 Reliability Settings and Standards Review recommended a review into changing the form of the standard to incorporate a ‘tail risk’ metric. This review will consider amongst other things, the changing nature of supply and demand in the NEM with greater levels of variable renewable energy, consumer energy resources and changes in demand patterns. Any new form the standard is expected to be in place by 1 July 2028.