The Australian Energy Market Commission (AEMC) has published a draft report with fourteen draft recommendations to improve the operation of the RRO by reducing regulatory burden for market participants and reducing costs for consumers.

The RRO is one of several measures to support reliability in the national electricity market (NEM). It commenced on 1 July 2019, with the aim of providing 'stronger incentives for market participants to invest in the right technologies in regions where it is needed'.

Stakeholders are invited to respond to the draft report by 2 November 2023.

The Commission’s draft report

The Commission has considered stakeholder experiences with the recent South Australia T-1 Reliability Instrument and has identified fourteen draft recommendations aimed at improving the operation of the RRO. The recommendations would:

• Move the T-1 Net Contract Position compliance date to T and continue ex-post compliance testing only if a reliability gap occurs, to reduce regulatory burden and costs for industry and consumers
• Change AEMO’s reliability gap forecasting timeframes to ensure that reliability instruments are made with the best available information and cover potential gaps throughout the year
• Remove the voluntary book build mechanism, which is not being used, to simplify the National Electricity Law (NEL) and National Electricity Rules (NER)
• Improve the overall operation of the Market Liquidity Obligation for market participants in the short term, while noting that over the longer term, the Market Liquidity Obligation could be further reviewed
• Maintain the existing definitions for liable entities, opt-in participants and the AER's role in assessing reliability instrument gap requests
• Review the NEL, NER and guidelines to address a number of operational issues raised by stakeholders to reduce regulatory burden and deliver lower compliance costs.

Context for the review

On 23 March 2023, the AEMC published the terms of reference for the review and a consultation paper to facilitate stakeholder feedback.

The Commission is reviewing the operational aspects of the RRO consistent with the 2018 decision Regulation Impact Statement (RIS) to the RRO. This sets out that: ‘The review is not intended to assess the overall efficiency of the Obligation, as determining the overall impact of the scheme would likely require a longer assessment horizon'.

The Commission has decided to carry out the review over a longer timeframe than required under the NER, with a final report to be released in early 2024. This ensures that the Commission is able to consider the initial operational lessons learnt from the recent T-1 trigger event in South Australia. The Commission is also able to consider the AER's final recommendations from its Retailer Reliability Obligation Compliance Procedures and Guidelines published in June 2023 and the Australian Energy Market Operator (AEMO) Reliability Forecasting guidelines and methodology final report published in April 2023.

The Commission also recognises that since the introduction of the RRO in 2019, new measures have been announced or have commenced which may in the future overlap with the operation of the RRO including a potential new form of the reliability standard from 1 July 2028, the Commonwealth Government's Capacity Investment Scheme and jurisdictional schemes. Once these measures are in place, a further review of the RRO may be needed to understand any overlap with the RRO and overall policy efficiency.

Background on the Retailer Reliability Obligation

In 2019, Energy Ministers, on the advice of the Energy Security Board (ESB), agreed to implement the RRO to supplement the reliability standard in supporting reliability outcomes in the NEM by encouraging new investment in dispatchable energy. 

Specifically, Energy Ministers were concerned that the reduction in dispatchable coal and gas generation and the greater penetration of intermittent technologies such as solar and wind generation present risks to the NEM's reliability.

The RRO requires retailers to obtain contracts that cover their expected demand in a potential reliability gap period. This, in turn, is intended to provide market participants with the necessary confidence to invest in firm generation technology to support a reliable electricity supply in the NEM. It was intended to be a long-term solution to ensuring reliability at the lowest cost by preparing for and eliminating forecast reliability gaps before they occur.