The Australian Energy Market Commission (AEMC) is proposing a new direction for its ‘operating reserves’ rule changes in favour of a more cost-effective and immediate approach to support reliability as the power system transitions to net zero.

In 2021, the AEMC published a directions paper in response to separate requests from Iberdrola Australia and Delta Electricity, including options to address issues regarding operating reserves.

The AEMC is now seeking stakeholder feedback on the new approach that would see two ‘incremental’ measures introduced, to support initiatives being delivered by the Australian Energy Market Operator (AEMO).

As Australia transitions to a net zero future the national electricity market (NEM) is also changing, transforming from a centralised, largely thermal power-based system to a decentralised system with a greater proportion of variable renewable energy (VRE) sources and storage assets, such as solar PV, wind and battery technology.

Operating reserves, or “stand-by power sources” are important for managing system security and reliability and are implicitly provided by generation or other resources (such as storage) that is available but have not been scheduled for dispatch. 

These assets are rewarded through the existing energy market framework if they are subsequently required to be dispatched due to short-term changes in power system needs. 

As the proportion of VRE in the system increases, operating reserves will continue to play an important role in ensuring a secure and reliable flow of electricity to meet the needs of households, businesses and industry.

While a separate  operating reserve market could provide AEMO with greater visibility of actual reserves, the AEMC considers that establishing such a market would not offer improvements to performance and would likely impose additional, unnecessary costs for customers.

The AEMC nonetheless considers that there may be merit in considering more modest changes to the current arrangements, with two incremental improvements suggested for stakeholder consideration. These include:

  • development and publication of more information for the market on storage and state of charge
  • procurement of ‘frequency control ancillary services’ (FCAS) at a regional level, or alternately limiting the amount of FCAS procured from a single region to increase the amount of FCAS procured in other regions. 

Written submissions on the directions paper are being accepted until Thursday 31 August 2023.

For more information, visit the project page. 

Media: Nicole Stokes, 0401 826 522,