The AEMC today published an options paper setting out different ways for the Australian Energy Market Operator to procure ‘standby’ electricity reserves under the Reliability and emergency reserve trader (RERT) when a supply shortfall is forecast.

Stakeholders are invited to provide feedback on the options, as part of the AEMC’s consideration of broad changes to the RERT framework proposed by AEMO. The options paper considers:

• how the RERT procurement trigger could be designed 
• how the RERT procurement volumes could be set
• how we will consider the appropriateness of the reliability standard, including how we will incorporate AEMO’s views on this matter. 

We will hold a stakeholder workshop in Sydney in November 2018 to discuss the options paper and gather feedback (registration details will be advised shortly). Submissions on the options paper are due by 29 November 2018.

A draft determination on the rule change request is due to be published on 31 January 2019. 

This rule change request is being progressed as part of the Commission’s broader system security and reliability work program. This includes an urgent rule we made in June 2018 to extend the period allowed for AEMO to contract for reserves ahead of a shortfall, so it is in place for this summer if needed.

Media: Prudence Anderson, Communication Director, 0404 821 935 or (02) 8296 7817

Background

What is the RERT?
The RERT is one of the tools available to AEMO to help avoid blackouts. It is a type of strategic reserve that allows AEMO to pay a premium for additional generation or demand response that is not already in the market to be on stand-by when shortages are projected. 

It is an important part of the regulatory framework that AEMO uses as a safety net at times when a supply shortfall is forecast, or, where practicable for power system security. These additional reserves may only be used as a last resort to avoid unnecessary blackouts, typically during summer when the demand and supply balance is tight. 

Prior to 2017, AEMO had only entered into RERT contracts three times and it had never been dispatched. This changed in 2017, when AEMO entered into a number of reserve contracts and dispatched the RERT twice – once in November 2017 and once in January 2018. 

Some form of mechanism that allows the operator to contract for reserves has existed since the start of the national electricity market and has underpinned the high levels of reliability experienced to date.

What are the costs of the RERT?
The RERT is an important safety net that underpins reliable electricity supply; however it does carry direct and indirect costs. The direct costs of the RERT last summer amounted to $51.3 million. The indirect costs are due to the distortionary effects the RERT can have on market outcomes - for example if a generator which would otherwise have participated in the wholesale market withdraws to offer its capacity to the RERT instead. This could lead to increased costs for consumers – both from the costs of the RERT, as well as higher wholesale prices due to a reduction in supply. 

The RERT has been designed to minimise these costs.  Importantly, the RERT may only be used for reliability purposes if AEMO identifies a breach of the reliability standard. The reliability standard has been set to balance the prices paid for electricity and the cost of not having energy when it is needed.