The AEMC has published discussion notes from the second meeting of the technical working group which is helping to inform the AEMC’s assessment of the Enhancement to the Reliability and emergency reserve trader (RERT) rule change request. This project is looking at how AEMO can procure ‘standby’ electricity reserves at the lowest cost to consumers when a supply shortfall is forecast.
Members of the group are experts from generators, network businesses, retailers, consumer groups and AEMO. Meeting participants are:
| Member | Organisation |
|---|---|
| Alister Alford | Woolworths |
| Miyuru Ediriweera | Public Interest Advocacy Centre |
| Paddy Costigan | AEMO |
| Joel Gilmore | Infigen |
| David Havyatt | Energy Consumers Australia |
| Franklin Liu | AEMO |
| Ron Logan | ERM Power |
| Craig Oakeshott | Australian Energy Regulator |
| Claire Richards | Enel X (on behalf of Rob Murray-Leach, Energy Efficiency Council) |
| Ben Skinner | Australian Energy Council |
| Jennifer Tarr | Stanwell |
At the meeting on 27 November the group discussed:
- ways to strengthen existing provisions so only out-of-market reserves participate in the RERT to further minimise market distortions
- potential approaches to a payment structure and payment cap on the RERT to further minimise direct and indirect costs
- high-level principles and options for who should pay for the RERT
- possible enhancements to reporting requirements to improve transparency of the RERT framework.
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 that is in place for this summer if needed.
A draft determination on the rule change request is due to be published on 31 January 2019.
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.