On 23 January 2025, the Australian Energy Market Commission (AEMC or Commission) made a final rule for a time-limited jurisdictional derogation in South Australia. It will provide the Australian Energy Market Operator (AEMO) with additional options to consider for interim reliability reserves (IRR) to manage reliability risks this summer.

The jurisdictional derogation provides a temporary exemption allowing AEMO to consider contracting the Snuggery and Port Lincoln units (owned by ENGIE) in South Australia as out-of-market reserves. The narrow exemption relates to the out-of-market contracting restrictions in clause 3.20.3 (g) and (h) of the National Electricity Rules (NER or Rules) for IRR, and will end on 31 March 2025.

The AEMC used the expedited rule change process because the rule change was deemed urgent on the basis of an imminent threat to the reliability of the national electricity system. No one objected to the use of the expedited process.

We also released advance notice of this decision on 16 January 2025, which was published to this project page. A copy of the announcement is included in the final determination documents below.

A combination of specific factors in this case warrants  an exemption from the out-of-market provisions

The final rule provides a one-off exemption that temporarily increases the scope of resource options available to AEMO to manage an urgent reliability issue in South Australia. While the Commission has in this instance approved this exemption, it remains committed to the out-of-market provisions in the Rules and considers them an important aspect of the existing framework for the procurement of reserves.

The final determination includes further details on the unique combination of factors in this case that warrant this one-off exemption, including:

• the ENGIE units were mothballed from 1 July 2024 with an extended, 90 day recall time, ahead of plans to permanently close the facilities by 2028,
• AEMO subsequently published updated forecasts with worsening reliability gaps for South Australia, and 
• AEMO received an insufficient response to its tender process for out-of-market reserves in South Australia for the summer.

These factors, combined with the imperative to safeguard reliability during this critical juncture of the transition informed the Commission's decision to approve the requested exemption.

This determination does not take a position on the suitability of contracting the capacity of the ENGIE units. This is for AEMO to decide in accordance with the Rules and associated guidelines and procedures. 

The final rule promotes good regulatory practice by maintaining the application of the current regulatory framework to ensure fast implementation and that AEMO is required to consider what is in the best interests of consumers when negotiating and entering into any IRR contracts.

The Minister’s rule change request proposed that AEMO be allowed to consider additional capacity for IRR in summer

On 15 November 2024, the AEMC received a rule change request from Hon Tom Koutsantonis MP, Minister for Energy and Mining in South Australia (the Minister) to amend the NER. The Minister proposed a time-limited (two-year) jurisdictional derogation from clause 3.20.3 (g) and (h) of the NER to allow AEMO to consider procuring the Snuggery (63-megawatt (MW)) and Port Lincoln (75MW) peaking generators as out-of-market emergency reserves.

The two generators were unable to be considered for out-of-market reserve contracts due to provisions set out in clause 3.20.3 (g) and (h) of the National Electricity Rules (NER or the Rules). Under these provisions, AEMO and a person cannot enter into scheduled reserve contracts (or IRR contracts) if the relevant generators have been available for dispatch in-market within the last 12 months. Both Snuggery and Port Lincoln were available and last dispatched in the market on 1 July 2024 (after which the plants were mothballed).