Interim Reliability Measures
On 19 August 2020 the Energy Security Board (ESB) published a set of changes to the National Electricity Rules (Rules) to establish an out of market capacity reserve (the Interim Reliability Reserve). These rules were recommended and approved by Energy Ministers in August 2020, following consultation undertaken by the ESB at the request of the former COAG Energy Council in March 2020.
The National Electricity Amendment (Interim Reliability Measure) Rule 2020 is intended to:
- reduce the risk of load shedding across the NEM by helping to keep unserved energy in each region to no more than 0.0006%.
- will allow out of market reserves to procured for up to 3 years, where an exceedance of the interim reliability measure has been forecast for two out of the three years including the first year, and following consultation with and approval from the relevant Energy Council Minister of directly impacted states and/or territories..
- replace the need for the Victorian Jurisdictional derogation for multi-year contracting of RERT (which commenced in April 2020)
- temporarily replace long notice RERT until March 2025.
The National Electricity Amendment (Interim Reliability Measure) Rule 2020 builds on the interim arrangements in place for Victoria but will now apply to all regions in the NEM. The Interim Reliability Reserve has been established to take care of the immediate concerns about reliability whilst the ESB continues to coordinate work on the longer-term work program to improve reliability and security in the NEM.
The ESB will shortly release a consultation paper on the changes required to amend the triggering arrangements for the Retailer Reliability Obligation.
Immediate measure to improve reliability
At its meeting on 20 March, the COAG Energy Council (Council) considered advice from the ESB aimed at improving the reliability (resource adequacy) of the electricity system.
The Council agreed to implement interim measures to deliver further reliability by establishing an out-of-market capacity reserve and amending triggering arrangements for the Retailer Reliability Obligation (RRO). Both measures will be triggered to keep unserved energy to no more than 0.0006% in any region in any year. Ministers agreed that these were interim steps needed to improve reliability in the immediate term while an enduring market design is developed and that they will be reviewed as part of an expanded RRO review required by 1 July 2023.
The ESB advice to Council on the Review of the Reliability Standard.
Key elements of the reform:
Energy Council agreed to two major measures to improve reliability:
1. That an out-of-market reserve should be established as an interim measure ahead of the post 2025 market design project making more permanent recommendations, with the following features:
- the volume of reserve capacity to ensure expected USE is no more than 0.0006% in any region in any calendar year based on ESOO modelling (which will meet the expectation in the Terms of Reference for the review that the electricity system remains reliable during a 1 in 10 year summer)
- AEMO to procure the reserve
- At least part of the reserve to be procured through a reverse auction process
- Contract terms of up to 3 years
- Long notice RERT to be absorbed into the reserve (the short term RERT to remain in place)
- that the last date AEMO can enter into a 3-year contract for reserve capacity will be 2022 for the 2024/25 summer.
The trigger for the RRO will also be amended so that it is based on the 0.0006% USE level and that the T-1 instrument will no longer require a T-3 trigger to first be made. Amending the T-3 and T-1 instruments will require law changes, which means the earliest possible date for making the T-1 instrument would be in 2021/22 for the following year.
The other design features and assessment of compliance with the RRO will otherwise remain unchanged. A T-3 instrument will trigger the market liquidity obligation and liable entities will be on notice to cover their share of a one-in-two year peak demand. A T-1 instrument will trigger the requirement for liable entities to disclose their contract positions to the AER. If actual system peak demand exceeds an expected one-in-two year peak demand, the AER will assess the compliance of liable entities.
The ESB recommended no changes to the Reliability Standard that is associated with the market settings. These are interim measures that are intended to support reliability in the system while more fundamental reforms are designed and implemented.
The ESB notes that based on the analysis in 2019 ESOO, the RRO is unlikely to be triggered in Queensland and Tasmania for the foreseeable future.
Expected unserved energy of 0.0006% is roughly equivalent to the alternative standard published by AEMO in the 2019 ESOO, this standard would mean that the current (0.002% USE) standard would be met in 9 out of 10 years on average.
The ESB will consult on NEL and NER changes to implement the Interim Reliability Measures in two stages:
Interim Reliability Reserve
- 12th June – Consultation on the Draft National Electricity Amendment (Interim Reliability Measure) Rule 2020
- Mid 2020 – Finalise Draft National Electricity Amendment (Interim Reliability Measure) Rule 2020
Amending the trigger for the Retailer Reliability Obligation
June 2020 - Consultation on Draft Amendments to the Retailer Reliability Obligation
August/September 2020 - Finalise Draft Amendments to the Retailer Reliability Obligation
Contact: Please contact Donovan Marsh in relation to the interim reliability measures: firstname.lastname@example.org
Contact: Please contact Matt Garbutt in relation to the interim reliability measures: email@example.com