ESB releases design for retailer reliability obligation – will half a NEG cut it?

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ESB releases proposed amendments to the National Electricity Rules for the implementation of the Retailer Reliability Obligation. Is half a NEG better than none at all?

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The Energy Security Board has released a set of proposed amendments to the National Electricity Rules for the implementation of the Retailer Reliability Obligation.

Under the proposed Retailer Reliability Obligation, the Australian Energy Market Operator (AEMO) will be tasked with providing an additional five-year reliability forecast and  that will complement the preparation of AEMO’s annual Electricity Statement of Opportunities (ESOO).

AEMO’s Reliability Forecast will provide an estimate of the amount of unserved energy forecast in future years and the amount of new generation capacity that may be required to will electricity supply gap.

The forecast will also provide an indication of the likely timeframe for when any supply shortfalls may occur in the National Energy Market.

Electricity retailers will also be required to secure sufficient contracts to guarantee the supply of electricity during system peak events, working to eliminate the effects of forecast supply shortfalls on energy consumers.

Only certain contracts will be suitable for meeting the retailer obligation, as they must be linked to an ability to protect customers from spikes in wholesale electricity prices during periods of high electricity demand.

Electricity retailers face the bearing significant costs of high wholesale electricity prices for periods where they are unable to demonstrate that sufficient contractual arrangements are in place.

“In this way the relationship between the spot market and firm financial contracts provides an extremely strong incentive for a generator to be available and dispatched when the system needs it the most.” the ESB says.

The Australian Energy Regulator will also adjust supply contracts by a “firmness factor”, reflecting the likelihood that a particular generator will be dispatched at the time of a peak demand event.

This is likely to benefit electricity supplies that can react quickly to peak energy events with a stored supply of energy, including hydro and battery storage, along with gas peakers. The reliability requirements may also provide a market for demand response measures.

The need for a reliability mechanism was first recommended by Chief Scientist Alan Finkel, as part of his independent review of the National Electricity Market.

The Retailer Reliability Obligation was eventually adapted  as a core component of the National Energy Guarantee, along with an Emissions Obligation.

The Emissions Obligation was indefinitely shelved by then Prime Minister Malcolm Turnbull when it became apparent that there was insufficient support to pass the emissions component of the NEG through the House of Representatives.

A coalition backbench revolt, led by former Prime Minister Tony Abbott and fellow backbenchers Andrew Hastie, Andrew Gee, George Christensen and Eric Abetz effectively killed off the emissions guarantee. 

This led to a sharp rebuke by NSW Liberal Energy Minister Don Harwin, who labeled the Federal Government as “out of touch on energy and climate policy”.

While the emissions obligation was shelved, the Energy Security Board was tasked with continuing the design of the reliability obligation.

The Government has been criticised for not being sufficiently proactive in supporting new generation capacity to enter the energy market, as ageing coal fired generators exist the market.

“A sad indictment on the current Federal Government that they have no coherent policy to bring on new energy generation ahead of the imminent closure (and waining reliability) of old coal generation.” Chief executive of the Clean Energy Council Kane Thornton said on twitter on Tuesday.

The set of proposed amendments to the National Electricity Rules implementing the reliability obligation will be considered for endorsement by the COAG Energy Council prior to implementation.

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