Rule-maker gives operator OK to continue with emergency reserves

Australia’s principal energy market rule-maker, the Australian Energy Market Commission, has overcome its opposition to the extension of the country’s emergency reserve provisions, and given the OK for the market operator to continue with the program.

In a final ruling published on Thursday, the AEMC announced some changes to the provisions, to ensure they fit in with other reliability measures being pursued by the Energy Security Board, as well as providing more visibility about the cost of the program.

The reliability and emergency reserve trader (RERT) has been in place since the creation of the National Electricity Market two decades ago, but has only been called upon in the last two years to deal with shortfalls created by Australia’s sub-optimal management of the  transition to clean energy.

AEMO has argued that the RERT – which calls upon resources such as demand management (paying large and small consumers to use less power at critical times), as well as back-up diesel generators and some battery storage – is essential for its efforts to keep the lights on.

It says it has avoided outages in two of the three occasions it has called on it in the last two summers, although there was not enough capacity available in Victoria on January 25 to avoid some load shedding. It argues, however, that the RERT helped to minimise the number of consumers effected.

The AEMC didn’t much like the idea of extending the RERT, as it prefers “market based solutions”. Last year, it was forced into a backflip by AEMO who insisted it was necessary to deal with the coming summer heatwaves. Most big generators don’t like the idea of either demand management or the RERT, because it effects their profits, as if they were not big enough already.

Finally, the AEMC appears to have given in to AEMO’s insistence that the market, imperfect as it is, cannot be relied upon in an emergency. There are, however, some caveats.

AEMC chairman John Pierce says the market is at a “cross-roads”, as the power system changes, more coal generators leave or struggle to maintain output in extreme heatwaves, and as more renewables join the system and the number of smaller, rooftop systems proliferate.

“The power system is changing from a small number of large generators to a large number of smaller generators and varied capacity providers, supply-demand balance is tightening, and there are more extreme heat events that can drive demand to peak suddenly when power stations are already under strain,” he said in a statement.

“Using emergency reserves more frequently means higher costs associated with the RERT making their way onto consumer bills,” he said. (AEMO puts the cost of this summer’s interventions at $3.20 for Victoria consumers and 80 cents for South Australia consumers, or as CEO Audrey Zibelman argued last year, less than the price of a single cafe latte).

“It’s time to enhance the emergency reserve framework to provide AEMO with the flexibility it needs to meet operational challenges arising from the restructure of the generation sector.

“At the same time it is more important than ever to address structural problems in the market’s ability to supply consumers with power when they need it – especially if those market issues are triggering the need for emergency reserves more often,” Pierce said.

The changes include improved incentives for customers to reduce demand, and it wants more visibility and regulator updates on how the RERT is procured and its costs. AEMO’s contracts are currently not visible to the market.

AEMO will also be given longer lead time to buy reserves, and will be given flexibility into how the reliability standard is incorporated in its day-to-day operations, particularly through its modelling and forecasting of power system risks.

However, a push by AEMO to have the reliability standard modified (it says the current one does not reflect community expectations), and for multi-year contracts for emergency reserves (to reduce costs) were rejected by the AEMC.

Industry participants say they are generally supportive of the move. Well, at least the ones involved in the new technology solutions, and not the ones making out of coal, gas and diesel generators.

However, most said they will hold any comment until they have absorbed the details of the 310-page ruling. They are also interested in the AEMC’s future rulings on market mechanisms for demand management, and if it can overcome the objections of the incumbent retailers.

In general though, they say the locking in of the RERT will be good for technolgy that can be rapidly deployed and offer fast frequency response and range of other services, including batteries.