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Ensuring reliability in the NEM
The Retailer Reliability Obligation (RRO) commenced on 1 July 2019 to support reliability in the National Electricity Market (NEM).
The Australian Energy Market Operator (AEMO) identifies any forecast reliability gaps based on forecast supply and demand in each NEM region in the coming five years using its Electricity Statement of Opportunities.
If AEMO identifies a material reliability gap 3 years and 3 months out, it will apply to the AER to trigger the RRO by making a reliability instrument.
Where a reliability instrument is made, the RRO requires retailers and some large electricity users to obtain contracts that cover their share of a 1-in-2 year peak demand in the relevant gap period.
This, in turn, provides market participants with the increased confidence and a stronger incentive to invest in the right technologies in regions where it is needed to support a reliable electricity supply in the NEM.
The intention of the RRO is to be a long-term solution to ensuring reliability at the lowest cost by preparing for and eliminating forecast reliability gaps before they occur.
The Minister for Energy in NEM regions also have the ability to trigger a T-3 RRO within their respective jurisdictions.
What happens when the RRO is triggered?
Where a reliability instrument is made, liable entities (the wholesale purchasers of electricity, mainly electricity retailers) are on notice to enter into sufficient qualifying contracts with generators to cover their share of a 1-in-2 year peak demand.
A Market Liquidity Obligation will ensure there are contracts available to smaller market customers by requiring certain generators in each region to make contracts available to the market.
AEMO will also run a Voluntary Book Build mechanism to help the liable entities secure contracts with new resources.
If there is still a gap...
If the market response is insufficient and the AER confirms a reliability gap one year out, liable entities must report their contract positions for the reliability gap period to us.
AEMO may commence procurement of emergency reserves at this point through the Reliability and Emergency Reserve Trader framework to address the remaining gap with costs to be recovered through the Procurer of Last Resort cost recovery mechanism.
If actual system peak demand exceeds an expected 1-in-2 year peak demand, we will assess the compliance of liable entities and determine whether their share of load for the reliability gap period was covered by their qualifying contracts.
Entities whose required share of load is not covered by qualifying contracts for the specified period will be required to pay a portion of the costs for the Procurer of Last Resort, up to an individual maximum of $100 million.
Register of reliability instruments
By 31 August each year, AEMO will identify any forecast reliability gaps in each NEM region in the coming five years using its Electricity Statement of Opportunities (ESOO). If AEMO identifies a material gap 3 years and 3 months out, it will apply to the AER to trigger the RRO by making a reliability instrument.
The AER will publish its decision, the reasons supporting that decision and if applicable, the reliability instrument.