The Retailer Reliability Obligation (RRO) commenced on 1 July 2019, providing stronger incentives for market participants to invest in the right technologies in regions where it is needed, to support reliability in the National Electricity Market.
The Australian Energy Market Operator (AEMO) will identify any potential reliability gaps in each NEM region in the coming five years using its Electricity Statement of Opportunities. If AEMO identifies a material gap three years and three months out, it will apply to the AER to trigger the RRO by making a reliability instrument.
The South Australian Minister also has the ability to trigger the RRO within South Australia. For reliability gaps before 1 July 2022, this can be done 15 months or more before the start of the identified gap, and after that must be consistent with the timeframes set out in the National Electricity Rules.
Where a reliability instrument is made, liable entities are on notice to enter into sufficient qualifying contracts to cover their share of a one-in-two year peak demand. A Market Liquidity Obligation placed on Generators 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 liable entities secure contracts with new resources.
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 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 and determine whether their share of load for the reliability gap period was covered by qualifying contracts.
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.
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.