7 minutes more per year

This is the average gain in reliability that consumers can expect from the COAG Energy Council’s March decision to increase the reliability standard from 0.002% unserved energy per region per year (10 minutes) to 0.0006% (3 minutes). Unserved energy is the technical name for when the electricity system just runs out of supply. Since demand must balance supply at all times, the result is forced loss of supply, usually in the form of rolling brownouts to share the pain. Already, this type of outage is the least likely to impact users, with security events (grid instability) being more common and local network outages being far more common (but still only averaging out at an hour or two per customer per year).

Given the rarity of such events, the last time the body officially charged with considering the reliability standard – the Reliability Panel – looked at it in 2018 they decided to leave it as is. This was after wide consultation with stakeholders, economic modelling and noting the “benefits of predictability and security” meaning a high threshold for change. A notable dissenter from their point of view was AEMO who argued for a tighter standard.

So what’s changed? There are some new sources of information, such as the AER’s recent review of the Value of Customer Reliability, where it surveyed users to see what dollar price they’d put on the load of supply. We also know more about the costs of the Reliability and Emergency Reserve Trader (RERT), the program AEMO runs to contract backup supply.

But more importantly for the energy ministers that make up the Energy Council, we know that the existing standard no longer meets “community expectations” for reliability. This may be code for political expectations, as reliability events, though rare are the most politically embarrassing type of outage. Security events are too technical for most non-engineers to get their head round (i.e. we still don’t know who to blame for the 2016 system black in South Australia) and network outages can be blamed on the local network.

So how do we achieve this higher reliability? The Energy Council has instructed the Energy Security Board to process two changes to the regulatory framework. The first, which they are consulting on over the next few weeks is the creation of a reliability reserve. This is basically a version of the long notice part of the existing RERT with a tweak to allow AEMO to procure three year contracts instead of a year at a time (providing they are expecting to call on the contracts in the first year and at least one of the next two). This is another override of a recent decision, namely the AEMC’s decision last year to knock back a rule change from AEMO to allow three-year contracts.

AEMO two, AEMC/Reliability Panel nil?

This decision is supported by modelling from ACIL Allen who show that the benefits of extra reliability outweigh the costs up to the new reliability standard, based on figures supplied to them by AEMO. Even more reliability would not be cost-effective. ACIL note that it would be more economically efficient to increase the market price cap, which at current levels of $14,700 is well below the values of customer reliability that AER found in their recent review. Modelling by EY looked at this option which would modestly increase wholesale prices overall.

The second change, which will be consulted on separately is to tweak the Retailer Reliability Obligation (RRO). This was originally set up so that if AEMO called a reliability gap three years out (T-3), retailers (who support new and existing generation through contracting to hedge out their exposure to the spot price) would have two years (T-1) to get their contracts set up to cover their customers’’ expected maximum demand. This should allow time to procure additional resources to make up the gap (not a big project like Snowy 2.0 or a large thermal plant, but smaller projects like a reciprocating engine, a battery or some demand side resources). The AER would enforce the RRO by asking retailer to prove they had enough cover at T-1. The tweak is to remove the requirement for a T-3 trigger. This means that the RRO could be “called” at T-1, but retailers would have no time to get any new contracts before they had to be able to demonstrate compliance. In other words, retailers will have to be permanently contracted up to the level the AER expects.