RERT is getting cheaper, but it’s still expensive

An emergency scheme designed to avoid blackouts in extreme conditions was used five times last summer and cost more than the highest price paid for electricity in the grid.

The RERT (Reliability and Emergency Reserve Trader Scheme) cost $38 million, or $18,250 per megawatt hour when it was deployed at critical times in Victoria and New South Wales over the intense summer of 2019-20.

The bad news: RERT is still significantly more expensive than the highest prices paid in the wholesale electricity market ($14,700). The good news is the unit and total cost of the RERT is falling in its third year of active deploy.

The RERT was created at the start of the NEM in 1998 but has been rarely used until the summer of 2017-18 following concerns over adequacy of supply after the closures of the Northern (2016) and Hazelwood (2017) power stations. 

RERT allows AEMO to tender for additional reserves of supply (small generators) or additional demand response (paying industrial customers to reduce demand during peak periods) to be used when demand may be insufficient to meet supply. 

In the summer of 2017-18 AEMO dispatched the RERT twice at a total cost of $52 million. It was expensive: these first activations cost consumers the equivalent of around $62,000 per MWh, and twice more in 2018-19 costing $34.5 million. 

The Australian Energy Market Operator’s (AEMO) new technical report on how the electricity grid operated during the recent Black Summer showed a maturing of the scheme with increased use and reduced average cost. But its high costs suggest we need to develop more efficient ways of managing the increased frequency of these tight supply-demand events.

The basic mechanics of the RERT involves AEMO contracting a panel of reserve providers (either demand response or extra generation) who are typically paid to be available, payed to cover the costs of a reserve provider being ready and then actual activation costs. 

AEMO has used the report to re-prosecute its campaign for increased transmission interconnection between load centres, even though the report highlighted the increased vulnerability of transmission under these extreme conditions, alongside the declining performance of both thermal and renewable generation operating in extreme heat conditions.

An alternative approach may be the creation of a day-ahead market for strategic reserve generation proposed in two separate rule changes by Infigen Energy and Delta Electricity, which follows a similar recommendation by the Finkel Review.