“The supply-demand balance is tightening, there’s a growing share of variable renewable generation, an ageing fleet of thermal generation and increasing extreme heat events that can drive demand to peak suddenly when power stations are already under strain.
“Using emergency reserves more frequently means higher costs associated with the RERT making their way onto consumer bills.”
The AEMC said it wanted to recover the RERT costs from those who benefited from the triggering of the emergency reserves so that only those states that used it paid, rather than the entire market.
The RERT has been used only in the past three summers across Victoria, NSW and South Australia after extreme weather and generator breakdowns pushed the grid to the limit.
AEMO was forced to call on the mechanism in Victoria and South Australia earlier this year at an average cost of about $10,000 per megawatt hour over two days. However, even after drawing down on the emergency reserves, rolling blackouts still hit up to 200,000 households across Victoria.
The RERT eventually cost more than $34 million, and added $3.20 to annual Victorian power bills and about 80¢ for South Australians.
“Calling on the RERT played an important part in shielding Melbourne from even more widespread and longer power shortages during January’s extreme weather event that coincided with unexpected generator breakdowns,” Mr Pierce said.
“But it’s not a tool to deliver more day-to-day supply to the market, or to underpin new investment. It’s an emergency mechanism that’s used when electricity supply can’t meet consumer demand.”
Mr Pierce said the new rules could encourage the market to step in and build new generators in areas that had less reliable power.
The AEMC also wants to give AEMO 12 months to buy contracts with big energy users to power down during peak demand times.
It’s not a tool to deliver more day-to-day supply to the market, or to underpin new investment.
AEMC chairman John Pierce
Businesses that have powered down in the past include Bluescope’s steel operations; OneSteel’s Laverton and Whyalla steel mills; manufacturers Visy and Australian Paper; the Tomago smelter in NSW and Alcoa’s Portland aluminium smelter in Victoria.
“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,” Mr Pierce said.
The new rules will be fully implemented in March 2020.
Covering energy and policy at Fairfax Media.