The Victorian Government has revealed it will ask the Australian Energy Market Commission (AEMC) for an exemption to allow the market operator the option of negotiating longer Reliability and Emergency Reserve Trader (RERT) agreements.
Minister for Energy Lily D’Ambrosio said Victoria was sick of waiting for the National Energy Rules to change and would instead go it alone with the market operator in negotiating cheaper multi-year contracts for additional reserve power.
Currently, the energy rules mean the Australian Energy Market Operator (AEMO) can only negotiate RERT agreements nine months in advance.
“That means more uncertainty, less competition, more expensive contracts and higher costs for Victorians,” the Victorian Government said in a statement.
“AEMO has been calling for national rule changes, which would allow them the option of multi-year RERT contracts, where it represents value for money for consumers. Taking this step will help mitigate against the risk of our ageing privately owned coal generators failing when they are needed most.”
The Victorian Government said Federal Energy Minister Angus Taylor is “more interested in scoring political points, than acting on the advice of the independent market operator or leading national market reform”.
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The Australia Institute said the Victorian Government’s move would improve reliability, lower the cost of electricity and encourage innovation in demand response.
“Longer-term contracts give the right price signal to large industrial users such as gas producers, smelters, cement pulp and paper to offer demand response and other types of reserve power into the market,” The Australia Institute Energy and Policy Lead Dan Cass says.
“Victoria’s gas and coal power plants are the most unreliable in the country, breaking down 75 times since December 2017, and the Victorian government is taking the sensible step of securing long-term reserve power contracts.
“If reserve power contracts are long-term then this reduces risk and should encourage more providers to enter the market, stimulating innovation.
“It has been widely acknowledged that the current National Electricity Market rules are not encouraging cost-effective investment in reliability services and dispatchable generation. That is why the Federal Government created the Underwriting New Generation Investments Program.
“Currently, there is only one way to get enough energy capacity in time for the upcoming summer season of heatwaves and that is using the Reliability and Emergency Reserve Trader mechanism (RERT).
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“Unfortunately, the RERT was designed for the past when coal and gas were the mainstay of electricity supply and an occasional summer security top-up was good enough.
“Australia Institute research shows demand response, incentivising reductions in electricity consumption during high demand periods, can reduce the need for reserve power.
“Victoria is right to design a more financially sustainable contracting arrangement for the RERT in Victoria, that will encourage innovation and lower the cost of supply.”
While The Australia Institute says it would be a positive move, The Energy Users Association of Australia (EUAA) said it’s concerning.
“The RERT mechanism is designed as a last resort safety net to be applied when the reliability standard is likely to be breached and has proven to be a very expensive way of managing the energy system,” EUAA CEO Andrew Richards says.
“In the last two years it has been triggered several times at a cost to consumers of $80 million.”
“… By extending the contracting period from one to three years, we begin to move RERT from an emergency measure to the primary means by which we manage the energy system. We may also find that AEMO are competing for the same ‘firming’ resources as market participants, which is likely to drive costs even higher,” the EUAA said in a statement.
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