Introduction
A final detailed design for the RRO was published in August 2018. The ESB has been tasked to develop the National Electricity Rules necessary to implement the RRO. This timeline has been prepared using a worked example to aide in consultation on the amendments to the NER and should be read in conjuction with the Consultation Paper and draft Rules published by the ESB on 8 March 2019.
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Retailer Reliability Obligation
Retailer Reliability Obligation (RRO) amendments to the National Electricity Law and Rules come into force.
The Rules will prescribe transitional arrangements to apply to some aspects of the RRO in its initial years. In particular, this will include the development of interim guidelines, procedures and processes to inform entities and market bodies while final versions are being developed.
Note: Where the draft Rules require that matters be addressed in procedures and guidelines, AEMO and the AER may include these matters in new or existing documents, and may combine multiple matters into a single document where they deem it appropriate to do so.
2019 ESOO
AEMO publishes the 2019 Electricity Statement of Opportunities (ESOO), including a five year Reliability Forecast. This will indicate to the market whether investment in further reliable supply is needed, by when and how much, which should incentivise the market to address the forecast gaps in advance of their occurring.
Note: the ESOO will be published no later than 31 August.
The Reliability Forecast will cover the first five years of the ten-year ESOO forecast timeframe (2019-2024). The Reliability Forecast will be separately identifiable within the ESOO publication.The AER will only consider the Reliability Forecast component of the ESOO when assessing a Reliability Instrument Request.
The ESOO will be prepared consistent with the AER Forecasting Best Practice Guideline (which will set out the key principles that the forecasting process should adhere to) and the AEMO Reliability Forecast Procedure (which will outline specifically how AEMO will undertake the forecasting, in line with the AER's Best Practice Guideline).
The AER will not undertake any forecasting done by AEMO as part of its Forecasting Best Practice Guideline.
T-3 Reliability Instrument Requests
For the purposes of this worked example, the Reliability Forecast published by AEMO (as part of the 2019 ESOO) forecasts reliability gaps in NSW, VIC and SA commencing in December 2022. Each region is considered to have a separate reliability gap for the purposes of the RRO, so this is considered to be three reliability gaps.
AEMO confirms that the forecast gaps are material. A forecast reliability gap will be material for the purposes of the RRO, if annual regional expected unserved energy (USE) exceeds the reliability standard.
T-3 Reliability Instrument Requests Prepared
AEMO prepares the T-3 Reliability Instrument Requests in accordance with the Rules and Guidelines.
Each T-3 Reliability Instrument Request will specify the region in which the gap is forecast to occur, the first and last days of the gap period, the indicative trading intervals for which the obligation would apply, and the one-in-two-year peak demand forecasts, in accordance with the Law, Rules and guidelines.
Note that AEMO must only make a T-3 or T-1 Reliability Instrument Request based on an ESOO or ESOO update published in the previous six months.
In this worked example, AEMO could not - in August 2019 - submit a T-3 Reliability Instrument Request to the AER based on the 2018 ESOO, because this ESOO was issued more than six months prior.
Similarly, if the 2019 ESOO forecasts a reliability gap commencing in December 2025, AEMO could not issue a T-3 Instrument Request in relation to this gap - it would need to wait for the 2022 ESOO to do so.
T-3 Reliability Instrument Requests Submission
AEMO submits T-3 Reliability Instrument Requests to the AER in relation to forecast reliability gaps in NSW, VIC and SA.
Note: This must be at least three months before the relevant T-3 date for each region.
Corrections to a Reliability Instrument Request
If, within two weeks of submitting a T-3 Reliability Instrument Request, AEMO identifies a material error or a miscalculation in the ESOO forecast that changes the nature of a forecast reliability gap, it may submit a correction to the AER.
If the AER receives a corrected Request from AEMO within the permissible two week window, and before it has issued a Reliability Instrument, the AER may extend its timeframe for publishing its T-3 Reliability Instrument decision. The timeframe may be extended by up to the amount of time which elapsed between when the initial Request was submitted and when the corrected request was submitted.
For example, if AEMO submits a Request and then - six business days later - submits a correction, the AER may extend its assessment timeframe by no more than six business days.
AER Assessment of T-3 Reliability Instrument Requests
The AER commences its assessment of the T-3 Reliability Instrument Requests.
In doing so, the AER is not redoing the modelling undertaken by AEMO, but is confirming the forecasting process used by AEMO aligns with the requirements.
The AER may only reject a request for a Reliability Instrument (T-3 or T-1) based on the following factors:
- a material error in AEMO's calculations or input data.
- an inaccurate assumption that materially impacts the forecast reliability gap.
- the forecast process was inconsistent with the AER's Forecasting Best Practice Guideline.
The AER will undertake a period of stakeholder consultation as part of the assessment process. Consultation is only in relation to those factors (above) which the AER can use to reject a Reliability Instrument Request.
Publication of T-3 Reliability Instrument Requests
AEMO publishes the T-3 Reliability Instrument Requests on its website.
Note: This must occur no later than five business days after submission to the AER.
Obligated Parties for the Market Liquidity Obligations
The AER notifies potential obligated parties that MLO requirements may commence shortly.
In this worked example, these generators would be: Snowy, Alinta and AGL in NSW; AGL, EA and Origin in VIC; and AGL and Origin in SA.
A separate MLO will operate in each region in which a T-3 Reliability Instrument is issued.
Obligated Parties for the MLO will be individual generator market participants that belong to corporate groupings (MLO Groups) that exceed a 15 per cent share of scheduled generation in a region. The market share of generation will be based on registered scheduled generation capacity.
The MLO will not apply in Tasmania, or in a region where there are less than two MLO Group identified.
Generator market participants will be required to reveal their corporate structure to the AER and all generator market participants in a corporate group that exceeds the market share threshold will be subject to the MLO.
Generator market participants in an MLO Group can meet their MLO obligation by nominating an agent to fulfil the MLO of the group. The MLO generators remain individually responsible for any non-compliance of the MLO nominee.
Transitional arrangements may apply for determining obligated parties in the initial two years of the RRO.
On an ongoing basis, new and existing generators will be required to provide information to the AER on generating units under their influence and control, and on the corporate grouping to which they belong. The AER will use this information to calculate market shares for each region at least once every quarter. When it publishes market shares, it will also publish a list of the obligated parties under the MLO.
Where circumstances change and the information previously provided to the AER is no longer correct, parties must provide updated information to the AER. The AER will then recalculate market share based on the new information and, if relevant, will revise the list of obligated parties.
Issuing T-3 Reliability Instruments
The AER issues three T-3 Reliability Instruments for forecast reliability gap periods (NSW, SA, VIC) commencing in December 2022.
The three T-3 Reliability Instruments will be published, publicly, on the AER's website.
For the purposes of this worked example, the Reliability Instruments for NSW, VIC and SA have been issued on the same date. In practice, the final dates by which the AER must publish the T-3 Reliability Instruments will depend on when the Requests were recieved from AEMO.
Note: this decision must be published no later than two months after AEMO issued its corresponding T-3 Reliability Instrument Request.
Liable Entities
Liable entities in NSW, VIC and SA are now on notice that, if the forecast reliability gaps are not addressed, they may be liable to comply with their responsibilities under the RRO.
Qualifying Contracts
Once a T-3 Reliability Instrument is issued by the AER, liable entities in the relevant region should commence preparing their contract portfolios for the gap period, in accordance with the Rules and guidelines.
A qualifying contract is a contract or other arrangement that is directly related to the purchase or sale, or price for the purchase or sale, of electricity from the wholesale exchange during a stated period, which the liable entity entered to manage its exposure to the volatility of the spot price.
The AER Guidelines will provide for any contracts that are expressly permitted or expressly excluded as qualifying contracts for the purposes of the RRO (the rules will NOT specifically list permitted or excluded contracts).
Demand response contracts may be qualifying contracts, but only where they are registered with AEMO in its Demand Side Participation Portal.
The AER guidelines may also provide for the effect of non-qualifying contracts, where relevant.
Voluntary Book Build Procedures
AEMO announces a T-3 Voluntary Book Build will be conducted to cover the reliability gaps in NSW and SA.
Ordinarily, AEMO will request expressions of interest in the T-3 Voluntary Book Build following a T-3 Reliability Instrument being made. However, Voluntary Book Build commencement will be pushed back to early 2020 to enable AEMO to publish its initial Book Build Procedures (expected to be published by 1 January 2020).
Default Approach to Calculating Firmness of Qualifying Contracts
A liable entity in NSW decides to use a default methodology to calculate the firmness of its qualifying contracts, for the purposes of determining its net contract position.
Default firmness methodologies will be prescribed in the relevant AER Guideline. If using a default approach, liable entities will not be required to engage an independent auditor.
The following principles will be used for determining the firmness of qualifying contracts:
- Strike price of the contract;
- Variability and profile of the volume settled under the contract;
- Likelihood of the contract providing cover to the buyer during the reliability gap; and
- Any other contractual terms which limit the coverage or otherwise reduce the incentive for a seller to cover the position.
Bespoke Approach to Calculating Firmness of Qualifying Contracts
A liable entity in SA decides to use a bespoke methodology, rather than a default methodology, to calculate the firmness of its qualifying contracts, for the purpose of determing its net contract position.
For any methodology other than the default methodologies published by the AER, a liable entity may seek AER approval of the methodology in the period between T-3 and T-1.
Where the bespoke methodology is approved by the AER, an independent auditor must be engaged to report on whether the entity's final net contract position was developed in accordance with the approved bespoke firmness methodology.
Where a bespoke firmness methodology has not been approved by the AER, an independent auditor must be engaged to report on whether the net contract position has been developed in accordance with the bespoke firmness methodology developed by the entity and which meets the firmness guidelines.
Grandfathering of Contracts
A liable entity (a large customer that has opted-in) in VIC is calculating the firmness of its qualifying contracts, some of which have been in place since early 2018. Its contracts which were held on 10 August 2018 will be eligible for grandfathering arrangements.
Grandfathered contracts of large customers who ‘opt-in’ to manage the RRO liability associated with their load, along with grandfathered contracts of C&I customers who are automatically liable entities, will automatically be given a firmness factor of one.
This firmness factor will apply until the end of the original contract term or 1 July 2023, whichever is later.
For non-grandfathered contracts the large customer will need to apply a firmness methodology as normal.
Triggering the MLO
Five business days after a T-3 Reliability Instrument is issued by the AER, the MLO commences for obligated parties in the relevant regions (in this case, NSW, VIC and SA). If a region does not have at least two MLO obligated party at this time, but this situation then changes, the MLO commences in that region from the day it has two or more obligated parties.
To meet the MLO requirements, obligated parties must post bids and offers of relevant products as approved by the AER. MLO products are likely to include base, peak and cap quarterly futures contracts (the combination of which is at the discretion of the obligated party) covering the period of the reliability gap. Obligated parties must provide trading data periodically, sufficient to satisfy the AER they are meeting MLO.
The obligation remains until either:
- a T-1 Reliability Instrument is issued by the AER for the reliability gap period identified in the T-3 Reliability Instrument; or
- the AER informs obligated parties that the MLO is no longer required.
The obligation requires MLO generators or their nominees to make contracts available, for the period of the gap, on an approved trading platform.
Details of the MLO requirements:
- Platforms: Bids and offers are to be provided on a trading facility approved by the AER. The Rules will nominate the ASX as an approved exchange until the AER determines otherwise. The AER will specify in a guideline the process for considering and approving a different or additional trading exchange.
- Products: Base, peak and cap futures or other qualifying contracts approved by the AER.
- Size of bids and offers: Must allow 1 MWh lot trades to occur.
- Market making trading hours: Must post bids and offers such that they are available during a 'trading session', between 11:00 and 11:30 and 15:30 and 16:00, or two alternative thirty minute periods nominated and published by an approved exchange. This is only required for 35 sessions per month, except in January and December where it is only required for 25 sessions per month.
- Bid/offer spread: Maximum difference in bid and offer prices is 3% for flat baseload or peakload contracts in QLD, NSW and VIC and 5% in SA. For cap contracts, the maximum bid-offer spread is 10% for any region. The bid-offer spread is not required to be less than $1 per MW.
- Circumstances where obligation is exempted: Market trading halts called by the exchange or imposed on the company.
- Daily net sales limit: 5MWs per session in NSW, QLD and VIC, and 2MWs per session in SA.
- Quarterly net sales limit: 1.25% of the obligated party's registered scheduled generation capacity.
- Total net sales limit: 10% of the obligated party's registered scheduled generation capacity.
Reassessment of MLO Obligated Parties
An MLO obligated party provides notice to the AER that is has sold 10% of its NSW registered (scheduled) generation portfolio. It requests the AER reassess its liability under the MLO.
In this case:
- The AER will publish a notice informing the market of the request, or other change in circumstances leading to considering a change in obligations
- The AER will make a decision on the request /circumstance of the obligated party and if a new party becomes an obligated party
- The AER will provide notice to the obligated parties indicating: the date on which the applicant's obligation ends and the date on which the new party's obligation commences, so ensuring there are always two obligated parties.
The market liquidity obligation should be a civil penalty provision.
T-3 Date
This is the date three years ahead of the first day of the forecast reliability gap for each T-3 Reliability Instrument.
AEMO Seeks Expressions of Interest in T-3 Voluntary Book Builds
AEMO will invite parties in SA and NSW to submit expressions of interest to participate in T-3 Voluntary Book Builds (one for each region's T-3 Reliability Instrument).
The Voluntary Book Builds will give liable entities the opportunity to secure qualifying contracts underpinned by new physical resources. The qualifying contracts entered into pursuant to the Book Build need to be 'firmed' in accordance with the firmness methodology.
ESOO Forecasting Process for 2020 Onward
AEMO initiates the 2020 ESOO forecasting process in line with the relevant Guideline.
During this process, AEMO will issue information requests to registered participants via its portal, in line with the revised information provision regime. AEMO will have express rights to request information from registered participants for the ESOO forecast (process set out in the relevant Guidelines). Information provided to AEMO must satisfy an information standard specified in the Rules. Failure to comply with an information request or the information standard will be a civil penalty provision.
Note that the timing of this process will not be specified in the Rules, and the date chosen for this worked example is illustrative only.
AEMO Matches Participants in T-3 Voluntary Book Build
AEMO will conduct the Voluntary Book Build by:
- inviting sellers who are looking to develop new capacity to make offers to sell contracts for the duration of the reliability gap; and
- inviting buyers to make offers to buy these contracts.
Voluntary Participants are matched by AEMO based on the principles of:
- delivering the maximum closure of the gap; and
- minimising costs to consumers.
Matched participants will inform AEMO whether they have developed contracts.
Note: This is indicative timing only, with actual timing to be specified in the procedures if developed by AEMO.
Criteria for Voluntary Book Build Contracts
Criteria for parties offering to sell contracts via the book build mechanism may include:
- Minimum firmness factor (for the purpose of compliance with the Obligation).
- Whether the associated project has reached a final investment decision.
- Confirmation of financing arrangements for the project.
- Verification the output of the project has not been ‘over-sold’.
- Credit requirements.
- The expected timing for completion of the new project (potentially including a sufficient buffer to account for construction delays).
Book Build contracts may not necessarily be standard qualifying contracts. For example, key terms may be specified in the book build, with finalised contract terms agreed post book build. Book build contracts will not be able to be used for Market Liquidity Obligations.
Book Build Fees
Where AEMO is able to identify the costs associated with running the Book Build, AEMO may include those fees in an updated market participant fee guideline.
Opt-in Register
The AER opens opt-in registers for NSW, VIC and SA T-3 Reliability Instruments. Eligible entities may apply to the AER to opt-in to manage the RRO responsibilities associated with their load (rather than a retailer managing responsibilities on their behalf) from this point onwards. It will also be possible to opt-out of responsibilities.
Note: an opt-in register will not be established earlier than 30 June 2020, even if a T-3 Reliability Instrument has already been issued, to allow for the necessary guidelines and systems to be introduced. From 30 June 2020 onwards, an opt-in register will be established within 30 business days of the AER issuing a T-3 Reliability Instrument.
At a minimum the opt-in register will record: Large Opt-in Customers and Prescribed Opt-in Customers; the connection point these customers have opted-in to; for prescribed opt-in customers, the portion of load at the associated connection point that they have assumed responsibility for.
Opt-in Guidelines
The AER will develop and consult on Opt-in Guidelines, which will cover:
- process for establishing the register;
- content of the register;
- when the register will be publicly accessible and what information will be publicly accessible (for example, taking account of confidentiality requirements);
- process for maintaining the register;
- eligibility criteria for prescribed opt-in customers, and how the AER would apply these criteria;
- the notification process for opting-in, opting-out and transferring responsibility for an obligation;
- the form and content of opt-in and opt-out notifications; and
- process for amending the procedures.
Large Opt-in Customer
An entity will be eligible to apply to opt-in as a Large Opt-in Customer if it is not already a liable entity, it purchases its electricity from a liable entity, and its annual electricity demand for the previous 12 months exceeds the Large Customer Threshold (the existing NERL and NERR definitions will apply in QLD, NSW, SA and TAS, and 100MWh will apply in VIC). This can be aggregated across a site and across multiple sites.
An application to opt-in must be submitted to the AER, in accordance with the Guidelines.
If the AER has approved a Large Opt-in Customer application, the entity will then be eligible to opt-in and be formally added to the opt-in register to assume RRO liability for their load. It must be registered by close of business on the Opt-in Cut-off Day to assume RRO liability.
Once the Large Opt-in Customer has opted-in, the liable entity from which it purchases electricity will no longer be responsible for managing this RRO liability.
Prescribed Opt-in Customer
Some entities which are not eligible to opt in as Large Opt-in Customers may be eligble to apply to the AER for Prescribed Opt-in Customer approval, to manage RRO liability associated with all or part of their load (for example, in the case of joint ventures). The peak demand at the relevant connection point must be greater than or equal to 30MW, and the portion of the load for which the entity is opting-in must be greater than or equal to 5MW of peak demand, to be eligible to apply.
An application must be submitted to the AER for approval, in accordance with the Guidelines, by no later than 40 business days before the Opt-in Cut-off Day (extra time is needed for the AER to assess Prescribed Opt-in Customer applications, given the more complex nature of these arrangements).
The AER will publish a guideline setting out criteria to guide the AER’s assessment of applications for Prescribed Opt-in Customer approval.
Prescribed Opt-in Customer Application
A mining joint-venture applies to the AER to register as a Prescribed Opt-in Customer in SA.
If approved, this would allow the joint-venture to opt-in to manage all or part of the RRO responsibilities associated with the load at its connection point, even though it may not meet the ordinary opt-in requirements specified in the Rules and Guidelines.
Prescribed Opt-in Customer Approval
The AER approves the joint-venture's application to register as a Prescribed Opt-in Customer, having considered the application in line with the eligibility criteria and processes set out in its Guideline. The joint-venture is able to register to opt-in and be formally added to the AER's opt-in register. Once the Prescribed Opt-in Customer is on the opt-in register, the entity otherwise responsible for the RRO at that connection point will no longer responsible for the portion of the load for which the joint-venture has opted-in.
As a Prescribed Opt-in Customer, if the Joint Venture wanted to adjust its opt-in status:
• To increase the portion of the load that it is responsible for, it must provide written notice to the AER and the market customer responsible for the remaining load at the connection point by the Opt-in Cut-off Day.
• To reduce the portion of the load that it is responsible for, both the Prescribed Opt-in Customer and the entity responsible for the remaining load at the connection point must provide written notice to the AER by the Opt-in Cut-off Day. That is, the market customer must separately confirm that their obligation will increase.
Large Opt-in Customer Application and Approval
A large customer in NSW (who meets the eligibility criteria) applies to the AER to register as a Large Opt-in Customer, having notified its current retailer and undertaken other measures specifed in the AER Guidelines.
The AER approves the large customer's application to register as a Large Opt-in Customer, having considered the application in line with the eligibility criteria and processes set out in its Guideline. The customer is added to the AER's opt-in register, to manage 100% of the RRO responsibility associated with its load, and the retailer managing the customer's connection point is no longer responsible for that load.
2020 ESOO
AEMO publishes the 2020 ESOO, including a five year Reliability Forecast.
Note: the ESOO will be published no later than 31 August.
Reliability Forecast in 2020 ESOO
For the purposes of this worked example, the Reliability Forecast in the 2020 ESOO finds no material reliability gap forecast for VIC, but finds that material reliability gaps continue to be forecast for NSW and SA commencing in December 2022.
Market Liquidity Obligation Operates Between T-3 and T-1
In spite of the latest ESOO not showing the reliability gap for VIC, the MLO will remain given the possibility that the reliability gap reemerge in the following ESOO, leading to a T-1 Reliability Instrument.
T-2 Voluntary Book Build
AEMO has the discretion to run an additional T-2 Voluntary Book Build if AEMO determines it is required.
Note: this is indicative timing only, with actual timing to be specified in the procedures if developed by AEMO.
Updating the Reliability Forecast for Change in Market Conditions
For the purposes of this worked example, AEMO is notified that a committed new generation project included in the 2020 ESOO for SA is no longer likely to go ahead. In line with the Rules, AEMO commences an update of the Reliability Forecast, in line with the relevant Guidelines.
Update to the Reliability Forecast does not Introduce a New Gap
AEMO publishes an updated Reliability Forecast, indicating that the gap previously forecast for SA in December 2022 has increased. An existing T-3 instrument already exists for SA for that reliability gap period and the updated Reliability Forecast does not show any other new or altered gaps, so no further Reliability Instrument Requests are issued by AEMO.
Note: Example timeframe only. The timeline and process for updates will be set out in the relevant Guidelines.
ESOO Forecasting Process for 2021
AEMO initiates the 2021 ESOO forecasting process in line with the relevant Guideline.
Note that the timing of this process will not be specified in the Rules, and the date chosen for this worked example is illustrative only.
Final Day for Prescribed Opt-in Customer Applications
For the purposes of this worked example, this is the final day for eligible entities to apply to the AER for approval as Prescribed Opt-in Customers for the AER opt-in registers for each of SA and NSW.
Note: this day is 40 business days before the Opt-in Cut-off Day, to give the AER sufficient time to assess and make a decision on an application.
Opting-out
A large customer that is on the opt-in register for NSW submits a notification to opt-out of its RRO responsibilities. The customer has negotiated with the retailer and secured their agreement, in accordance with the Guideline. AER removes the large customer from the register and the retailer assumes responsibility.
Note: the large customer can opt-out anytime before the Opt-in Cut-off Day.
In order to opt-out of RRO liabilities, before the Opt-in Cut-off Day:
- Both the large customer electing to opt-out and the retailer (or other liable entity) who is assuming the reliability obligation must provide written notice to the AER by the opt-in cut-off day. That is, the retailer must separately confirm that they agree to assume the opt-in entity’s reliability obligation and become the liable entity.
- There is no obligation on a retailer to agree to assume an opt-in entity’s obligation.
- A separate notification would need to be provided for each reliability gap period that the eligible entity has opted-out from, where they have previously opted-in.
Opt-in Cut-off Day
This is the final day on which eligible large customers can submit an application to the AER to opt-in (Large Opt-in Customer category), change their opt-in position (Prescribed Opt-in Customer category) or opt-out of RRO responsibilities (both categories) for the SA or NSW Reliability Instruments. Eligible large customers that elect to opt-in must provide written notice to the AER and their retailer by close of business on the Opt-in Cut-off Day, in line with requirements specified in the Guidelines. A separate notification would need to be provided for each reliability gap period that the customer elects to opt-in for.
Note: This Day is 18 months after the relevant T-3 Reliability Instrument is effective or, if this is a weekend or public holiday, on the next business day. This will effectively be around 18 months before the forecast reliability gap period commences.
2021 ESOO
AEMO publishes the 2021 ESOO, including a five year Reliability Forecast.
Note: the ESOO will be published no later than 31 August.
2021 ESOO Reliability Forecast
The Reliability Forecast in the 2021 ESOO finds that material gaps continue in NSW and SA, commencing in December 2022 (for example, NSW gap of 50 MW and SA gap of 50 MW). The Reliability Forecast finds that the material gap in VIC for which the T-3 Reliability Instrument had been issued has not reemerged.
T-1 Reliability Instrument
As the forecast reliability gap has not reemerged for VIC and there will not be a T-1 Reliability Instrument issued, the AER closes the Opt-in register for VIC.
MLO Concludes when no T-1 Reliability Instrument is Issued
As the forecast reliability gap has not reemerged for VIC and there will not be a T-1 Reliability Instrument issued, the MLO no longer operates in VIC.
The AER must publish a notice stating the day the MLO has concluded.
T-1 Reliability Instrument Requests
AEMO confirms that material reliability gaps remain in NSW and SA forecasts.
AEMO submits its T-1 Reliability Instrument Request to AEMO for SA and NSW, with both forecast reliability gap periods commencing 20 December 2022.
Note that the this Request must be submitted no later than three months prior to the T-1 cut-off date.
The T-1 Reliability Instrument Request must be directly related to a T-3 Reliability Instrument issued by the AER. To be related, the reliability gap period in the T-1 Reliability Instrument Request must be for the same region, and the period of days and trading intervals must be the same as, or a subset of, those specifed in an existing T-3 Reliability Instrument. The days and trading intervals cannot fall outside of those in the T-3 Reliability Instrument.
The magnitude of the forecast gap (MW) can either increase or decrease in the T-1 Reliability Instrument Request, relative to the T-3 Reliability Instrument.
This approach gives AEMO flexibility to adjust to unforseen changes in the forecast while minimising uncertainty for liable entities.
AER Assessment of the T-1 Reliability Instrument Requests
AER commences its assessment of the Requests, in line with its relevant Guideline. The assessment will be based on the same criteria as used at T-3. Ths AER assessment process will include a period of stakeholder consultation.
AEMO Reliability Instrument Requests Publication
AEMO publishes the Requests on its website.
Note: This must occur no later than five business days after submission to the AER.
Note that AEMO may withdraw a Request if there is a material error in the Reliability Forecast, by providing written notice to the AER. It may withdraw a Request at any point before the AER issues its decision. Withdrawing a Request would not prevent AEMO from issuing another Request related to the same reliability gap, provided this is within the timeframes allowed.
In this example, AEMO has issued its Request on the last possible day for a reliability gap period starting 20 December 2021, so it could not withdraw the Request and issue another for the same period.
T-1 Reliability Instrument Not Issued
For the purposes of this worked example, the AER notifies the market that a T-1 Reliability Instrument will not be made for VIC. The T-3 Reliability Instrument for VIC was for a reliability gap period starting 22 December 2022 and ending on 15 January 2023. The latest a T-1 Reliability Instrument Request could have been made by AEMO was 15 October 2021 (three months before the last day of the reliability gap period identified in the T-3 Reliability Instrument).
Note: The AER is required to notify the market five business days after the T-1 Instrument can no longer be made.
Issuing T-1 Reliability Instruments
AER issues two T-1 Reliability Instruments - one for SA and one for NSW - each with a reliability gap period commencing on 20 December 2022. The Instruments specify the exact nature of the gap periods, and also specify the Contract Position Day (20 December 2021) and Reporting Day (20 February 2022) for each.
Note: the AER must issue the Instrument no later than two months after receiving the Request from AEMO. The Contract Position Day can be set either on or one week before the T-1 cut-off day. The Reporting Day must be set no less than two months after the Contract Position Day.
The T-1 Reliability Instruments will include: the region for which the gap is forecast; the first and last days of the gap periods; and the trading intervals for which liable entities will be required to demonstrate compliance with the obligation (if assessed).
The T-1 Reliability Instruments will also prescribe the Contract Position Days, Reporting Days, New Entrant Contract Position Days and New Entrant Reporting Days.
AER Notification
The AER publishes a notice that the MLO is no longer required in SA and NSW.
T-1 Date
T-1 is exactly one year ahead of the first day of the forecast reliability gap periods. For this worked example, the SA and NSW reliability gap periods are each forecast to start on 20 December 2022. This date is expected to be used as the Contract Position Day, however this will be specified by the AER in the T-1 Reliability Instrument.
Contract Position Day
This is the date on which liable entities must have their contract positions in place to meet their RRO responsibilities for the forecast reliability gap periods.
Note: the Contract Position Day is specified in the AER's T-1 Reliability instrument.
New Entrants
New Entrants are any market customers, with annual demand anticipated to exceed 100MWh load in their initial year, which enter the market between T-1 and T. Entering the market is taken to mean retailer authorisation approval granted or connection point established during this time.
New Entrants will have full RRO liability for their associated load, and will be expected to contract accordingly. Separate 'New Entrant' Contract Position Days and Reporting Days will apply.
Procurer of Last Resort
AEMO procures reasonable reserves to cover the gap identified in the T-1 Reliability Instrument for SA (50 MW) and the T-1 Reliability Instrument for NSW (50MW).
AEMO can procure the needed reserves anytime between T-1 and T.
The 'mechanism' used to procure necessary reserves is the RERT.
The 'trigger' for the POLR cost recovery mechanism is the issuance of a T-1 Reliability Instrument.
AEMO may separately enter into other RERT contracts based on the RERT framework and updated market information from MTPASA and STPASA.
AEMO will enter into reserve contracts for the reliability gap period which are assigned a nominal MW value.
Adjustments to Net Contract Positions
Retailers who take on or lose customers during this final year, between T-1 and T, will be able to apply to the AER to adjust their contract position to the extent necessary to accommodate the change.
They may only do this in the following circumstances:
- Where a retailer takes on customers as a result of a ROLR event;
- Where a retailer gains or loses a C&I customer/s under 30MW that changes their demand forecast by 1% or more;
- Where a retailer takes on a new to market C&I customer over 30MW that changes their demand forecast by 1% or more; or
- Where a retailer’s residential load changes by 15% or more.
Reporting Day
This is the date by which liable entities must have reported their net contract positions to the AER, as they were on the Contract Position Day, for the forecast reliability gap periods defined in the T-1 Reliability Instrument.
The net contract position must be determined by netting off qualifying contracts that have been bought against qualifying contracts that have been sold. In addition, non-qualifying contracts must be taken into account in determining the net contract position.
(Note: the Reporting Day will be specified in the AER's T-1 Reliability Instrument)
Updated Forecast of System Needs
The medium-term projected assessment of system adequacy (MT PASA) forecasts low reserve conditions in NSW. AEMO estimates that additional reserves of around 50MW would address this risk, and seeks to respond through RERT.
AEMO procures additional reasonable reserves to cover the increased gap identified in the MT PASA.
Note: this can occur at any point in the period between T-1 and T.
2022 ESOO
AEMO publishes the 2022 ESOO, including a five year Reliability Forecast.
Note: this can occur no later than 31 August.
New Entrant Retailer
A new retailer enters the market (its retailer authorisation is approved) in NSW and it anticipates having an annual demand of over 100MWh.
The new retailer will be liable under the RRO and will be expected to have appropriate contracts in place for the forecast reliability gap period.
Contract Position Adjustment
For the purposes of this worked example, Customer Z (a refinery) transfers from Retailer A to Retailer B. Customer Z load has a historic peak demand of 20MW and causes Retailer A's load to vary by 22% and Retailer B's load to vary by 0.6%.
Retailer A can apply to the AER to adjust its net contract position, because it has lost a commercial and industrial customer with a peak load of less than 30MW and the impact on its load was greater than 1%.
Retailer B cannot apply to the AER to adjust its net contract position up, because the impact on its load was less than 1%.
T Date
SA and NSW forecast reliability gap periods commence.
New Entrant Contract Position Day
This is the day at which liable new entrants must have their contract positions in place for the reliability gap periods. The timing of this Day must be specified by the AER in the relevant T-1 Reliability Instrument, and must be on or after the first day of the reliability gap period.
RERT Dispatch
AEMO dispatches resources as it currently does, guided by the RERT principles, including minimising costs and market distortions in satisfying system requirements.
New Entrant Reporting Day
This is the last day for liable new entrants to submit to the AER their net contract positions for the SA and NSW reliability gap periods, as they were at the New Entrant Contract Position Day.
Note: the AER must set the timing of this date in the relevant T-1 Reliability Instrument. It must be more than 10 business days after the New Entrant Contract Position Day.
Actual Demand Data
During the reliability gap period, AEMO publishes adjusted actual demand data for each region, in close to real time.
For the purposes of this worked example, the NSW demand exceeds the one-in-two year forecast peak demand by 10% for one hour during the gap period and AEMO dispatches 60 MW of RERT contracted capacity.
The adjusted actual demand published by AEMO is defined as operational demand, adjusted for what would have been measured but for AEMO's intervention in the market. Adjustments will reflect AEMO directions, RERT contracts activated and load shedding (i.e., factors known to AEMO on a near real time basis). The Reliability Forecasting Guidelines will set out the methodology for these adjustments.
Compliance Assessment - Trading Intervals
AEMO identifies all trading intervals during the gap period for which system demand exceeded the one-in-two year forecast peak demand. In this case, this happened for 12 trading intervals in NSW (5 minute trading intervals) - these are the trading intervals for which compliance will be assessed. AEMO notifies the AER and publishes this notice on its website 5 business days later.
Note: example timeframes. The timing for AEMO to make this assessment and notify the AER will be set out in the AER's Reliability Compliance Guideline.
Compliance Assessment - Liable Entity Demand
Final revised settlement data is available, which allows AEMO to commence the process of calculating each liable entity's actual demand for all trading intervals that are subject to a compliance assessment by the AER which is scaled.
AEMO finalises its calculation of each liable entity's scaled actual demand and provides this to the AER for its compliance assessment.
Note: AEMO must provide this data to the AER by 40 weeks after the end of the reliability gap period.
Calculating liable entity demand
AEMO calculates liable entity demand based on the final revised settlement data.
To calculate each liable entity's scaled actual demand, AEMO will take into account demand response contracts activated by liable entities. This is to avoid double counting (i.e., the demand response contract counted in the liable entity's net contract position and actual demand reponse reducing their actual demand). These adjustments will be set out in AEMO's Guidelines.
Note: demand response not counted towards a liable entity's net contract position is not added back to demand but, rather, serves to reduce the liable entity's actual demand which compliance is assessed against.
Scaling liable entity demand
Each entity’s actual demand is scaled down by the proportion by which the actual system peak demand exceeds the one-in-two year peak demand forecast, which - in the case of this worked example - is 10%. Note that actual system peak would have been adjusted to reflect the 60MW of contracted RERT capacity dispatched by AEMO.
Assessment of net contract positions against demand
Once the AER has recieved each liable entity's scaled demand data from AEMO, the AER assesses it against the net contract position reports submitted by each liable entity.
The AER will notify liable entities if they have a compliance shortfall, and give them an opportunity to respond to the notice.
The AER Notifies AEMO of Compliance Shortfalls
Once the AER has completed its compliance assessment for all liable entities, it will provide any compliance shortfall amounts to AEMO for the purposes of the Procurer of Last Resort cost recovery mechanism.
Determining POLR Costs
There are three parts to the POLR cost recovery framework:
- Part 1: Determining the portion of RERT costs that may be collected under the POLR mechanism.
- Part 2: Determining how those costs are allocated to non-compliant liable entities.
- Part 3: Determining how the funds collected through the POLR mechanism are redistributed to market participants who bore the costs in the first instance.
Part 1: Apportioning POLR Costs
After the event, AEMO determines the total MW and dollars spent on RERT which relate to the trading intervals in the T-1 reliability instrument to calculate the subset of dollars attributable to POLR.
All costs, regardless of whether attributable to the POLR cost recovery mechanism or not, are initially socialised in accordance with RERT practices.
Part 1: Determining Non-compliant Entity Liability for Compliance Shortfall
Determining non-compliant entity liability for compliance shortfall will be based on RERT fixed and variable costs:
- Fixed costs – maximum MW shortfall in any trading interval over the gap period
- Variable costs – MW shortfall in each of the trading intervals in which variable costs were incurred
Part 1: Calculating RERT Fixed and Variable Costs Attributable to POLR
- The portion of fixed RERT costs which may be allocated under POLR cost recovery will be determined as the ratio (capped at 1) of the total MW reliability gap over total RERT MW procured over the gap period.
- The portion of variable RERT costs which may be allocated under POLR cost recovery will be determined for each 5 minute trading interval as the ratio (capped at 1) of the MW size of the reliability gap in that trading interval to the total RERT MW dispatched over that trading interval.
Part 1: POLR Cost Recovery Calculations
Identification of cap on RERT costs or ‘pool’ which may be apportioned among non-compliant entities:
Fixed (calculated once for full gap period)
If total MW procured is ≤ total MW reliability gap then all RERT fixed payments are assigned (no more than actual costs).
Variable (calculated on a trading interval by trading interval basis for those trading intervals in which variable costs are incurred)
If total MW dispatched is ≤ total MW reliability gap then all RERT variable payments are assigned (no more than actual costs)
Part 2: Allocating POLR Costs
Once the AER has notified AEMO of the compliance shortfalls of non-compliant liable entities, for the purposes of assigning an appropriate share of the fixed and variable costs attributable to POLR, AEMO recovers additional fees from non-compliant liable entities in accordance with the Rules and its procedures for recovery of fixed and variable POLR costs.
Part 2: Apportioning Fixed and Variable Costs to a Non-compliant Entity
Fixed cost apportion will be the lesser of:
- the ratio of its compliance shortfall to the sum of the compliance shortfalls of all non-compliant entities; and
- the ratio of its compliance shortfall to the reliability gap.
Variable cost apportion will be the lesser of:
- the ratio of its compliance shortfall in the trading interval in which variable costs were incurred to the sum of the compliance shortfalls of all non-compliant entities in the trading interval; and
- the ratio of its compliance shortfall in the trading interval in which variable costs were incurred to the reliability gap.
AEMO will assign all RERT contracts with a nominal MW value.
In the event of multi-regional POLR dispatch, existing RERT cost-sharing principles will apply.
Shortfall / charging methodology (NC = non-compliance):
Availability
Usage
POLR Cost Rebates
Once all additional fees for non-compliance are collected, AEMO rebates market customers which contributed to the initial socialisation of RERT costs based on their share of energy consumption during the gap period.