Emergency reserves critical to managing a power system in transition

3 min

The Australian Energy Market Operator (AEMO) has published an event report on the load shedding events that occurred during concurrent heatwaves in South Australia and Victoria in January 2019.

AEMO has today published an event report on the load shedding events that occurred during concurrent heatwaves in South Australia and Victoria on Thursday 24 January 2019 and in Victoria on Friday 25 January 2019. The report also covers the activation of contracted reserves in Victoria and South Australia under the Reliability and Emergency Reserve Trader (RERT) mechanism, which minimised the amount of customer disruption needed to balance the national electricity system.

Prior to summer 2018/19, AEMO identified a heightened risk of involuntary load shedding in Victoria and South Australia should the power system experience an extreme weather day coinciding with significantly reduced availability of market generation. AEMO worked diligently to establish a pool of potential RERT providers under the Market Rules that could offer reserves on various notice periods, and secured all resources offered in Victoria and South Australia that met the required cost, technical and verification criteria. 

Victoria and South Australia experienced record-breaking temperatures on 24 and 25 January, coinciding with the loss of up to 1,600 megawatts (MW) of available thermal generation resources. Despite AEMO activating available RERT resources on both days, load shedding was required to manage system security, notably impacting more than 200,000 Victorian consumers across two hours on 25 January. 

AEMO’s analysis found that more than double the amount of Victorian consumers may have been impacted without the activation of RERT, with this important reserve mechanism also mitigating the risk of loss of supply to South Australian consumers.

The cost of RERT services activated for summer 2018/19 equated to about $10,000/MWh (megawatt hours), which is below the $14,500/MWh electricity trading market price cap. Without activation of the RERT, AEMO estimates a further 1,252 MWh of load would have been required to be shed. Applying the 2019 Value of Customer Reliability* of $41,534 per MWh, the cost of the load shedding avoided by using RERT is estimated at $52 million.

The RERT costs for the 2018/19 year represent an amount per average residential consumer of around $3.20 in Victoria, and $0.80 in South Australia, based on standard energy tariffs and usage of a typical energy customer in 2018. Using average commercial and industrial energy usage rates for the 2018 calendar year, the cost of RERT would equate to an annual approximation of $0.79 per MWh in Victoria and $0.16 per MWh in South Australia. AEMO does not decide and is not involved in how retailers recover these costs from their customers.**

AEMO has commenced planning for the summer ahead, and continues to work closely with the Energy Security Board, fellow Market Bodies, government and industry on important industry reforms. 

*About the Value of Customer Reliability

A Value of Customer Reliability (VCR) measure, represented in dollars per kilowatt-hour, indicates the value different types of customers place on having reliable electricity supplies under different conditions. For example, an industrial customer whose processes rely on uninterrupted power supply may place a higher value on the reliability of electricity supply than another type of business whose processes are more tolerant of electricity supply interruptions.

A VCR is an important factor in evaluating cost-effective ways to build or upgrade infrastructure, and is used in electricity infrastructure planning and investment decision-making to ultimately benefit electricity customers. In Victoria, VCRs are a mandatory feature of infrastructure planning assessments. Understanding how customers value power supply reliability is an important input into efficient infrastructure investment decision-making over the longer term.

**Reliability and Emergency Reserve Trader costs

Residential customers pay tariffs which are built up from retailer’s estimates of future costs so there is no clear link between RERT costs and tariffs paid. Commercial and industrial customers typically pay pass through costs. The costs of RERT to commercial and industrial customers is provided as a typical guide only. Actual costs billed by retailers may vary significantly based on a number of factors including individual rates, consumption profiles and contractual terms.



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