Regulation Impact Statement Updates

Official website for publishing regulatory impact analysis information for regulatory decisions announced by the Australian Government, COAG and COAG Councils.

Application of the Regional Reference Node Test to the Reliability and Emergency Reserve Trader

COAG
25th September 2019

COAG Consultation Regulation Impact Statement – Australian Energy Market Commission

On 15 August 2019, the Australian Energy Market Commission (AEMC) released the draft rule determination for the National Electricity Amendment (Application of the Regional Reference Node Test to the Reliability and Emergency Reserve Trader) Rule 2019 (draft determination) to create transparency, predictability and consistency for the market, and remove as far as possible the need for Australian Energy Market Operator (AEMO) to exercise discretion in determining how to apply the test. The AEMC has also released the corresponding Draft National Electricity Amendment (Application of the Regional Reference Node Test to the Reliability and Emergency Reserve Trader) Rule 2019 for consultation.

The Commission's draft rule:

  • Extends the application of the RRN test to the RERT, as proposed by AEMO. This creates consistency in how intervention pricing is applied as between directions and the RERT and avoids imposing higher than necessary prices on consumers in cases where there is no economic rationale for the use of intervention pricing in connection with the RERT.
  • Clarifies that intervention pricing should apply where an intervention responds to a region wide scarcity of a market traded commodity (i.e. energy or a market ancillary service, noting FCAS is currently the only market ancillary service, or a direct substitute for those services - e.g. reducing generation output to reduce the amount of FCAS required in a region). With the exception of FCAS, a market traded commodity does not include system security services (e.g. system strength or voltage control) as there is no spot market for such services.
  • Clarifies the circumstances in which a localised deficiency of a market traded commodity should trigger intervention pricing. Consistent with the intent underpinning the current test, the more preferable draft rule makes clear that intervention pricing should not apply where the intervention responds to a localised deficiency of a market traded commodity in a part of the network which effectively (due to a network or other constraint) does not include the RRN. However, where a localised deficiency of a market traded commodity occurs in a part of the network that includes the RRN, intervention pricing should apply. This is appropriate as it is important to preserve scarcity signals where scarcity occurs in a part of the network that contains the major load centre.
  • Clarifies that intervention pricing should not apply in circumstances where the reason for the intervention is to obtain a service that is not traded in the market (for example system strength, inertia, voltage control), even if the provision of that service results in the provision of energy or market ancillary services as a by-product. This reflects the Commission's view that there is no economic rationale for applying intervention pricing in connection with interventions to obtain a non-market traded commodity because there is no relevant price signal to preserve. The use of intervention pricing in such circumstances can cause rather than reduce market distortion.
  • Clarifies the approach to be adopted when multiple intervention events coincide. The more preferable draft rule brings the wording of the test into line with the approach adopted by AEMO under its Intervention pricing methodology (an approach with which the Commission agrees) and clarifies, where multiple interventions coincide, which interventions should influence the intervention price and which should not.

The draft determination has been assessed by the Office of Best Practice Regulation as compliant with requirements for a Council of Australian Governments Consultation RIS.

Submissions are invited by close of business, 26 September 2019. More information on the consultation process, including how to make a submission, can be found here.

Please note: the draft determination is web accessible in PDF only and any accessibility queries should be directed to the Australian Energy Market Commission.

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