Statement on AEMO multi-year contracts for reserve power in Victoria

The state government’s bid to allow multi-year contracts for reserve power in Victoria would help 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,” says Dan Cass, Energy and Policy Lead at The Australia Institute.

“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).

“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.”

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