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The Retailer Reliability Obligation

Retailer Reliability Obligation

We take a closer look at exactly what the Retailer Reliability Obligation (RRO) is and what’s been happening since it came into effect in July 2019.

RRO Update

The Retailer Reliability Obligation (RRO) formally took effect on July 1 2019. Since then, the South Australian Minister for Energy and Mining has triggered the RRO in South Australia for certain periods during January to March 2022 and 2023.

For all other states in the NEM, this authority sits with AEMO which must identify a material reliability gap three years and three months out and apply to the Australian Energy Regulator (AER) to trigger the RRO.

What is the RRO and why has it been triggered?

In response to predictions of energy supply shortfalls in Australia over the next ten years, the RRO was established as a mechanism that endeavours to ensure a reliable supply when a shortfall is predicted. Originally conceived as part of the National Energy Guarantee, the RRO imposes new requirements on retailers and other large users to encourage investment in a minimum level of dispatchable electricity and demand response to help secure sufficient generation to meet the long-term demand requirements of the National Electricity Market.

The RRO has a stated aim of delivering the right level of dispatchable energy or ‘on-demand’ sources (coal, gas, pumped hydro and batteries) needed in each region of the NEM. A gap will be identified where the Australian Energy Market Operator (AEMO) forecasts that there is insufficient supply to meet peak demand requirements in future years.

In triggering the RRO in South Australia, the Minister must identify ‘gap periods’. Practically, this means a reasonable concern about the reliability of supply in South Australia where supply will not meet forecasted peak demand during the specified periods. The Minister has triggered a 15-month timeframe under the transitional arrangements of the legislation, rather than the usual 3 years ahead trigger.

When is the next key RRO event?

The next key event will be AEMO’s updated forecast of supply and demand, usually released in July or August each year.

If AEMO predicts similar gap periods in South Australia, electricity retailers will have until January 2021 to ensure they have sufficient wholesale contracts to cover their share of forecast peak demand.

If this occurs, there will be no action required by the vast majority of South Australian customers. Instead, their electricity retailer will be obliged to manage any resulting wholesale contract requirements to comply.

Do you need to comply with the RRO?

There will be steep penalties if entities fail to meet their obligations. Entities are electricity retailers or eligible large energy users who choose to opt-in. In addition to civil penalties, non-compliant entities will be subject to an additional proportion of the cost (capped at $100 million) of procuring additional capacity as a last resort, based on the non-compliant entity’s contribution to the gap. Those customers who don’t opt-in, however, will not face penalties.

Large users of energy may be able to opt-in to administer their own liability, either through procuring wholesale contracts or managing their own demand directly. However, the compliance burden comes with significant risk and ERM Power strongly advises customers to seek advice on the hazards and benefits of autonomous management. For customers who are not opting in, the complex management of the compliance will be left to their retailer who will need to prepare well before projecting demand and any forecast shortfalls.

For contracts entered into before the RRO was triggered, retailers will likely pass through to customers any additional costs of compliance with the RRO.

 

If you have any questions, speak to your account manager, otherwise get in touch with us.