The Retailer Reliability Obligation

Retailer Reliability Obligation image

After more than a year of consultation, the Retailer Reliability Obligation (RRO) is set to formally take effect from 1 July 2019.

In response to predictions of energy supply shortfalls in Australia over the next ten years, the Energy Security Board (ESB) has been working to deliver a mechanism that ensures a reliable supply through the RRO framework. Originally conceived as part of the National Energy Guarantee, the RRO will impose new requirements on retailers and other large users to encourage investment in a minimum level of dispatchable electricity and demand response to help guarantee there is sufficient generation to meet the long-term demand requirements of the National Electricity Market.

The RRO aims to deliver the right level of dispatchable energy or ‘on demand’ sources (coal, gas, pumped hydro and batteries) needed in each state. 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.

AEMO will need to seek approval from the Australian Energy Regulator to trigger the obligations around an identified gap. While the vast majority of retailers already enter into hedging contracts to manage wholesale energy price volatility, the RRO will require retailers to hold sufficient wholesale contracts to meet their share of system peak demand where there is an identified reliability gap.

There will be steep penalties if entities fail to meet their obligations when a reliability gap is triggered. In addition to penalties, non-compliant entities will be subject to an additional proportion of the cost (capped to $100 million) incurred by AEMO procuring additional capacity as a last resort, based on the non-compliant entity’s contribution to the gap.

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.

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