Introducing an operating reserve directions paper

PIAC responded to the Australian Energy Market Commission’s (AEMC) directions paper on a rule change to introduce an operating reserve market.

PIAC considers new price signals are needed to ensure the availability of flexible generation, storage and demand side resources. Any capable provider should be eligible to participate in a flexibility market and receive ‘flexibility’ payments. The flexibility market should aim to incentivise new sources to enter the market where they would not have otherwise. It should not prioritise any particular provider, particularly not incumbent fossil generators which will become less common as the energy system transitions to zero-emissions.

Price signals are a preferred means to ensure the optimal mix of flexible generation, storage and demand side resources and should be pursued where net benefits justify their introduction. Adaptable prices are important for the long-term interest of consumers.  Adaptability should be built into the market design to avoid locking in prices that are above the value placed on them or recovered inefficiently.

PIAC strongly recommends the AEMC consider a managed trajectory of accelerated emissions reductions in line with limiting global warming to 1.5°C as a factor in assessing the merits of the reserve services proposals.