Submission to AEMC Review of the form of the reliability standard and administered price cap

PIAC provided a response to the AEMC Reliability Panel’s review of the reliability standard and APC.

Reliability changes as we move from a thermal energy-based system to a variable energy-based one. Reliability events become less predictable, and a new issue arises in the ‘nameplate’ capacity (the maximum a generator says it can produce) of a variable generator, such as a wind farm, possibly being higher than the generator can actually produce on any given day.  

We agree with the Reliability Panel that there is a need to focus on ‘tail risks’ – risks that have a low probability of occurring, but potentially have a high impact when they do. We agree that we need to introduce a new metric alongside the reliability standard to capture tail risks effectively. 

We argue that whatever form the reliability standard takes, it should reflect consumer preference. That is, it should balance the expected cost of outages with the amount consumers are willing to pay to avoid those costs.

This requires direct engagement with consumers.

It also requires regulators to treat the reliability standard as (a) a target, rather than a limit, and (b) just one tool among many in the reliability regime, rather than the be all and end all when it comes to delivering reliability outcomes.

Finally, we would like to see the APC returned to its well-established level of $300/KWh, where it can do its job of protecting energy consumers from extreme price volatility.