Reliability standard and settings review 2018

Market Review: Completed

Overview

On 30 April 2018 the Reliability Panel published a final report for its four yearly "check in" of the reliability standard and settings in the national electricity market. The standard and settings support efficient generation and operational decisions and provide an important ‘"price envelope" protecting market participants from exposure to excessive high prices. This is essential to maintaining the integrity of the market.

On 30 April 2018 the Reliability Panel published a final report for its four yearly "check in" of the reliability standard and settings in the national electricity market. The standard and settings support efficient generation and operational decisions and provide an important "price envelope" protecting market participants from exposure to excessive high and low prices. This is essential to maintaining the integrity of the market.

The Panel recommended that the reliability standard and settings for the national electricity market (NEM) remain unchanged for the period from 1 July 2020 to 1 July 2024:

Component and purpose	Current level and recommended level from 1 July 2020
Reliability standard Expresses the level of reliability sought from the NEM’s generation and transmission inter-connector assets.	A maximum expected unserved energy in a region of 0.002 per cent of the total energy demanded in that region for a given financial year.
Market price cap Seeks to maintain the overall integrity of the NEM by limiting market participants’ exposure to temporary high prices which could threaten the financial viability of prudent market participants. The market price cap should be set at a level such that prices over the long term incentivise enough new investment in generation so the reliability standard is expected to be met. The market price cap is the maximum bid (and therefore settlement) price that can apply in the wholesale market.	$14,200/MWh ($2017)
Cumulative price threshold Seeks to maintain the overall integrity of the NEM by limiting market participants’ exposure to sustained high prices which could threaten the financial viability of prudent market participants. The cumulative price cap should be set at a level such that prices over the long term incentivise enough new investment in generation so the reliability standard is expected to be met. The cumulative price threshold caps the total market price that can occur over seven consecutive days.	$212,800 ($2017)
Administered price cap Seeks to maintain the overall integrity of the NEM by limiting market participants' financial exposure to sustained high prices, while maintaining incentives for participants to supply energy during the period of trading after the cumulative price threshold is exceeded, i.e. an administered price period. The administered price cap is the price ‘cap’ that applies when the cumulative price threshold is exceeded.	$300/MWh
Market floor price Prevents market instability by imposing a negative limit on the total potential volatility of market prices in any trading interval, while allowing the market to clear during low demand periods. The market floor price should be set at a level that does not interfere with generators being able to differentiate themselves according to the value they place on being dispatched by bidding at negative prices during periods of excess generation.	-$1,000/MWh

The reliability standard and settings focus on the future performance of the NEM. Their purpose is to:

Establish the level of reliability consumers can expect from key aspects of the physical system (generators and interconnectors), by setting the reliability standard.
Protect the long term integrity of the market by limiting the extent to which wholesale prices can rise and fall, to limit market participants’ exposure to prices that could threaten the financial viability of a prudent market participant.
Allow for sufficient investment to provide electricity to the agreed reliability standard.

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