Australia: Retailer Reliability Obligation


The National Electricity Law and the National Electricity Rules have undergone a suite of changes to introduce the Retailer Reliability Obligation (RRO). This is in response to the influx of intermittent renewables, potentially affecting the reliability of supply, in the National Electricity Market (NEM).

The changes bring into existence the reliability limb of the infamous National Energy Guarantee or "NEG". The emissions reduction limb of the NEG was shelved by the Coalition Government.

Under the RRO, where reliability deficits are identified by the Australian Energy Market Operator (AEMO), additional responsibility and liability may be imposed on electricity retailers and other major energy users to implement 'firming' to cover their share of expected peak electricity demand. A focus on firming creates incentives to invest in the right technologies in the right regions.

We set out a high level summary of these changes and the associated mechanisms for their implementation below.

Background to the Retailer Reliability Obligation

Predicted shortfalls in electricity generation over the next 10 years are expected to impact the reliability of supply in the NEM.

To address this issue, the Council of Australian Governments (COAG) tasked the Energy Security Board (ESB) with creating a mechanism to assist in the maintenance of reliability in the NEM to ensure that the power system has sufficient generation, demand response, and network capacity to supply customers with the energy that they require.

To this end, the RRO was developed to encourage investment in dispatchable electricity generation in regions of the NEM that are expected to experience a gap between generation and peak forecast demand. The RRO is designed to be a long-term solution to ensuring the electricity system operates to reliably meet electricity demand at the lowest cost.

Implementation of the Retailer Reliability Obligation

On 23 May 2019, the National Electricity (South Australia) (Retailer Reliability Obligation) Amendment Act 2019 (SA) (NEL Amendment) was assented to, effectively establishing the framework for the RRO through amendments to the National Electricity Law (NEL). This amendment came into operation on 1 July 2019.

The NEL Amendment provides that further regulatory requirements related to the RRO be set out in the National Electricity Rules (NER). The final rules came into operation on 1 July 2019.

The Australian Energy Regulator (AER) is due to publish a number of supporting interim and final guidelines throughout the course of 2019 and 2020.

Operation of the Retailer Reliability Obligation

Broadly, the RRO will be triggered if a generation gap is forecast by AEMO. If the RRO is triggered, 'liable entities' may or will (depending on how imminent the forecast gap is) be required to demonstrate that they can meet their share of peak demand.

This section provides some further information on each stage of the RRO process.

Figure 1: Overview of the Retailer Reliability Obligation

AEMO publishes annual Reliability Forecast in which it identifies a material reliability gap at T-3 or T-1

AEMO requests the AER to issue a reliability instrument

AER issues a reliability instrument, triggering the Retailer Reliability Obligation

If the obligation is triggered at T-3, liable entities may be required to demonstrate future compliance by entering into sufficient 'qualifying contracts'

If the obligation is triggered at T-1, liable entities will be required to disclose their net contract positions for the gap period to the AER

AEMO will use the RERT mechanism to address the remaining gap

AEMO Reliability Forecast

A key component of the RRO is the determination of whether there are forecast reliability gaps in the future. The new rules require AEMO to include a 'Reliability Forecast' in its annual Electricity Statement of Opportunities (ESOO) setting out the reliability forecasts for a 10 year period (the last five years of which are only required to be indicative in nature).

The AEMO will also be allowed to update the Reliability Forecast out of its regular annual cycle in the event of material changes to the assumptions made in the ESOO.

To facilitate the preparation of the Reliability Forecast, the new rules enable the AEMO to request information that it reasonably requires for the preparation of the ESOO and any updates to the ESOO. The type of information that may be requested is broader than the previous requirements. However, it is unclear at this stage whether this information gathering power will be limited to any real degree, as it is subject to the AEMO's Reliability Forecast Guidelines, which have not yet been finalised.

Triggering the Retailer Reliability Obligation

If the AEMO identifies a 'material reliability gap' from the reliability standards three years from the period in which it is forecast to occur (T-3), it must request that the Australian Energy Regulator (AER) publish a reliability instrument. A reliability gap will be considered 'material' if the forecast exceeds the reliability standard.

If, one year out from a forecast material gap, an expected material reliability gap remains (T-1), the AEMO must again request that the AER issue a reliability instrument.

The RRO will be triggered if the AER determines the AEMO's assessment was appropriate and issues a reliability instrument. However, the AER is entitled to reject an AEMO request if it is not satisfied that a forecast reliability gap will occur in the region identified by the AEMO.

In considering whether or not it is appropriate to make a reliability instrument, the AER must have regard to whether or not there are material errors in the AEMO's calculation or input data that relate to the reliability forecast. The interim Reliability Instrument Guidelines published by the AER on 31 July 2019 state that the process the AER will use will be a combination of internal and external data validation methods.

The AER must also have regard to whether or not the AEMO has made any inaccurate assumptions that underpin its forecast data and which have had a material impact on unserved energy outcomes in the reliability forecast. The AER's interim Reliability Instrument Guidelines also note that the AEMO's assumptions will undergo a verification and checking process.

Liable Entities

The purpose of triggering the RRO is to put liable entities on notice that they must assess their likely share of system peak demand and secure qualifying contracts to cover this.

Liable entities include each entity registered by the AEMO as a market customer under the NER where its annual energy consumption is more than 10 GWh. This will capture retailers, as well as major parties that purchase electricity directly from the NEM.

Large customers may also choose to 'opt-in' to the RRO to manage the obligation associated with their load more efficiently than their retailer. The NEL Amendment and the new rules set out the conditions under which large customers, who are not otherwise liable entities, may elect to 'opt-in' to manage their obligations directly.

New entrants that enter the market in the final year before the beginning of the gap period will also be liable if their annual consumption is more than 10 GWh.

Responsibilities once the Retailer Reliability Obligation is triggered

If the RRO is triggered at T-3, liable entities may be required to demonstrate future compliance by entering into sufficient 'qualifying contracts' to cover their share of forecast one-in-two year peak demand during the gap.

If the AER confirms a material reliability gap remains, and so issues a T-1 reliability instrument for a region, liable entities will be required to disclose their net contract positions for the reliability gap positions to the AER.

The net contract position for an entity is calculated by adjusting the megawatts of electricity under a liable entity's qualifying contracts (defined below) to determine the relative 'firmness' of each contract. The firmness of a qualifying contract is a measure of the extent to which it reduces the exposure of a liable entity to the volatility of the spot price in a region during the gap period.

The AER will publish a default methodology for calculating firmness for standard contracts. The new rules also include a mechanism to allow entities to use a bespoke methodology. These entities will be able to engage an independent auditor from a pre-approved panel to determine the 'firmness factor' for a contract where a default methodology does not apply.

Qualifying Contracts

Only certain types of contracts will count as qualifying contracts for the purposes of demonstrating compliance with the RRO. Under the NEL Amendment, qualifying contracts must be:

  • directly related to the purchase or sale, or price for the purchase or sale, of electricity from the wholesale exchange during the stated period; and
  • entered into voluntarily by the liable entity to manage its exposure in relation to the volatility of the spot price.

The NEL Amendment also facilitates other forms of qualifying contracts to be provided for in the NER. Currently, no additional criteria have been provided for in the NER. However, a further mechanism has been included in the NEL Amendment enabling the AER to decide what is a 'qualifying contract' through the Contracts and Firmness Guideline. This guideline is due to be released on 31 December 2020.

Market Liquidity Obligation

There is a separate 'Market Liquidity Obligation' that will operate between T-3 and T-1 when the RRO is triggered in a region. Obligated participants (generators of a particular size in their region) will be required to post bids and offers, with a maximum spread, for standardised products that would cover the period of the gap.


The AEMO may commence procurement of emergency reserves at T-1 through the Reliability and Emergency Reserve Trade (RERT) framework to address any remaining gap, with costs to be recovered through the Procurer of Last Resort (PoLR) cost recovery mechanism.

The AER will assess the net contract positions submitted by liable entities and confirm if the level of contract coverage was adequate to meet their obligation.

A liable entity found to be under-contracted will be charged a cost based on its proportionate contribution to the PoLR costs, which is capped at $100 million.

Timing and next steps

While the RRO is in effect, and liable entities should be looking into the firmness of their portfolio, it kicks off in earnest next year (2020), following the introduction of the PoLR regime. The AER is due to publish a number of supporting interim and final guidelines throughout the course of 2019 and 2020.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions