The Reserve Capacity mechanism is intended to ensure that the South West Interconnected System (
SWIS) has adequate installed capacity available from generators and demand-side management options at all times in order to:
- Cover expected system peak demand including additional capacity to cover the failure of the largest generator on the system and a capability to respond to frequency variations.
- Remove the need for high and volatile energy prices in the wholesale electricity market (WEM).
The Independent Market Operator (IMO) administers the Reserve Capacity mechanism.
If there is insufficient Certified Reserve Capacity to fully cover the total Reserve Capacity Requirement in a future Capacity Year, the WEM Rules (clause 4.1.16) require a Reserve Capacity Auction to be held to secure additional Certified Reserve Capacity.
A Maximum Reserve Capacity Price (MRCP) is set for each Capacity Year (clause 4.16.1) and determines the expected cost of new entrant peaking plant and other costs required to establish plant capable of supplying electricity to the SWIS (clause 4.16.4). MRCP has the following price setting functions in the WEM:
- MRCP is the maximum offer price to apply for the Capacity Year for which a Reserve Capacity auction is being held (clause 4.18.2.(b))
- MRCP is scaled down by the IMO when there is more Certified Reserve Capacity than required in a particular Capacity Year (clause 4.29.1).
Clause 2.26.1 of the WEM Rules requires the Authority to review a report provided by the IMO that proposes a revised value of MRCP. In approving the value submitted by the IMO, the Authority is only required to consider if the revised value reasonably reflects methodology specified in clause 4.16 of the WEM Rules and whether an adequate public consultation process has been conducted.
Clause 2.26.3 of the WEM Rules requires the Authority to conduct a review of the methodology specified by clause 4.16 of the WEM Rules on each fifth anniversary of the first Reserve Capacity Cycle.
Notices
