No reservations: How does the electricity system ensure continuous supply?

Lack of reserve powerlines

Electricity is an essential part of modern life. When we switch on a light bulb, charge our phones, refrigerate our food or turn on the TV, we take it for granted that the energy we need will just be there. But how do we ensure there’s always enough power to meet demand?

Power systems around the world are built and operated with a certain level of reserve energy – a buffer to maintain power system security and stability. In Australia, it’s the role of the Australian Energy Market Operator (AEMO) to ensure this happens. 

AEMO collaborates closely with Commonwealth and State governments and a variety of energy industry stakeholders, including generators and transmission network providers, to ensure the National Electricity Market (NEM) can operate reliably, so electricity is supplied safely and securely to Australian homes and businesses all year round. 

AEMO sets pre-determined reserves in the NEM to ensure there’s capacity to provide a buffer, above the level of the forecast electricity demand and to cover the impact of the loss of the largest energy inputs into a region. To minimise the risk of draining these reserves and causing long-term outages, AEMO issues Lack of Reserve notices to encourage the market to respond by increasing supply and limiting demand. 

What causes Lack of Reserve conditions?

There are a number of processes and arrangements in place to ensure energy supply is adequate to meet the needs of consumers and maintain system strength and security. 

For example, AEMO publishes a Summer Readiness Plan each year that highlights the steps that have been taken to prepare the system for the risks that come with the season, including high temperatures and storms. 

But unplanned events can impact even the best-laid plans. Extreme weather, natural disasters, generation outages, faults on the transmission network and critical infrastructure maintenance can all lead to a depletion of electricity reserves, and an increased risk of Lack of Reserve conditions

What are Lack of Reserve notices? 

Lack of Reserve notices are AEMO’s messages to the market to address a supply and demand imbalance. They encourage more supply from generators and reduced demand from consumers – generally large industrial or commercial consumers, as opposed to households and small businesses. 

LOR notices can be issued for forecast or actual conditions. When the LOR is forecast, AEMO is predicting that at some future time, electricity reserves will be reduced. When the LOR is actual, it means reserves are running low now.

These notices are categorised in three tiers, depending on the conditions. 

LOR 1 

This type of notice is issued when electricity reserve levels fall below the two largest supply resources in a state. This notice simply encourages the market to assess availability and increase generation where possible – at this stage, there’s no impact to system security or reliability, and AEMO continues to monitor reserve levels to maintain adequate supply. 

LOR 2 

This type of notice is issued when electricity reserve levels fall below the single largest supply resource in a state. At this level, there’s still no impact to system security, but it signals an awareness that supply could be disrupted if a large incident were to occur. 

When an LOR 2 is issued, AEMO has the power to direct generators to increase supply, or to activate the Reliability & Emergency Reserve Trader (RERT) mechanism – more on that in a moment – to improve the supply-demand balance. 

LOR 3 

An LOR 3 is the most serious of the three notices. It signals a deficit in the supply/demand balance, which means the available electricity supply is equal to or lesser than the operational demand. This means there are no reserve supplies available. 

At this level, load shedding – the controlled reduction of electricity supply to parts of the power system – may be required as a last resort to protect system security. 

What happens if there still isn’t enough supply after Lack of Reserve notices are issued? 

If the response to the LOR notices doesn’t result in a sufficient buffer, AEMO can use its Reliability and Emergency Reserve Trader (RERT) function to oversee an Emergency Demand Response. 

This function is conferred on AEMO to maintain power system reliability and security in the event of an emergency, such as the loss of multiple generation or transmission assets. It enables AEMO to call on off-market supply reserves. 

In the event of an Emergency Demand Response, energy providers who have RERT agreements in place with AEMO will request their large energy users to lower or shift their energy use. They can do this by switching off energy-intensive equipment or changing their equipment operating hours, utilising on-site power generation, or using energy stored in batteries. Participating energy users are then compensated based on the volume of electricity usage they’re able to reduce during the Emergency Demand Response period. 

This type of event is rare, usually occurring less than six times a year. But with these mechanisms in place, you can rest assured that power system security and reliability is being maintained – and you can keep switching those lights on with confidence. 

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