The Reserve Capacity mechanism is intended to ensure that the South West Interconnected System 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.
The Australian Energy Market Operator (AEMO) administers the Reserve Capacity mechanism.
A Benchmark Reserve Capacity Price is set for each Capacity Year and determines the expected cost of new entrant peaking plant and other costs required to establish plant capable of supplying electricity to the South West Interconnected System.
From 1 July 2021, the ERA must determine the value of the Benchmark Reserve Capacity Price consistent with the method specified in the Wholesale Electricity Market rules. This includes public consultation on the proposed value before the ERA determines the Benchmark Reserve Capacity Price to apply in the capacity year.