WA Reserve Capacity Mechanism review for commercial sites
The Reserve Capacity Mechanism is the WEM's way of making sure enough generation is available at peak demand. The current review is restructuring how that standby capacity is procured and how the cost is recovered. The direction is one way.
The market that pays for capacity, not energy.
The WEM has two markets running in parallel. The energy market pays generators for the electricity they actually produce. The Reserve Capacity Mechanism pays generators, batteries, and demand-response providers for being available to produce or reduce load on the hottest, highest-demand day of the year, whether they end up running on that day or not.
The RCM exists because energy markets alone don't pay enough to keep enough generation available for the rare extreme peaks. Without a separate payment for standby, generators that only run a few days a year would close. When the next heatwave arrived, there wouldn't be enough capacity to meet it.
Every load customer in the WEM, including every commercial site, pays a share of the RCM cost. That share flows through to the bill via the Individual Reserve Capacity Requirement.
A capacity requirement and a capacity price.
The annual RCM cost comes from two inputs. The first is the capacity requirement, which is AEMO's assessment of how much generation and demand-response the system needs to have available to meet forecast peak demand with adequate reliability. The second is the capacity price, which is set through the Reserve Capacity Mechanism's pricing arrangements and reflects what the market needs to pay to procure that capacity.
Multiply the two and you have the total annual RCM cost that gets allocated across all load customers in proportion to their IRCR. Each component of that calculation is currently moving.
The capacity requirement is rising as new load enters the system (data centres, electrification, transport). The capacity price is rising as ageing generation retires and new capacity costs more to build than what's leaving. The combined effect on the total RCM cost is upward, and it's compounding across review cycles.
Four moves in the current RCM review.
How much, from whom, on what terms.
The review covers how AEMO determines the capacity requirement, which technologies are eligible to provide it, and how long the contracts run. The direction is toward broader participation but higher overall procurement volumes.
What the market pays per unit.
The pricing structure is being examined to ensure new capacity can clear the cost of being built. The practical effect is upward pressure on the capacity price each year.
Sites that can reduce load earn for it.
Commercial sites with the ability to reduce demand during peak events are increasingly able to participate as capacity providers rather than only paying for capacity. This is one of the few lines in the reform that pays load customers rather than charging them.
How the bill flows through to sites.
The methodology that allocates RCM cost to individual sites via IRCR is being reformed in parallel. See the IRCR reform explainer for that side of the change.
More cost flowing through. More ways to manage it.
The RCM review pushes the cost of standby capacity upward in absolute terms. That cost flows through to commercial bills via the IRCR allocation, which is itself becoming sharper in how it identifies each site's contribution to peak.
For most commercial sites, the result is straightforward. Without active management, the capacity charge on the bill goes up. With active management, it goes up less, or in some cases down.
For sites with material flexibility, on-site generation, or storage, the reform also opens up a participation path. Capacity provided to the system, rather than only consumed from it, becomes a revenue line. That's a separate conversation to capacity charge reduction, and it stacks on top.
Two responses on the same site.
Active management responds to the RCM reform on two fronts.
First, it reduces the site's contribution to system peak windows, which reduces the IRCR allocation and the capacity charge. This is the structural response that applies to every commercial site with any flexibility on its load profile.
Second, where the site has eligible assets and meets the threshold requirements, it participates as a capacity provider. Batteries, demand-response, and behind-the-meter generation can be accredited under the RCM and earn for providing standby capacity to the system. This is the upside response that applies to a smaller subset of sites today, and a larger subset over time as the reform broadens participation.
What operators ask about the RCM.
Find out where the RCM is hitting your site.
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