South Australia's Firm Energy Reliability Mechanism (FERM) has commenced, marking a significant step forward in the State’s energy transition strategy. The FERM is designed to ensure the ongoing availability of sufficient long-duration dispatchable electricity capacity through a combination of capacity commitments, targeted financial support and contracting obligations.
Further detail on the FERM will be set out in binding Ministerial guidelines expected in the coming weeks. With the initial competitive tender likely soon after, this article outlines who can participate and how, and updates you on anticipated reliability and market liquidity obligations.
Recognised long-duration capacity providers
As expected, the FERM will apply to long-duration capacity providers. These are generally persons that:
- are registered with the Australian Energy Market Operator (AEMO) as a Generator or Integrated Resource Provider (existing designated electricity entities) or who are required or intend to be so registered (new designated electricity entities);
- are capable of providing dispatchable electricity capacity with a minimum of 8 hours of continuous rated output; and
- are recognised by the Minister for Energy and Mining (Minister) as being suited to participating in the FERM.
Notably, in their final form, the regulations expand the range of new designated electricity entities to capture persons who the Minister recognises as being equivalent to a new designated electricity entity on account of the substantial replacement of existing assets. This potentially broadens the entities that can participate in the FERM competitive tender process.
A list of recognised entities (long-duration capacity providers) is expected to be made available by the Department for Energy and Mining (Department) shortly.
Participation pathways
There are several participation pathways for both existing and new providers. Existing providers will generally be subject to the Notice of Intention (NOI) process, while new providers will have the opportunity to participate through the competitive tender process run by the Scheme Administrator.
In addition, the Minister has transitional powers to enter into FERM contracts with both new and existing providers until 31 December 2026. This provides a potential opportunity for providers to secure a FERM contract outside the regular competitive tender process.
Initial competitive tender
The Department intends to launch the first competitive tender promptly after the FERM's Scheme Administrator is appointed in the coming weeks.
The Department anticipates the first tender will target new providers with commercial operation dates of November 2028, November 2029 and November 2031.
Reliability and liquidity obligations
As foreshadowed by the draft regulations, the FERM enables certain contracting obligations (reliability and market liquidity obligations) to be imposed on existing providers, new providers with a FERM contract and Market Customers.
Importantly, these obligations are not automatic. They will only apply if Ministerial guidelines specify the contracting activities that affected entities must undertake.
The Department has indicated it will undertake further consultation on these obligations over Q4 2025 and Q1 2026. This will give stakeholders a further opportunity to have their say about whether these obligations should be imposed and, if so, what form they should take.
In its report on the outcomes of the most recent consultation, the Department has indicated that the Ministerial guidelines are expected to explain how the FERM's reliability and market liquidity obligations may interact with the existing Retailer Reliability Obligations and the Nelson Review's proposed Market Maker Obligations.
