The South Australian Government has moved to quickly implement the Firm Energy Reliability Mechanism (FERM) which recently commenced. The Minister for Energy and Mining (Minister) has already recognised eligible long duration capacity providers (LDCPs), made key regulatory appointments and published the first binding Guidelines. The Minister has also directed the first Notice of Intention (NOI) and competitive tender processes, collectively targeting 2,300MW of long duration capacity in the financial years 2026-27 to 2030-31.

FERM eligibility criteria for providers

To participate in the FERM, both existing and new providers need to be recognised by the Minister.

The Minister has published a list of 10 recognised existing LDCPs covering 15 existing generation sites. Existing LDCPs will generally participate through the NOI process rather than the competitive tender process. However, existing LDCPs who are planning a substantial replacement of existing assets and want to participate in the tender process can indicate this through the NOI process and seek to be recognised as a new LDCP.

The Minister has recognised new LDCPs as persons who:

• are required or intend to be registered with the Australian Energy Market Operator (AEMO) as a Generator or Integrated Resource Provider;
• will be capable of providing at least 30MW of dispatchable electricity capacity with a minimum of 8 hours of continuous rated output; and
• will be connected to the SA region of the National Electricity Market.

New LDCPs will generally participate through the competitive tender process.

NOI process for existing providers

The Essential Services Commission of South Australia (ESCOSA) has been appointed as a Scheme Regulator and will run the NOI process to verify the total capacity commitments from existing LDCPs. The intention is that the Australian Energy Regulator will also be appointed as a Scheme Regulator to oversee compliance with these commitments. Existing LDCPs that have already entered into a FERM contract are exempted from the NOI process during their contract term, however, other recognised existing LDCPs are required to participate.

The Guidelines provide formal guidance on how the NOI process will operate.  Each existing LDCP must formally declare its intentions for upcoming commitment periods by committing a certain capacity to remain available in South Australia, or by notifying of any plan to withdraw from the market during that period. The NOI process is currently being used to secure two one-year capacity commitments from existing LDCPs for 2028–29 as well as the 2029–30.

Existing LDCPs should be aware that failing to provide capacity to the level indicated in the NOI may attract civil penalties. In nominating their capacity level for the commitment period, existing LDCPs will need to consider whether to nominate their anticipated registered summer peak capacity or some alternative capacity. They will also need to consider whether to include other information relevant to their capacity commitment, such as potential outages, age-related de-ratings and other conditions that may affect capacity such as the weather. Although the Guidelines contemplate that exemptions from complying with a capacity commitment can be sought (and in some cases will be deemed to have been granted) for certain outages, existing LDCPs should still carefully consider the nature of the capacity commitment they provide through their NOI, particularly as that commitment will not be moderated through negotiated contractual terms in the way that capacity commitments provided through the tender process will be. 

Any existing LDCPs who indicate an intention to withdraw from the market will still need to comply with the closure requirements in the National Electricity Rules.

How new providers can join through competitive tender

AusEnergy Services Limited (ASL) has been appointed as the Scheme Administrator and will oversee the competitive tender process for new LDCPs. ASL performs a similar tender function under the NSW Energy Infrastructure Roadmap and the Commonwealth's Capacity Investment Scheme (CIS).

New LDCPs looking to add additional long duration capacity in South Australia are able to participate in the first tender. Registration for the tender will close on 21 November 2025, with bids to be submitted by 28 November 2025. The outcome of the tender is expected to be announced in March or April 2026.

The first tender is seeking 700 MW of long duration capacity to become operational over 2028–31, with over half of that to be operational from November 2028.

ASL has published Tender Guidelines outlining eligibility requirements and bid evaluation criteria for the tender, ensuring that only projects meeting the long-duration threshold and other scheme standards can compete.

The tender will be open to a range of technologies that meet the capacity, duration and location requirements, although coal and nuclear technologies will not be eligible. Among the other eligibility requirements is that proponents will have commenced the connection process with Electranet or SA Power Networks and will not receive certain other State or Commonwealth financial support, including under the CIS.

Project deliverability and timelines and the LDCP's organisational and financial capability will be key assessment criteria.  Bids will also be assessed on their financial value, taking into account forecast cost and potential cost exposure, as well as wholesale market and reliability benefits.

Successful proponents will enter a 15-year contract (FERMA) with a Financial Vehicle expected to be established by ASL. An indicative FERMA has been published on ASL's website, ASL intends to release an updated FERM with some limited changes before the end of October 2025. It is also subject to commercial departures proposed by LDCPs through the tender process, with an assessment of the nature and impact of those departures being a further bid assessment criterion.

The indicative FERMA outlines the proposed revenue model that underpins the financial assistance made available to new LDCPs through the FERM. This will see new LDCPs paid a capped annual amount by the Financial Vehicle when net revenue falls below a pre-agreed revenue floor. Conversely, LDCPs will make a capped upside payment to the Financial Vehicle in years where net revenue exceeds the revenue floor. The upside payment will allow revenue sharing between the LDCP and the Financial Vehicle. In calculating net revenue, costs associated with importing electricity by bidirectional facilities such as batteries will be a recognised permitted cost, however fuel costs incurred by conventional generators will be accounted for separately and based on a fuel price determination made by the Scheme Regulator. As the fuel price determination is not available at the time proponents are tendering, the Tender Guidelines describe particular characteristics that proponents should assume may be included in the determination once made.

ASL will be holding a webinar in the coming weeks to explain the bid assessment criteria and offer guidance on optimal bid preparation.

Again, new LDCPs should be aware that a failure to provide capacity in accordance with the FERMA may attract civil penalties.  In addition, these failures may result in contractual consequences for LDCPs, including a rebate payable to the Financial Vehicle, proportional to their shortfall.

New LDCPs who are not successful through the tender process can still elect to enter the market without financial support through the FERM. However once registered with AEMO, they may be recognised by the Minster as an existing LDCP and be subject to the NOI process in future years. That will also be the case for new LDCPs once their FERMA has come to an end.

Understanding the FERM’s market liquidity obligations

As foreshadowed in our initial update, the Department for Energy and Mining intends to consult further on the FERM's proposed market liquidity obligations (MLO) that can be applied to generators, retailers and other market customers.  The Tender Guidelines set out certain characteristics of the MLO that LDCPs should assume when participating in the tender. These include that the MLO may require that at least 20% of an entity’s capacity commitment must be offered through qualifying contracts over forward obligation periods that will vary depending on the projects expected COD. With the MLO not expected to be finalised until Q2 2026, the precise nature of these obligations may not be known at the time that FERMAs are entered into with new LDCPs (and certainly won't be known at the time existing LDCPs are providing their NOI). LDCPs will need to factor in these potential obligations when making decisions about the capacity commitments they are prepared to provide through the FERM.