By Sarah Pick, Partner

Background to the FERM

The South Australian Department for Energy and Mining (DEM) introduced the concept of a ‘firm energy reliability mechanism’ (FERM) in November 2024 through its initial consultation phase to develop a framework to support sufficient long-duration firm capacity in South Australia.[1]

As described by DEM:

“The FERM aims to support both existing and new long-duration firm capacity providers through a combination of capacity commitments, tender processes, and long-term contracts.”[2]

South Australia remains at the forefront of Australia’s energy transformation, targeting net 100% of electricity from renewables by 2027, with its diverse portfolio consisting of distributed energy resources, wind farms, solar PV systems, gas and liquid fuels, utility-scale batteries and interconnection.[3] Renewable energy will continue to be the cornerstone of South Australia’s power system; however, “long-duration firm capacity will continue to be needed as a shock absorber for long periods where weather-dependent generation cannot provide adequate supply”.[4]

Consequently, through the National Electricity (South Australia) (Firm Energy Reliability and Orderly Exist Management) Regulations 2025 (SA) (FERM Regulations), DEM has introduced the FERM scheme as an important step in the next phase to achieving this target.

Scheme terminology and concepts

Before we get into the details of the FERM scheme, it is important to understand the following key terminology associated with the scheme.[5]

• Firm Energy Reliability Mechanism (FERM): The scheme established by the FERM Regulations in relation to the provision of long-duration dispatchable electricity capacity.
• Firm Energy Target (FET): A rolling 5-year firm energy target that prescribes the amount of firming capacity to manage risks to energy reliability in South Australia. The FET is prescribed in a declaration made by the Minister. The Minister has published the FET for the period 2026-27 to 2030-31, it can be found here.
• FERM Contract: A contract for the provision of long-duration dispatchable electricity capacity with a long-duration capacity provider (LDCP).
• FERM Fund: The fund established by the FERM Regulations which will consist of amongst other things, money paid by transmission network service providers (TNSPs) and LDCPs in accordance with the FERM Regulations.
• Long-duration capacity providers or LDCP: A person:
  • who is:
    • an ‘existing designated electricity entity’ capable of providing long-duration dispatchable electricity capacity; or
    • a ‘new designated electricity entity’ expected to be capable of providing long-duration dispatchable electricity capacity; and
  • who is recognised by the Minister from time to time as being an entity suitable to be a participant in the scheme after considering any criteria specified in the Minister’s guidelines.

Noting that:

• • An ‘existing designated electricity entity’ is a person who:
    • is registered by AEMO as a Generator or Integrated Resource Provider; or
    • falls within another category of Registered participants brought within the ambit of this definition by a determination made by the Minister.
  • A ‘new designated electricity entity’ means a person who:
    • is required or intends to be registered by AEMO as a Generator or Integrated Resource Provider (other than, for the purposes of this paragraph, an existing designated electricity entity); or
    • is recognised by the Minister as being equivalent to a new designated electricity entity on account of the substantial replacement of existing assets.
  • The Minister has recognised 15 existing designated electricity entities and has set out the criteria for new designated electricity entities in a ‘List of Long-Duration Capacity Providers’ published here.
• Long-duration dispatchable electricity capacity: Dispatchable electricity capacity with a minimum of 8 hours of continuous rated output[6] with at least 30MW capacity.[7]

Scheme entities and responsibilities

There are a few key scheme entities responsible for implementing and administering the scheme, including a some to be appointed by the Minister. These key scheme entities and their key responsibilities are summarised below.

• Minster for Energy and Mining
  • Sets and publishes the FET from time to time.
  • Appoints the Scheme Administrator(s) – The Minister has appointed AusEnergy Services Limited (ASL) as a Scheme Administrator.[8]
  • Appoints the Scheme Regulator(s) – The Minister has appointed the Essential Services Commission of South Australia as the Scheme Regulator.[9]
• Scheme Administrator(s)
  • Implements and administers the scheme.
  • Establishes and appoints the Scheme Financial Vehicle.
  • Develops scheme tender models, processes, systems and contractual documents and conducts tenders.
• Scheme Regulator(s)
  • Oversees the operation and performance of the scheme.
  • Oversees and monitor compliance with the provision of the scheme.
• Scheme Financial Vehicle
  • Administers the FERM Fund.
  • Enters FERM Contracts with LDCPs.
  • Monitors and enforces contractual performance and compliance by LDCPs in respect of FERM Contracts.

The Scheme Administrator, Scheme Regulator and Scheme Financial Vehicles also have several reporting and information provision obligations to ensure the Minister has high visibility over the operation of the FERM scheme.

Scheme processes to lock in capacity commitments

The purpose of the FERM scheme is to ensure that South Australia can meet its long-duration firm capacity requirements and achieve the FET through commitments from existing and new LDCPs.

There are two key processes that enable the FET to be met through capacity commitments:

• The Notice of Intention Process that is applicable to obligated existing LDCPs.
• The Contract Tender Process that is applicable to new LDCPs.

The Notice of Intention Process[10]

The Notice of Intention Process is initiated by the Minister through a direction to the Scheme Regulator to issue a ‘Notice of Intention’ (NOI) Request for a specific period (the ‘Commitment Period’) to existing LDCPs to require those entities to submit a NOI. An existing LDCP must set out in a NOI, the level of long-duration dispatchable electricity capacity that it intends to provide into the National Electricity Market during that Commitment Period.

An indication by an existing LDCP in an NOI to provide long-duration dispatchable electricity capacity at a specified level over a Commitment Period, is a ‘Capacity Commitment’[11] for the purposes of the scheme.

The Contract Tender Process[12]

The Minister may direct the Scheme Administrator to undertake a competitive tender process to assist in meeting the FET. LDCPs who meet any eligibility requirements specified by the Minister may participate in the tender process. Following the conclusion of a tender process, the Scheme Administrator may enter negotiations with any successful tenderer for the provision of long-duration dispatchable electricity capacity and consequently recommend to the Scheme Financial Vehicle that it enters into a FERM Contract with the successful tenderer.

Following a recommendation from the Scheme Administrator, the Scheme Financial Vehicle may enter a FERM Contract for the provision of long-duration dispatchable electricity capacity with the successful tenderer.

A commitment by a LDCP to provide long-duration dispatchable electricity capacity at a specified level under a FERM Contract, is also a ‘Capacity Commitment’[13] for the purposes of the scheme.

FERM scheme cost recovery

The scheme costs will be recovered from South Australian TNSPs, who will then pass on the costs to other market participants, who will then ultimately pass on those costs to energy consumers.

The Scheme Regulator will, before 1 March each year, in respect of the following regulatory year and each TNSP, make a ‘Contribution Determination’ of the amount of money (if any) that is to be:

• recovered from each TNSP for the relevant regulatory year via payment by the TNSP into the FERM Fund; and/or
• returned to each TNSP for the relevant regulatory year via payment from the Scheme Financial Vehicle from the FERM Fund,

which are ‘FERM Scheme Amounts’.[14]

It follows that, when a TNSP is determining prices for a regulatory year in accordance with the requirements in the National Electricity Rules, the TNSP must:

• where a Contribution Determination has required the TNSP to, pay a FERM Scheme Amount into the FERM Fund, recover that FERM Scheme Amount from Transmission Customers; and/or
• where a Contribution Determination has required the Scheme Financial Vehicle to pay a FERM Scheme Amount to the TNSP, return that FERM Scheme Amount to Transmission Customers.

The intention of this cost recovery process is to ensure that the scheme costs are distributed across all energy consumers, who are the ultimate beneficiaries of the scheme.

Commencement and Next Steps

The FERM Regulations commenced on 18 September 2025.

The Minister has published:

• a declaration prescribing the FET for the period 2026-27 to 2030-31, which can be found here
• guidelines that sets out the requirements for the NOI process, which can be found here; and
• a list of LDCPs recognised as suitable for participation in the FERM scheme, which can be found here.

The first tendering process is due to commence in Q4 2025 and the Scheme Administrator, ASL, has published a Market Brief in relation to Tender 1 which can be found here.

If you:

• are recognised by the Minister as an ‘existing designated electricity entity’; or
• meet the criteria for a ‘new designated electricity entity’ and are interested in participating in a tender,

then it is important to understand the regulatory and contractual requirements that will be implemented by the scheme.

Please reach out if you have any questions regarding the operation of, or participation in, the FERM scheme.

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[1] See information regarding Stage 1 of DEM’s consultation at  https://www.energymining.sa.gov.au/public-consultations/recent-consultations/firm-energy-reliability-mechanism-stage-one-consultation

[2] See https://www.energymining.sa.gov.au/industry/firm-energy-reliability-mechanism-ferm

[3] Page 13 of DEM’s Firm Energy Reliability Mechanism: Proposed Scheme Design Consultation Paper found at https://www.energymining.sa.gov.au/__data/assets/pdf_file/0016/1110364/Consultation_Paper_-_Firm_Energy_Reliability_Mechanism.pdf

[4] Page 15 of DEM’s Firm Energy Reliability Mechanism: Proposed Scheme Design Consultation Paper.

[5] See the relevant definitions in Regulation 4 of the FERM Regulations.

[6] Definition of ‘long-duration disputable electricity capacity’ in Regulation 4 of the FERM Regulations.

[7] Page 2 of Minster’s Guidelines Pursuant to Regulation 8(1)(a) of the Regulations (September 2025) found at https://www.energymining.sa.gov.au/industry/firm-energy-reliability-mechanism-ferm/Ministers-Guidelines-V1-September-2025-1.pdf.

[8] See https://www.energymining.sa.gov.au/industry/firm-energy-reliability-mechanism-ferm and https://asl.org.au/tenders/-/media/B4E89A0791E74E5C98202CC9610D94D5.ashx.

[9] See https://www.energymining.sa.gov.au/industry/firm-energy-reliability-mechanism-ferm.

[10] See regulation 22 of the FERM Regulations.

[11] Definition of ‘Capacity Commitment’ in regulation 4 of the FERM Regulations.

[12] See Regulation 24 of the FERM Regulations.

[13] Definition of ‘Capacity Commitment’ in regulation 4 of the FERM Regulations.

[14] See regulations 4 and 27 of the FERM Regulations.