Review of market frameworks for power system security

14 July 2016

New sources of electricity like wind and solar power are changing the way Australia’s power system works.

The Australian Energy Market Commission today announces a new review on whether wholesale energy market frameworks are suitable to complement increasing volumes of renewable energy and to maintain power system security as the industry transforms.

The System Security Market Frameworks Review will address the need for possible changes to market arrangements that lead to more efficient outcomes for energy consumers while delivering a secure operating system.

The impact of renewable energy on system security was highlighted in the AEMC’s Strategic Priorities for Market Development as an important focus in the coming years and this review has been initiated by the Commission to continue its work in this area.

Challenges in maintaining power system security are emerging because of the physics of maintaining technical generation parameters like voltage and grid frequency.

Conventional electricity generation, like hydro, coal and gas, operate with large spinning turbines that are synchronised to the frequency of the grid. These generators support the stability of the power system by working together to maintain a consistent operating frequency.

Less conventional forms of electricity generators, such as wind and rooftop solar, are not synchronised to the grid and are therefore limited in their ability to dampen rapid changes in frequency or respond to sudden large changes in electricity supply or consumption.

This review will provide recommendations to the COAG Energy Council with an interim report to the nation’s energy ministers due by the end of 2016.

The recommendations will address changes required to the regulatory framework to meet power system security challenges in the National Electricity Market caused by increasing levels of non-synchronous generation.

System security refers to maintaining the power system in a secure and safe operating state which is capable of managing the risk of major supply disruptions and to withstand transient faults.

It is different to system reliability which has a consumer focus and describes whether or not the power system has enough generation and network infrastructure to supply all consumer needs.

The AEMC today publishes the terms of reference for the AEMC system security review.

The Review will consider a range of technical issues including the minimum level of inertia required to effectively stabilise the power system, allowing it to cope with rapid changes in frequency due to significant movements in supply and demand. Other aspects include fast frequency response and localised impacts on fault levels within certain areas of the electricity grid. These are just some of the issues which need to be considered holistically.

The Commission has received a rule change request from AGL which relates to this review. AGL proposes a new ancillary services market for inertia as a way of addressing the potential reduction in inertia in the power system due to an increasing proportion of renewable energy which produces little, or no, inertia. This request will be progressed concurrently and in coordination with the Review.

We are also releasing the text of an agreement setting out a collaborative framework for the work of the AEMC and AEMO in relation to system security in the NEM. During the course of the AEMC review, each market agency will contribute expertise, within the scope of their respective roles, to address the technical, regulatory and market framework challenges that are related to system security.