Market Review: Open

Overview

The AEMC is reviewing the interventions framework in light of the growing number of directions being issued by AEMO to maintain system strength. This investigation is also considering the experience to date with the current framework for managing system strength, and whether any refinements are warranted to that framework to support system security in the most efficient manner possible.
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The AEMC is reviewing the interventions framework in light of the growing number of directions being issued by AEMO to maintain system strength. This investigation is also considering the experience to date with the current framework for managing system strength, and whether any refinements are warranted to that framework to support system security in the most efficient manner possible.

The transformation of the electricity sector is presenting both opportunities and challenges for system security, including for the management of power system strength. A growing number of directions are being issued by AEMO to synchronous generators in South Australia to maintain adequate system strength. When AEMO intervenes in the market in this way, it is required to compensate both market participants who were directed, and also those that were affected by the direction. 

At these times, AEMO also implements ‘intervention pricing’, a practice designed to minimise market distortion by preserving the price signals the market would have sent but for the intervention in the market. The increased use of directions and intervention pricing in South Australia has important implications for wholesale electricity prices, both in South Australia and across the national electricity market. This affects market signals to investors, and the energy and compensation costs faced by consumers.

In its final report of the Reliability Frameworks Review in July 2018, the Commission recommended that the appropriateness of the interventions framework, and the cost implications of the compensation framework associated with it, be reviewed in light of the increased use of interventions. 

The Commission considers it necessary to review the interventions framework in light of not only the recent use of the reliability and emergency reserve trader (RERT) but importantly because of the growing number of directions that are being issued by AEMO to maintain minimum levels of system strength in South Australia. 

The number of directions issued has risen significantly over the last two years, including since the Commission finished its Reliability Frameworks Review. While the intervention framework provides an important stop gap, it is not without costs and is not intended to be used to provide ongoing maintenance of power system security. 

Consultation paper

On 4 April 2019 the Commission published a consultation paper which actions the recommendation set out in the Reliability Frameworks Review.  It also commences consultation on two rule change requests submitted by AEMO which seek to amend the interventions framework and compensation framework in relation to:

These rule change requests are being progressed as part of this wider investigation as they raise fundamental questions about the interventions framework.

Finally, the paper considers the current framework for managing system strength, and considers whether any refinements are warranted to that framework to support system security in the most efficient manner possible. In the case of South Australia, the frequent use of directions by AEMO would not be necessary if contracts with synchronous generators for the provision of system strength services, or other measures such as synchronous condensers, were in place as envisioned by the framework in the NER for managing system strength.

Submissions were due by 16 May 2019 and can be found below.

A summary of submissions is available here.

Next steps

The AEMC plans to publish draft determinations for the two AEMO rule change requests on 15 August 2019, together with a report dealing with the other intervention-related matters discussed in the consultation paper. Final rule determinations would then be published in November. 
A separate report regarding system strength issues will be published later in 2019.

Related rule change request

This proposed rule change from AEMO sought to streamline the cost recovery process by aligning the timetables for compensation and settlement following an intervention. It also sought to extend the deadline for participants to make additional claims following an intervention which would allow participants more time to assess the impact of intervention events. 

On 30 May 2019, the Commission made a final rule which is largely the same as the rule proposed by AEMO.

See Intervention compensation and settlement processes 
 

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Documentation