Market Review: Completed
The AEMC has reviewed the interventions framework in light of the growing number of directions being issued by AEMO to maintain system strength in South Australia. This investigation also considered the experience to date with the current frameworks for managing system strength and inertia, and whether any refinements are warranted to those frameworks 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 seen but for the intervention. 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.
On 15 August 2019, the Commission published a final report which sets out a number of recommendations for changes to the interventions and compensation frameworks.
The final report is published alongside two draft determinations which amend the interventions framework and compensation framework by:
- amending the $5,000 per trading interval compensation threshold which limits the amount of compensation payable to directed participants after an intervention
- amending the wording of the “regional reference node” test, which determines when intervention pricing is to apply, and extending the test to encompass the RERT.
These draft determinations have been progressed as part of this wider investigation as they raise fundamental questions about the interventions framework.
Submissions on the two draft determinations closed on 26 September and the AEMC has extended the date for publication of the two final determinations to 19 December 2019. This is designed to allow the final determinations for these two rule change requests to align with a related AEMO rule change request to narrow the circumstances in which affected participant compensation is payable.
The Commission will undertake further consultation on the recommendations in the final report when relevant rule change requests are submitted.
The Commission is also considering whether improvements can be made to the minimum system strength and inertia frameworks in the NER to more effectively and efficiently identify and address shortfalls in system strength and inertia as they arise in NEM regions. This work is been progressed through the Investigation into system strength in the NEM. The Commission intends to publish a paper exploring these issues in the first quarter of 2020.