The Australian Energy Market Commission is calling for stakeholder feedback on the potential for establishing a new market for essential system services that are needed to support the power system as it transitions to net zero. 

An 'Operational Security Mechanism' (OSM) would value, procure and schedule the security services in the National Electricity Market (NEM) that we need to stabilise the grid, minimising the risk of blackouts. 

AEMC Chair Anna Collyer said the work is about keeping the system in balance and ensuring the system has the right amount of security services in the right places.  

“It’s also about getting the balance right for each type of service – examining the best way to procure and dispatch that particular service to maximise the long-term value for consumers,” Ms Collyer said. 

Security services were previously provided at sufficient levels, generally as a by-product of thermal generation – such as inertia and system strength. However, one of the consequences of the rapid transition to renewables is the reduction in the synchronous generation which provide these services to the system.  

As a result, the Australian Energy Market Operator (AEMO) has increasingly had to intervene to procure some of these services, where there may be 'missing markets'. Directions were designed only as a last resort measure if the market couldn’t dispatch itself in a way that was secure.   

Ms Collyer, says new inverter-based resources (IBR) such as wind, solar and battery storage, can provide some of these services, and in the future may be able to provide more, but currently require clear signals as to what and how much, we require. 

“Flexible and fit-for-purpose arrangements for system security need to be developed and implemented in time to help the system adapt and to address security challenges as soon as they emerge,” she said. 

“The OSM would implement a mechanism that has a more efficient way of managing system security today, as well as helping set us up, so we are better prepared for the future. 

Since publishing the directions paper, the AEMC has considered stakeholder feedback, in addition to taking on board advice from AEMO and the AER. We have endeavoured to design a mechanism that incorporates the following: 

  • scheduling would occur as close to real-time as practicable, minimising any inefficiencies 
  • security services would be scheduled alongside the real-time spot market, with outcomes from the mechanism co-optimised in real time with the energy market 
  • transparency would be a core design principle of the mechanism, providing technology-neutral investment, retirement and operational signals to new and current market participants; and 
  • flexibility and adaptability would be built into the mechanism, and as services are unbundled, the mechanism should move towards procuring services closer to real-time.

The OSM would work alongside other existing and proposed reforms to contribute to the long-term vision for managing power system security: 

  • In the near-term, an OSM would be a more efficient tool than directions for managing the security of the system  
  • In the medium-term, an OSM would provide a way of explicitly valuing security services and improving market outcomes while also encouraging efficient investment 
  • In the long-term, an OSM would facilitate the transition to unbundled services by encouraging new investment and innovation as well as improving how we understand and achieve a secure power system.  

Written submissions on the recommended draft rules are open until Thursday 17 November 2022.   

Come join one of our online conversations:

Visit the project page for more information and contact details. 

Media: Jessica Rich, 0459 918 964 or email us.