Rule Change: Open
This rule change request from the Australian Energy Market Operator (AEMO), raises issues related to the incentive arrangements in the NEM for the provision of primary frequency response during normal operation.
The Commission intends to work with stakeholders, AEMO, ESB and AER on the detailed directions for this rule change request which will include consideration of:
- the arrangements for allocation of costs associated with regulation services — 'causer-pays'
- the potential development of additional complementary measures to effectively remunerate providers of primary frequency response
- interaction with the arrangements in the Mandatory primary frequency response final rule including the sunset arrangements.
2nd consultation paper and name change
On 2 July 2020, the Commission published a consultation paper related to the initiation of six new rule change requests that propose changes to the arrangements in the NER for the provision of power system services. This recent consultation paper also includes an update on the status of AEMO’s rule change request, Primary frequency response incentive arrangements and seeks stakeholders’ views on the directions for this project.
This rule change request was originally named, Removal of disincentives to primary frequency response. The new project name more accurately reflects the scope and objectives for this rule change request following on from the final determination for the Mandatory primary frequency response rule.
The rule change request
On 3 July 2019, AEMO submitted a rule change request relating to the observed degradation of frequency performance in the national electricity system during normal operation. AEMO identified a series of perceived disincentives in the NER to generators voluntarily operating their plant in frequency response mode, leading to a reduction in the amount of plant in the NEM that provide PFR.
The rule change request identified the following focus areas:
- the arrangements for the allocation of regulation service costs, known as 'causer pays'
- generators prioritising compliance with dispatch instructions over frequency response
- a perception that the NER requires generators to be frequency responsive only when they are enabled to provide a Frequency control ancillary service (FCAS).
On 26 March 2020, the Commission made a final rule in relation to two related rule change requests. The Mandatory primary frequency response rule resolved the identified issues related to the prioritisation of dispatch instructions over frequency response and when a generator may operate in a frequency responsive mode.
The remaining objectives for this rule change request are to investigate the appropriateness of the existing incentives for the provision of PFR during normal operation and amend these arrangements as required to meet the future needs of the power system.
Frequency control work plan
This rule change is part of our Frequency control work plan which sets out a series of actions that AEMO, the AEMC and the AER are undertaking to review and reform the frequency control frameworks in the national electricity market.
On 19 September 2019, the AEMC published a consultation paper and initiated this rule change request, along with two other rule change requests related to primary frequency response, one submitted by AEMO and one by Dr. Peter Sokolowski. These other rule change requests were consolidated under the Mandatory primary frequency response rule change project, and a final determination and rule published on 26 March 2020, which introduced temporary arrangements for the provision of mandatory primary frequency response.
On 19 December 2019 the Commission extended the period of time for making the draft determination to 24 September 2020 under section 107 of the NEL. This extension will allow the Commission to develop and consult on improved incentive arrangements for frequency control during normal operation.
On 2 July 2020, the Commission published another consultation paper discussing broader issues related to the provision of system services in the NEM. This paper provided an update, and sought stakeholders views on, the objectives and directions for the Primary frequency response incentive arrangements rule change.
Other relevant system services rule change processes underway
The AEMC has seven rule change requests relating to the provision of system services.
Collectively, the AEMC refers to these rule requests as the ‘system services’ rule change requests and has published a single consultation paper seeking stakeholder feedback on the issues raised and the solutions proposed in each one.
These system services rule change requests complement and are interdependent with the work of the ESB to develop advice on a long-term, fit-for-purpose market framework to support reliability that could apply from the mid-2020's. The AEMC is working closely with the ESB and the other market bodies as it progresses these rule change requests.
The AEMC has used the solutions proposed by each proponent to group the rule change requests into three timeframe-based "work streams" as a useful starting point for consultation. This will allow common issues to be considered more easily. These workstreams are:
Dispatch work stream which will consider proposed solutions where participants make short-term decisions between dispatch intervals to meet system needs, including:
- Fast frequency response market ancillary service (Infigen Energy)
- Primary frequency response incentive arrangements (AEMO)
Commitment work stream which will consider proposed solutions which involve committing or procuring the service ahead of the period for which there is a forecast need for it, including:
- Operating reserve market (Infigen Energy)
- Capacity commitment mechanism for system security and reliability services (Delta Electricity)
- Introduction of ramping services (Delta Electricity)
Investment work stream which will consider proposed solutions for the longer-term timeframes for building the new assets needed to provide system services, including:
- Efficient management of system strength on the power system (TransGrid)
- Synchronous services markets (Hydro Tasmania)
The AEMC's Investigation into system strength frameworks in the NEM (System strength investigation) will also be progressed alongside these system service rule change requests.
The AEMC has established these work streams, as a starting point for consultation. However, any new frameworks developed in response to the rule change requests will be focused on delivering the most efficient outcomes for consumers, having regard to outcomes across all time frames.