Rule Change: Open

Overview

This rule change request from the Australian Energy Market Operator (AEMO) raises issues related to the incentive arrangements in the national electricity market (NEM) for the provision of primary frequency response during normal operation.
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This rule change request from the Australian Energy Market Operator (AEMO) raises issues related to the incentive arrangements in the national electricity market (NEM) for the provision of primary frequency response during normal operation.  

The Commission is working with stakeholders, AEMO, the ESB and the AER to develop enduring arrangements for primary frequency response (PFR) to apply beyond the sunset date for the mandatory PFR arrangements

Directions paper

On 17 December 2020, the Commission published a directions paper for two rule change requests that relate to the arrangements for fast frequency response and primary frequency response in the NEM.

Submissions are invited in response to the Directions paper by 4 February 2021.

Further information on the Fast frequency response market ancillary service rule change is available at the project page.

The directions paper identifies three pathways to enduring PFR arrangements in the NEM:
 

  1. Maintain the existing mandatory PFR arrangement with improved PFR pricing. 
  2. Revise the mandatory PFR arrangement by widening the frequency response band and develop new FCAS arrangements for the provision of PFR during normal operation (primary regulating services). 
  3. Remove the mandatory PFR arrangement and replace it with alternative market arrangements to procure PFR during normal operation. 

The initial position is that pathway two is preferred. This enables the implementation of new market arrangements for continuous PFR services to respond to small frequency variations and maintains a mandatory arrangement to provide a frequency response safety net for improved system resilience.

The Commission intends to publish a draft determination for this rule change by 16 September 2021. The draft determination will be informed by stakeholder submissions, technical advice from AEMO, independent advice and the Commission's analysis with respect to the long-term interests of electricity consumers.

Background

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 the ESB, AEMO, the AEMC and the AER are undertaking to review and reform the frequency control frameworks in the national electricity market. 

Background

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.

On 24 September 2020, the Commission extended the timeframe to make a draft determination until 16 September 2021. The extended timeframe will allow AEMO to undertake further work to understand the operational and economic impacts of incentive- or marked-based provision of continuous primary frequency response. AEMO’s advice, expected in June 2021, will inform the AEMC’s draft decision on whether and how new incentive arrangements could complement or replace the Mandatory Primary frequency response arrangements that were introduced in June 2020.

Other relevant system services rule change processes underway 

The AEMC has seven rule change requests relating to the provision of system services that it is currently assessing.  Collectively, the AEMC refers to these rule requests as the “system services” rule change requests.  

These system services rule change requests complement and are interdependent with the work of the Energy Security Board (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.  

We are considering the interactions between issues raised in the different rule changes so that any new frameworks developed in response to the rule change requests will be focused on delivering the most efficient outcomes for consumers.   

The AEMC will be making draft determinations for each of the rule change requests over the coming year prioritising more urgent system security issues while continuing to coordinate with ESB work and seek key technical input from the Australian Energy Market Operator (AEMO).  

More information on each of the system services rule changes can be found at the links below: 

 

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Documentation