Rule Change: Open

Overview

The Commission is considering options for the scheduling and provision of essential system services to ensure the power system remains secure, in response to rule change requests from Hydro Tasmania and Delta Electricity.
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The Commission is considering options for the scheduling and provision of essential system services to ensure the power system remains secure, in response to rule change requests from Hydro Tasmania and Delta Electricity. 

Essential system services (ESS) are critical to maintaining overall power system security and reliability by meeting core power system requirements. However, current market arrangements do not appropriately value the provision of all these - in part because most of these services were historically provided in abundance as a by-product from synchronous energy. Given the current transition to a new operating environment with exiting synchronous generation, AEMO is increasingly intervening to direct generators to provide essential system services, to make sure that the market is operated securely.

The Commission is considering options to evolve the existing market design to deliver secure outcomes efficiently. The focus of these rule changes is considering solutions to better procure, coordinate and optimise provision of essential system security services.

The Delta Electricity Capacity commitment mechanism for system security and reliability rule change request (ERC0306) and the Hydro Tasmania Synchronous services market rule change request (ERC0290) were consolidated on 2 February 2022, pursuant to section 93 of the NEL. The consolidated rule change request will be addressed under the combined process with the updated name “Operational security mechanism” (ERC0290). The Commission considers that both rule change requests seek to address the same issue of the provision of ESS as the proportion of variable renewable energy (VRE) increases, and consolidation will allow for coordinated consideration of the issues.

The Commission published a directions paper on 9 September 2021 that presented two broad approaches to value, procure and schedule essential system services. The AEMC plans to publish a consolidated draft determination on 30 June 2022, taking into account stakeholder submissions to the directions paper. 

Directions Paper and System Services consultation paper

These rule changes were initiated through the publication of a consultation paper on 2 July 2020. Submissions to the consultation paper can be found below.

In a directions paper published on 9 September 2021, the Commission proposed two broad approaches to address the issues discussed above. Both approaches look to efficiently schedule resources to ensure the power system remains secure and consumer costs are minimised: 

  • Market ancillary services (MAS) approach: Where the procurement of system services would be brought into the pre-dispatch engine to explicitly value and procure other system services in addition to energy and FCAS. 
  • Non-market ancillary services (NMAS) approach: Where the procurement of system services would be undertaken through of structured contracts, instead of AEMO directions, which would then be scheduled through an explicit optimisation approach. 

These approaches both reflect the solutions proposed in the rule changes themselves, as well as the unit commitment for security (UCS) and synchronous services mechanism (SSM) that was proposed by the ESB in its post-2025 market design work. The Commission set out it has an initial preference for the NMAS approach. Submissions to this paper can be found below.

The rule change requests and their consolidation

The Hydro Tasmania rule change request

On 19 November 2019, Hydro Tasmania submitted a rule change request to amend the NER to create a market for “synchronous services", such as inertia, voltage control and fault level/system strength.

Hydro Tasmania proposed to address the shortage of “inertia and related services” in the national electricity market (NEM) by integrating the dispatch of a “synchronous services” with the existing energy and FCAS spot markets. This would involve changing the formulation of the constraints that are applied to the NEM dispatch engine (NEMDE).

The Delta Electricity rule change request

On 4 June 2020, the AEMC received a rule change request from Delta Electricity which seeks to amend the NER to introduce an ex-ante, day ahead capacity commitment mechanism and payment so that generators or demand response providers remain available to offer operational reserve and any other system security or reliability services that the Australian Energy Market Operator (AEMO) may require to meet its security and reliability objectives

Consolidation of the rule change requests

The Hydro Tasmania and Delta Electricity rule change requests both identify the need for new arrangements to schedule and procure essential system services as the proportion of VRE increases.

The AEMC therefore decided to consolidate its consideration of the two rule change requests, to be considered under the  name “Operational security mechanism” (ERC0290), pursuant to section 93 of the NEL. This will allow for a consolidated approach to considering the requests.

Background information and documentation for the Delta Electricity rule change request can be found here

Timelines for the requests 

The rule change requests have received four extensions under s. 107 of the NEL. 

On 2 December 2021 the AEMC extended the date for publication of a draft determination until 30 June 2022 under s. 107 of the NEL, due to the complexity and difficulty of the issues identified by the Commission and raised by stakeholders in submissions to the directions paper. The AEMC will continue to work with the other market bodies and stakeholders to better understand the implications of these rule change requests. 

The Commission also released the reasoning behind a rule not being made within a year of initiation for both requests on 17 June 2021. The s108A notices are provided below. 

Other relevant system services rule change and market design processes underway

These rule changes form part of the AEMC’s system security work program, which seeks to progress the Energy Security Board (ESB)’s recommendations on essential system services.  The AEMC is working closely with the ESB and the other market bodies as it progresses these rule change requests.  
 

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