Market Reviews: Open

System Security Market Frameworks Review

Reference:
EPR0053
Reviewed by:
AEMC
Initiated by:
AEMC
Date initiated:
14-Jul-2016
Project Leader:
Sebastien Henry
Overview

The electricity industry in Australia is undergoing a fundamental transformation. The last decade has seen a rapid rise in the penetration of new generation technologies, such as wind farms and rooftop solar. In the past, these technologies accounted for only a small fraction of total electricity supply. Now they are a critical part of our power system, and their significance is continuing to grow.

The electricity industry in Australia is undergoing a fundamental transformation. The last decade has seen a rapid rise in the penetration of new generation technologies, such as wind farms and rooftop solar. In the past, these technologies accounted for only a small fraction of total electricity supply. Now they are a critical part of our power system, and their significance is continuing to grow.
 
As these technologies make up an increasing proportion of Australia’s electricity needs, new approaches to maintaining power system security will be required. To support the continuing transformation of the National Electricity Market (NEM) the Australian Energy Market Commission (AEMC) is conducting a review into the regulatory frameworks that affect system security in the NEM. 
 
The AEMC self-initiated the review to address two key emerging issues: the management of frequency and of system strength in a power system with reduced levels of synchronous generation.
 
The AEMC has published a directions paper to present its proposed approach to resolving these issues. It builds on the interim report, published in December 2016, which explored the challenges associated with frequency control and set out potential mechanisms for procuring new frequency management services.
 
The directions paper assesses those frequency management options and distils them into two staged packages for further stakeholder feedback. In developing a staged approach, the Commission sought to strike a balance between addressing immediate issues related to the management of power system security and developing an efficient and effective framework to address such issues in the medium to longer term.
 
The immediate package represents a practical approach that can be adopted relatively quickly and which will provide a high degree of confidence that the system can continue to be operated in a secure manner. The subsequent package of measures is intended to improve the effectiveness and efficiency with which services are procured in the long term.
 
The directions paper also sets out the Commission’s proposed approach to the management of system strength issues. The key change involved in implementing the Commission's proposed approach will be to amend the rules to clarify that Network Service Providers (NSPs) should be responsible for maintaining an agreed minimum short circuit ratio to connected generators. Generators would continue to be required to meet their registered performance standards above this agreed level.
 
The Commission is seeking stakeholder feedback on the contents of the directions paper, particularly in regards to the proposed approaches to addressing frequency control and system strength issues. Submissions are due by 20 April 2017.
 
The review also encompasses and progresses three rule change requests that relate to system security. The South Australian Minister for Mineral Resources and Energy and AGL have both submitted rule change requests proposing the introduction of new mechanisms to procure additional system security services to support power system frequency. The South Australian Minister for Mineral Resources and Energy has also submitted a rule change request to address the reductions in system strength. Draft determinations on these rule changes are due by 29 June 2017.
 
The Commission's preliminary view is that the measures set out in the immediate frequency control package and the proposed approach to system strength could be implemented through the existing rule changes. A final report for the review would be published at the same time as the draft rule determinations, setting out how the subsequent frequency control package and any broader issues identified for further consideration would be progressed.
 
Background
 
The AEMC self-initiated the System Security Market Frameworks Review in July 2016 under section 45 of the National Electricity Law and published a terms of reference. The review is being coordinated with ongoing technical work on these and related issues being undertaken by the Australian Energy Market Operator. The terms of an agreement have been set out on how the AEMC and AEMO will collaborate, seeking to ensure that these activities deliver a coordinated package of measures to maintain future power system security.
 
The AEMC will consider the rule change requests as well as undertake the Review. The output of the Review will be a report to the COAG Energy Council highlighting rule changes and technical changes made in response to the rule change requests received, and recommendations for further action where required, including possible changes to policy or legislative frameworks or recommendations in relation to potential future rule change requests.
 
In December 2016, the AEMC published an interim report on the System Security Market Frameworks Review. The report sets out some of the key aspects of system security being considered and some of the preliminary findings of the Commission.
 
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Documentation