Reporting on drivers of change in transmission networks: draft stage one report

11 April 2017

The Australian Energy Market Commission today called for public submissions on its initial analysis of the underlying drivers necessary for the next wave of transmission frameworks reform.

This report observes that uncertainty surrounding future government  environment policies makes it difficult to predict the technology of new generation investment and the future generation mix. This in turn leads to uncertainty regarding future transmission investment as generation technology can influence the location of and need for the investment and so potential future needs of the network.

Reduction in the cost of new technologies has led to increased penetration of distributed energy resources with potential for new energy services which might affect electricity demand and network requirements. At the same time the pace of market change and development continues to accelerate and state and federal governments are announcing market interventions – all these developments will affect transmission and generation investment.

All these drivers and more will be examined by this review including: government policies and international agreements; technological developments and new business models; level of distributed generation; and relevant national electricity market rule and regulation changes.

The draft stage one report outlines the scope for each driver of change and how these drivers have changed since the Commission last looked at them in 2015.

We invite stakeholders to respond to the drivers outlined by the report and provide us with feedback on our analysis.

In particular:

  • do you agree with the Commission’s analysis of the drivers of change in transmission and generation investment – would you suggest adding others?
  • what are your priority concerns in relation to how these drivers impact transmission and generation investment?

Submissions are due on 16 May 2017.

 

Background note on our work program

The last decade has seen rapid 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 AEMC is considering, developing and implementing new rules to allow continued uptake of new-technology generation while maintaining the power system’s security. This work will flow through to new requirements to both transmission and generation investment in the market.

AEMC rules and reviews related to generation and transmission investment in the national electricity market

System security review (consulting on directions paper March 2017)

This review is currently consulting on proposed mechanisms to help the power system accommodate new technologies. Our proposed solutions anticipate the use and development of emerging fast-frequency response technologies like battery storage, wind farms or solar panels.

Addressing frequency in a low inertia system
Frequency management is a system-wide challenge. A power system with increasing non-synchronous generation like wind and solar has less inertia. Falling inertia means the system has less time to recover from sudden equipment failure before widespread blackouts. The Commission’s plan to provide enough inertia proposes:

  • new rules requiring network companies to provide a required operating level of inertia at all times. If networks can identify fast-frequency response opportunities like battery storage, wind farms or solar panels, those services could be used if AEMO agrees they are substitutable for inertia from synchronous sources
  • rules requiring new non-synchronous generators to have the capability  to provide fast-frequency response services if required in the future.
  • investment incentives for network companies to provide additional inertia above the minimum required level
  • market sourcing for fast frequency response services to allow their contribution to be optimised.

Addressing  reduced system strength
System strength management is a local challenge. Action is needed depending on the regional profile of generation – and the extent to which there is more or less non-synchronous generation. The Commission’s plan to strengthen power system strength includes proposed:

  • new rules making networks responsible for maintaining a minimum short circuit ratio to connected generators which must meet registered performance standards above this level
  • arrangements to enable networks to charge connecting generators to cover the cost of remedial action if minimum short circuit ratios are breached.

Emergency frequency control schemes (new rules March 2017)
Rules now in place establish a new management framework for emergency frequency control schemes which are the ‘last line of defence’ mechanisms to help prevent system-wide blackouts. The rules include a new classification of contingency event  under which the Australian Energy Market Operator can manage extreme power system conditions at all times .  They also require it to regularly assess emerging risks caused by the changing generation mix. They oblige  AEMO to conduct forward looking reviews of power system frequency risks so all available technological solutions can be brought to bear on limiting the community consequences of emergency frequency events; and the AEMC Reliability Panel can economically assess the costs to the community of AEMO’s mitigation proposals.

Five minute settlement (consulting on directions paper April 2017)
The Commission has invited public submissions to provide more detailed evidence on the costs and benefits of changing the settlement period for the electricity spot price from 30 to five minutes. This proposed change to the market design would more accurately signal the value to consumers of fast frequency response technologies such as aggregating distributed storage and new generation gas peaker plants which are needed to support the increasing penetration of wind and solar generation.

Replacement expenditure planning arrangements (consulting on draft determination April 2017)
The proposed rule aims, among other things, to improve coordination of transmission and generation investment by introducing public consultation obligations relating to spending on replacement  infrastructure which would improve information available to the market. 

Transmission connections and planning arrangements (final determination due May 2017)
Consultation has closed on draft rules that would enable more competition in building new transmission network infrastructure needed for connection. An estimated 30-50 new large scale generators, including wind and solar, as well as major energy users, will connect to the transmission network by 2020. The draft rules would provide more choice, control and certainty for connecting parties, while requiring transmission businesses to continue to be accountable for the safety and reliability of the transmission network.

Reliability standards and settings review (initiated March 2017)
The reliability of the power system is about having sufficient capacity to generate and transport electricity to meet consumer demand. Every four years, the Panel conducts a review into the reliability standard and settings – a set of parameters that, among other things, establish the price envelope within which energy supply and demand is balanced in the wholesale market; and support investment in sufficient generation capacity or demand side response to meet the reliability standard.