by James Hyatt, Senior Adviser - Retail and Wholesale Markets
and Victoria Mollard, Executive General Manager - Security and Reliability

Collaboration between industry and the energy market bodies is key to unlocking the reforms required to transition the national electricity market (NEM). System strength is one of the complex essential system services required for a secure system.  Last week, we released our final rule on system strength. This rule change for the efficient management of system strength is one of the first cabs off the rank from the AEMC’s system security rule changes that dovetail with the Energy Security Board’s Post 2025 market design work program. This AEMC-led work program is focused on making a secure and fit-for-purpose grid.

What is this service we call system strength?

Fundamentally, system strength is a service that keeps the grid’s voltage waveform stable. But what does that mean?

Let’s take a step back. In simple terms, a power system needs two things – a constant frequency and a stable voltage. In Australia, we have decided on 50 hertz (Hz) for our frequency. The voltage you get out of your home electricity socket is 230 volts, although it can be significantly higher the further up the production chain you go to save on power losses.

System strength relates to the ‘quality’ of the voltage, which can be measured by the stability of the waveform. If you have a distorted or fuzzy waveform – like that experienced in low system strength environments – then we have a problem.

Power electronics, like inverters, are unable to control and stabilise these kinds of changes to the voltage waveform when operating. Instead, they require a stable voltage wave form to work well. This is why inverter-based resources (IBR), like wind and solar, some loads, batteries and hydrogen facilities, all ‘demand’ system strength.

Additionally, low system strength levels can cause problems with important equipment that is designed to trigger when something goes wrong in the system (known as protection systems). These problems occur because protection systems are set work in certain conditions; without the appropriate amount of system strength, they may not work correctly.

Historically, system strength has been supplied as a by-product of energy production by synchronous generators, such as coal, gas and hydro. However, as these generators leave the market or reduce their operations, the supply of the service has reduced. This trend of significant amounts of inverter-based resources connecting to the grid has resulted in system strength declining in the system in recent years, at precisely the time when more is needed.

System strength is therefore central to enabling a smooth transition to a generation fleet dominated by inverter connected resources such as solar and wind. Having said this, there is exciting innovation in new types of resources and in inverter technology that will drive the nature of the service and potentially even change how system strength can be provided (again!). These are good things – innovation and technology growth all helps to drive lower costs, lower emissions energy for all consumers.

Why is it important to the transition of the power system?

Not having enough system strength can cause major problems, both in terms of managing the security of the system and also in terms of how electricity is supplied, all increasing costs to consumers.

Shortfalls of this essential service in recent years have resulted in delays in the connection of new inverter-based resources, as there has not been enough system strength in the system to allow them to connect securely. These delays, and the resultant uncertainty they create, impose costs on these parties seeking to connect. These costs are ultimately passed through to customers. A lack of system strength in the system has also meant that lower cost, lower emissions renewable generators are being constrained off — again increasing costs to customers.

Ultimately, unless the regulatory arrangements evolve to provide more system strength from a whole of system point of view then we won’t get the power system transition we need or deserve.

How has the Commission worked to fix it?

These reforms have been a focus of the Commission for some time now. We first looked at the issue in 2016 when the Australian Energy Market Operator (AEMO) raised the alarm that the essential system service of system strength we once got through the dispatch of synchronous generators was running thin as these machines operated less or retired. This is when we first defined system strength as relating to 'fault level' and put in place regulations – the first of their kind – in order to ensure its provision.

However, as these regulations were implemented and the Australian energy industry did pioneering work in this field, we soon saw that these regulations would need to be evolved to dial up to the level required by the transition of our energy fleet. The evidence was that new renewable connections were being slowed and there was a high number of AEMO interventions in the market. The concern was this was framework was not resulting in the timely delivery of the necessary amounts of system strength required for both system security and to keep pace with the power system transition.

Once we saw these practical consequences of the framework, we went to discuss this with every person we could find – firstly, to understand the true nature of the problem and secondly, to understand how to fix it most efficiently and effectively.

This started with a review into the existing frameworks that began in March 2020. The work started by looking at the definition of system strength – which is a notoriously hard term to define. You ask: what? how? Because it is not an engineering term per se. It is a term used to define a phenomenon that occurs in a power system. Fault current (which is an actual electrical engineering concept) is used as a proxy. From that, the question was then how best to provide system strength – leave it up to the market, mandate that everyone has it, or regulate its provision from a central co-ordinated body.

This work, which has to date culminated in the final rule determination to evolve the existing system strength framework, is fundamental to the redesign of the NEM  undertaken by the energy market bodies and the Energy Security Board (ESB).

The ESB’s workstream on essential system services has considered how four key services are to be provided for the future power system: frequency control, operating reserves, inertia and system strength. All are critical to keeping the lights on in the NEM.

The final rule we designed begins us down the path set out in the ESB's post 2025 work towards this long-term direction for essential system services and a power system with high penetration of renewables. As such, this rule change delivers a key part of the ESB's system services work program.

This has been achieved in part because it’s really just been one big, long conversation as we considered these issues. We undertook over a year of engagement with stakeholders and technical working groups.

So, what was the result of this market body and industry collaboration? A long-term, practical and flexible solution to keep the power system stable

We worked extremely hard and closely with industry and the other market bodies (AEMO and the Australian Energy Regulator) to develop the best answers to these questions.

The answers were that system strength:

• Needs to be defined as broader than just fault level – meaning the proxy is no longer good enough and is restricting innovation with potential new ways of providing the services being blocked out.
• Is best provided through a centrally co-ordinated body to gain the economies of scope and scale that are only conceivably provided through a single buyer procurement model.

These findings were then used as an input into the Commission’s consideration of a rule change request submitted by TransGrid during the investigation.

This is where we are now, in October 2021, with a final rule and determination having been released on how to evolve how such a vital system service to transition the grid should be supplied.

I hear you ask: why has this taken such a long time? The real answer is that no one person knew the right answer. The path that we took was to continuously  discuss the issues with the smartest people in the industry, individually and as a group. This was to best understand firstly the problem and secondly the potential solutions. The key to this reform was to allow all the potential solutions to be able to be used rather than picking a winner. This involved defining the service broadly enough that all options – be it investing in network solutions, contracting with existing generators or relying on a new technology that has not been invented yet! – were on the table. At the same time, this involved not defining it so broadly that these options couldn't sensibly be compared or would have been unable to actually solve the problem.                                                              

Collaboration has been at the heart of how we operated to land this evolved framework. A year-long review, hundreds of bilateral meetings with numerous technical working groups to detail the issues and the potential solution pathways. A cross section of industry participants provided valuable input into this project. We thank and commend them for the way they have done this with the best interests of consumers in mind while telling us their frank advice from their varied experiences of system strength. Using these approaches has resulted in better policy development, and therefore ultimately the best outcomes for consumers possible.

Trust is a major part of the collaboration – we trust that industry and market bodies are working with us to a brighter future for all Australians. By removing a major barrier to cheaper and less emissions-intensive energy production, we can together move achieve a power system that is in the long-term interest for all consumers.

If there is a main takeaway we’d like to leave you with,  it’s that collaboration between market bodies and industry has been, and will continue to be, key to unlocking the reforms required to transition the NEM. System strength, one of the most complex and unknown but important essential system services, is just the first cab off the rank. So call us to discuss the ins and outs of an approach, email us a better version of one of our diagrams, suggests alternate ways we can describe things, engage with more stakeholders or solve these issues of tomorrow’s power system today.

But wait what actually is the final rule following this collaboration?

The final determination and draft rule introduces three reforms:

• Supply side reform – A new obligation on transmission network service providers (TNSPs), working with AEMO, to provide system strength when and where it is needed.
• Demand side reform – New access standards for relevant generators, loads and market network service providers to have minimum performance of plant in relation to system strength into the future.
• Coordination of supply and demand sides reform – A charging mechanism for system strength, so those parties who use the service pay for it.

We think that, on balance, that these changes best support the power system transition, which includes fast-rising levels of more variable, inverter-based resources like batteries, wind and solar. The new arrangements are purposefully setting us up for the future. They provide greater certainty for parties wanting to connect new resources through the provision of efficient levels of system strength, when and where it is needed, while promoting flexibility that is needed as the system changes.

The bar we set ourselves as to whether a change should be made or not is whether any potential change is in the long-term interest of consumers. We consider that these are because they will support more efficient connection of new generation and deliver a more secure energy system. This would help to keep prices as low as possible for consumers.

In doing this, our evolved framework for system strength will support the power system transition. The new arrangements are setting us up for the future and are intended to provide greater certainty that efficient levels of system strength will be available, when and where it is needed while promoting flexibility that is needed as the system changes.

We consider that there are significant benefits associated with a purposefully forward-looking approach for system strength. This reflects the relative asymmetry of the costs of providing too much system strength, as opposed to not providing enough.

What we mean by that is that, in theory, the most efficient outcome would be to deliver exactly the right amount of system strength, at precisely the right time and locations, to satisfy demand. However, due to the complexities of system strength identified above, as well as the fact that the provision of system strength is lumpy, this is unlikely to occur in practice.

As such, supplying system strength where demand is expected but may not yet have arrived  means that it is very likely that there will be sufficient system strength in the system to support the required new generator connections to occur through the power system transition. As such, this is expected to result in lower whole of system costs to provide a secure supply of energy, which would flow through to consumers as decreasing costs. This is particularly important given the substantial transition that is occurring and is expected to result in net benefits for consumers, outweighing any potential costs of this option.

This consideration has directly influenced the design choices we have made for the evolved framework. Primarily, it underpins our choice to adopt an AEMO- and TNSP-led co-ordinated solution for system strength, which draws on existing economic regulatory and planning frameworks. When coupled with an effective charging mechanism to facilitate efficient usage of this service, the evolved framework will address the key issues with the current frameworks, while keeping prices as low as possible for consumers.

Conclusion

The final determination we have recently published sets out the final rule and the Commission’s reasons for making its decision. Your submissions on along with further engagement with our market body and industry family helped us refine the rule to be the best that it can be in the interest of consumers. We look forward to the role this rule will play in making it faster, simpler and more predictable for new energy resources to connect to the grid while maintaining a strong grid for more low-cost, low-emission energy to be dispatched.