The AEMC has made a draft determination not to introduce a market mechanism for power system inertia at this time.

Instead, we will continue to assess the potential for an inertia market mechanism through our Frequency control frameworks review which will publish a final report and recommendations in mid 2018.

This will allow time for the Australian Energy Market Operator to gather information about the minimum levels of inertia needed as the generation mix in the electricity system changes. AEMO’s data will help show if there are economic benefits from having additional inertia by allowing for greater power transfers on the network. For example, additional inertia could allow for higher interconnector flows between regions, which could reduce overall costs to consumers.

The draft determination also notes that the current application of constraints by AEMO to manage low system strength issues in South Australia limits the market benefits that could be obtained through the provision of additional inertia. Through the Frequency control frameworks review, we will consider how inertia can be accurately valued with the application of constraints to manage other system security requirements, such as system strength and system stability, and with the provision of alternative frequency control services, such as fast frequency response.    

The proposal to provide a market mechanism for additional economic benefits should be distinguished from the need to provide minimum levels of inertia to maintain system security. This need was addressed in September 2017 when the AEMC made a final rule requiring networks to provide minimum levels of inertia. The new rule provides confidence that system security can be maintained in all regions of the national electricity market, while minimising the costs to consumers.

Stakeholders are invited to make submissions on the draft determination by 19 December 2017.

Media: Prudence Anderson, Communications Director, 02 8296 7817 or 0404 821 935