Today the AEMC published a package of three final rules related to the intervention pricing and compensation frameworks that are triggered when AEMO intervenes in the market.
The three rules relate to:
- Intervention pricing: the Application of the regional reference node test to the reliability and emergency reserve trader (RERT) rule clarifies when intervention pricing should apply. This includes removing the use of intervention pricing for interventions to obtain services not traded in the market, such as system strength and voltage control.
- Affected participant compensation: under the Application of compensation in relation to AEMO interventions rule, affected participant compensation is no longer payable in connection with interventions which do not trigger intervention pricing, for example system strength directions. This rule actions a recommendation in the AEMC’s final report on its Investigation into intervention mechanisms in the NEM.
- Compensation threshold: the Threshold for participant compensation following market intervention rule changes the $5,000 compensation threshold for directed and affected participants so it applies per event rather than per trading interval.
Together, the rules will increase clarity and consistency, reduce market distortion and costs to consumers, and strike a better balance between the interests of market participants and consumers. The Commission is publishing all three rules together to facilitate a streamlined approach to implementation.
Media: Kellie Bisset, Media and Content Manager, 0438 490 041; (02) 8296 7813
The transformation of the electricity system is continuing to accelerate, which is presenting opportunities and challenges, including for the management of power system security. AEMO has a range of intervention mechanisms which it can use as a last resort to manage system security and reliability – these include the RERT, directions and instructions.
A growing number of directions are being issued by AEMO to synchronous generators in South Australia to maintain adequate system strength. When AEMO issues a direction, it provides compensation to participants which are directed to operate.
AEMO also provides compensation to participants which are “affected” by the direction, meaning they are dispatched differently as a result of the intervention. Affected participant compensation is also payable when AEMO intervenes in the market by activating the RERT.
A directed participant is generally entitled to formula-based compensation and may claim additional compensation if that amount is insufficient to cover its net direct costs and lost revenue. Affected participants are also entitled to automatic compensation to put them in the position they would have been in but for the intervention.
The National Electricity Rules include a $5,000 threshold which limits the payment of compensation both to and by affected participants. The threshold also applies to claims by directed participants for additional compensation.
When AEMO intervenes in the market, it generally also implements ‘intervention pricing’. Intervention pricing adjusts the wholesale spot price to preserve market price signals that would have occurred but for the intervention.