Rule Change: Completed
The Commission has made a more preferable final rule in response to two rule change requests from AEMO. The final rule amends the National Electricity Rules (NER) so that market participants can be appropriately compensated if they are affected by AEMO intervention events that trigger intervention pricing.
The final rule incorporates frequency control ancillary services (FCAS) into the automatic compensation framework in clause 3.12.2 of the NER and amends the formula for calculating energy compensation for market customers with scheduled loads. This addresses the risk under the current Rules that participants could be under-compensated if they are dispatched differently as a result of an intervention event that triggers intervention pricing.
The approach in the final rule is broadly consistent with the draft rule but has refinements to reflect stakeholder feedback.
Final rule determination
The final rule has three main elements:
- It incorporates FCAS into the compensation framework in clause 3.12.2 as an automatic, two-way process, meaning participants are compensated if they are worse off due to an intervention and have to repay gains if they are better off. This acknowledges the important role of FCAS providers in the NEM
- It amends the formula for calculating energy compensation for market customers with scheduled loads, introducing a volume-weighted approach. This addresses the potential for these participants to be under-compensated for losses under the current rules.
- It articulates the objective of the compensation framework in clause 3.12.2 for all participant types and requires AEMO to publish a methodology describing how compensation is calculated. This increases transparency where it is currently limited.
The main elements of the final rule will commence on 1 August 2022.
The final rule approach also aligns with other Commission determinations, including the Integrating energy storage systems into the NEM (Integrating storage) final rule.
Rule change process
On 19 September 2019, AEMO lodged two rule change requests relating to the framework for compensating participants affected by intervention events which trigger intervention pricing (i.e. RERT or directions for energy or FCAS).
The first of the AEMO rule change requests concerned the compensation payable to scheduled generators if they are dispatched differently due to an intervention event. The AEMO rule change request sought to allow participants to be compensated if they incur losses related to FCAS.
The second rule change request related to scheduled loads which are dispatched differently as a result of an intervention event. Compensation for scheduled loads is calculated in accordance with a formula which includes as an input the price of the highest priced band specified in a dispatch bid – known as “BidP”. AEMO’s rule change request sought to change the definition of BidP as the current definition could result in participants being under-compensated where they are dispatched differently due to an intervention event.
The Commission determined that these two rule change requests should be consolidated since they relate to the same clause in the NER (clause 3.12.2).
On 11 June 2020, the AEMC initiated the two rule change requests from AEMO and published a consultation paper.
The Commission released a draft determination and draft rule on 24 September 2020. The draft rule incorporated FCAS into the automatic process of calculating compensation and modified the way that compensation is calculated for scheduled loads when an intervention impacts how much they pay for energy.
In response to the draft rule, AEMO’s submission raised practical complexities, primarily relating to batteries in their capacity as scheduled loads. To allow these issues to be addressed in a coordinated way, the Commission determined that the timeline for the final determination should be aligned with the Integrating storage rule change process. For this reason, the Commission extended the time for making a final determination to 5 August 2021. It was further extended to 4 November 2021 and then 2 December 2021, to reflect extensions to the Integrating storage rule change timeframe.
A directions paper was published on 15 July 2021, outlining the proposed approach to compensation in the final rule and seeking stakeholder feedback. The directions paper was released alongside the draft rule for the Integrating storage rule change.
Feedback in response to the consultation paper, draft determination and directions paper has informed the Commission’s approach to the final determination and rule.