On 2 March 2023, the Australian Energy Market Commission (AEMC) initiated a rule change request from the Australian Energy Council (AEC) proposing an ancillary service spot market for inertia in the national electricity market (NEM) to ensure the secure and efficient operation of the power system through the energy transition. We released a consultation paper considering future inertia system needs and options for inertia provision – both in planning and operational timeframes.

A key related project was the operational security mechanism (OSM). The AEMC recently announced that after carefully considering the proposed approach in the draft determination and stakeholder feedback to date, there may be simpler and more immediate solutions available to address the problem compared with the OSM model set out in the draft determination. 

The OSM rule change will therefore focus on such solutions, including aligning existing system strength and inertia frameworks. This direction has implications for this rule change request focussed on inertia.

Following careful consideration, the AEMC will focus on the completion of the OSM this year. 

Following the completion of this rule change, the AEMC will consider operational procurement options under the inertia rule change.  

The  AEMC in 2023 will focus on the long-term security frameworks through the OSM

The AEMC is now considering improvements to the existing inertia framework within the OSM rule change, where we are looking at streamlining and simplifying planning-timeframe procurement of security services (see the OSM forward direction note released on 25 May 2023). 

Through that process, we will address stakeholder feedback on the existing framework that we received in response to the inertia consultation paper. Feedback included:

• suggestions to align inertia procurement with system strength so that TNSPs can take benefits of both into account when considering investment decisions
• suggestions to re-consider how to determine system needs for inertia in the planning timeframe.

This approach sequences consideration of inertia options, allowing the AEMC to progress the simpler long-term procurement opportunities under the OSM first. 

The AEMC will build on this with consideration of more complex operational options later as part of the inertia rule change once it resumes. This sequencing allows the AEMC to prioritise its workload based on available resources for the benefit of the industry. 

This will also allow time for AEMO to progress technical understanding of system inertia needs. 

Overview of the rule change process

On 2 March 2023, the Australian Energy Market Commission (AEMC) initiated a rule change request from the Australian Energy Council (AEC) proposing an ancillary service spot market for inertia in the national electricity market (NEM) to ensure a secure and efficient operation of the power system through the energy transition.

On 2 March 2023, the AEMC published a consultation paper to seek stakeholder feedback on:

• key challenges arising from declining system inertia and the adequacy of the existing inertia framework in ensuring the secure and efficient operation of the power system in the long-term;
• further work required to better understand the power system needs and inform the development of a long-term inertia arrangement; and
• AEC’s inertia spot market proposal and other alternatives.

Given  the complexities involved in both the proposal to establish a new inertia spot market in the NEM, and understanding power system needs for inertia and evolving technological capabilities to provide it, the Commission extended the timeframe for a draft determination to 29 February 2024.