On 17 June 2021 the AEMC made a final rule that amends the NER to ensure the NEM will continue to settle during trading intervals of low, zero or negative net regional demand. The final rule comes into effect on 1 September 2021.

The rule also reduces the risk that market customers with net negative loads will receive payments and the risk that market customers with net positive loads will pay a disproportionate amount of non-energy costs when net regional demand is low, zero or negative.

The rule requires AEMO to substitute average adjusted gross energy (AGE) data from the previous four billing periods into the non-energy cost equations within the NER when net regional demand is less than 150 MWh. AEMO’s rule change request proposed a 1 MWh threshold.

The Commission has decided to implement the 150 MWh threshold in AEMO’s rule change because it:

• addresses the settlement risks noted by AEMO
• reduces the risk that market customers would be paid for having a net negative load during a trading interval
• reduces the risk that market customers with positive net loads may be required to pay a disproportionate share of non-energy costs in low operational demand conditions
• provides a proportionate and targeted solution to the urgent issues raised by both AEMO and Infigen
• limits the risk of market distortion
• provides administrative certainty for market participants and AEMO.

The final rule is a temporary solution designed to respond to the imminent settlement and payments risks that occur in low, zero and negative demand conditions. A long-term solution involving gross energy flows, is likely to be provided by the Integrating energy storage solutions into the NEM rule change, which is due to be implemented by September 2023.

Consultation process

On 22 April 2021 the AEMC released a consultation paper seeking stakeholders’ views on AEMO’s rule change proposal. In response the AEMC received submissions from AGL, Engie, Infigen, Origin, The South Australian Chamber of Mines and Energy (SACOME) and SA Water. The submissions can be viewed here.

Background

Minimum operational demand has been declining in all NEM regions in recent years. In Victoria and South Australia, this decline has been particularly sharp. 

AEMO now anticipates that South Australia could experience negative demand in a trading period by spring 2021. 

On 26 November 2020, AEMO published a discussion paper NEM settlement under zero and negative demand conditions seeking views on its proposal to substitute adjusted gross energy values when regional energy was less than 1 MWh. AEMO also sought views on several substitution options that could be used when adjusted gross energy is less than 1 MWh.

Stakeholders were supportive of addressing the settlement risks but had mixed views on what the substituted value should be.

On 8 February 2021 AEMO submitted a rule change request that proposed substituting values into non-energy cost allocation equations when demand was less than 1 MWh.

Related Project

In deciding to make this final rule, the Commission has taken into account its interaction with the related rule change Settlement under low operational demand from Infigen, which was also published on 17 June 2021.

The Commission has released a draft determination to make no rule, on the Infigen rule change request. 

Infigen’s rule change request sought to address the inequitable payments issues that are discussed above, by proposing to floor a market customer’s adjusted gross energy at 0 MWh.

The Commission is addressing these inequitable payment issues through the AEMO rule change by implementing a threshold for triggering substitution of 150 MWh.

(Additional detail about this rule change can be found here)