On 19 May 2022, the Commission published a directions paper which describes a revised approach to new incentive arrangements that encourage generation and load to help control power system frequency. The directions paper responds to stakeholder feedback on the frequency performance payments process set out in the draft rule. Submissions on the paper are due by 16 June 2022.

The Commission acknowledges stakeholder feedback to the draft determination expressing concern for the proposed confirmation of Mandatory PFR as part of the enduring PFR arrangements in the NEM. The Commission will further consider and respond to stakeholder feedback on this in the upcoming final determination. This element is not the focus of this directions paper.

Second Directions paper

The second directions paper, published on 19 May 2022, describes a revised frequency performance payments process. The revised process was developed in collaboration with AEMO, IES Consulting, and the AEMC frequency control technical working group. 

In keeping with the draft rule, the process is based on the measurement of active power deviations for eligible generation and load, relative to their expected active power behaviour over each trading interval. The deviations are compared against the real time requirement to raise or lower the frequency in the power system.

Under the draft rule, the frequency performance payments were sized based on the total costs for regulation services, scaled by the need for regulation services relative to the volume enabled in each trading interval.

The key difference under the revised process is that the size of the frequency performance payments would be separate from the total costs of regulation services. Instead, the size of the frequency performance payments would be based on the aggregate requirement for corrective response in the system, valued at the price for the respective regulation raise or lower service.

The Commission received 8 submissions in response to the second directions paper.

Background

On 3 July 2019, AEMO submitted a rule change request relating to the observed degradation of frequency performance in the national electricity system during normal operation and suggested ways of improving incentives for provision of primary frequency response. 

On 19 September 2019, the AEMC published a consultation paper and initiated this rule change request, along with two other rule change requests related to primary frequency response, one submitted by AEMO and one by Dr. Peter Sokolowski. These other rule change requests were consolidated under the Mandatory primary frequency response rule change project, for which a final determination and rule published on 26 March 2020, which introduced temporary arrangements for the provision of mandatory primary frequency response. The Mandatory PFR arrangements are scheduled to sunset on 4 June 2023, to allow time for enduring arrangements (the subject of this rule change) to be developed.

On 17 December 2020, the Commission published a directions paper for two rule change requests that relate to the arrangements for fast frequency response and primary frequency response in the NEM. The Commission received 29 submissions to the Directions paper which informed the development of its draft rule determination.

On 16 September 2021, the Commission published a draft determination and draft rule. The draft rule:

• confirms the mandatory primary frequency response (PFR) arrangements that were established in March 2020 as enduring beyond the sunset date on 4 June 2023.
• introduces incentives, through frequency performance payments, for market participants to operate their plant in a way that helps to control power system frequency.
• improves the efficiency and effectiveness of the arrangements that exist to recover the costs of regulation FCAS by making them more transparent and by better aligning incentives to participant behaviour.
• includes additional reporting requirements for AEMO and the AER in relation to frequency performance and the costs of frequency performance payments.

These arrangements would help to efficiently manage system frequency during normal operation on an enduring basis, allowing the system to be securely and reliably operated for consumers in a cost-effective way.

The Commission received 22 submissions in response to its draft rule determination.

This project has received a number of extensions of time throughout its life, with the most recent being an extension of the timeframe to make a final determination by 8 September 2022.