On 16 September 2021, the Commission published a draft determination and a draft rule for enduring arrangements to support the control of power system frequency and incentivise plant behaviour that reduces the overall cost of frequency regulation during normal operation.

The draft rule would confirm the existing Mandatory PFR arrangements  as enduring and introduce a double-sided frequency performance payment and allocation arrangement to incentivise plant behaviour that helps to control power system frequency, lowering the costs of frequency control for consumers. It also includes additional reporting arrangements for AEMO and the AER in relation to frequency performance and the costs of frequency control services.

Stable frequency is an important part of maintaining a secure power system. Frequency varies whenever electricity supply does not exactly match consumer demand and uncontrolled changes in frequency can cause blackouts.

Draft determination

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

The Commission’s 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 will 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.

Directions paper

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.

Further information on the Fast frequency response market ancillary service rule change is available at the project page.

The directions paper identified three pathways to enduring PFR arrangements in the NEM:

1. Maintain the existing mandatory PFR arrangement with improved PFR pricing. 
2. Revise the mandatory PFR arrangement by widening the frequency response band and develop new FCAS arrangements for the provision of PFR during normal operation (primary regulating services). 
3. Remove the mandatory PFR arrangement and replace it with alternative market arrangements to procure PFR during normal operation. 

The rule change request

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. AEMO identified a series of perceived disincentives in the NER to generators voluntarily operating their plant in frequency response mode, leading to a reduction in the amount of plant in the NEM that provide PFR.

The rule change request identified the following focus areas:

• the arrangements for the allocation of regulation service costs, known as 'causer pays'
• generators prioritising compliance with dispatch instructions over frequency response
• a perception that the NER requires generators to be frequency responsive only when they are enabled to provide a Frequency control ancillary service (FCAS).

On 26 March 2020, the Commission made a final rule in relation to two related rule change requests. The Mandatory primary frequency response rule resolved the identified issues related to the prioritisation of dispatch instructions over frequency response and when a generator may operate in a frequency responsive mode.

The remaining objectives for this rule change request are to investigate the appropriateness of the existing incentives for the provision of PFR during normal operation and amend these arrangements as required to meet the future needs of the power system.

Background

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, and 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.

On 2 December 2021, the Commission extended the timeframe to make a final determination until 7 July 2022. The extended timeframe allows for further analysis and consultation on the frequency performance payments process set out in the draft rule.

On 19 December 2019 the Commission extended the period of time for making the draft determination to 24 September 2020 under section 107 of the NEL. This extension allowed  the Commission to develop and consult on improved incentive arrangements for frequency control during normal operation.

On 2 July 2020, the Commission published another consultation paper discussing broader issues related to the provision of system services in the NEM. This paper provided an update, and sought stakeholders views on, the objectives and directions for the Primary frequency response incentive arrangements rule change.

This rule change request was originally named, Removal of disincentives to primary frequency response. The new project name more accurately reflects the scope and objectives for this rule change request following on from the final determination for the Mandatory primary frequency response rule. 

On 24 September 2020, the Commission extended the timeframe to make a draft determination until 16 September 2021. The extended timeframe allowed AEMO to undertake further work to understand the operational and economic impacts of incentive- or marked-based provision of continuous primary frequency response. AEMO’s advice, helped inform  the AEMC’s draft decision on whether and how new incentive arrangements could complement or replace the Mandatory Primary frequency response that were introduced in June 2020.