Only 14 weeks to go until Frequency Performance Payments

Full financial operation commences 8 June 2025.

The non-financial operation (NFO) period commenced in December 2024 and runs until the start of full operation on 8 June.

The commencement of the NFO period was observed in Frequency Performance Payments (FPP) project commences non-financial operation, 9th December 2024

The change is the implementation of the Primary frequency response incentive arrangements rule.

Why the change?

A deeper dive into the reasons for the reform can be found at Incentivising primary frequency response, and links therein.

At a broad, high level, there were no incentives to provide primary frequency response under the prior arrangements.

• By 2019 there was widespread recognition that many generators had stopped voluntarily providing PFR (or reduced sensitivity to the provision), and that had contributed to declining system frequency over time.
• Without PFR, regulation FCAS was the only mechanism regulating frequency within the NOFB and this was inadequate.
• Primary frequency response was mandated on generators following recognition of the need for PFR.
• But the helpful fast-response deviations of PFR needed to be valued (paid-for and recovered).

What are the changes?

The changes that will impact market participants most greatly are best digested in two bites:

1. The recovery of regulation FCAS costs is changing.
   1. This means that the Causer Pays approach is replaced.
   2. The general principal remains the same – that unhelpful deviations attract their share of costs on Regulation FCAS.
   3. The details are different in many aspects.
   4. Our detailed description of the changes are at Incentivising primary frequency response.

2. In addition, a new set of arrangements – Frequency Performance Payments (FPP) – is introduced.
   1. This is the new source of potential payment (or cost) for units.
   2. Incentivises helpful contributions to grid frequency.
   3. It is 2-sided meaning, to borrow some phrasing from the new procedure,
      1. It is a zero-sum system in that units that are determined to contribute to poor frequency outcomes fund payments to those that contributed to positive frequency performance.
   4. Our detailed description of the new arrangement can be read at Incentivising primary frequency response.

How to understand more?

We recommend the following.

Background and general context:

• • About System Frequency
  • Our detailed description of the FPP reform’s changes – Incentivising primary frequency response

Indications and context for impact of the changes:

• • • Comparing and contrasting frequency measures [link link coming]
    • A review of regulation FCAS [link coming]

Frequently asked questions are answered in:

• • The AEMO FAQ on FPP (pdf)

The new arrangements come with a new procedure:

• • The FPP Procedure (Frequency Contribution Factors Procedure, landing page)