One other thing development that occurred through the past week was that the AEMC published its final determination relating to Primary Frequency Response Incentive Arrangements on Thursday 8th September 2022:
|The Report||Other Materials|
You can download the 100-page PDF of the Final Determination here:
Further information about this was published by the AEMC:
1) on the project site here; and
2) in this Media Release.
In this article we’ll briefly describe…
(A) What the AEMC noted
In this Media Release, the AEMC notes:
‘The Australian Energy Market Commission (AEMC) will introduce a financial incentive for market participants who help to control the power system frequency required to keep the grid stable and keep costs down for consumers.
The new frequency performance payments will incentivise market participants to operate their assets in a way that will reward both power generation and load to help provide primary frequency response to control system frequency and keep it stable.
AEMC Chair Anna Collyer said the new arrangements will be introduced as part of a final determination and rule announced today and build on an existing ‘causer pays’ process that allocates costs for regulation services to market participants that cause the need for corrective action.
In addition to frequency performance payments, the Commission has confirmed an existing mandatory primary frequency response requirement applicable to large scheduled and semi-scheduled generators will endure beyond the planned sunset date of 4 June 2023. ’
Quickly scanning the Final Determination, two things jumped out to me:
Firstly, the following implementation milestones was provided by the AEMC(p4/100) and will provide us a useful point of reference :
|8th September 2022||Two milestones:
1) Publication of final rule; and
2) Commencement of obligation for AEMO to report on aggregate frequency responsiveness on a quarterly basis.
|by 8th May 2023||
AEMO to consult on and publish the Primary frequency response requirements.
|by 8 June 2023||
AEMO to consult on and publish the Frequency contribution factor procedure
|8 June 2025||
Commencement of the new frequency performance payments process and the obligation for the AER to report on the costs of frequency performance payments.
This is further discussed in section 1.1.4 (p16/100).
(A2) Three core elements
When we reviewed the Draft Determination, we noted the first two of the three core elements the AEMO speaks about:
Element #1) Continuation of mandatory requirements for PFR
The AEMC says (p5/100) that:
‘The final rule confirms that all scheduled and semi-scheduled generators will continue to be required to support the secure operation of the power system by responding automatically to changes in power system frequency.’
The AEMC notes, with respect to reservations expressed by some stakeholders to continuing the mandatory provisions …
‘the Reliability Panel is in the process of reviewing the FOS, including the specification of the primary frequency control band (PFCB) that sets the sensitivity for mandatory PFR. The Commission expects that the Reliability Panel will also recommend the timing for a subsequent future review of the FOS which will allow for settings in the FOS for normal operation, including the PFCB, to be further reviewed following a sufficient period of operational experience with the new frequency performance payments in effect. T.’
There is more detail provided about this Reliability Panel review in section 1.3.1 (p21/100).
Element #2) Making ‘Causer Pays’ double-sided
The AEMC says (p3/100) that:
‘These arrangements will value helpful frequency response provided in accordance with the mandatory PFR requirement and also incentivise provision of additional PFR to support the effective control of system frequency into the future. In other words, it will encourage the PFR service to be provided to the system when it is most valued.’
A couple additional notes:
(A) Contribution from AEC and ARENA (via IES)
With respect to this element, the AEMC makes particular reference (p4/100) to
‘the contribution provided by ARENA and the AEC to the development of the frequency performance payments process. The Australian Energy Council double-sided causer pays study, completed on 30 April 2022, progressed the theoretical design for performance-based frequency incentives in the NEM through the application of double-sided causer pays. This project helped to progress the conceptual development for the frequency performance payments process and educate industry participants on how such a process could work to support the efficient provision of frequency control services.’
… and for our own future ease of reference I have tied in here:
1) Documentation I found on the AEC website:
(a) see the AEC’s submission to AEMC on 16th June 2022 about the Rule Change process;
(b) also see the AEC’s article ‘A 50 Hertz incentive: Double-sided Causer Pays’ on 17th February 2022
2) Documentation on the ARENA website under this knowledge-sharing project, with the ARENA site hosting four reports:
(a) A 102-page ‘FINAL REPORT: A double-sided Causer Pays implementation of frequency deviation pricing’, by IES on 4th February 2022
(b) A 57-page ‘ANALYSIS REPORT: A double-sided Causer Pays implementation of frequency deviation pricing’, by IES on 4th February 2022
(c) A 47-page ‘CONTROL AND PRICING THEORY REPORT: A double-sided Causer Pays implementation of frequency deviation pricing’, by IES on 14th July 2021
(d) An earlier 30-page initial ‘INCEPTION REPORT: A double-sided Causer Pays implementation of frequency deviation pricing’, by IES on 16th April 2021
(B) Costs more reflective of real-time use of Regulation Services
In section 1.1.2 (p12/100) the AEMC continues
‘the arrangements for the allocation of costs for the enablement of regulation services will be modified to be more transparent and to be more reflective of the real time use of regulation services. ’
… so I will be interested to read more, given the current mismatch in the timing of the measurement of the contribution and the cost allocation.
(C) How will this new ‘Causer Pays’ impact on what appears to be unfolding with self-forecasting for Semi-Scheduled assets?
On this WattClarity site we’ve included a number of articles historically about the ‘Causer Pays’ method that is used to apportion the costs of Regulation FCAS (but not Contingency FCAS). In particular we’d draw attention to:
1) Appendix 6 ‘A review of self-forecasting’ within the GenInsights21 publication, released 15th December 2021, that examined the interaction between incentives provided by Cause Pays and the use of Self-Forecasting for Semi-Scheduled assets; and also
2) Jonathon Dyson’s article about ‘the Rise of the Machines’ on 25th March 2022, which provided further information about this phenomena (and also spoke about auto-bidding, as another technology enablement).
Given our interest in the area, we’ll be reading the details of the AEMC’s Final Determination with reference to these observations about:
1) How the use of self-forecasting appears to be, on occasions, driven by Causer Pays cost minimisation drivers
2) But perhaps to the detriment of production of more accurate forecasts of the true capability of the wind or solar asset at important times (such as when operating under SDC).
So there is a bit of reading there for us to catch up on…
Element #3) New reporting obligations for AEMO and AER
The AEMC says (p3/100) that the reporting obligations are:
‘… in relation to the levels of aggregate frequency responsiveness in the power system and the costs of frequency performance payments. This change supports the principle of transparency and would provide relevant information to market participants and stakeholders to assess the effectiveness and efficiency of the frequency control frameworks over time.’
That’s all I have time to note, following a brief scan this afternoon.
(B) Prior discussion here on WattClarity
Prior articles on this WattClarity® site directly related to this rule change process were:
1) On 14th May 2021, I wrote about ‘Moving from mandatory PFR to an arrangement that’s more durable’ to follow:
(a) the AEMC’s Directions Paper from December 2020; and then
2) Then on 6th October 2021, Marcelle wrote about ‘AEMC proposes PFR to remain mandatory–and big changes to causer-pays’ following the publication of AEMC’s draft determination.
1) we’ve started putting together this Chronological Record about PFR as part of the WattClarity Glossary … which we will have to update with these new developments.
(C) Coverage elsewhere?
I’ve done a very quick scan, but could not find much coverage of this elsewhere.
As a reader here, if you come across any other useful commentary, feel free to add as a comment below?