AEMC unveils plans for storage integration in the NEM

What you need to know

• The AEMC published its long awaited draft determination and rule in relation to the integration of energy storage into the NEM on 15 July 2021.
• The draft decision creates a new participant category, an Integrated Resource Provider, to capture participants with bi-directional energy flows to avoid dual registration and other deficiencies in the NER's application to hybrid and storage facilities.
• The rules clarify that TUOS and DUOS will be payable in relation to storage or hybrid facilities.
• The rules enable aggregators to recognise small-scale storage and provide market ancillary services from both generation and load.
• The non-energy costs recovery framework has been amended so that, irrespective of the registration category, cost recovery is based on a participant's gross consumed or sent out energy in a trading interval.
• The AEMC has also published a final determination and rule to introduce two new "very fast" frequency control ancillary services (very fast raise and very fast lower) to foster innovation in faster responding technologies (such as batteries).  

What you need to do

• Stakeholder submissions on the integrating storage draft determination and rules are due to the AEMC by 16 September 2021, ahead of a final determination and rule due on 28 October 2021.  The rules are intended to commence in April 2023.
• The AEMC will also hold a briefing session on the draft determination, which interested parties may attend. This will be held prior to the closing of the submission process on a date to be announced.
• The new rules introducing new very fast frequency control ancillary services will commence on 9 October 2023.  AEMO will amend and publish the market ancillary service specification to take account of these new services by no later than 19 December 2022.

Key observations

• The draft rule is largely consistent with current treatment by the AEMO of the registration and connection of standalone energy storage facilities and hybrid facilities (including the approach set out in AEMO's fact sheet on the registration of hybrid facilities in the NEM).  The draft rule incorporates amendments to confirm the position in the fact sheet together with some other important modifications as described in this article.  
• There are some key issues that have been raised by industry that have not been addressed in the draft rule.
• Issues associated with later retrofitting of a renewable generator with a storage facility (in effect, creating a hybrid facility) have not been addressed including:
  • the prospect of having to re-negotiate the GPS for the existing renewable generator under clause 5.3.9 of the NER, and the associated requirement to conduct system strength impact assessments – each of which may require the installation of additional equipment at the facility to comply with the latest technical requirements; and
  • the fact that separate entities may own different components of a hybrid facility, which will give rise to a person owning and operating a network (and under current requirements, one of those entities would need to be a registered Network Service Provider and would need to separately connect each component of a hybrid facility to its registered network, which creates a significant barrier to implementation of a retrofit).

• The draft rule does not change the current approach of setting performance standards at the connection point (rather than at the asset level), which means an IRP's facility will still be subject to a single GPS.  However the draft determination notes that the GPS "would reflect the technical and performance capabilities of each unit behind the connection point" – it is not entirely clear how this is reflected in the draft rules.

• The draft determination confirms existing arrangements for payment of TUOS and DUOS charges and require IRPs to pay TUOS and DUOS for the load components of their facilities. We understand that current storage facilities are treated differently with respect to payment of TUOS/DUOS charges (depending on what is negotiated and the connecting Network Service Provider's own interpretation of the NER). We also understand that the AER has issued a number of "no-action letters" in respect of some storage facilities, which have allowed the TNSPs  to not impose TUOS charges. 
  
  This is a significant change given AEMO's rule change request sought an exemption for storage from the TUOS and DUOS charges. This could have a significant financial impact on projects. It also remains to be seen whether networks will start imposing charges on those existing storage facilities at this time. 

Background

On 15 July 2021, the Australian Energy Market Commission (AEMC) published its draft determination and rule in relation to the Integrating energy storage systems into the NEM rule change. The draft rule is a significant development in the broader market reform piece currently underway to prepare a future-proof framework suitable to the energy transition. 

Storage and hybrid facilities are experiencing huge momentum, supported by the need to provide system security due to the upcoming retirement of ageing thermal generation assets, and to firm growing amounts of renewable generation. 

The AEMC's draft rule intends to better integrate storage and hybrid facilities into the National Electricity Market (NEM), and resolve some of the deficiencies in the application of the National Electricity Rules (NER) to these technologies.

Once made, the final rule changes are intended to commence in April 2023.

Existing arrangements – Hybrid and energy storage systems

Registration

The NER do not define storage technologies, and were traditionally based on a one-way flow of electricity. As a result, there are no specific registration categories and classifications for storage units and hybrid facilities, meaning that participants must register and participate in the NEM under two separate categories (Market Generator and Market Customer) in relation to storage units.

TUOS/DUOS

Under the existing framework, there is a lack of clarity around how transmission use of system (TUOS) and distribution use of system (DUOS) apply to storage and hybrid systems.  As a result, storage is being treated different depending on the connecting Network Service Provider's own interpretation of the NER (meaning that not all storage facilities currently pay TUOS or DUOS).

Dispatch

In order to participate in central dispatch run by the Australian Energy Market Operator (AEMO), a storage participant must provide both an offer to generate electricity and a bid to consume electricity, and will receive separate dispatch targets. AEMO's systems currently require two separate dispatchable unit identifiers (DUIDs) for the generation and load components of a facility, which add considerable administrative and regulatory complexity.

Other issues

The treatment of batteries as both load and generation in the NEM has various other consequences. This includes being subject to two different marginal loss factors (MLFs) (each for generation and load), different treatment to single-category participants in relation to the recovery of non-energy costs, different treatment of load and generation under the intervention compensation framework, and the need for two NMIs (one a dummy) for load and generation. 

Further, storage facilities have a single connection agreement and generator performance standard (GPS), creating complications as technical obligations for generators are more onerous than that for loads.

Draft rule change – Hybrid and energy storage systems

The centrepiece of the draft rule change is the introduction of a new participant category, the Integrated Resource Provider (IRP) into the NER. The draft rule also clarified the application of TUOS/DUOS, proposes significant changes to the non-energy costs recovery framework and makes considerable changes elsewhere throughout the NER in order to better integrate storage and hybrid facilities into the NEM and to update and streamline the NER.

Definition of storage in the NER

Aligning with the rationale of the Post-2025 market reforms under consideration by the Energy Security Board, the draft decision uses technology-neutral language in its new definitions in the NER. As such, the new term "integrated resource unit" (or IRU) has been created for a unit that has both load and generation, to avoid referring to energy storage specifically. The AEMC considers that defining storage or hybrid facilities based on their technology (i.e. based on whether a unit stores energy) is not necessary as different obligations will instead attach to a unit based on the services it provides to the market, that being, whether it can provide generation or load, or both.

New participant category

The IRP category will accommodate a variety of participants with bi-directional energy flows that may both offer and consume energy, and ancillary services, including storage, hybrid facilities and aggregators of small generation and storage units.

Under the draft rule, it will be mandatory for any new participant to register as an IRP if, behind a single connection point, it has both generation capability (sufficient that on its own would see it register as a Market Generator) and consumption from the connection point above auxiliary load. The draft determination would also make it mandatory for an existing participant that is registered as both a Market Generator and Market Customer in relation to the same facility to re-register as an IRP. 

Participants registered as Market Small Generation Aggregators will automatically be re-registered as IRPs, and as such would become a "Small Resource Aggregator" (SRA) in respect of each of their small generating units. SRAs (with small generating/storage units under 5 MW) will be allowed to provide market ancillary services from generation and load, where they meet technical requirements to do so. 

The IRP market participant category will be integrated into the intervention compensation framework to resolve issues that storage facilities face under the current framework as a consequence of dual registration. IRPs will also be liable entities under the Retailer Reliability Obligation (RRO) if their aggregate annual load exceeds 10GWh in a particular NEM region.

TUOS and DUOS

The draft rule includes minor changes to the NER to clarify the application of TUOS and DUOS charges. This is a departure from AEMO's rule change request which sought an exemption for storage from the TUOS and DUOS charges, in part because the AEMC considered this would not fit a technology-neutral approach to the rules. 

The new market participant category, the IRP, will be treated as a Network Customer for the purposes of Chapter 6A in relation to electricity taken from the grid and therefore will pay TUOS for prescribed transmission services.

Recovery of non-energy costs

The draft rule will amend the non-energy costs recovery framework to align with the overarching principle to base the recovery of these costs on a beneficiary/causer pays approach, or if that is not possible then disperse the costs as broadly as possible.  To effect this, it proposes to amend the non-energy costs recovery framework so that, irrespective of the participant category, cost recovery is based on a participant's gross consumed or sent out energy in that relevant interval. This amended framework would provide that consumed and sent out energy will be measured separately for all market participants and not netted at the connection point, or among a market participant's connection points (ie, non-energy cost recovery would be based on a participant's gross energy flows during relevant intervals).  

The AEMC has designed this reform to align with a move towards a two-sided market, as the costs will be recovered from participants proportionally based on how they interact with the market through the demand and supply side services they provide, not the assets themselves or participant categories that deliver them. It intends to remove the disparity between how storage participants are currently treated compared to other participants, by recovering non-energy costs from all participants in the same way they are currently recovered from storage participants. 

Ramp rates

The AEMC has decided to set a minimum ramp rate at the lower of 3 MW or 3% of scheduled load capacity and remove the 6 MW threshold for aggregating semi-scheduled units. This would see a consistent minimum ramp rate set for the following that have the same number of units and MW capacity:

• storage and non-storage participants;
• load and generation units; and
• scheduled and semi scheduled units.

This is intended to make storage participation less complex, be more equitable for scheduled generation and load, allow semi-scheduled participants to aggregate units above 6 MW and better align with the longer-term two-sided market vision of treating load and generation more consistently. 

Other changes

The draft rule changes drafting throughout the NER to reduce the extent of technology, direction and participant specific language and to address ambiguity of how certain terms and concepts apply to energy storage and hybrids.  It also consolidates certain provisions in Chapter 2 of the NER.

Fast frequency response market ancillary service final rule

The AEMC made a final rule change on 15 July 2021 in recognition of the need for the market to adapt to bi-directional service providers. The AEMC published its final rule in its Fast frequency response market ancillary service rule change, creating new markets for very fast frequency response. The final rule introduces two new market ancillary services (ie FCAS services) to help control system frequency and protect system security: the "very fast raise" and "very fast lower" service. The same market arrangements (registration, scheduling, dispatch, pricing, settlement and cost allocation) applicable to existing fast raise and fast lower services will apply to these two new categories. 

These new categories provide a new income stream for batteries, aggregator and hybrid businesses, which are positioned to be able to react at short notice when frequency control is needed to protect the system.

The new fast frequency response rules will commence in October 2023.

Authors: Paul Newman, Partner; Andre Dauwalder, Senior Associate and Jacklin Molla, Associate.