What you need to know
- It is anticipated that the role of energy storage in the NEM will continue to grow, with the rapid advancement of storage and hybrid technologies and the capacity of these to support renewable energy generation and the resilience of the NEM.
- AEMO has submitted a rule change request to the AEMC that proposes to amend the NER to address issues relating to how grid scale batteries, aggregations of smaller batteries and hybrid facilities register and participate in the NEM.
- The AEMC seeks stakeholder feedback on a wide range of issues, including the importance and urgency of the proposed amendments, and whether a regulatory solution is necessary.
What you need to do
- Stakeholders should consider making submissions to the AEMC by 15 October 2020 if their business utilises, or is considering utilising, storage or hybrid facilities.
- Market participants should consider how these potential reforms may influence their current and future contracts.
About the consultation paper
Energy storage technologies, such as batteries and pumped hydro, are predicted to play an increasingly important role in the National Electricity Market (NEM), as these technologies advance and become a more economically viable way to support renewable energy generation and increase the resilience of the NEM. The same can be said for new business models that involve a mix of technologies behind the connection point, known as hybrid facilities.
The Australian Energy Market Operator (AEMO) has identified the need for the National Electricity Rules (NER) to evolve in order to accommodate the transitioning energy market as it moves towards a future increasingly characterised by the use of these technologies at all levels of the market. To this end, AEMO submitted a rule change request to the Australian Energy Market Commission (AEMC) in August 2019 that proposes amendments to the NER to support the participation of storage and hybrid facilities in the NEM.
On 20 August 2020, the AEMC published a consultation paper seeking a wide range of feedback from stakeholders in relation to the issues raised, and proposed solutions presented, by AEMO in its rule change request. This rule change request will come as welcome news for market participants as the unclear application of the NER to energy storage systems and hybrid facilities to date has acted as a deterrent to widescale investment.
Feedback sought by the AEMC
The AEMC is seeking feedback as to the importance of the issues raised by AEMO in its rule change request, the urgency with which these issues need to be addressed, and whether or not the issues require a regulatory solution. Feedback is sought on a number of specific topics, which are outlined below.
Definitions for storage and hybrid facilities
Currently, the NER does not define any form of storage, with storage and hybrid technologies currently recognised as both load and generation. AEMO's rule change request proposes to define storage and hybrid facilities, so that the NER identifies the storage and connection points with bi-directional flows. Although these technologies have been accommodated to date, AEMO suggests that treating a single asset as both generation and load presents problems in relation to the asset's registration and participation in the NEM. AEMO's rule change request proposes to define bi-directional units (single or aggregated storage units) and bi-directional facilities (hybrid systems where flow can be in either direction at the connection point) as follows:
Definition of storage - a bi-directional unit
Plant that has the capability to both:
- consume electricity to convert into stored energy; and
- convert stored energy to produce electricity, together with all related equipment essential to its functioning as a single entity.
Definition for hybrid facility - a bi-directional facility
- A facility incorporating one or more bi-directional units;
- A facility incorporating an interconnected combination of one or more:
- bi-directional units with generating units and/or loads; or
- generating units with loads, where that combination of interconnected plant:
- is connected to a transmission or distribution system at a common connection point; and
- can be operated such that, at any time, there may be an amount of sent out electricity or an amount of consumed electricity at the connection point.
New registered participant category
In 2018, AEMO developed interim arrangement guidelines which set out how storage units should register and participate in the NEM. Based on these guidelines, and the requirements of the NER, participants with grid-scale storage units and hybrid facilities would typically be required to register as both a Market Generator and a Market Customer, with hybrid facilities also required to classify their units according to their technical capabilities. The consultation paper notes that AEMO considers the current registration process to result in increased costs for both intending participants and AEMO itself, and to be overly slow, complex and uncertain. In response to these concerns, AEMO proposes that the NER be amended to create a new registered participant category (called a bidirectional resource provider) and unit classification (called a bi-directional unit).
Technical and operational reforms
AEMO has suggested the following amendments to address certain technical and operational challenges it considers arise from the current operation of the NER:
- Scheduled storage assets will participate in central dispatch as a single asset with one dispatchable unit identifier (DUID) (if possible). Currently, the operator of a storage facility must participate in central dispatch by providing both an offer to generate electricity (from the export component of the storage) and a bid to consume electricity (from the import component). A hybrid facility would participate by submitting separate offers for each of its generating units and submit separate bids for each of its scheduled loads.
- Registered participants with a scheduled storage facility will submit a dispatch bid that reflects their available capacity for each trading interval, reflecting the "energy limits" of the scheduled storage unit (ie the remaining stored energy capacity). Currently, a scheduled storage facility is obliged to provide AEMO its daily energy availability if it was energy constrained, and as all utility scale batteries in the NEM could be considered energy constrained, it is unclear how the current rules should apply to batteries.
- Performance standards of registered participants will be based on the participant's physical assets. AEMO considers that the current application of performance standards to storage and hybrids is not appropriate, as there would be a single performance standard agreed for the connection point, but the technical requirements would differ between connecting generators and connecting loads, resulting in the requirements not being symmetrical for two sides of the same asset.
Separate cost calculation methodology
Market participants face a number of costs, including NEM participant fees and charges, non-energy costs associated with maintaining a safe and secure power system, and network charges associated with the use of the transmission and distribution networks. AEMO has identified that, as a consequence of being treated as both load and generation under the NER, the charges incurred by grid-scale batteries are inconsistent with charges incurred by other market participants. AEMO seeks to address this potential for inequality by changing the methodology of the calculation of these costs for the proposed bi-directional resource provider category.
Drafting and other reforms
Additionally, AEMO proposes that certain technology-specific drafting in the rules be updated to be technology neutral, and has identified that issues relating to the following should be considered:
- how mandatory restrictions and intervention compensation should apply to storage and hybrid facilities;
- how the Retailer Reliability Obligation should apply to storage and hybrid facilities, specifically whether they should be liable in respect of their loads;
- any changes relating to network losses and marginal loss factors (although AEMO has not proposed any significant changes in relation to this point); and
- other integration issues, including omissions or mistakes identified in existing rules, as well as the issue of representation on the Reliability Panel.
Impact of the post-2025 market design
Since AEMO submitted its rule change request, the Energy Security Board commenced work on its post-2025 market design. The AEMC has requested that stakeholders consider their feedback in light of this work, particularly the two-sided market design work, as the approach proposed in AEMO's rule change may not align with these proposed reforms. In particular, the two-sided market design work is considering a move towards a technology-neutral approach that attaches obligations to services, which differs from AEMO's proposal to expressly define storage and hybrid facilities.
The AEMC seeks feedback on whether it would be appropriate to: wait for the two-sided market reforms before making any amendments, introduce the rule change as an interim step prior to the two-sided market reform, or implement certain aspects of the two-sided market reforms through the rule change.
What's next?
Submissions to the consultation paper will close on 15 October 2020. Specific stakeholder questions relating to the above topics are detailed throughout the consultation paper, and have been collated in a stakeholder submission template.
This rule change request will be assessed over a longer period than usual, due to the impacts of COVID-19, the rule change's interaction with other reforms (particularly the two-sided market design initiative) and the extensive and detailed nature of the request.
Authors: Paul Newman, Partner; Danielle Davidson, Lawyer; Ainsley Masek, Lawyer; Madeleine Depace, Graduate.
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