Securing the future for renewables

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by Suzanne Falvi, Executive General Manager, Security and Reliability, Australian Energy Market Commission

Fundamental changes to our energy system are underway, as old coal-fired power stations continue to close at the end of their operational lives. At the same time, we now have a much larger proportion of weather-driven generation capacity in the mix, along with rapid uptake of rooftop solar, battery storage and smart energy management systems at the distribution level.

The increasing penetration of wind, solar and distributed energy resources in our electricity system provides both opportunities and challenges.

They are opportunities because they offer a way of decreasing carbon emissions in the electricity sector and therefore contributing to our international commitments. Also, renewable technologies and distributed energy resources offer variety in the energy mix, and with this variety comes the ability to offer customers more choice and control.

But the rapid penetration of these new technologies also creates challenges for a system that was built around large, centralised power stations that are synchronised to the grid.

These challenges fit into two basic categories:

Challenges to the reliability of the system – having enough generation and network capacity available to meet demand

Challenges to the security of the system – the ability of the system to operate within its technical limits

On the reliability front, variable generation like wind and solar cannot always be depended upon as a dispatchable source of energy. That’s why the AEMC’s Reliability Frameworks Review is looking at how regulatory frameworks should change to help deliver long-term electricity reliability at least cost to consumers. This includes exploring ways to improve the transparency of demand forecasting, and also Finkel Review recommendations relating to demand response, providing day-ahead information, and designing a strategic reserve.

On the system security front, it’s becoming harder to manage frequency as synchronous generators – the ones the system relies on to keep everything in check – retire and new invertor-connected technologies replace them, but without providing the characteristics that are necessary for system security. Also, the increasing penetration of distributed energy resources is starting to present challenges for grid operation. This is because distribution network businesses have very limited information on the ability of their low voltage networks to manage the electricity which is exported from distributed energy resources.

All of this adds up to a power system that is harder to manage, so we need to make it work by managing the system differently. And we are.

A targeted, least-cost approach to solving the system security problem

Keeping the system secure as it continues to transform involves many, small technical measures, along with making sure we have the right incentives to support market-based solutions wherever possible. This targeted approach is laser-focused on getting the balance right between cost and system security for consumers.

We’ve recently made a suite of changes to the rules that set the foundations for a new way of operating:

New rules to manage the rate of change of power system frequency by requiring networks to maintain minimum levels of inertia. For example, networks can contract with suppliers to provide inertia substitutes like fast frequency response from batteries or demand response, with approval from the Australian Energy Market Operator (AEMO).

New rules to make networks provide services necessary to meet minimum levels of system strength at key locations in the power system when shortfalls are identified by AEMO. The rules also require new connecting generators to pay for remedial action if they are going to negatively impact on minimum system strength levels.

A requirement for generators and networks to give AEMO more detailed information about how their equipment performs.

New “last line of defence” schemes to help AEMO better prepare for, and respond to, a system security emergency.

We are also working on further reforms related to other emerging system security issues. Questions we’re tackling include:

What kind of information do we need about distributed energy resources like small-scale battery storage systems and rooftop solar to keep the system secure? As a key first step, we’re working on a rule change request to establish a national register of distributed energy resources to give network businesses and AEMO more data to help plan and operate the power system.  

What characteristics do new connecting generators need to bring to the system? We will be making a final determination later this year on changes to technical performance standards for generators seeking to connect to the grid, and the process for negotiating those standards. These standards include technical capabilities related to voltage and frequency control, and the ability to stay connected even when there is a major disturbance to the power system. This major piece of work is the result of a rule change request from AEMO and months of cross-industry collaboration.

What is the best way to address deteriorating frequency performance in the grid? This has been the focus of our frequency control frameworks review, and includes investigating how to enable and appropriately reward frequency response from newer technologies.

Harnessing the potential of new technologies

A key focus for the AEMC’s work program is the potential for harnessing new technologies like batteries, wind farms and distributed energy resources to help maintain system security.

We’re already seeing this happen. In 2017 EnerNOC, a provider of energy intelligence software and demand response services, registered as a Market Ancillary Service Provider and is now participating in the frequency control markets by offering a reduction in its aggregated portfolio of mostly commercial and industrial loads. This was made possible by a rule change we made in 2016 to increase competition in ancillary services including frequency control.

This is just one example of how the AEMC has adapted regulatory frameworks to facilitate new technologies and business models. Other recent rule changes include:

Opening up competition “behind the meter” so network businesses don’t lock out innovative solutions or limit the value streams a project can get.

Extra scrutiny when networks are looking to expand – to make sure a range of technologies can be considered as viable alternatives to poles and wires.

Changing the settlement period for the electricity spot price from 30 minutes to five minutes, starting in 2021. Five minute settlement provides a better price signal for investment in fast response technologies, such as batteries, new generation gas peaker plants and demand response. These fast responders are needed to support the increasing penetration of variable generation in the market.

And we will continue to redesign the energy market as much and as often as we need.

However, the Commission relies on feedback from stakeholders – whether that be industry participants, governments, or market bodies or consumers – about how the market and the regulatory frameworks are working on the ground. If there are barriers to new technologies or business models entering the system, we rely on stakeholders to flag them.

Everyone has the power to request a change to the rules – and to help us find lasting solutions that will work in the long term interests of consumers. If stakeholders have ideas on how to do this – at lowest cost – then we want to hear from them.

Market signals to enable a technology-neutral approach

In our business – the rule making business – we focus on the signals the market is sending to investors. We make sure that “what the system needs” and “what customers want” are valued appropriately in the market so they are actually delivered.

We think about and look at the price of energy in the spot market, the price and availability of long-term contracts, how the system is performing in terms of security and reliability, and the activity in the ancillary service markets.

All these signals say something about what the system needs to be able to deliver secure and reliable electricity to customers. So, the characteristics of the future energy mix, not simply the mix itself, are important. The rules we write allow for the best solutions that will maximise benefits to consumers. Rules that are technology-specific will be irrelevant as soon as the next invention comes along, and they stand in the way of innovation we can’t even imagine yet.

We focus on making sure the system has the right information for the investment and operational decisions that need to be made, as well as providing the necessary tools to intervene if there’s an emergency.

The new-look grid

The National Electricity Market is now a closely interconnected system of renewable and nonrenewable energy generation sources and technologies that need to interact effectively. We are working to secure the future of renewables and new technologies in this new-look grid.

Together with the other energy market bodies, industry, governments and consumers, we’ll continue to work on finding the lowest cost ways to keep the lights on by addressing the technical complexities brought on by changing energy technology.

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