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Integrating Energy Storage Systems Into the Nem) Rule Australian Energy Market Commission CONSULTATION PAPER RULE NATIONAL ELECTRICITY AMENDMENT (INTEGRATING ENERGY STORAGE SYSTEMS INTO THE NEM) RULE PROPONENT AEMO 20 AUGUST 2020 Australian Energy Consultation paper Market Commission Integrating Storage 20 August 2020 INQUIRIES Australian Energy Market Commission GPO Box 2603 Sydney NSW 2001 E [email protected] T (02) 8296 7800 Reference: ERC0280 CITATION AEMC, Integrating Energy Storage Systems into the NEM, Consultation paper, 20 August 2020 ABOUT THE AEMC The AEMC reports to the Council of Australian Governments (COAG) through the COAG Energy Council. We have two functions. We make and amend the national electricity, gas and energy retail rules and conduct independent reviews for the COAG Energy Council. This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism and review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgement of the source is included. Australian Energy Consultation paper Market Commission Integrating Storage 20 August 2020 EXECUTIVE SUMMARY Energy storage is becoming an increasingly important part of the national electricity market (NEM) and recent forecasts point to a greater role for storage in the future. This poses the question of how the current framework should evolve to better support the market as it transitions. The Australian Energy Market Operator (AEMO) submitted a rule change request in August 2019 to amend the National Electricity Rules (NER) to support the participation of storage systems in the NEM, including by defining storage technologies in the NER. The rule change proposal seeks to address issues AEMO has identified with how grid scale batteries, aggregations of smaller batteries, and new business models with a mix of technologies behind the connection point (hybrid facilities), register and participate in the NEM. AEMO suggests that the rule change proposal would increase clarity and transparency for all stakeholders, remove barriers to entry for storage and hybrid facilities, and support the transition to an electricity system where more storage is needed to support variable renewable energy (VRE).1 In order to assess AEMO’s rule change proposal, the Australian Energy Market Commission (the Commission) needs to understand the significance of the issues identified by AEMO and whether they are likely to become worse in the future. Therefore, this consultation paper first seeks your feedback on the importance and urgency of the issues, and whether they require a regulatory solution. To the extent these issues are significant and do require changes to the NER to address them, we are also asking for feedback on whether it would be more appropriate to integrate storage and hybrid facilities into the framework by defining them and writing specific rules for them, as proposed by AEMO, or whether a level playing field could also be achieved through more minimal amendments to the existing framework. The types of changes required to achieve a technologically neutral approach, need to be considered in light of the characteristics of storage and hybrid facilities, and the future direction of the energy market. The issues on which we are seeking feedback include: • the registration and classification framework • technical issues relating to the connection and operation of storage and hybrid facilities in the NEM, including participation in central dispatch • the application of fees and charges, including transmission and distribution use of system charges and non-energy charges levied by AEMO • the intervention compensation framework • the Retailer Reliability Obligation • technology-specific language and definitions used throughout the NER. 1 AEMO, Integrating Energy Storage Systems into the NEM - Rule Change Request, p. 54. i Australian Energy Consultation paper Market Commission Integrating Storage 20 August 2020 Should storage and hybrids be defined in the NER? In its rule change request, AEMO recommends the NER be changed to accommodate the transition occurring in the NEM. The industry is changing from one structured around one way energy flows from large generators to customers, where storage technologies were largely uneconomic, to a future increasingly characterised by two-way energy flows where, more and more, participants are both buying and selling electricity. This transition is being driven by the expected increased role of storage technologies that both consume and send out electricity, and which will participate at all levels of the market from fixed grid scale batteries connected to the transmission network down to smaller distributed storage options that may be mobile. AEMO is concerned that the NER do not adequately recognise storage and increasing bi- directional flows because they do not contain a specific definition for storage to use as a basis for applying storage-specific obligations. As no forms of storage facilities are currently defined in the NER, storage assets are treated as both “load” and “generation” due to the fact that a storage asset can both ‘consume’ from and ‘send out’ to the grid significant amounts of electricity. AEMO’s rule change request suggests it is problematic for the NER to treat a single energy storage asset as both generation and load. While AEMO has been able to accommodate storage to date, it notes there still remain problems for storage registering and participating in the NEM under the existing regulatory framework. AEMO also suggests that this is an issue for hybrid facilities (that have a combination of load and generation behind the connection point, which may or may not include storage) because a hybrid facility would also be defined as being both load and generation, as the facility both consumes and sends out electricity. AEMO’s rule change request proposes to define storage and hybrid facilities, so that the NER better recognise storage and connection points with bi-directional flows. This proposal can be considered as the cornerstone of AEMO’s rule change request because these definitions underpin AEMO’s proposed solutions for how storage would register in the NEM and participate in dispatch. It is also the mechanism for AEMO’s proposal to clarify fees and charges and other obligations that apply to storage. AEMO notes in its rule change request that “defining and recognising energy storage systems (ESS) allows clarification of relevant NER requirements associated with ESS, this increases clarity and transparency for all stakeholders.”2 Since AEMO submitted its rule change request, the Energy Security Board (ESB) has been tasked with developing a post-2025 design. One of the key work streams in this design is the development of a two-sided market. In seeking feedback on AEMO’s proposal to define storage and hybrids in the NER, we note this may not align with the approach envisaged under the ESB’s two-sided market reforms. The two-sided market design work is considering a move away from defining specific technologies and assets in the rules towards a technology-neutral approach that attaches obligations to services. This rule change request will need to be considered in the context of these broader reforms, which may require 2 AEMO, Integrating Energy Storage Systems into the NEM - Rule Change Request, p. 54. ii Australian Energy Consultation paper Market Commission Integrating Storage 20 August 2020 considering solutions other than one that defines storage assets and hybrid facilities in the NER. We are interested in feedback on the best way to proceed given the different approaches of the two sets of reforms. Is there a problem with how the registration and classification framework treats storage and hybrids? If so, how should we fix it? In its rule change request, AEMO outlines a number of issues that, in its view, exist with the current registration framework for storage and hybrid facilities. In AEMO’s view, the current registration framework makes the registration process slower, more expensive, complex and uncertain when processing applications for storage and hybrid facilities. AEMO also suggests that, because the current framework for registration and classification does not fully consider storage and hybrid facilities, it creates issues when participants control more than one type of technology behind a connection point, and when some participants aggregate exempt storage units. AEMO suggests that these issues may create barriers to entry for participants with storage units and hybrid facilities, increase costs and regulatory risks for AEMO, and may increase costs for consumers, contrary to the NEO. We are seeking stakeholder feedback on the extent and materiality of these issues, whether they are likely to become more prevalent in the future, and whether AEMO’s proposed approach is appropriate or if alternative solutions should be pursued. What are the technical and operational issues facing storage and how can those issues be addressed? We are also exploring in this consultation paper a number of technical issues relating to the connection and operation of storage in the NEM. The key issues highlighted for stakeholder consideration are technical issues associated with participation in central dispatch, how energy limited plant like storage are reflected in short-term dispatch, and setting performance standards for storage units. We are seeking feedback on the extent of these issues, particularly given a number of stakeholders would have experience with connecting and operating
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