Integrating Energy Storage Systems Into the Nem) Rule 2021

Integrating Energy Storage Systems Into the Nem) Rule 2021

Australian Energy Market Commission DRAFT RULE DETERMINATION NATIONAL ELECTRICITY AMENDMENT (INTEGRATING ENERGY STORAGE SYSTEMS INTO THE NEM) RULE 2021 Proponent: AEMO 15 JULY 2021 DETERMINATION Australian Energy Draft rule determination Market Commission Integrating energy storage 15 July 2021 INQUIRIES Australian Energy Market Commission GPO Box 2603 Sydney NSW 2000 E [email protected] T (02) 8296 7800 Reference: ERC0280 CITATION AEMC, Integrating energy storage systems into the NEM, Draft rule determination, 15 July 2021 ABOUT THE AEMC The AEMC reports to the Energy Ministers Meeting (formerly the Council of Australian Governments Energy Council). We have two functions. We make and amend the national electricity, gas and energy retail rules and conduct independent reviews for the Energy Ministers Meeting. 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 Draft rule determination Market Commission Integrating energy storage 15 July 2021 SUMMARY 1 As the electricity system transitions, energy storage is playing an increasingly important role and the regulatory framework needs to accommodate this shift. This draft determination explains the changes we are proposing to enable the integration of storage into the NEM. 2 On 23 August 2019, the Australian Energy Market Operator (AEMO or proponent) submitted a rule change request to the Australian Energy Market Commission (AEMC or Commission) seeking to amend the National Electricity Rules (NER) to define storage and introduce a new participant category, the bi-directional Resource Provider (BDRP), and apply storage-specific obligations. AEMO's proposal was intended to remove barriers and better facilitate the integration of storage and hybrid facilities into the national electricity market (NEM). 3 In response to the rule change proposal, the Commission has made a more preferable draft rule that introduces a new participant category, the Integrated Resource Provider (IRP), that will accommodate storage and hybrid facilities in a flexible and technology-neutral way. The more preferable draft rule also makes changes to the recovery of the non-energy costs framework that recognise many participants now have two-way energy flows, and will better reflect how participants use and benefit from the non-energy services AEMO procures to operate the power system in a safe, secure and reliable manner. A range of other changes are also proposed throughout the NER to remove barriers and better integrate storage and hybrid facilities into the NEM, and to update and streamline the NER. 4 The more preferable draft rule has been considered alongside the Energy Security Board's two-sided market work which is looking at simplifying the participation framework more holistically, with a move towards a services-based model and a single trader participant category in the future. The changes proposed in this draft rule solve the immediate issues relating to integrating storage that were raised by AEMO, and takes important steps towards the two-sided market future being developed by the ESB. A future-focused framework for a changing market 5 The market is moving towards a future that will be increasingly reliant on storage to firm up the expanding volume of renewable energy as well as deliver the growing need for critical system security services as the ageing fleet of thermal generators retire. While the existing storage capacity in the NEM today is relatively small, it is forecast to increase significantly over the coming years (see Figure 1). It is therefore critical that this rule change not only resolves the immediately identified issues but that it creates a framework that facilitates innovation to supply energy reliably at the lowest cost to meet the long term needs of energy consumers. 6 In the short-term, the draft decision will remove barriers to storage and hybrid systems participating in the market and create a level playing field for all participants. This will primarily be achieved by introducing a new technology neutral participant category to accommodate participants with bi-directional energy flows. This new category will allow aggregators to classify small storage units and provide energy and ancillary services. The reforms will also level the playing field for all participants in relation to the recovery of non- i Australian Energy Draft rule determination Market Commission Integrating energy storage 15 July 2021 energy costs. This will remove distortions in the market that would otherwise become greater and increasingly drive inefficient behaviour and outcomes. These changes would open the market up to greater participation by both small and large batteries. Greater participation will likely lead to lower costs being passed onto end consumers through increased competition to supply energy and ancillary services. It will allow customers with generators or storage units (e.g. home batteries) to access a greater range of services and value. 7 In the longer term, these changes: • are the first steps along the path towards a two-sided market in the NEM in which both demand and generation participants respond to price based on their cost preferences and technical obligations are placed on services not participant categories • will facilitate innovative business models that deliver efficient market solutions to address reliability and security needs of the transitioning system • will remove barriers to entry for more flexible resources and services in the future power system, including providing flexibility to accommodate new forms of participants such as small and large storage units embedded into hybrid systems as well as standalone • provide a market signal to investors that the new category is being set up as the future universal category as outlined through the ESB’s two-sided market work. Figure 1: Existing and planned energy storage capacity in the NEM 0 Source: AEMO's Generation Information Page. It can be accessed here. Key issues raised in the rule change process 8 The Commission has engaged stakeholders through two rounds of consultation to date. After considering stakeholder feedback, the Commission considers that there are material issues to ii Australian Energy Draft rule determination Market Commission Integrating energy storage 15 July 2021 be addressed to better integrate storage into the NEM. These issues are important to address, not only for current participants, but also to accommodate the greater amounts of storage and hybrid facilities that are expected to enter the market in the future. The Commission considers a number of key issues need to be resolved: • The requirement under the NER for storage and hybrids to register in two registration categories. This is not only an issue in the registration process, but also for participation in dispatch, where storage units have to provide two separate bids (one from each registration category). • The NER requirements for DC coupled hybrid facilities are unclear. In particular, it is important to clarify the scheduling requirements for hybrids that are DC coupled to facilitate the entry and participation of those configurations which can also deliver benefits to the system. • How exempt batteries participate should be clarified and made more flexible. Specifically, it should be clear in the NER that exempt batteries can be included in the portfolios of aggregators and they should be able to provide ancillary services. • The framework for the recovery of non-energy costs needs to be changed to ensure there is a consistent approach across participation categories and technology types in light of increasing bi-directional flows. We are changing the rules to remove barriers to storage participation and facilitate future innovation Registration and participation 9 The Commission's draft determination includes the creation of a new technology neutral participant category, the IRP. It accommodates a variety of participants with bi-directional energy flows that may offer (and consume) energy and ancillary services. This includes grid- scale storage, hybrids and aggregators of small generation and storage units. 10 Introducing the IRP registration category also addresses issues raised by AEMO and stakeholders by: • enabling storage and hybrids to register and participate in a single registration category rather than under two different categories. Figure 1 provides an overview of the classifications and services that can be provided by the new IRP category. • providing clarity for scheduling obligations that apply to different configurations of hybrid systems, including DC coupled systems (with have different technologies behind a single inverter) who will have flexibility to choose whether those technologies are scheduled or semi-scheduled • providing in aggregate dispatch conformance for hybrid systems, subject to system security limitations • enabling batteries to participate in dispatch using a single dispatch bid, facilitated by the proposed new term in the Rules — the integrated resource unit (IRU) iii Australian Energy Draft rule determination Market Commission Integrating energy storage 15 July 2021 • clarifying that the current approach to performance standards that are set and measured at the connection point will apply for grid-scale storage units, including where part of a hybrid • transferring existing

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