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Big old fossils will come out swinging at proposed 5-minute rule

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Mojo Power strongly supports the Australian Energy Markets Commission signalling a shift to settling the market at five minute intervals, rather than the existing 30-minutes.

The existing settlement arrangements blunt the signal for fast and flexible players to come in and balance the wholesale market in near real-time. It’s those flexible players that will form the backbone of a smarter, more integrated and resilient grid that can accommodate the transition to decarbonisation that we know we need to achieve.

The big old fossils are going to come out swinging at this decision. They’re going to say the costs are too high and they outweigh the benefits, and they’re going to say that we can’t be sure that flexible capacity will come in to meet the supply/demand equation in five minute intervals.

Both of those arguments are bogus.
 
Firstly, we acknowledge there will be costs and some of those will look pretty big. But the costs here are one off and mostly involve updating archaic systems that need updating in any event.
The biggest cost will be to AEMO in updating its market settlement architecture, and AEMO fully supports the rule change. The benefits however accrue over many, many years, and cover a broad range of areas such as market efficiency, removing distortions in bidding incentives, and topically, improving system security as we decarbonise the energy system.
 
A lot of work has been done to show that there is quite a bit of flexible capacity that would be readily available in the market if it moves to five minute settlement. There’s a lot of existing ramping capacity and some demand response capacity in the C&I space. The move should incentivise a lot more demand response to enter as low hanging fruit.
There’s also now ample evidence of the huge potential of grid scale batteries, shown in the 90 to 100 responses to each of the South Australian and Victorian governments’ storage capacity tenders recently closed. And we haven’t even discussed residential or commercial scale behind the meter storage, which itself is at an inflection point. 
 
I think we can be confident the capacity will be there. In fact, that’s what the incumbents are scared of. They’re scared their investments in gas peakers won’t be as valuable because they will have a harder time competing in a world where flexibility and rapid response is valued by the market.  
 
Comments on replacement asset planning arrangements:
 
It’s a big day for the AEMC. On the same day they signalled a move to five minute settlement, which would build up the value for flexible and distributed energy resources from the wholesale market, they have also made a draft decision that would build up the value that flexible and distributed energy resources can accrue by providing services to networks.
 
The decision extends the application of regulatory investment tests (the RIT-T and RIT-D) to include replacement projects. The RIT processes required networks to tender for “non-network solutions” (such as demand management) before deciding to build new infrastructure. That’s now been extended to projects that would replace existing infrastructure.
This is important because the networks have done a lot of building new infrastructure over the last 10 years to meet levels of demand that have not eventuated, so a good deal of the activity going forward is going to be in the replacement of infrastructure.
 
The decision also comes with new rules around transparency of when and where such investment will be required for networks, giving demand management providers better information to help them plan and model potential projects. 
 
In our view the headline is that reducing demand rather than building stuff is a good outcome. We support the intent of the AEMC here but will of course need to consider the detail so we can be sure the policy is workable and achieves this goal.

Dominic Adams is Regulatory Strategy Manager for retailer Mojo Power

  

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  • Darren

    I appreciate all these articles and inside perspectives. Really great for someone who doesnt work in the industry at all but is trying to stay up to date and educated as much as possible.

  • Miles Harding

    There seems to be a serious problem with the free market model:

    Renewables and storage are going force coal out of existence and gas peakers into a small corner, where they will only be called on for periods totalling a few weeks per year.

    I see this as a very good case for public ownership of the transmission and short term fossil generations assets. By necessity, these will be run inefficiently in order to cope with those occasional demands that make the difference between the grid staying up and crashing.

    The amount of this ‘inefficient’ capability could be greatly reduced by exposing consumers to the real cost of supply (peaks and low wind/solar) and permitting them to take steps to reduce their exposure.

    As I recall, it was as the opponent came out swinging that Muhammed Ali would KO him with one of his lightning jabs.