Australian regulator flags new “reliability” rules for wind and solar farms

The Australian Energy Regulator has signalled that wind and solar farms may soon be bound by dispatch targets similar to those imposed on coal and gas plants, in a development that could have major implications for the country’s renewable energy industry.

The AER released a brief three paragraph statement on Thursday flagging the potential rule changes, saying it had been asked by the Council of Australian Governments (COAG) Energy Council to develop two rule change proposals to support system security in the national electricity market.

The regulator also proposes to move with unusual speed, saying a discussion paper will soon be issued, with a four-week consultation starting in June before a formal proposal is submitted to the Australian Energy Market Commission in late July.

The clean energy industry is looking on with deep interest, and some concern, given the potential impact on wind and solar farms and how they are bid into the market. The Clean Energy Council says it is awaiting further detail before making any comment on what’s at stake.

The proposed rule changes are seen as a possible interim measure to help the Australian Energy Market Operator manage the grid before a complete re-write of the market rules comes into place in 2025. The AEMO is very keen on what it calls “ahead markets” which can bind generators – either scheduled or semi-scheduled (wind and solar) – to their forecasts.

Wholesale market prices can move dramatically – up or down – if demand is higher or lower than expected, and if supply is also materially different to forecast. The supply changes can occur due to unforeseen trips or technical issues with coal or gas plants, or because of higher or lower wind or solar conditions than forecast.

There was concern raised in some quarters over the most recent summer that wind and solar plant operators had not given AEMO enough information about the impact on their output from extreme weather conditions, particularly in hot weather.

It remains to be seen if the AER rules go to address those particular circumstances, or something more broader that would require individual wind and solar farms to be armed with their own “firming” capacity.

The proposed rule change comes as the Energy Security Board contemplates an increase into Australia’s already tight “reliability standard” – which at 99.998 per cent is one of the highest in the world and cited as one of the reasons for the “gold plating” of the grid and the country’s sky-high retail electricity prices.

There is now a push to increase that standard even higher to 99.999 per cent, or even 99.9995 per cent. That’s a lot of nines, and is a level that would require an increasing amount of “back-up” and likely encourage more peaking gas plants or battery storage to be installed. A report by ACIL Allen suggests the current market price cap of $14,700/MWh could be lifted by a factor of two or three to accommodate that requirement.

“The analysis indicates that the current reliability standard (unserved energy not to exceed 0.002 per cent within a region over a year) is not consistent with the value that consumers place on reliability,” the report says.

“The analysis undertaken provides strong support (benefits demonstrably exceed the costs) for tightening the reliability standard to between 0.0005 and 0.001 per cent of expected unserved energy over a year.”

This comes amid a flurry of activity among the regulators, including acting with great haste to consider a request from the main utilities lobby that the proposed switch to 5-minute settlements – a change considered essential to stop market rorting and encourage new smart technologies such as demand response and battery storage – be delayed by a year.

The principal rule maker, the Australian Energy Market Commission, which delayed the introduction of 5-minute trading – first proposed in 2015 – to 2021, wants to make the decision on the proposed new delay without delay, and has called for submissions to be made within weeks. The clean energy industry is largely opposed to the proposed delay.

On the matter of the new reliability rules for the wind and solar farms, the AER statement was brief and non-specific, despite specifically using the word specifically.

“Specifically the AER must develop two Rule change proposals to:

“Require a semi-scheduled plant to continually inform the Australian Energy Market Operator of any restrictions on their available capacity due to physical factors, such as weather conditions and their market intentions.

“Require a semi-scheduled generator to follow their dispatch targets, in a manner similar to scheduled generators.

“The AER will work closely with stakeholders to develop the Rule change proposals and will publish an issues paper for discussion as well as hold a workshop to discuss the issue and options for Rule changes. The AER expects that a 4 week consultation should commence in June 2020 with a proposal to be submitted to the Australian Energy Market Commission late in July 2020.”

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