The National Electricity Market (NEM) is transitioning from a dependency on coal to a system which will run at times entirely on renewable energy. The Australian Energy Market Operator (AEMO) forecasts that by 2025 the NEM will start to have sufficient renewable resource potential to, at times, meet 100% of demand.
But as AEMO’s Engineering Roadmap to 100% Renewables explains (see diagram below), on a day where there is 100% renewable resource potential in the NEM, this will not translate to 100% renewables dispatch in the absence of ‘essential system services’, which have traditionally been provided by coal and gas-fired generators. Essential system services (also known as security services) are required for the secure operation of the power system.
Prompted by the Australian Energy Market Commission’s (AEMC’s) proposed revisiting of its approach to procuring security services (AEMC, Directions paper on the National Electricity Amendment (Improving Security Frameworks for the Energy Transition) Rule 2023), this Insight provides an introduction to essential system services and the development of regulatory frameworks to support the delivery of these services.
Before getting into the specifics, it is useful to note the overall trends in this area and the opportunities it provides for market participants and consumer energy resources:
- Broadly speaking, other than for frequency control markets, essential system services have not traditionally been separately identified and rewarded in the NEM.
- The retirement of thermal generation that provided these services as a byproduct of their operation means market bodies are now looking at ways to define what essential system services are, how much is required, and the best way to procure such services. This is not an easy task and in some cases the requirements can be localised.
- With the exception of frequency, the essential system services are currently being procured on a contractual basis by either AEMO or transmission network service providers (TNSPs) but as AEMO’s understanding of the essential systems services increases, the objective is to move to market procurement.
- The contractual procurement processes are also trending to allowing longer term contracts to underwrite new facilities to provide such services and increase competition and to overcome localised market power.
- There are opportunities for market participants to participate in tenders to obtain non-energy revenue streams, particularly in system strength, as TNSPs procure the requirements needed by 2025.
The requirement: a ‘secure’ power system
The National Electricity Rules (NER or Rules) provide a framework for achieving and maintaining a secure power system. In general terms, the power system is secure when technical parameters such as voltage and frequency are maintained within defined limits. This means that following sudden shocks or events, for example a large generator going offline, the system remains stable, and can return promptly to a state where it can handle further shocks.
The NEM’s regulatory and market frameworks were originally designed around a power system consisting primarily of synchronous generation.
Synchronous generators (coal-fired, gas-fired and hydro-powered generators) are electromagnetically coupled to the power system. Such generators inherently provide certain services which enhance security of the power system as a by-product of energy generation. These services are commonly referred to as essential system services or security services.
Non-synchronous plant (solar, wind and batteries), by contrast, are connected to the power system through electronics. While these inverter-based resources can be configured to provide some services, unlike synchronous generators, they do not automatically do so as a by-product of their generation as a matter of course.
As the generation mix in the NEM shifts from synchronous to non-synchronous plants, these services need to be identified and procured independently.
What are essential system services
Frequency
In a synchronous Alternating Current (AC) power system like Australia’s NEM, frequency reflects the balance between active power generated and consumed. AEMO is responsible for managing power system frequency and time error in accordance with the regulatory frameworks in the NER, including the Frequency Operating Standard.
Frequency acts as an indicator of supply-demand balance in the power system, and it will remain necessary to maintain frequency within relatively narrow bounds around a nominal value for equipment to operate safely.
In an operating power system, the frequency varies whenever the supply from generation does not precisely match customer demand. Whenever supply is higher than demand, the power system frequency will rise, and vice versa. Therefore, controlling frequency is critically important to maintaining a secure and reliable power system. Imbalances between supply and demand are expected to occur within the five-minute dispatch intervals, and these imbalances are managed through a market for regulation frequency control services.
While the fundamentals of power system frequency are well-understood, and the NEM has advanced regulatory frameworks for managing frequency, new challenges for managing frequency are arising as the power system evolves. The increase in DC applications and inverter-based resources and other modern power-electronic devices within AC power systems is revealing new challenges for power system operation. These challenges create a need for new control strategies and methods to capitalise on the wider frequency ranges that may be tolerable.
In 2021, the AEMC made changes to the NER to introduce two new frequency services for very fast frequency response in order to account for the rapid changes in frequency that can occur where there is a high penetration of renewables. AEMO has since developed the specifications for these new services and the very fast raise and very fast lower frequency control markets opened on 9 October 2023.
Inertia
Inertia is a fundamental property of power systems. Power systems can resist large changes in frequency arising from an imbalance in power supply and demand caused by sudden changes in the power system, such as the loss of a generating unit or transmission line.
Mechanical inertia has a critical role in managing the rate of change of frequency (RoCoF) and so is linked to frequency. However, intertia is also an inherent physical property of the power system that impacts the overall system performance. It is important for all forms of stability more generally, which will require consideration as frequency response is increasingly provided by inverter-based resources instead of traditional synchronous machines.
However, there is more to understand for the implications for inertia procurement and the relationships with RoCoF. In addition, AEMO is trying to establish an understanding of ‘synthetic’ inertial response from inverter-based resources, including how the response might differ to the inertia inherently provided from synchronous machines, and potential plant level constraints on the capability to provide synthetic inertia.
AEMO is also trying to identify and progress opportunities for common solutions to address inertia requirements in conjunction with identified system strength needs, such as adding flywheels to synchronous condenser installations.
Voltage control
Voltage is a critical parameter in operating a power system. In an AC system, like Australia’s NEM, voltage and current oscillate together around 50 times a second. This oscillation is the cycle of voltage and current moving quickly between positive and negative values over time.
While the concept of voltage is well-understood, the impacts and consequences of a 100% renewable power system are not yet fully known. AEMO is undertaking studies to assess the impact of fossil fuel generation exit and decommitment on voltage stability limits in the power system.
AEMO is also planning and managing the changing requirements for static and dynamic reactive power to address the reduction in its provision from synchronous fossil fuel generation and requirements to support variable renewable energy entry in remote network locations. This includes work to review requirements for available inverters to maintain reactive support during low generation periods such as from solar inverters at night time.
System strength
Along with frequency and voltage, system strength is a core electrical quality that must be maintained for a stable power system, but it is a relatively new concept in the regulatory framework for the NEM.
System strength has been defined as the ability of the power system to maintain stable voltage waveform at any given location in the power system, both during steady state operation and following a disturbance. A smooth, consistent and predictable voltage waveform is critical to the power system’s voltage remaining within the parameters required for a safe transfer of energy from generators to consumers. A strong system with a stable voltage is particularly important for supporting the decarbonisation of the power sector that is currently underway.
The AEMC introduced a system strength framework for the NEM in 2017, and then revised this framework in 2021, reflecting an increasing understanding of the requirements for system strength in an evolving power system.
As part of this new framework, AEMO projects 10-years ahead the requirements for minimum fault levels for system security and requirements for stable voltage waveforms at nodes to host projected levels of inverter-based resources. The transmission network service providers are responsible for centrally procuring services to meet these projected requirements through the regulated network planning and investment process. The funding of these services is shared between both inverter-based resources and consumers.
System restoration
In the event of a ‘system black’ or wide-scale blackout of the power system, it needs to be restored safely and securely. This process will look very different in a 100% renewables world. Therefore, AEMO is assessing the system security requirements in the system restart process and the need for restoration support services for voltage control, frequency control, system strength, provision of fault current and other stability needs.
The system security requirements of some of these restart paths will require various restoration support services to manage voltage and fault levels, especially to connect the inverter-based resources that are required in the early stages of the system restart. AEMO is also investigating whether synchronous condensers may be required in strategic locations, without the coal fired generation fleet available to provide system strength and fault current, and whether there will be sufficient voltage control required to counteract overvoltage effects on lightly loaded transmission lines and to energise transformers.
The future
The power system will require additional engineering solutions to provide essential system services to maintain a stable electrical voltage and frequency and ensure a secure state of operation. Proven technologies such as synchronous condensers will play a role, alongside newer technologies such as grid-forming inverters.
While efforts have been made to unbundle some security services in the NEM (for example, system strength), this is not the case for all of them. The changing generation mix means fewer of these services are being automatically provided and there are few, if any, investment and operational signals to encourage new providers.
A particular issue in this space has been giving AEMO and the market certainty, prior to real time, as to availability of essential system services in real time. In recent rule changes, the AEMC has generally moved away from “aheadness” in giving AEMO the ability to commit resources prior to real time to support inverter based generation.
The AEMC had looked at setting up an ‘operational security mechanism’ to allow market participants to bid to provide system services. While it is efficient to value and procure security services individually, the AEMC recently concluded that this is not yet feasible given the current status of engineering knowledge and –is now proposing a transitional system focused on signalling incentives to the market through long-term procurement.
We are staying close to developments in this fast-moving market as they happen. To stay updated with insights from our Future Energy team, subscribe here.
Interested in our insights and experience on the future of energy including hydrogen, offshore wind and energy regulation?
