This article is part of our New Energy Insights series from our Energy, Infrastructure and Resources team. Stay tuned for regular updates and commentary on topical issues across the sector.
What are the changes?
Commencing in October 2023, two new “very fast” frequency control market ancillary services will be introduced under the existing ancillary services arrangements.
The new Fast Frequency Response (FFR) services are a clear recognition of the value to the power system of ultra-fast response (1 – 2 second) frequency control services and is implicit recognition of the value of battery energy storage systems (BESS) in the NEM.
The introduction of these new markets is a clear signal to industry (and particularly those developers and owners contemplating developing standalone BESS or incorporating BESS in their renewable projects) that there will be a market for the capabilities of their BESS system.
The FFR services market will operate similar to the existing arrangements for frequency control ancillary services, providing an additional contingency frequency control option to AEMO when managing power system frequency, ie it will be up to AEMO to choose to procure the new Fast Frequency Response services over existing “slow” Frequency Control Ancillary Services (FCAS).
The introduction of this change is consistent with the Energy Security Board (ESB) post-2025 market design work, in particular the development of faster frequency response markets.
Importantly, the FFR reforms are intended to operate separately to continuous primary frequency control obligations (PFR). While AEMC continues to consider changes to PFR, the Commission has provided a window into their thinking by pointing to droop controls as a way generators can manage their PFR requirements. However, as any generator with older inverter connected assets knows, droop control is perhaps not as easy as AEMO and AEMC think.
What does this mean for existing and planned BESS projects?
BESS projects that currently or anticipate providing system services will be able to access this market to sell this service. Project owners and those parties who have or are considering contracting their BESS capacity should consider who has the contractual right to participate in this new market. Usually, all BESS capabilities and markets (including future markets and capabilities) at all times of year are included with the “rights” provided to BESS offtakers – usually referred to as “whole of capacity”. However, parties should consider whether the FFR market is captured in contracts which are not “whole of capacity”.
Why are the changes required?
FFR services will become increasingly necessary as the anticipated retirement of coal-fired generation will reduce the amount of synchronous inertia1 in the power system over the coming years.
The transition to inverter connected generation including large scale solar PV, wind power, batteries and behind-the-meter distributed resources like rooftop solar will result in corresponding lower levels of operating inertia.
As inverter connected generators do not provide the synchronous inertia required to manage contingency events (such as the sudden and unexpected failure of a large generating unit or loss of a large transmission asset), additional frequency control will be required. FFR services will provide additional support by responding within 1 – 2 seconds to stabilise system frequency – the FFR market will respond to this requirement.
As well as providing additional system security, the introduction of FFR services will likely encourage new dispatchable technology by providing an income stream for batteries, aggregators and hybrid businesses and other fast responders that are able to rapidly respond to fluctuations in grid frequency. Not only will the new ancillary services provide certainty to the market that sufficient resources are available, but they will also provide clear price and investment signals to new resources.
Will the creation of a FFR market encourage BESS and integrated generation + BESS?
AEMC suggests the FFR services market is designed to facilitate and financially incentivise energy storage in the NEM, and hence encourage BESS and generation + BESS into the market.
Aggregated energy generators will benefit due to the distributed nature of their resource across the network and the relatively low marginal cost of providing the service (given the primary driver of installing behind the meter generation and BESS is to reduce on-grid consumption).
However, the largest benefit will likely be to large scale renewable generators who will be able to monetise BESS capability in addition to controlling the time of day they export (discharge) energy in the grid.
Lost opportunity or just the first step
New BESS have a response time in hundredths if not thousandths of a second. By setting the response time for FFR at 1 – 2 seconds the benefits of this “ultra fast” response capability are not captured. It is conceivable that a future “ultra fast frequency response” market could be developed to capture this capability. However, in the short term, we suggest further refinement of the FFR market to incorporate both price and response time be considered as part of AEMO’s revision of the Market Ancillary Services Specification (MASS) which is due by 19 December 2022.
Delaying the implementation to October 2023 of what is essentially an incremental addition to the existing FCAS market appears to miss an opportunity to fast track BESS projects currently under development. If the FFR market was operational within 12 months, even if at low volumes given the current limited number of BESS systems that could provide services to the FFR market, this would give BESS developers a window into how the market will operate, in particular, price and how AEMO will access the market.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.
1The instantaneous physical response of conventional generators, which act to overcome the imbalance of supply and demand by changing the rotational speed and the electrical frequency.