In our Quarterly Energy Update in October 2014, we outlined proposed changes to the National Electricity Rules (NER) regarding generator bidding practices in relation to ramp rates and dispatch inflexibility. In this article, we outline key elements of the Options Paper issued by the Australian Energy Market Commission (AEMC) in December 2014, which contains options aimed at rationalising existing requirements on generators to specify the minimum rates at which they may increase or decrease electrical output (Options Paper – Ramp Rates).

Next steps

Submissions on the new options were due on 5 February 2015. These submissions will be considered by the AEMC before a final rule determination and rule are issued.

The well-functioning of the NEM depends upon the ability to instantaneously match supply and demand of electricity. This is achieved – at least, in part – by conditions imposed on offers and changes to those offers made by generators regarding the supply of electricity to the NEM.

Generators can base their offers on the technical capabilities of their generating plant. However, as a result of a changes to the NER made in 2009, generators are constrained regarding bids and rebids of “technical parameters” to pursue commercial objectives when the stability and security of the NEM may be compromised.

‘Technical parameters’ include  ‘ramp rates’, which relate to the rate at which a generator’s electricity output can be varied upwards or downwards. Technical parameters will be specified in the generators’ initial bids to supply electricity, but may be modified in rebids.

The current rule

Clause 3.8.3A of the NER specifies minimum ramp rates for generators. Where a generator submits a ramp rate that is less than the prescribed minimum, that rate must be the maximum the generator can safely attain at that time. In other words, there must be a technical reason justifying a ramp rate that is less than the prescribed minimum.  In these cases, the generator must provide the energy market operator – the Australian Energy Market Operator (AEMO) – with a brief, verifiable and specific reason for the ramp rate.

Rule change request

In August 2013, the regulator of the NEM – the Australian Energy Regulator (AER) – submitted a rule change request to the energy market rule maker – the Australian Energy Market Commission (AEMC) to change the rules regarding bids for ramp rates.

In particular, the AER’s rule change request seeks to impose greater restrictions on the ability of generators to vary ramp rates by requiring them to always submit technical parameters that actually reflect the maximum technical operating capability of the relevant plant.

In particular, the AER sought to require generators to, at all times, specify the maximum technical ramp rate that their generating plant can safely achieve. If a generator seeks to materially vary the ramp rate, the rebid must be accompanied by a brief, verifiable and specific reason relating to the technical limitation on the generating plant.

The AER’s rule change request seeks to limit the ability to use technical parameters to pursue commercial objectives at times when the electricity network is experiencing congestion.

AEMC’s preferred rule change

In August 2014, the AEMC issued its draft rule determination and accompanying draft rule in response to the AER’s rule change request.

The AEMC expressed concerns that the AER’s proposal regarding ramp rates may disincentivise investment in generating plant with more flexible ramp rate capability. The AEMC also stated that the proposed rule change would be difficult to apply in practice. Nevertheless, the AEMC recognised that the presence of network congestion could create commercial incentives for generators to rebid their ramp rates at low levels, which could affect the stability and security of the electricity system.

Accordingly, the AEMC’s preferred rule change was that ramp rates provided by a generator at any time  must be equal to at least one percent of its maximum generation capacity per minute.

Submissions on the AEMC’s preferred rule change

In its Options Paper – Ramp Rates, the AEMC noted that, while submissions on the preferred rule change were generally supportive, the following comments/ observations were made:

  • Practicality for large thermal generators: Evidence was provided indicating that compliance with the preferred rule change would not be practicable for some participants, particularly certain large thermal generating units.
  • Perverse outcomes for aggregated units: It was suggested that the preferred rule change might lead to disproportionate or perverse outcomes for aggregated units because a ramp rate requirement of 1% may not be achievable unless a certain number of units are online at a particular point in time.

New options for consideration

In light of the above submissions on the AEMC’s preferred rule change, the AEMC has developed two further options, namely:

  • Option 1: Require minimum ramp rates to be equal to the lower of one percent of maximum capacity or 3MW/minute. For aggregated units, the requirements would be the lower of 3MW/minute applied to individual physical units or one percent of aggregate available capacity.
  • Option 2: Retain the current arrangements of minimum ramp rates equal to the lower of three percent of maximum capacity of 3MW/minute. For aggregated units, the requirement would apply to each individual physical unit.

The Options Paper – Ramp Rates contains a summary of the current rule, the preferred rule change and the two new options, which is set out below:

Click here to view image.

Next steps

Submissions on the new options were due on 5 February 2015. These submissions will be considered by the AEMC before a final rule determination and rule are issued.