Final Determination-AEMC - December 19 2024
Final Determination-AEMC - December 19 2024
RULE
Rule determination
19 December 2024
Australian Energy Rule determination
Market Commission IPRR
19 December 2024
Inquiries
Australian Energy Market Commission
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Sydney NSW 2000
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T (02) 8296 7800
Acknowledgement of Country
The AEMC acknowledges and shows respect for the traditional custodians of the many different lands
across Australia on which we all live and work. We pay respect to all Elders past and present and the
continuing connection of Aboriginal and Torres Strait Islander peoples to Country. The AEMC office is located
on the land traditionally owned by the Gadigal people of the Eora nation.
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criticism and review. You may reproduce selected passages, tables or diagrams for these purposes provided
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Citation
To cite this document, please use the following:
AEMC, Integrating price-responsive resources into the NEM, Rule determination, 19 December 2024
Australian Energy Rule determination
Market Commission IPRR
19 December 2024
Summary
1 The Australian Energy Market Commission (AEMC or Commission) has made a more preferable
final rule (final rule) to allow aggregated consumer energy resources (CER) to be scheduled and
dispatchable in the National Electricity Market (NEM). This framework, named ‘dispatch mode’, will
allow aggregated small and medium size price-responsive resources to compete with large-scale
generators and storage in the NEM. It allows these resources to be bid into the market, set spot
prices, receive and follow dispatch instructions and access markets that require scheduling (e.g.
regulation frequency control ancillary services). This will result in lower electricity and ancillary
service costs, lower emissions and ultimately lower prices for consumers.
2 Much of the focus of dispatch mode has been on household-based virtual power plants (VPPs).
However, the Commission emphasises that dispatch mode is designed to facilitate a wide variety
of aggregated small and medium size price-responsive resources participating in the spot market.
For example, we consider that the earliest entrants are likely to be aggregated mid-size batteries
(for example, multiple 4.9 MW batteries). Dispatch mode also opens up new opportunities for
demand response to participate in central dispatch because it will smoothly facilitate large
customers, or third parties (including retailers) on behalf of large customers, bidding in their load.
This could include data centres, irrigation and pumping loads, commercial and industrial heating,
cooling and chilling loads and a range of future technologies. Most participation in dispatch mode
is likely to occur through aggregating resources, but individual resources above certain sizes
could also participate.
3 As the proportion of resources that respond to prices in the NEM becomes increasingly distributed
and owned by consumers, effectively integrating these resources into the spot market is crucial to
supporting an affordable and reliable supply of electricity for all consumers. To drive participation
in dispatch mode to achieve these outcomes, the Commission has included short-term incentive
payments in the final rule. This will be achieved through an Australian Energy Market Operator
(AEMO) tendering mechanism that seeks to overcome the barriers for early entrants participating
in dispatch. In the longer term, the Commission considers that market and network access should
provide incentives for participation.
4 Many price-responsive resources will not be capable of, or choose to participate, in dispatch
mode. As the magnitude of these resources grows AEMO will face further challenges forecasting
demand in the NEM. To help understand the magnitude of this issue, the final rule introduces
monitoring and reporting functions for AEMO and the Australian Energy Regulator (AER). The
reporting framework will position the market bodies and participants to evaluate the impact of
unscheduled price-responsive resources on AEMO’s forecasts. It will also provide evidence on
whether changes are required to help AEMO improve its operational demand forecasting.
Alternatively, if this is not possible, a visibility market model, where retailers become responsible
for forecasting their price responsiveness, is likely to be necessary.
CER are growing rapidly and the Commission has a package of reforms to
support this growth
5 Australian households and small businesses are embracing CER. More than three million
households and businesses have solar panels and every second household is expected to have
them by 2040. More than fifty thousand small-scale battery systems have been installed in the
past seven years and 22 million purchases of electric vehicles are expected to be made by 2050.
People are also using smart devices to control traditional assets such as hot water systems and
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air conditioners, and programming multiple devices in their houses through home energy
management systems. Retailers and aggregators, acting on behalf of consumers, are increasingly
tapping into these resources through VPPs to respond to market price signals.
6 Developments are also occurring in the large business sector. Traditional commercial and
industrial resources (for example, commercial chillers), and new types of large loads (for example,
data centres) are increasingly active in the NEM. The volume of independent small generators and
batteries is also growing (for example, community batteries).
7 Across Australia, governments are seeking to achieve net zero emissions by or before 2050,
including through policies to accelerate CER uptake. CER and distributed energy resources (DER)
will play a critical role in Australia’s energy transformation, helping to reduce overall system costs,
improve reliability and achieve a secure, low-emission energy supply for all.
8 If these resources are integrated well, the power system will operate more smoothly, and
consumers and industry will enjoy the benefits of cheaper supply. Importantly, consumers without
CER will also benefit from the lower system costs resulting from effectively integrating price-
responsive resources.
9 Successful integration of CER would also mean fewer large-scale infrastructure projects needing
to be constructed to keep the system running. This would contribute to the achievement of a net
zero system, as existing lower emitting resources would be used rather than building new
resources.
10 CER integration will require a multifaceted approach that matches the complexity of the task. A
CER Taskforce convened by energy ministers has developed and published an implementation
plan in the form of a CER Roadmap. It defines and will help to drive the CER integration actions
needed. The AEMC is a member of this Taskforce and is leading the ‘Distribution system and
market operation’ (DSO) workstream.
11 The AEMC is also driving reforms required to effectively integrate CER into the power system for
the transition to net zero in the grid, and the years beyond. These rule changes and reviews are
crucial building blocks that will help to pave the way for the innovation in the market that becomes
change, and the change that becomes transformation. For example:
• we have recently completed rule changes to accelerate the roll-out of smart meters and unlock
CER benefits through flexible trading, and
• we have recently commenced reforms to allow customers access to real time energy data and
get the regulatory frameworks right for electricity pricing for CER in the future.
12 This final determination is in response to a rule change request from AEMO and is a key part of
this package of reforms. It is the main rule change in the AEMC’s work program that focuses on
integrating these resources into the wholesale electricity market.
13 The Commission notes that for the remainder of this summary, we use the term unscheduled
price-responsive resources to refer to:
• the wide range of residential, community, commercial and industrial energy resources and
load that are not currently scheduled through the market dispatch process, and
• do or could respond, individually or as part of aggregation, to market price signals.
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Figure 1: Inaccurate demand forecasts cause higher than efficient spot prices, and generation and
FCAS costs
0
Source: AEMC
16 As AEMO does not know the intentions of these resources, it forecasts demand to determine
Q(dispatched) and uses generator bids to achieve this level of supply. This results in a price point of
P(spot). However, where there are unscheduled price-responsive resources that will reduce their
consumption or increase generation at this price point, actual demand will be Q(efficient) and the
efficient price would have been P(efficient). To balance supply with the actual demand level, FCAS are
required. This shows that:
• the energy spot price is higher than the efficient level and therefore consumers pay more than
is necessary
• unnecessary costs were incurred by scheduled resources to meet the over forecast of demand
• costs are incurred to bring supply and demand back into balance through FCAS
• because there is a close correlation between high marginal cost generators and high
emissions generators, it is likely that emissions are higher than necessary
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• if demand and supply conditions are particularly tight, the demand forecast error may lead to
the triggering of the reliability emergency reserve trader (RERT) and its associated costs.
17 When these operational inefficiencies are repeated they drive inefficiencies in investment
timeframes. These include:
• higher energy prices, which drive inefficient investment in generation, storage and demand
response
• greater demand forecast errors, which increase FCAS requirements and prices.
18 In the past, the limited amount of unscheduled price-responsive resources meant that not
accounting for price elasticity in demand forecasting had little consequence. However, with the
rapid uptake of CER this is changing. To quantify the magnitude of these inefficiencies in the
future, the Commission tasked Intelligent Energy Systems (IES) to undertake market modelling out
to 2050. IES’s estimates are set out in Table 1. They reveal that as the magnitude of unscheduled
price-responsive resources grows, the errors become substantial, resulting in a combined
efficiency loss of $1,467-1,832m. IES’s full report and explanations of its modelling techniques are
provided with this final determination.
19 IES also demonstrates that, absent integration, energy and FCAS prices would be substantially
higher due to demand forecast errors, resulting in consumers paying $12-13b (2023, net present
value (NPV)) more over the period than necessary. These are not efficiency gains, they are wealth
transfers from generators to consumers, and therefore we do not include them in our benefit
estimates. However, IES’s modelling did not attempt to model the additional generation and
storage entering the market and this would come with a material cost. We therefore note that the
above efficiency gains are likely understated.
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The final rule provides incentives for participation in dispatch mode in the
short term
23 The final rule includes a time-limited incentive mechanism to drive participation in dispatch mode
in its early years. It does this by requiring AEMO to conduct tenders to pay participants to enter
dispatch mode in the first five years of the mechanism. The payments are capped at the estimated
benefits per MW of participation. This means that even in the years that the payments are made,
consumers still benefit from participation.
24 The final rule also caps the overall payments under the framework at $50m. We consider $50m is
likely to achieve an appropriate balance between:
• limiting the impact on consumers of the payments to approximately one dollar per year, and
• providing enough funding to cover a material proportion of early entrants costs to drive
participation.
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25 The Commission considers that this incentive mechanism is necessary because of the
combination of these factors:
• the majority of the benefits from participating in dispatch mode accrue to all consumers, not
the participant
• there are well recognised inherent disincentives to being scheduled in the NEM (for example,
meeting the communications and data sharing requirements)
• the mechanism is new and therefore there are likely to be positive effects on later participation
from early entry.
26 The Commission noted in the draft determination that this mechanism is not a natural fit in the
NER and that we would be working with ARENA, the Commonwealth and jurisdictional
governments regarding alternatives in the final rule. We have made substantial progress on this
front and consider there is a material chance that these avenues will address the participation
disincentives highlighted above to some degree. However, this is still not certain and we therefore
consider it appropriate to retain the incentive scheme in the final rule.
27 Stakeholders largely supported the need for incentives. The few stakeholders that commented on
the design of the incentive mechanism in the draft determination supported it. The only material
changes we have made between draft and final rules are:
1. Increasing the per MW payment cap from fifty to a hundred per cent of the estimated benefits.
EnergyAustralia highlighted that this is appropriate because the scheme will result in
participation in the long run, which consumers will benefit from. Therefore, paying up to the
benefits of participation to participants in the short run will still benefit consumers overall.
2. Introducing the ability for governments to add additional funds to the mechanism to provide
more than $50m. This change is in response to a request from AEMO and Alinta to provide the
ability for more funding to be available if governments so choose.
28 The Commission considers that long-term participation incentives are likely to be best provided
through market and network access. For example, participants in dispatch mode should have
access to the full suite of markets for services they are capable of providing. In the future, this
may include access to new system security markets or access to capacity payments.
Our final rule introduces an AEMO and AER monitoring and reporting
framework for unscheduled price-responsive resources
29 The combination of the level of control required to participate in dispatch mode and the wide
range of functions, capabilities and business models for CER mean that the majority of price-
responsive resources are unlikely to participate in dispatch mode. The IES analysis shows that as
the magnitude of these resources grow, they will create challenges for AEMO’s demand
forecasting in the NEM and this may have large consequences for efficient market operation. To
address these issues, the final rule introduces a monitoring and reporting framework for AEMO
and the AER. The key features of the framework are:
• Monitoring and reporting by AEMO to identify the presence and issues created by increased
unscheduled price-responsive resources. This requires AEMO to report annually on the impact
of this response on its operational forecasting and the measures it takes to improve it to
account for unscheduled price-responsive resources.
• Monitoring and reporting by the AER to assess the estimated efficiency implications and costs
associated with actual demand deviating from forecasts due to unscheduled price-responsive
resources.
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30 This reporting framework will provide more transparency on the materiality of deviations of actual
demand from forecast demand, and the inefficiencies that they cause. This transparency will
facilitate analysis of AEMO’s operational demand forecasting methods and whether changes can
reduce such inefficiencies should they materialise. Collectively, this reporting and transparency
framework will help understand how unscheduled price-responsive resources are changing and
their impact on market outcomes. It will also provide evidence for the AEMC to consider whether
to introduce structural changes to demand forecasting or a visibility market model in the future.
31 Before deciding on the monitoring and reporting framework the Commission assessed AEMO’s
proposed ‘visibility mode’. This was a light-handed version of dispatch mode. It included
participants submitting bids for unscheduled price-responsive resources in a similar manner to
dispatch mode, but the bids would not be directly incorporated into dispatch and requirements for
accuracy would be low. The Commission ruled this solution out because we considered that
without direct incorporation into dispatch it would not result in substantial benefits and would still
come at material cost.
32 The Commission also assessed a visibility market model where participants would bid price-
responsive demand deviations into central dispatch from an AEMO price-inelastic demand
forecast. The Commission considers that this solution has considerable merit and analysed it in
detail. The Commission engaged Creative Energy Consulting to work up a design of this model,
which is published with this final determination. The Commission considers the benefits of this
model include:
• By transferring responsibility to market participants (for example retailers) for forecasting the
price-responsiveness of their customers, risks are efficiently allocated. Retailers purchase
energy on behalf of customers in the spot market and on sell it to them. Generally, they
possess the best information about the price-responsiveness of their customers because they
have the retail contract that passes through prices and invest significant resources to know
how much energy they will be purchasing at different times and price levels.
• With retailers undertaking forecasts, financial incentives could be created for accurate
forecasting through the use of frequency performance payments.
33 However, after detailed design discussions with AEMO and our technical working group, the
Commission concluded that this solution is not yet warranted. While the volume of unscheduled
price-responsive resources is growing, it has not yet reached a point where it is materially
challenging AEMO’s demand forecasting and it would come with material costs to produce the
necessary forecasts.
34 We consider that the monitoring and reporting framework established in the final rule will place us
in a good position to determine:
• when AEMO’s demand forecasts are being materially challenged
• if challenges can be addressed by AEMO changing its demand forecasting methods
• whether a move to retailer-led forecasting of price-responsiveness is warranted.
35 Stakeholders strongly supported the introduction of the monitoring and reporting framework in the
draft rule. The Commission has not made any material changes between draft and final rule to the
monitoring and reporting framework.
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• Flexibility — would the solution be future-proof, resilient and able to accommodate market,
technological, policy and other changes?
• Dispatch mode is highly flexible and resilient to future market and technology changes. At
its core, dispatch mode is a platform for aggregated small-scale resources to be
completely integrated into market dispatch. It is flexible to a wide range of resources,
technologies and business models, and therefore robust to changes to all of these factors
over time.
• Similarly, dispatch mode is resilient to future regulatory reforms. The basic functions of
participants bidding the response of currently unscheduled price-responsive resources to
different spot prices, and following these bids, is important under any future regulatory
framework.
37 For dispatch mode, the Commission has quantified the likely benefits of the mechanism through
market modelling. The Commission tasked IES to adapt its size of the prize modelling to include
projected uptake rates of dispatch mode and then use the same methodology as described above
to estimate its benefits. There is material uncertainty regarding the uptake of dispatch mode and
we therefore had IES take a probabilistic approach to modelling the benefits. IES models a high,
medium and low participation scenario and then gives them weights based on the likelihood of
them eventuating. This provides a weighted benefit that the Commission primarily considers for
its National Electricity Objective (NEO) assessment. These are set out in Table 2. AEMO also
provided an initial cost estimate of its costs to implement the mechanism, and for upfront and
ongoing costs for the incentive mechanism and these are included in Table 2.
Table 2: Benefit and cost estimates of dispatch mode ($m 2023, NPV)
Low Medium High Probabilistic
Security benefits — FCAS 220 403 617 411
Reliability benefits — RERT 100 100 100 100
Productive efficiency —
63 120 180 121
energy
Emissions reduction value 140 199 274 203
Total efficiency gain 523 821 1,170 834
Implementation costs of
dispatch mode and 34
incentive scheme
Net Benefit 489 787 1,136 800
Source: IES, Benefit analysis of improved integration of unscheduled price-responsive resources into the NEM, sensitivity modelling results, 8
July 2024
38 The Commission considers that these estimates provide a strong case that dispatch mode and
the dispatch mode incentive scheme meet the NEO and should be implemented. Our probabilistic
assessment is a net benefit of $800m. Furthermore, even in the low uptake scenario modelled by
IES, the net benefits of dispatch mode are $489m, an order of magnitude greater than the costs.
39 We note three other relevant factors in our NEO assessment:
1. Participation costs. There will also be costs for participants that choose to use the
mechanism. These need to be considered when weighing the overall benefits of the
mechanism. However, given the large modelled benefits, and that these costs are only incurred
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for participants that use the mechanism, we do not consider there is a material risk that the
costs would impact our overall NEO assessment.
2. Dynamic efficiency gains through avoiding unnecessary large-scale generation and storage. As
set out in paragraph nineteen, IES did not estimate the likely material dynamic efficiency gains
arising from dispatch mode. We therefore consider that the total efficiency gains are likely
understated.
3. Incentive scheme. We have taken into account the implementation costs and effect on likely
participation of the incentive scheme in our quantitative assessment. However, we do not
include the $50m of incentive payments from consumers to participants in dispatch mode in
this assessment. This is because (similar to the FCAS and energy prices) this is a wealth
transfer from consumers to participants, not an efficiency loss.
40 We have also assessed the monitoring and reporting framework against the NEO and our
assessment framework qualitatively. The main benefits from the approach are that it will position
the market bodies to decide if and when changes are needed to AEMO’s forecasting methods.
This will include determining if structural changes to the way that forecasting is done in the NEM
are needed (for example, placing responsibility on retailers). We consider that this approach is
likely to result in timely reforms being made to improve demand forecasting in the NEM in the
future. This has the potential to materially increase allocative, productive and dynamic efficiency
in the long run. Furthermore, we consider that the analysis functions in the final rule are ones that
AEMO and the AER are likely to undertake in-house over time regardless of the rule. The increase
in costs as a result of that being done formally and publicly is unlikely to be material.
41 Our assessment of the final rule against the NEO has not materially changed from our assessment
of the draft rule. We consider that the limited changes between draft and final rule mean updates
to the market modelling undertaken by IES to assess dispatch mode are not required. Similarly,
stakeholders did not raise any issues requiring reassessment.
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43 We have materially changed the implementation schedule between draft and final rule in two
ways:
1. We have extended the implementation date for dispatch mode from November 2026 to May
2027. We consider this is necessary to allow AEMO to successfully implement dispatch mode.
This was supported through AEMO’s consultation on its high level impact assessment of the
draft rule and determination.
2. We have brought forward the start of the incentive period from January 2027 to April 2026 to
allow AEMO to commence the tenders earlier. This will give potential entrants in dispatch
mode time to receive notice that they were successful in their application for funding before
they commence in dispatch mode.
We have consulted widely and deeply, and your feedback has improved our
final rule
44 In reaching the final rule we have consulted extensively on AEMO’s rule change request. This has
included:
• publication of consultation paper (34 written submissions), update paper and draft
determination (22 written submissions)
• public forums on the update paper and draft determination, with 111 and 130 attendees
respectively
• more than 95 bilateral discussions with a range of stakeholders and six meetings with industry
working groups
• six sessions with our technical working group, comprising market body representatives,
consumer groups and industry.
45 The Commission would like to thank all stakeholders for their collaborative and constructive
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engagement in this rule change. We note that stakeholder views and analysis have driven the
solutions in the final rule. In particular:
• The final rule is substantially different from AEMO’s visibility proposal and the Commission’s
early policy development of a market based forecasting model. Stakeholders emphasised the
need for greater transparency and analysis of operational demand forecasts in relation to
unscheduled price-responsive resources and this heavily influenced our move to the
monitoring and reporting framework in the final rule.
• The Commission has been able to test the detailed design of dispatch mode extensively with
stakeholders. In particular, technical working group input was invaluable in shaping the draft
rule. Similarly, submissions to the draft rule provided valuable detailed feedback to enhance
the final rule.
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Contents
1 The Commission has made a final determination 1
1.1 AEMO requested changes to integrate aggregated CER into the NEM 1
1.2 Stakeholder support for flexibility shaped our determination 1
1.3 This rule change fits within the Commission’s CER work program 3
Appendices
A Dispatch mode allows for easier participation in central dispatch 44
A.1 Participants will be able to aggregate resources and participate in central dispatch 44
A.2 We have utilised the existing bi-directional unit design 45
A.3 The final rule provides flexibility to participants about when they operate in the mechanism 60
A.4 We have introduced new consultation requirements to manage the interactions with distribution
limits 63
A.5 Worked example 65
A.6 Implementation of VSRs in dispatch will be over 29 months and commence in May 2027 68
Tables
Table 1: Estimated cost reductions from integrating unscheduled price-responsive resources iv
Table 2: Benefit and cost estimates of dispatch mode ($m 2023, NPV) x
Table 3: Final rule implementation schedule xii
Table 4.1: IES benefits by different participation scenarios 37
Table A.1: Qualifying resources that can be nominated as a VSR 46
Table A.2: VSR data requirements 66
Table A.3: Ralph Energy VSR bidding intention 67
Table C.1: Proposed changes to the draft rule 89
Table D.1: Summary of other issues raised in submissions on the draft determination 97
Table F.1: NER civil penalty provision recommendations 120
Figures
Figure 1: Inaccurate demand forecasts cause higher than efficient spot prices, and generation and
FCAS costs iii
Figure 2.1: There is a spectrum of unscheduled price-responsive resources 8
Figure 2.2: The ISP indicates a growing amount of coordinated CER storage 9
Figure 2.3: Inaccurate demand forecasts cause higher spot prices, generation and FCAS costs 12
Figure 4.1: IES probabilistic benefits from implementing dispatch mode 38
Figure A.1: Classifications eligible to be nominated as a VSR 46
Figure A.2: VSR aggregation and nomination process 47
Figure A.3: Comparison of standard versus secondary settlement point configuration 48
Figure A.4: Ralph Energy indicative dispatch profile 68
Figure B.1: Cost recovery equation 78
Figure C.1: Inefficient market outcomes from unscheduled price-responsive resources 92
Figure C.2: Implementation lead time for AEMO and the AER reporting 95
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1.1 AEMO requested changes to integrate aggregated CER into the NEM
AEMO considers that over time the growing quantity of unscheduled price-responsive resources in
the National Electricity Market (NEM) will play an increasingly important role in how the energy
system performs. Ensuring that these resources can contribute to and operate within system
requirements will be key to achieving an affordable, reliable, secure, and low emissions energy
supply for all consumers in the future.
AEMO stated that its proposed mechanism would:1
• provide critical visibility and dispatchability services required to address complex and
emerging power system challenges, avoiding the need for increasing reliance on interventions
to manage system security and reliability
• enable innovation and enhanced competition in consumer service offerings, delivering
supplementary revenue streams to consumers beyond existing feed-in tariffs and off-market
retail demand response offerings
• harness the potential of price-responsive distributed resources, thereby facilitating the optimal
allocation of resources to meet the demand for energy services over time
• lower costs to all consumers.
AEMO proposed changes to the National Electricity Rules (NER) to establish the new mechanism.
AEMO proposed two modes in its rule change request:2
• Visibility mode: this mode was designed to allow participants to provide bids on the intentions
of price-responsive resources. However, the bid would not be directly incorporated into
dispatch and conformance requirements would be low.
• Dispatch mode: this mode was designed to integrate price-responsive resources into the NEM
central dispatch and scheduling processes. Participants would be able to provide bids for their
generation and load, receive and follow dispatch targets.
1 AEMO, Rule change request – Scheduled Lite Mechanism in the National Electricity Market, p. 1.
2 For further details on how the modes were proposed to operate, please see the Consultation Paper and AEMO rule change request.
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Throughout all of our consultations, stakeholders have agreed that an increasing amount of
unscheduled price-responsive resources in the NEM would result in inefficiencies and challenges
for the operation of the system.3
Feedback between the consultation paper and draft determination significantly shaped the
solutions that were considered.4 During these stages we undertook extensive stakeholder
consultation including additional stages to our process:
• an update paper on 14 December 20235
• a public forum on 19 February 2024, with 111 stakeholders, to discuss the benefits modelling
and next steps6
• we formed a technical working group (TWG).7 The TWG commenced in February 2024 and
comprised 18 representatives from stakeholder groups including market participants,
aggregators, gentailers, networks, industry bodies, Australian Renewable Energy Agency
(ARENA), and academia. The TWG met on six occasions over three months, providing detailed
feedback on the solutions as we developed them.8
The key issues raised and the way the Commission addressed each issue were:
• Some stakeholders expressed caution in terms of how significant the problem is at the
moment. These stakeholders were concerned that AEMO had not clearly defined the problem,
that it could be overstated, and recommended that the Commission seek to quantify it.9 In
response, we commissioned market modelling of the size of the inefficiencies (referred to as
‘size of the prize’) out to 2050 by Intelligent Energy Systems (IES).10 The IES modelling
identified substantial benefits in addressing these inefficiencies as these resources grow.
Chapter 4 describes these further.
• Stakeholders considered that there is significant diversity in the firmness of price-responsive
resources and that visibility mode as proposed would not incorporate many of the less firm
resources.11 The significant range of unscheduled price-responsive resources impacts the
likely costs and benefits of participating in dispatch and the alternatives that we have
considered. Chapter 2 sets out our consideration of the range of firmness and appendix A sets
out how our new framework is designed with these resources in mind.
• Many stakeholders also raised material issues with visibility mode as proposed in the rule
change request. There were concerns because the information provided by participants was
not proposed to be directly incorporated into dispatch demand forecasts.12 In response to
these, we commissioned an alternative visibility model by Creative Energy Consulting.13 This
model has significant benefits and would incorporate unscheduled price-responsive resources
into dispatch. However, after detailed design discussions with AEMO and our TWG, the
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Commission concluded that the visibility market model is likely to have high cost and
complexity for AEMO to implement and maintain, and the solution is not yet warranted. The
draft determination outlined a new monitoring and reporting approach to understand the
impact of unscheduled price-responsive resources on demand forecasting. See section 3.4.
• The need for, and lack of, incentives to participate in the scheduling process was the most
significant feedback. Stakeholders generally agreed that there is limited to no incentive to
participate, even if the market benefits generally.14 This has significantly shaped our
investigation including consideration of additional incentives in our more preferable rule.
Incentives are required to drive participation of unscheduled price-responsive resources. See
appendix B.
Feedback to the draft determination and public forum in August generally agreed with the
direction of our draft rule.15 Stakeholders’ key feedback at this stage and our responses in the final
determination include:
• Reiterated the need for incentives to participate in dispatch mode.16 Stakeholders shared our
preference for a third party (for example ARENA or Capacity Investment Scheme (CIS))
providing the incentive.17 Given that we have been unable to secure a third party providing this
incentive, our final rule retains the incentive mechanism, with changes based on stakeholder
feedback.
• Supported dispatch mode and provided feedback on the specific operation of the rule and
framework. See section 3.2 for discussion on these.
• Supported the monitoring and reporting framework with limited feedback on the operation of
the framework.
Our formal consultation was complemented by engagement with a diverse range of stakeholders
in bilateral and multilateral discussions.
1.3 This rule change fits within the Commission’s CER work program
Australian households and businesses are embracing CER. More than fifty thousand small-scale
battery systems have been installed in the past seven years and 22 million purchases of electric
vehicles are expected to be made by 2050. People are also using smart devices to control
traditional assets such as solar panels, hot water systems and air conditioners, and programming
multiple devices in their houses through home energy management systems. Retailers and
aggregators, acting on behalf of consumers, are increasingly tapping into these resources
(individually or aggregated through a virtual power plant (VPP)) to respond to market price
signals.
Developments are also occurring in the large business sector. Commercial and industrial
resources (for example, commercial chillers), and new types of large loads (for example, data
centres) are increasingly active in the NEM. The volume of independent small generators and
batteries is also growing (for example, community batteries).
Government are achieving net zero emissions by 2050 through policies to accelerate CER
uptake.18 CER and distributed energy resources (DER) will play a critical role in Australia’s energy
14 Submissions to the consultation paper, Stanwell, p.4, Fortescuse, p. 3, Evergen, p.3, Enel X, p. 4, Flow Power, p. 4.
15 Our public forum on 27 August 2024 had 130 stakeholders in attendance, and we received 22 written submissions to our draft determination in
September 2024. Information on these can be found on our project page.
16 Submissions to the draft determination, SA Water, p. 1, Alinta, p. 1, CEC, p.4, Shine Hub, p.1, Enel X, p. 2, CS Energy, p. 4.
17 Submissions to the draft determination, AEC, p. 2, Hydro Tasmania, p. 2, Origin, p. 4, Enel X, p. 2, Ausgrid, p. 1, Shell Energy, p. 2, CEC p. 3, Alinta, p. 2,
EUAA, p. 4.
18 Relevant government targets are set out in the emissions target statement.
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transformation, helping to reduce overall system costs, improve reliability and achieve a secure,
low-emission energy supply for all.
If these resources are integrated well, the power system will operate more smoothly, and
consumers and industry will enjoy the benefits of cheaper supply. Importantly, consumers without
CER will benefit from the lower system costs from integrating price-responsive resources.
Successful integration of CER would additionally mean fewer large-scale infrastructure projects
would need to be constructed to keep the system running. This would contribute to the
achievement of a net zero system as existing lower emitting resources would be used rather than
building new resources.
CER integration will require a multifaceted approach that matches the complexity of the task. A
CER Taskforce convened by energy ministers has developed a CER roadmap that defines and
drives the CER integration actions needed.19 Market bodies are driving a series of interrelated
reforms that aim to integrate these resources and realise their full potential. The Energy Security
Board’s (ESB) end-of-program CER report outlined the CER reform work.20 The AEMC is a member
of this task force and is leading the workstream examining the future role for Distribution Service
Operator (DSOs). Through this workstream, the AEMC will help to develop a functional map of
what it will take to integrate CER into the energy system and market. If there is a reform on DSOs,
a number of subsequent rule changes would be required. The interaction between DSOs and the
wholesale market will be important to consider through this review. DSO arrangements may
impact the participation or success of dispatch mode, depending on the responsibility DSOs are
given. We do not consider we should delay this rule change to wait for agreement on DSOs
because we are not sure when these issues will be resolved.
The AEMC is also driving keystone reforms required to effectively integrate CER into the power
system for the transition to net zero in the grid, and the years beyond. These rule changes and
reviews are crucial building blocks that will help to pave the way for the innovation in the market
that becomes change, and the change that becomes transformation.
Several recently completed reforms intersect with this rule change, including:
• Unlocking CER Benefits Through Flexible Trading rule change — This rule change allows
financially responsible market participants (FRMPs) to create secondary settlement points,
making it easier for large customers to have multiple FRMPs. Small customers would retain
one retailer, but could separately meter their ‘flexible’ CER loads and their ‘passive’ loads such
as lights and fridges.21 The Unlocking CER Benefits rule change makes it easier to participate in
dispatch under this rule change. TWG members highlighted the importance of the relationship
between the two rule changes. They indicated that forecasting passive load would be a
challenge for some participants in dispatch mode and could limit participation as
conformance and compliance requirements could be challenging to meet if passive loads
were included.
• Accelerating smart meter deployment rule change— On 28 November 2024, we published a
final determination and final rules for the Accelerating smart meter deployment rule change
project.22 The final rules deliver a fast, efficient, and effective rollout of smart meters to all
customers by 2030. The final rule increases the amount of information available to consumers
about their energy use, allows consumers to better understand and manage their bills, and
19 Department of Climate Change, Energy, the Environment and Water, National Consumer Energy Resources Roadmap, July 2024.
20 ESB, Consumer energy resources and the transformation of the NEM, February 2024.
21 AEMC, Unlocking CER benefits through flexible trading project page. The final determination was made on 3 August 2024.
22 AEMC, Accelerating smart meter deployment, rule determination, 28 November 2024.
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opens up access to new and better retail service options. This also includes new consumer
safeguards.
• The AER’s guidelines on flexible export limits (FEL) — The Australian Energy Regulator (AER)
has published a final guidance note on export limits, which will help guide DNSPs in setting
both static and flexible export limits efficiently.23 CER connected to distribution networks are
generally limited to a static export limit, typically 5 kW for single-phase connections.24 These
static limits are set to a level that keeps shared generation from each CER connected within
the network hosting capacity, particularly during high congestion. Given the forecast uptake of
small-scale/distributed solar and batteries, distribution network service providers (DNSPs)
need to manage the increase in generation within the network limits. FELs can allow
consumers to export more from their resources at times and locations where there is “spare”
unallocated capacity rather than be restricted to (potentially lower) static limits. FELs would
play an important role in how FRMPs, particularly retailers (market customers), would
participate in dispatch mode. See appendix A.4 for further commentary on this.
The AEMC has commenced additional workstreams that will interact with this rule change,
including:
• The pricing review: Electricity pricing for a consumer driven future — The AEMC started a
broad, forward-looking review to examine the future of electricity products and services, and
the prices consumers pay for these. The review will consider how energy markets and
regulatory frameworks can provide the products and services that match consumer
preferences now and into the future.25 This forms a core component of the overall CER
workplan. In particular, this review is focusing on market arrangements, the role of distribution
networks, and the role of retailers and energy service providers.26
• Real time data for consumers rule change — The AEMC is considering how to improve
consumers’ and their authorised representative’s access to real-time data from their smart
meters. Improved access to smart meter data could allow customers to have more control
over their bills with improved insights on energy use. Further, this saves consumers
duplicating costs by installing separate devices to provide real-time data. This data could also
improve product and service offerings from retailers.27
• Review of the wholesale demand response mechanism (WDRM) — The AEMC is conducting a
review of the costs, benefits, and effectiveness of the WDRM.28 The review will consider the
range of mechanisms available to demand response in the NEM. Including dispatch mode
established in this final determination as well as the final determination for Unlocking CER
benefits through flexible trading.
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29 AEMO, NEM registration and exemption list (accessed 14 November 2024). Small generator sites refers to those that are exempt as they do not fulfil
the requirement for automatic exemption but AEMO has granted exemption. AEMO provided that this results in 1845 NMI sites, including small
generating units (and, post-IESS, small bidirectional units) that are exempt from the requirement to register with AEMO (automatic or by application).
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This is not to say that a FRMP could not participate in dispatch with any type of load or price-
responsive resources. It is recognition of the variety of resources that exist. Figure 2.1 provides an
example of the spectrum of unscheduled price-responsive resources that exist.
Source: AEMC
For our monitoring and reporting solution (outlined in appendix C), we are focused on
understanding the impact of resources that likely can not or will not participate in dispatch. This
recognises that FRMPs are only likely to participate in dispatch with resources that meet a range
of criteria. The concept of the dispatchability of an energy resource can be considered as the
extent to which its output can be relied on to ‘follow a target’.32 For example:
• The controllability of a resource relates to the resource’s ability to reach a set point (output
target) requested by an AEMO dispatch process. This could be zero megawatts, the maximum
available capacity of the unit, or something in between.
• System operators need to have some level of confidence that resources are available. The
firmness of a resource relates to the resource’s ability to confirm its energy availability.
• The ability of the system to respond to expected and unexpected changes in the supply-
demand position. For example, changes in variable renewable energy generation output,
generation failures, and variations in demand, over all necessary timeframes.
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Figure 2.2: The ISP indicates a growing amount of coordinated CER storage
0
AEMO expects that these resources will be needed in order to operate the grid with large amounts
of variable renewable energy.
33 From data gathered through the Demand-Side Participation Information Portal (DSPIP) and released through the Electricity Statement of
Opportunities, 2024, p. 172.
34 AEMO, Integrated System Plan, 2024, p. 67.
Note that the benefits modelling and assumed participation rates throughout this report were used with the 2022 ISP as the input.
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There may be some debate about the exact amount in the future, but we consider there is no
doubt that the volume of coordinated unscheduled price-responsive resources is going to grow
substantially.
2.2.1 How FRMPs currently use and benefit from unscheduled price-responsive resources
FRMPs purchase electricity on their customers’ behalf in the spot market regardless of whether
they are scheduled or unscheduled. Given this exposure to wholesale market prices, FRMPs can
use unscheduled price-responsive resources to reduce the costs they incur without being
scheduled in the wholesale market.
FRMPs are increasingly engaging customers in arrangements to use these resources. This
provides them with the ability to manage their overall load profile, provide ancillary services and as
a substitute to large scale generation investments or greater hedging requirements.35
2.2.2 How existing regulation and processes do not properly integrate unscheduled price-responsive
resources
These unscheduled price-responsive resources are not effectively integrated into the NEM. They
are not appropriately considered when determining how much electricity demand needs to be met,
how to meet this demand and the price at which electricity is purchased.
The NEM is not set up to consider or integrate unscheduled price-responsive resources on two
fronts: it does not incorporate price into demand forecasting and small distributed resources
cannot participate easily.
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An added complexity is the impact of including price changes into demand forecasting. If AEMO
makes assumptions about the level of response to a given high (or negative) price, it would signal
to the market the adjusted price. This adjusted price includes a response to avoid the high or low
price that the market was unaware of. However, the response may not actually materialise at this
adjusted price, resulting in the less efficient market outcome.
With this forecast demand amount (without price sensitivity) AEMO orders the offers from
scheduled participants, from least to most expensive, and determines which resources will be
dispatched. AEMO dispatches generators needed to meet expected customer demand at the
lowest cost.
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Figure 2.3: Inaccurate demand forecasts cause higher spot prices, generation and FCAS costs
0
Source: AEMC
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Box 1 provides a simplified example of the impact of not integrating these resources.
Source: AEMC
In submissions, stakeholders agreed with integrating these resources. Shine Hub noted that it
provides an opportunity for these resources to contribute to reducing the risks associated with
high prices.41 Mondo said that we should avoid a system where these resources operate in
opposition to the market.42 Other submissions went further and noted that not integrating the
resources negatively impacts the operation of other players. Sonnen highlighted that pre-dispatch
accuracy has a disproportionately material impact on smaller players as they are less likely to use
alternative forecasting, reducing their ability to efficiently use CER flexibly for its customers.43
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resources over time lead to material demand forecasting errors and consequential
inefficiencies.
• Visibility – this is a generic visibility reform. It has the following core features, but is not
related to a specific visibility proposal. Price-responsive resources remain unscheduled and
are not dispatched by AEMO. However, participants submit information in operational
timeframes to AEMO which reduces demand forecasting errors. The lower barriers to entry
incentivise higher participation than the dispatch world. However, this is offset by lower
forecast accuracy than in the dispatch world.
• Dispatch – this is a generic dispatch reform. It has the following key features. Resources are
integrated into central dispatch and scheduling processes. Modelling assumed higher barriers
to entry than visibility, resulting in lower participation. However, participation in central
dispatch means higher forecast accuracy and higher participation in frequency control
markets because of dispatchability.
By comparing these scenarios we can understand the benefit that integrating these resources can
have to the energy system, and the change in emissions.
Source: AEMC
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The IES market modelling demonstrates that if these resources could be perfectly integrated, it is
likely to result in significant benefits.45 IES estimates cost savings of between $1.4 and $1.8b net
present value (NPV, 2023) to 2050. These efficiency gains are made up of:
• lower FCAS requirements (between $831m and $1,053m NPV)
• lower use of scheduled generation;
• resulting in lower emissions (between $325m and $423m NPV)
• lower generation costs (between $189m and $234m NPV)
• lower requirements for emergency reliability measures ($122m NPV).
In addition, reform is expected to lower spot prices (between $12b and $13b NPV) and FCAS
prices (between $678m and $814m NPV). IES’s modelling held market entry constant between the
scenarios. Given the magnitude of higher revenues they would likely result in additional market
entry and that this entry would come with a material cost. We therefore note that the above
efficiency gains are likely understated.
Additional generation could be required if we do not integrate these resources into processes
In its rule change request AEMO identified an alternative approach to understand what the system
would require if we do not integrate unscheduled price-responsive resources – that is requiring
additional investment in large scale firming capacity.46 AEMO stated that needing to duplicate the
projected coordinated price-responsive resources through investment in additional shallow grid-
scale storage would cost between $1.8b and $4.4b.
The 2024 ISP sensitivity analysis of not having coordinated CER also indicates that $4.1b of
assets would need to be duplicated.47
45 IES, Benefit analysis of improved integration of unscheduled price-responsive resources into the NEM, final report, 24 June 2024, p. 17.
46 AEMO, Rule change request – Scheduled Lite mechanism in the National Electricity Market, pp. 38 and 62.
47 AEMO, 2024 Integrated System Plan - A roadmap for the energy transition, 26 June 2024, p. 17.
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ii. Cons: it is likely very challenging to accurately predict responses at different price
levels. To do so would require AEMO to be able to predict the response of the wide
range of business models and resources highlighted in chapter 2 across the entire
NEM.
b. Participants become responsible for providing information about the price-responsiveness
of their customers to AEMO (for example the visibility market model that we developed
and investigated)
i. Pros: information is likely to be more accurate as it is being provided by the FRMP that
has control and information over its contracts and positions.
ii. Cons: it requires changes to how demand forecasting is currently done by AEMO and
requires FRMPs to provide information to AEMO. This could be costly for both.
Our final rule includes option 1 and a monitoring and reporting framework intended to help AEMO
develop option 2(a), given the range of unscheduled price-responsive resources that exist.
3.2.1 Dispatch mode offers a voluntary and flexible pathway to participate in central dispatch
Our final rule to introduce dispatch mode is largely consistent with the draft rule and has the
following key features and benefits:
• It is a purely voluntary mechanism. The rule introduces the concept of VSRs. It allows the
FRMP at the market connection point to nominate a qualifying resource, either individually or
aggregated, as a VSR and participate in central dispatch. With the mechanism only applying to
FRMPs, even when they choose to participate, there is no requirement on consumers to
change their behaviour or cede control over their assets.
• A number of small resources can be aggregated such that they are treated as one VSR for the
purposes of central dispatch. This means that the VSR will be provided with, and assessed
against, aggregated dispatch instructions. No individual resource within that VSR is required to
48 We use ‘dispatch mode’ to refer to the package of final rule amendments to incorporate voluntarily scheduled resources in dispatch-related provisions,
namely amendments to chapters 3, 4, 4A and 10 (other than the provisions relating to VSR incentives and monitoring and reporting, discussed below).
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follow dispatch instructions. Instead, the VSR must meet the dispatch instructions in
aggregate.
• The underlying connection point classification for VSRs will not change. For instance, if a
retailer (Market Customer) aggregates several of its market connection points as VSR, these
will still be market connection points but will also be part of the VSR. By not creating a new
classification for VSRs, or requiring a change in the classification of connection points
participating, participants will have greater flexibility and implementation costs will be
reduced.
• It uses the bidirectional unit (BDU) framework introduced in the Integrating Energy Storage
Systems (IESS) rule change as the basis for the VSR requirements in the rules. Using the BDU
design allows bids for both generation and load, providing flexibility for how VSRs can operate
in central dispatch.
• It follows existing conventions regarding decision-making. Most importantly:
• The NER sets out the key legal requirements for participation in central dispatch, such as
bidding, dispatch and conformance. This will create certainty for market participants as
the NER provides stability and familiarity through the application of existing regulations.
• AEMO guidelines will establish the specific operational and technical details for
participants to follow. This will allow AEMO to update these details more regularly than if
they were placed in the rules and allow them to be tailored to the requirements of
participants utilising aggregated small resources.
• It sets out principles to guide AEMO in determining the operational and technical details of
participation within its guidelines. Most importantly, it guides AEMO to facilitate the ease of
participation in central dispatch by VSRs and apply restrictions on VSRs only to the extent
reasonably necessary to manage power system security and reliability. This explicitly
recognises that VSRs are not the same as large scheduled generators and BDUs, and therefore
should not face the same requirements. We consider that this is important to reflect that:
• Participation in dispatch mode is voluntary. Strict requirements will simply result in low
participation and therefore low benefits for consumers.
• Market participants are still learning and developing their capabilities to control
aggregated CER and should be given time to develop these capabilities.
• Participation is likely to build up over time. In the early years, the small size of each VSR
participating means they are unlikely to have a material impact on power system security
and therefore leniency comes at a low risk.
• It creates flexibility for participants (referred to as Voluntarily Scheduled Resource Providers,
or VSRPs) through:
• The creation of new mechanisms that allow them to drop in and out of dispatch smoothly.
For example, it creates a hibernation mechanism where a participant could choose to
participate in dispatch in summer, and drop out for winter.
• The ability to participate (and aggregate) at either connection points or secondary
settlement points. Secondary settlement points were created in the Commission’s
Unlocking CER benefits through flexible trading rule change and will sit behind a connection
point, allowing the splitting of resources at a customer’s premises. This means that
participants can separate out flexible and inflexible resources behind a connection point
and only include the flexible resources (or any combination they choose) in their VSR.
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• Establishing principles aimed at ensuring the ease of participation by VSRs and the
requirements on VSRs are only to the extent reasonably necessary for AEMO to manage
the power system.
49 Submissions to the draft determination; AEC, p. 1. CS Energy, pp. 2-3. Ausgrid, p. 1. EnergyAustralia, p. 1. Hydro Tasmania, p. 1. Red Energy, p. 1. CEC,
p. 2. AGL, pp. 1-2. Shell Energy, pp. 1-2. SAPN, p. 1. SA Water, p. 1. EUAA, p. 1.
50 Submissions to the consultation paper; EnergyAustralia, p. 3. Tesla, p. 2. Reposit, p. 1.
51 Submissions to the draft determination, Origin, p. 3. Ergon and Energex, pp. 1-2. Erne Energy, p. 1.
52 Submissions to the consultation paper, Origin, p. 4. SwitchDin, p. 1.
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Source: AEMC
3.3.1 Current direct benefits from participating in dispatch are unlikely to drive material participation
In our draft determination we noted that there are some direct benefits to participants, such as
access to the regulation FCAS market. Amendments to the rules are not required to provide these
benefits. Submissions to the draft determination had reservations about the level of participation
that these direct benefits would drive.
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participants, we heard that the revenue stream from providing regulation FCAS is a material
incentive.59
However, submissions to the draft determination noted that the regulation FCAS market may only
provide small benefit to participants. EnergyAustralia noted that regulation FCAS revenues are
declining due to market saturation from the entry of several large batteries and will therefore
provide limited incentive to participate even in the short term.60 CEC also noted that the more
VSRs that participate in dispatch, the lower the price for regulation FCAS services is likely to be,
further reducing the incentive to participate in dispatch mode.61
We recognise that regulation FCAS may not be sufficient to drive large participation in dispatch
mode.
This supports our consideration that current direct benefits are unlikely to drive material participation
Section 2.2.2 set out the benefits of integrating unscheduled price-responsive resources into the
market. These benefit areas (for example, reduced FCAS costs) accrue to the market, and not
individual participants in dispatch. FRMPs are already exposed to the spot price and individually
benefit from reduced consumption during high price periods, whether or not they are scheduled.
Additionally, there are well recognised inherent disincentives to being scheduled in the NEM (for
example, meeting the communications and data requirements).
Submissions to the draft determination support that the current direct benefits may not be
material and that a key element of participation in dispatch mode is getting the incentives to
participate right. The Commission agrees and therefore, considered what further incentives need
to be provided to participants to ensure they receive a share of the benefits that arises from them
participating in dispatch mode.
59 Submissions to the consultation paper, CEC, p. 2, Enel X, p. 5, Evergen, p. 8, Shell, pp. 3-4, sonnen, p. 7, Tesla, p. 11.
AEMC, TWG Minutes #4, 12 March 2024.
60 EnergyAustralia, submission to the draft determination, p. 2.
61 CEC, submission to the draft determination, p. 6.
62 Submission to the draft determination, CEC p. 2, EnergyAustralia, p. 2.
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63 Submissions to the draft determination, AEC, p. 2, Hydro Tasmania, p. 2, Origin, p. 4, Enel X, p. 2, Ausgrid, pp. 1-2, Shell Energy, p. 2, Red Energy, p. 4,
EUAA, p. 4.
64 SA Water, submission to the draft determination, p. 1.
65 AEMO, submission to the draft determination, p. 1.
66 CEC, submission to the draft determination, p. 3.
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67 Submission to the draft determination, AEC, Ergon and Energex, Hydro Tasmania, CEC, AEMO, Alinta, SA Water and EUAA.
68 AEMC, Non-scheduled generation and load in central dispatch rule change, 2017.
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3.3.5 The AEMC will continue to consider how being scheduled could be made more desirable for
participants
There are a number of reforms and potential future changes expected in the NEM. The
Commission considers that long term participation incentives are also required. These are best
provided through market and network access.
The Commission considers a key principle in this work is that scheduled participants should have
access to the network commensurate with the benefits they are providing the broader system.
Crucially, this needs to result in the opposite outcome to our current regulations at the
transmission system where unscheduled generators have preference over scheduled and semi-
scheduled generators. In particular, consideration could be given to:
• Greater market access for scheduled resources. It is possible in a future wholesale market
design that some form of dispatchability payments or an enduring government scheme is
introduced to support formal participation in the market, which would require being scheduled
as a condition of payment. Participants in dispatch should have access to markets for the full
suite of services they are capable of providing. In the future, this may include access to new
system security markets or access to capacity payments. CS Energy noted that there is likely a
strong case to adopt frameworks that incentivise the participation of resources in AEMO’s
scheduling process. These incentives could include providing scheduled resources greater
market/network access that commensurate with the broader system benefits that they
contribute.70
• Greater network access for scheduled resources. Reforms on distribution operating envelopes
and flexible export limits are currently being explored. It is possible that being scheduled will
have some benefits in these reforms. Shell Energy proposed excluding VSRs from emergency
backstop mechanisms.71 While being unable to consider this as part of the rule change, we do
consider that future markets will need to further consider the benefits of participating visibly in
the market through dispatch mode.
As the AEMC considers future rule changes, we will give consideration to how any reforms or
amendments could be made more preferential to scheduled participants. These participants have
demonstrated a technical capability to be coordinated with the rest of the system. If there are rule
changes regarding distribution network limits for example, we will consider how preferential
access could be provided to the resources in dispatch.
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• we considered AEMO’s visibility mode proposal but consider it would be high cost and not
enable the efficiency benefits due to the information not being used in central dispatch
(section 3.4.2)
• we considered alternatives raised in submissions and through further work (section 3.4.3 and
section 3.4.4).
3.4.1 The final rule creates an obligation for AEMO and the AER to report on the use and impact of
unscheduled price-responsive resources
Our final rule introduces a monitoring and reporting framework for AEMO and the AER.
This reporting framework will provide more transparency on the materiality of deviations of actual
demand from forecasts and the inefficiencies that these deviations cause. This transparency will
facilitate analysis of AEMO’s operational demand forecasting methods and whether changes can
reduce such inefficiencies, should they materialise. Collectively, this reporting and transparency
framework will help us understand how unscheduled price-responsive resources are changing and
their impact on market outcomes. It will also provide evidence the AEMC will consider when
determining whether to introduce structural changes to demand forecasting or a visibility market
model in the future.
Specifically, the final rule introduces:
• Monitoring and reporting by AEMO to:
• identify the presence and issues created by increased unscheduled price-responsive
resources72
• publish its methods and assumptions for regional demand forecasting in operational
timeframes and the measures it takes to improve this forecasting to account for
unscheduled price-responsive resources.73
• Monitoring and reporting by the AER to assess the efficiency implications and costs
associated with increased unscheduled price-responsive resources.74 To the extent that AEMO
can account for price-responsive resources through forecasting or participation in dispatch
mode, this would reduce the efficiency implications and costs associated with increased price-
responsive resources.
Stakeholder feedback to the draft determination broadly supported the monitoring and reporting
framework and we have not made any material changes to the draft rule in the final rule. Minor
changes that we have made in response to detailed suggestions from AEMO for clarity are
outlined in appendix C.
This new reporting framework complements and builds on the existing reporting requirements for
AEMO and the AER which are set out below.
• AEMO’s current reporting requirements:
• It has a range of reporting requirements concerning forecast accuracy and whether/how it
accounts for unscheduled price-responsive resources. However, these are limited to the
planning timeframe and focus on reliability and the extent to which forecast errors have
contributed to AEMO’s planning (Electricity Statement of Opportunities (ESOO)) or
operations (such as declaring a lack of reserve condition).
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3.4.2 We considered AEMO’s proposed visibility mode but it would not be used in dispatch
AEMO’s rule change request included a ‘visibility mode’ that was designed to enable FRMPs to
directly bid their demand-response into the market to improve situational awareness. The
proposal included the following key features:
• Participants could voluntarily register National Meter Identifiers (NMIs) in a light scheduling
unit (LSU). Participating FRMPs would be required to provide indicative bids for the forecast of
generation and consumption.
• The framework would allow for flexible participation, rather than the ongoing active operation
requirements in place for other market participants.
• The indicative bids would not be included in AEMO demand forecasting or dispatch. They
would be used to improve AEMO situational awareness.
Informed by stakeholder feedback and further analysis, the Commission considered that AEMO’s
visibility proposal had material weaknesses that would be difficult to overcome.77 These include:
• AEMO’s proposal would not incorporate indicative bids into dispatch. This would mean that
the IES ‘size of the prize’ modelled benefits of improved dispatch outcomes or reduced FCAS
costs would not occur.
• AEMO’s proposal requires NMIs to be registered within a LSU to participate in the visibility
mode. This requirement creates a high barrier to entry because of the real-time metering and
telemetry requirements and would limit the resources that can participate. We also considered
the lack of integration in central dispatch would mean AEMO’s visibility mode would not be
likely to meet the national electricity objective.
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draft determination broadly supported this position, and we have maintained it in the final
determination.79
Under the alternative visibility market model, participants would bid unscheduled price-responsive
resources and these bids would be used by AEMO in central dispatch to form a price-elastic
demand forecast. The Commission considers that the visibility market model has considerable
merit and analysed it in detail. This model has some key design differences relative to AEMO’s
visibility mode that we consider would materially increase benefits and lower costs for market
participants:
• quasi-bids would be submitted for unscheduled price-responsive resources by FRMPs on a
regional aggregate basis rather than through a LSU
• the quasi-bids would be used by AEMO in central dispatch, thus improving the accuracy of
demand, dispatch instructions and price formation
• FPPs would be used to drive incentives for participants to provide accurate quasi-bids.
The Commission considers that this visibility market model would be likely to deliver the following
benefits and could potentially contribute to the achievement of the national electricity objective:
• It would efficiently allocate risks to those best placed to manage them. By transferring
responsibility to market participants (for example, retailers) for forecasting the price-
responsiveness of their customers, risks are efficiently allocated. Retailers purchase energy on
behalf of customers in the spot market and on sell it to them. Generally, they possess the best
information about the price-responsiveness of their customers because they have the retail
contract that passes through prices and invest significant resources to know how much
energy they will be purchasing at different times and price levels.
• It would include incentives that would appropriately reward the provision of accurate
information. With retailers undertaking forecasts, financial incentives could be created for
providing accurate quasi-bids through the use of frequency performance payments.
• It would reduce market inefficiencies associated with unscheduled price-responsive
resources. By AEMO incorporating quasi-bids into dispatch, it would have a more accurate
view of demand, thus improving price formation, dispatch instructions, and reduce the reliance
on RERT.
However, after detailed design discussions with AEMO and our TWG, the Commission concluded
that the visibility market model is likely to have high cost and complexity for AEMO to implement
and maintain, and the solution is not yet warranted. The Commission’s analysis and relevant
stakeholder feedback considered in reaching this conclusion is set out below:
• While the volume of unscheduled price-responsive resources is growing, it has not yet reached
a point where it is materially challenging AEMO’s demand forecasting and it would come with
material costs to produce the necessary forecasts. We consider that the monitoring and
reporting framework will place us in a good position to determine when AEMO’s demand
forecasting is materially challenged, and if these challenges can be addressed adequately by
changes to AEMO’s demand forecasting methods, and therefore whether a move to retailer-led
forecasting of price-responsiveness is warranted. EUAA expressed support for the visibility
market model and also considered this should be reviewed if improvements to AEMO’s
forecasting do not materialise.80
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• Stakeholders, through the TWG, raised concerns with implementing a large regulatory solution
without evidence that AEMO has tried and not succeeded to improve its forecasting. The
Commission received clear and repeated feedback from submissions and through the TWG
that a large regulatory solution such as the alternative visibility model is not warranted yet. In
particular, TWG members considered incremental changes such as improvements to AEMO
forecasting should be explored in lieu of a significant market reform particularly since
unscheduled price-responsive resources have not yet materially influenced inefficient market
outcomes.
3.4.4 We considered other ways to improve visibility and transparency of unscheduled price-responsive
resources
In response to the consultation paper, stakeholder submissions raised alternative approaches to
address the visibility of unscheduled price-responsive resources. These included introducing a
reporting framework to assess the accuracy of AEMO’s demand forecasts, and improve
information collection processes to make them fit for purpose. Each of these are discussed
below.
81 Submissions to the consultation paper, Clean Energy Council, p. 3, Australian Energy Council, p. 4, FlowPower, p. 5, Enel X, p. 4, EnergyAustralia, p. 3,
Origin, p. 3.
82 Submissions to draft determination, Hydro Tasmania, p. 1, Origin, p. 1, Red Energy, p. 5.
83 AEMO, submission to draft determination, p. 3.
84 AGL, submission to draft determination, p. 3.
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Assess the accuracy of AEMO’s demand forecasts and provide transparency on the materiality of the
inefficiencies
Stakeholders considered that there is not sufficient transparency on AEMO’s operational demand
forecast errors to appropriately qualify whether a visibility mode is required. CS Energy considered
that AEMO has not reasonably justified why it requires more dynamic visibility. CS Energy
proposed that more transparency is needed on AEMO’s demand forecast accuracy in operational
forecasts and non-regulatory options for improving forecasts.85 EUAA echoed this sentiment and
proposed a regular reporting requirement for AEMO to publish forecast accuracy reports (monthly
or quarterly). EUAA proposed that this report would cover all of AEMO’s forecasting requirements
and compare against actual market real time 5 minute dispatch outcomes, including a process for
improving forecasting where an issue is identified in the report. EUAA also proposed that this
report should be prepared by an independent market body such as the AER or the AEMC to ensure
impartiality.86
The Commission considers that introducing a monitoring and reporting framework is a lower-cost
and proportionate response that better serves the immediate needs of the market. Furthermore,
we consider that AEMO’s work to improve its forecasting to account for unscheduled price-
responsive resources is worth exploring as improvements could reduce the size of the problem
and the need for a higher-cost regulatory response.
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to promote efficient investment in, and efficient operation and use of, electricity services for
the long term interests of consumers of electricity with respect to—
(a) price, quality, safety, reliability and security of supply of electricity; and
(b) the reliability, safety and security of the national electricity system; and
(c) the achievement of targets set by a participating jurisdiction—
(i) for reducing Australia’s greenhouse gas emissions; or
(ii) that are likely to contribute to reducing Australia’s greenhouse gas
emissions.
The targets statement, available on the AEMC website, lists the emissions reduction targets to be
considered, as a minimum, in having regard to the NEO.91
There are also a number of relevant legal requirements under the NEL for the Commission to
make a final rule determination. These are set out in appendix F.
89 Section 88(1) of the NEL and 236(1) of the National Energy Retail Law (NERL).
90 Section 7 of the NEL.
91 Section 32A(5) of the NEL.
Targets statement available here.
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rule change request, the more preferable rule is likely to better contribute to the achievement of
the NEO.92
For this rule change, the Commission has made a more preferable final electricity rule. The rule is
more preferable in two key ways:
1. A monitoring and reporting framework was considered more appropriate to the proposed
‘visibility mode’. This is because it better balances implementation costs and assists the
market bodies to decide if and when changes are needed to AEMO’s forecasting methods.
2. A time-limited incentive mechanism to encourage participation in dispatch is included in the
rule. This was not proposed in the rule change request. This addresses the concerns of low
participation and high upfront costs.
The reasons for these decisions are set out in section 4.2 below.
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introduce any new rights to customer data, only that existing rights to data can be shared
effectively where needed.97
The Commission notes that FRMPs are already engaging, and will continue to engage, with
customers to use their CER to respond to spot prices, through their contracts. This rule change
does not change the nature of this engagement, or the need for appropriate consumer protections
governing this engagement.
While the Commission considers that this rule does not alter the nature of relationships between
FRMPs and consumers with CER, we do note that issues have been identified with these current
relationships and these should be addressed. The ESB recommended that the National Energy
Customer Framework (NECF) is updated to ensure that consumers can benefit from this type of
innovation whilst also being protected from negative impacts.98 This is part of ongoing
consideration by the CER Taskforce.99 In the meantime, existing consumer protections under the
NECF and Australian Consumer Law will continue to apply (noting that the Unlocking CER Benefits
through flexible trading rule change extends key protections in the NERR to secondary settlement
points).
4.2 Our more preferable final rule will contribute to the NEO
The Commission has identified the following five criteria to assess whether the proposed rule
change, no change, or other viable rule-based options are likely to better contribute to the NEO:
1. Security and reliability — would greater visibility and dispatchability of price-responsive
resources promote a secure and reliable electricity system at the lowest cost through more
accurate forecasting and operation?
2. Concepts of efficiency — to what extent will increased visibility and integration of price-
responsive resources in the scheduling process lead to productive, allocative and dynamic
efficiency?
3. Emissions reduction — would the solution efficiently contribute to the achievement of
government targets for reducing, or that are likely to reduce, Australia’s greenhouse gas
emissions?
4. Implementation costs — what will be the costs to participants, consumers and AEMO of
implementing any solution? What will the costs be to participants, consumers and AEMO of
complying with any solution over time?
5. Flexibility — would the solution be future-proof, resilient and able to accommodate market,
technological, policy and other changes?
To support our decision-making, the Commission has undertaken a regulatory impact analysis to
evaluate the impacts of the final rule and other policy options against the assessment criteria. The
rest of this Chapter explains why the Commission’s more preferable final rule is likely to promote
the long-term interest of consumers, compared to the proposed rule, no change, or other viable
rule-based options.
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4.2.1 Creating a new framework for participation in dispatch will contribute to the NEO
Dispatch mode is a material regulatory change in the NEM. Our regulatory impact analysis has
therefore included formal market modelling to quantify the costs and benefits of the change. The
modelling focuses on the types of impacts within the scope of the NEO, including the cost of
operating the power system reliably and securely, dynamic and productive efficiency, and the
extent to which it impacts decarbonisation.
The Commission engaged IES to adapt its size of the prize modelling to include projected uptake
rates of dispatch mode and then use the same methodology as described in section 2.2.4 to
estimate its benefits. There is material uncertainty regarding the uptake of dispatch mode and we
therefore had IES take a probabilistic approach to modelling the benefits. IES modelled a high,
medium and low participation sensitivities and then gave them weights based on the likelihood of
them eventuating. Box 4 provides an explanation of this approach. This provides a weighted
benefit which the Commission primarily considers for its NEO assessment. These are set out in
Table 4.1.
AEMO provided cost estimates totalling $29m for dispatch mode (upfront ($18.2m +/-40%) and
ongoing costs (approximately $10.5m over 10 years)) and $5m (+/-40%) for the incentive
mechanism.100 This results in a cost estimate of $34m for dispatch mode and the incentive
mechanism.
The Commission considers that these estimates provide a strong case that dispatch mode
(together with the incentive mechanism) meets the NEO and should be implemented. Our
probabilistic assessment is a net benefit of $805m for dispatch mode (and $800m taking into
consideration the costs for the incentive mechanism). Furthermore, even in the low uptake
scenario modelled by IES the net benefits of dispatch mode are $494m (or $489m taking into
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consideration the costs for the incentive mechanism), an order of magnitude greater than the
costs.101
Another important feature of the IES modelling is the quantification of when the benefits of
dispatch mode occur. These are plotted in Figure 4.1. Most importantly, while the benefits grow
over time as the quantity of otherwise unscheduled price-responsive resources in the NEM
increases, the benefits are already material by 2030. This provides strong justification for
implementing the solution as soon as possible.
Source: IES, Benefit analysis of improved integration of unscheduled price-responsive resources into the NEM, sensitivity modelling results, 8
July 2024
Note: IES modelled snapshot years every 5 years, results have been interpolated for the remaining years.
Promotes security and reliability of the power system at the lowest possible cost
Dispatch mode promotes the security and reliability of the power system by ensuring more
accurate demand forecasting and efficient operation of the NEM. It primarily does this by creating
a framework for more resources to participate in dispatch. By having more price-responsive
resources scheduled, AEMO will not need to forecast these resources and therefore forecast
accuracy is likely to improve. This promotes:
1. System security at the lowest cost by reducing the use of generation reserves to balance the
market, such as FCAS. IES’s modelling estimates these cost savings to be $411m (NPV) from
2027 to 2050.
2. Reliability at the lowest cost by reducing the need for RERT. IES’s modelling estimates these
cost savings to be $100m (NPV) from 2027 to 2050.
101 IES, Benefit analysis of improved integration of unscheduled price-responsive resources into the NEM, sensitivity modelling results, 8 July 2024.
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resources (productive efficiency). IES estimates that the reduction in generation costs over
2027-2050 is $121m. IES demonstrates that this is primarily driven by dispatching less
peaking generation at high price times.
• Allowing AEMO to better match supply and demand. This will reduce operational demand
forecast errors, resulting in more efficient price setting. This results in lower energy prices and
potentially less volatile prices, benefiting all energy consumers. IES modelling identified
$8.73b NPV wealth transfer benefits from implementing dispatch mode. These benefits arise
from reduced energy and FCAS prices. We have not included the lower energy and FCAS
prices modelled by IES in our cost-benefit assessment. These are not true efficiency gains.
Rather, they are wealth transfers from generators to consumers, and therefore we do not
include them.
• The magnitude of the higher revenues earned by generators in the absence of dispatch mode
would likely result in additional market entry and this entry would come with a material cost (a
dynamic efficiency). IES’s scope of works for the Commission did not attempt to model the
additional generation and storage entering the market. This entry would come at a cost. The
Commission has therefore only taken this into account as a qualitative indication that the
overall IES benefits are likely understated.
102 AEMC, How the national energy objectives shape our decisions, 28 March 2024.
103 AEMO, Rule change request — Scheduled Lite Mechanism in the National Electricity Market, p. 40.
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integrated into market dispatch. It is flexible to a wide range of resources, technologies and
business models and therefore, robust to changes to all of these factors over time.
Similarly, dispatch mode is resilient to future regulatory reforms. The basic functions of
participants bidding the response of currently unscheduled price-responsive resources to different
spot prices, and following these bids, are important under any future regulatory framework.
We note two other relevant factors in our NEO assessment:
1. Participation costs. There will also be costs for participants who choose to use the
mechanism. These need to be considered when weighing the overall benefits of the
mechanism. Ergon and Energex noted in their submission that these and customer costs
should be further examined, along with potential costs for DNSPs.104 However, given the large
modelled benefits, and that these costs are only incurred for participants that use the
mechanism, we do not consider there is a material risk that the costs would impact our overall
NEO assessment.
2. Dynamic efficiency gains through avoiding unnecessary large scale generation and storage.
We have not included the lower energy and FCAS prices modelled by IES in our cost-benefit
assessment. In particular, IES estimates that prices would be substantially higher without
dispatch mode, resulting in consumers paying $8,729m (NPV) more over the period. These are
not true efficiency gains, they are wealth transfers from consumers to generators and
therefore we do not include them. However, given the magnitude of higher revenues they
would likely result in additional large scale generation and storage entering the market and this
would come with a material cost – a dynamic inefficiency – that should be considered in our
analysis. We therefore consider that the above efficiency gains are likely understated.
In conducting our NEO assessment we have also considered the distributional impacts of
introducing dispatch mode. In general, the reduction in total system costs in the long run from the
efficiency gains described above is likely to lead to lower prices for all consumers. We do not
consider it is possible or necessary to identify the specific groups of customers most likely to
benefit. Similarly, generators and retailers will incur lower costs in providing consumers with a
reliable supply of electricity, but it is challenging to identify the specific beneficiaries of these
efficiencies.
Additional modelling considered a range of potential participation rates through our new framework
In February 2024 we released modelling by IES on the potential total benefit of integrating
unscheduled price-responsive resources. This modelling was a ‘size of the prize’ exercise. Section
2.2.4 provides an explanation of this modelling. We asked IES to undertake additional modelling to
align with the policy direction for dispatch mode and include our best available estimates of
uptake of dispatch mode.
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benefits from VSR participation. This means that even in the years that the payments are made,
consumers still benefit from participation.
We have taken into account the implementation costs and effect on likely participation of the
incentive scheme in our quantitative assessment. However, we do not include the $50m of
incentive payments from consumers to participants in dispatch mode in this assessment. This is
because (similar to the FCAS and energy prices) this is a wealth transfer from consumers to
participants, not an efficiency loss.
Our analysis against the relevant assessment criteria is outlined below.
Promotes security, reliability and lower emissions at the lowest possible cost
As outlined above, participation in dispatch mode promotes the security and reliability of the
power system by ensuring more accurate demand forecasting and efficient operation of the NEM.
However, without an incentive mechanism, participation is likely to be low because of limited
direct participant benefits and high upfront costs. The final rule includes an incentive mechanism,
as a more preferable rule, to drive higher participation in dispatch by VSRPs. Increased
participation will result in significant benefits to the market.
4.2.3 Creating a new monitoring and reporting framework will contribute to the NEO
The Commission has qualitatively assessed the costs and benefits from introducing a monitoring
and reporting framework for unscheduled price-responsive resources. We consider that the
identified benefits of the monitoring and reporting rule will outweigh the costs, and that the
monitoring and reporting rule would better contribute to the NEO than the other options.
Therefore, introducing the monitoring and reporting framework is likely to be in the long-term
interest of consumers.
We do not consider detailed cost estimates are required to reach this conclusion because the cost
of the framework is unlikely to be material. Our analysis against the relevant assessment criteria is
outlined below.
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the NEM are needed (for example, placing some forecasting responsibility on retailers). We
consider that this approach will result in timely and effective reforms being made to improve
demand forecasting in the NEM in the future. This has the potential to materially increase
allocative, productive and dynamic efficiency in the long run. Compared to the alternative of
AEMO’s proposal, the alternative market model and no rule, this rule provides the most resilience.
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Note: The rule change request proposed establishing a LSU; when comparing the final determination and rule to the request, VSR is a similar
concept to an LSU.
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A.2.1 Our rule allows aggregated resources to operate like other scheduled resources
Where a VSRP aggregates several qualifying resources as a VSR, they will be treated as if they
were one dispatchable resource. This aggregated VSR would operate similarly to a scheduled BDU
in market systems, explained further in appendix A.2.3.
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Source: AEMC
Note: Generator, Integrated Resource Provider and Customer refer to the Chapter 2 registration categories. Not all Chapter 2 registration
categories have been shown here.
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Market participants will apply to AEMO to nominate their qualifying resource as a VSR or to
nominate two or more qualifying resources to be aggregated as a VSR.112 In applying to AEMO to
nominate a VSR, the participant must:113
• identify the NMI and market connection point associated with the qualifying resource
• demonstrate how the qualifying resource meets the requirements set by AEMO in the
voluntarily scheduled resources guideline (VSR guideline).
If aggregating two or more qualifying resources together the following conditions must be
fulfilled:114
• each qualifying resource must be connected within a single region and operated by a single
person in their capacity as a VSRP
• power system security must not be materially affected by the aggregation
• each qualifying resource in the aggregation satisfies the requirements to be a VSR
• any other requirement for aggregation outlined in the VSR guideline.
A simplified diagram of this process is provided below:
Source: AEMC
Note: The FRMP chooses which qualifying resources (NMIs) within the same region (and zone) to nominate as a VSR. Including whether to
aggregate them to be treated as if they were one resource for the purposes of dispatch.
The VSR will receive a dispatchable unit identifier (DUID) and be represented in market systems by
this DUID.115
The VSRP will be the FRMP for the resource(s) it is nominating or aggregating as a VSR. Where
the VSRP ceases to be the FRMP, such as if a customer changes retailer, the VSRP is required to
immediately notify AEMO.116 The qualifying resource would then cease to be a VSR.117 VSRPs must
notify AEMO as soon as practicable and no later than 10 business days if their qualifying resource
forming a VSR ceases to meet the applicable requirements.118 This mirrors existing requirements
for ancillary services units that cease to meet the requirements for classification.119
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VSRPs may aggregate resources at standard connection points, secondary settlement points or a
mixture of the two.120 If a VSRP nominates a resource at a secondary settlement point as a VSR,
the VSRP would bid and be dispatched for the response from the second settlement point/s only.
The Commission’s determination for Unlocking CER Benefits Through Flexible Trading provides an
option for establishing a second settlement point.121 This allows flexible resources to be
separately metered, and provided to market settlement systems, from the rest of the load at the
primary connection point.
Figure A.3 shows a potential configuration of a VSR using a second settlement point.
Source: AEMC
The above diagram is a simplified version of a possible use case for secondary connection points.
Consumers have the flexibility to use secondary settlement points in a configuration that works
best for them. For instance, households with rooftop solar can still use the output for self-
consumption and will not be paying to use their own generation. This is because subtractive
settlement arrangements apply between the primary connection point and secondary settlement
point(s).122
The location of controllable resources in the metering configuration would impact whether the
VSRP needs to incorporate their output in their bids and subsequent dispatch. For example, in the
figure above, a VSRP for the standard connection point configuration on the left would need to
account for both the general load and the controllable resource in its bids. In the configuration on
the right, if NMI 2 was nominated as a VSR, the VSRP would only need to account for the
controllable resources behind that NMI in its bids.
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Zonal aggregation
Participants can aggregate qualifying resources provided that each is within the same zone, with
the zones to be defined by AEMO in the VSR guideline.123 These zones would be fixed for the first
three years of dispatch mode’s operation.124 AEMO would have discretion in deciding what zones
are appropriate for VSRs in the guideline process, which could include retaining a regional
approach.125 AEMO has proposed that the aggregation process, including the zonal requirements,
would be managed mainly through the existing portfolio management processes.126
Stakeholders noted that the decision on VSR zones will impact participation.127 CEC highlighted
that even with regional zones, it will be challenging currently to aggregate resources to the
proposed 5MW threshold. Origin suggested that zones must stay at the current load forecasting
boundaries for a minimum amount of time, proposing the first three years.
A change from the draft rule is that the final rule specifies that the VSR zones determined in
establishing the first VSR guideline will be fixed for the first three years of dispatch mode
operation.128 The process for subsequent changes to VSR zones will be outlined through the VSR
guideline as well.129 This provides participants with certainty around where they are able to
aggregate when first choosing to participate, and stability in the future.
We have not required the initial setting of zones to follow the current load forecasting boundaries.
In setting the VSR zones, both initially and in any subsequent revisions, AEMO must consider the
principles outlined in appendix A.2.4.130 The principles aim to ensure that zones are set at a level
that encourages participation, while ensuring AEMO can operate the system effectively. AEMO will
also have the ability to disaggregate a VSR within a zone subject to the requirements and
processes outlined in the VSR guideline.131
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Stakeholders broadly agreed with this approach during our technical working groups.132
A.2.3 The final rule incorporates VSRs into the existing rules for central dispatch operations
The requirements for how VSRs operate in central dispatch are defined in our final rule and broadly
follow a similar process for scheduled BDUs. At a high level, the final rule sets out central dispatch
obligations for VSRPs across:
• bidding
• dispatch
• non-conformance process
• PASA
• data requirements.
VSRs (other than hibernated VSRs) are defined as a scheduled resource in the rules and are
subject to the provisions that apply to scheduled resources, except as described in this appendix
and the final rule.133 The obligations for deactivated and hibernated VSRs are outlined in appendix
A.3.
Bidding
For each VSR, the VSRP will bid in its willingness to generate or consume energy in 20 price
quantity pairs, 10 each for generation and load. The bidding process for a VSR is the same as the
arrangements for scheduled BDU, including:134
• Bids may be for resources that include generation, load and bi-directional resources. They,
therefore, may contain up to 20 price and volume bands.
• Bids would include all components applicable to other scheduled resources. This includes, for
example, price-volume pairs, maximum availability and a ramp-up and down rate. See
appendix A.2.5 for further information about ramp rates for VSRs.
• Bids must reflect the physical capability of the VSR, such that the unit can respond to a
dispatch target in the required time frames.
• VSRPs must supply AEMO with bid validation data.
• Bids and rebids submitted for a VSR must not be false or misleading.
Where secondary settlement point/s are used, described in appendix A.1, only the response from
the resource at the secondary settlement point would be bid in.
VSRs may also participate in the regulation and contingency FCAS markets, provided they comply
with their relevant technical requirements, see appendix B.4.2. The bidding process for these
markets would be the same as for scheduled BDUs.135
Consistent with the existing bidding process, the minimum incremental bid quantity would be 1
MW.
SA Water suggested that dispatch mode should facilitate non-integer MW unit participation,
similar to feedback received in our consultation paper.136 AGL and AEMO recommended
maintaining the existing 1 MW bidding increment.137 AEMO outlined that changing this could
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impact NEMDE processing times and would require costly system upgrades, including monitoring
requirements for FCAS participation.
The Commission acknowledges that the 1 MW bid limit may limit some participation, however this
would only occur when aggregations are small. Taking into account the complexity of changing
the bidding increment, we consider that the integer MW bidding increment should be maintained.
Participants and AEMO can consider how to enable and encourage the participation of smaller
aggregations through the technical details established in the VSR guideline, such as the
conformance requirements for small aggregations.
Dispatch
VSRs will be incorporated into the existing NEM dispatch process, including co-optimisation
between energy and FCAS dispatch. Dispatch instructions will be generated every five minutes,
consistent with the NEM spot market and issued to each DUID.
The VSRP will receive a single bi-directional dispatch instruction representing the net flow to be
achieved by the VSR with respect to its DUID.138 This dispatch instruction would be positive where
the VSR is being dispatched to discharge, and negative where it is being dispatched to charge. The
VSRP would also obtain an enablement for each FCAS service where relevant.
VSRPs will be required to comply with dispatch instructions in the same as any other FRMP for a
scheduled resource.139 The AER will use its discretion in assessing any instances of non-
compliance with the rules, such as whether any non-compliance was due to non-static distribution
network limits that the VSRP was unable to account for.
In the example of an aggregated VSR, if the VSRP receives a dispatch instruction to generate
10MW, the VSRP must ensure that the sum of all flows across the aggregated NMIs in the VSR is
equal to 10MW at the end of the dispatch interval. In doing this, some NMIs may be consuming
power while others are generating. For the purposes of complying with dispatch instructions, it
does not matter what each individual VSR is doing as long as the net response matches the
dispatch instruction.
EUAA suggested the arrangements for net output for C&I sites be clarified.140 For a large C&I site
with multiple connection points or secondary settlement points, they may participate at the site
level with all or only some of their connection points. Dispatch obligations would only apply to the
NMIs they choose to participate with.
Non-conformance process
VSRs will have their conformance with dispatch instructions monitored by AEMO against a set of
criteria developed through the VSR guideline.141 See appendix A.2.4 for further information. Where
a VSR fails to respond to a dispatch instruction within a tolerable time and accuracy, as
determined by AEMO, the VSR:142
• would be declared and identified as non-conforming
• cannot be used as the basis for setting spot prices.
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AEMO must advise the VSRP that the VSR is non-conforming and request a reason for this. AEMO
may also request that the VSRP submit modified parameters for the VSR based on this non-
conformance.143
AEMO may also require the VSRP to limit the available capacity of the VSR for as long as the VSR
is non-conforming.144 The VSR would continue to be declared non-conforming until AEMO is
satisfied that the VSR would respond to future dispatch requirements as required.145
Where a VSR continues to be non-conforming, after a reasonable period, AEMO must prepare a
report describing this non-conformance and forward it to the VSRP and the AER.146 The AER
assesses compliance with the rules separately from the conformance process, and may
investigate instances of non-conformance to assess whether the VSRP was compliant with the
rules.
Non-conforming VSRs can be deactivated or hibernated; see appendix A.3 for more information.
PASA
VSRPs will be subject to the same ST PASA requirements for VSRs as other scheduled resources.
For example, over the 7-day ST PASA horizon, the VSRP needs to provide for each VSR:147
• available capacity for each trading interval
• PASA availability for each trading interval
• if applicable, projected daily energy availability.
PASA is the principal method of indicating a forecast of electricity system reliability to the NEM.
As VSRs will be participating in central dispatch, having information about their availability in ST
PASA ensures that AEMO can adequately manage the power system.
VSRPs will not need to submit MT PASA information for their VSR. We consider that requiring
VSRPs to provide the forecast availability of their VSR for the next three years would be onerous
and not meaningfully benefit the market or AEMO. This is because VSRs will likely be dynamic in
their operation and their information would not be best suited to the MT PASA process. Removing
this obligation would also reduce barriers for participants to participate in dispatch mode.
VSRPs need to provide DSP information for their VSR(s).148 AEMO would use the DSP information
in its longer-term planning processes. This approach is consistent with the Commission’s decision
for WDRUs.149
Data requirements
Each qualifying resource in a VSR would be required to have appropriate remote monitoring
equipment necessary for AEMO to discharge its market and power system security functions.150
AEMO has discretion on the form of these requirements, which will be outlined in the VSR
guideline.151 This discretion also covers the use of supervisory control and data acquisition
(SCADA) lite for transmitting and receiving data, as suggested by EnergyAustralia.152
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A.2.4 A new AEMO guideline will outline technical requirements for participation
AEMO will define the required technical details for how VSRs participate in central dispatch
through a new VSR guideline. This rule change provides a pathway for currently unscheduled
resources to participate in central dispatch, which can comprise various different types of
technology which may have different speeds of technological advancement.
The Commission recognises that AEMO is best placed to consult on and make the decisions on
the technical requirements for VSRs. Empowering AEMO to define the technical details of
participating through a guideline also allows these details to be updated more quickly to account
for technological advancements than if they were in the rules.
Our final rule requires the VSR guideline to include:153
• processes for nominating a qualifying resource as a VSR and aggregating qualifying resources
• a requirement that VSRPs must be the FRMP at the connection point for the VSR
• processes for participants to test the individual or aggregated capability of their resources to
participate in central dispatch before formally nominating these resources as a VSR
• operational requirements of VSRs including:
• the types of data to be provided by a VSRP to AEMO and by AEMO back to the VSRP
• telemetry and communication requirements for VSRs
• minimum threshold for nameplate or combined nameplate rating for nominating a VSR
• VSR conformance criteria
• acceptable types of metering installations for participating connection points.
• processes for:
• VSRPs to share data with DNSPs or TNSPs
• the disclosure of data collected by AEMO from VSRPs to DNSPs or TNSPs, including
obligations for confidential data
• processes for VSRPs requesting to deactivate or hibernate a VSR and the process for
reactivating and resuming operation in central dispatch
• any requirements for information to be provided by deactivated or hibernated VSRs
• any other information AEMO considers reasonably necessary.
The VSR guideline has been expanded since the draft rule to account for stakeholder feedback
outlining that the guideline should:154
• reflect the confidential data provisions in the NER and provide guidance on the use or
reproduction of data
• allow for VSR data to be shared with DNSPs
• include data sharing with TNSPs to account for a VSR connected to the transmission network
We have not included any new prescribed data sharing arrangements, as suggested by Ausgrid
and SAPN.155 We consider that DNSPs and AEMO can use their existing data sharing
arrangements for VSRP data where needed. As VSRs grow, the Commission will consider whether
new prescribed data sharing arrangements are warranted.
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The CEC and Origin raised concerns with the minimum size of VSRs being 5MW, as proposed by
AEMO in its rule change request.156 We maintain that the minimum size of VSRs is an operational
consideration for AEMO and best consulted on by AEMO with industry in developing the VSR
guideline.
The VSR guideline will also outline the zonal aggregation requirements for VSRs, including:157
• a methodology for determining zones in which VSRs can be aggregated, including applicable
loss factors for VSRs
• requirements and conditions for VSRPs when aggregating VSRs
• necessary guidance for VSRPs on the process for aggregating VSRs to relevant zones
• any relevant validation process for AEMO
• guidance for VSRPs on the process and timing for changes to the VSR zones, including
minimum lead times for when changes would take effect.
AEMO must follow the Rules consultation procedures in developing the guideline.158 To ensure
that the guidelines are fit for purpose after VSRs have entered the market, AEMO will be required
to review these guidelines three years after the commencement of the rule.159
Outside of the required review, AEMO may also choose to review this guideline when it considers
changes are required.160
Principles when creating and amending the guideline
In developing the new guideline, AEMO will need to make decisions on the cost of facilitating
VSRs, as well as the technical requirements for VSRs. These decisions are likely to impact the
level of participation in VSRs, as outlined below.
In developing and amending the VSR guideline, AEMO must:161
• Seek to minimise the total cost of facilitating the rule change, by balancing the cost to
participants in operating a VSR and AEMO’s costs of facilitating VSRs.
• For example, through consultation AEMO may choose to develop a more expensive
technical solution if it means this expense would significantly reduce costs for
participants.
• Facilitate the ease of participation in central dispatch by VSRs and apply restrictions on VSRs
only to the extent reasonably necessary for AEMO to manage power system security and
reliability.
• For example, balance the benefits from greater participation with lower technical
requirements and the benefits from greater technical requirements with lower
participation. This would also allow AEMO to apply different technical requirements based
on the size of the VSR. For instance a 150 MW VSR may require different technical
requirements than a 10 MW VSR.
• This principle would also apply to AEMO determining zonal requirements for participation.
For example, AEMO must balance the benefits from less strict zonal requirements, such as
regional, with the need for VSRs to be in zones that accurately reflect the power system.
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• Have regard to any other matter determined by AEMO, acting reasonably, which must be
specified in the VSR guideline.
These principles aim to assist AEMO and stakeholders in balancing these trade-offs, while still
giving AEMO flexibility to determine the most appropriate requirements for VSRs. The principles
also recognise that VSRs are not the same as large scheduled generators and BDUs, and therefore
should not face the same requirements This is important to reflect that:
• Participation in dispatch mode is voluntary. Strict requirements will simply result in low
participation and therefore low benefits for consumers.
• Market participants are still learning and developing their capabilities to control aggregated
CER and should be given time to develop these capabilities.
• Participation is likely to build up over time. In the early years, the small size of each VSR
participating means they are unlikely to have a material impact on power system security and
therefore leniency comes at a low risk.
This is explored further below for our decision on VSR conformance criteria.
Origin agreed with the inclusion of these principles but raised that they may be hard to achieve in
practice.162 We recognise that AEMO will have a difficult job in ensuring it has made the right trade-
offs when developing the VSR guideline. We strongly encourage stakeholders to engage with
AEMO in developing the VSR guideline and note these principles where needed.
Conformance criteria
The conformance of VSRs will be assessed in real-time against criteria developed by AEMO
through the VSR guideline.163 This is consistent with the process for other scheduled units and
allows AEMO to easily update the criteria when needed and tailor it the requirements for VSRs.
Red Energy and the AEC suggested that VSR conformance criteria should be defined in the rules,
highlighting that lesser obligations for VSRs has the potential to threaten system security and
create additional costs for consumers.164 Red Energy further suggested that the existing bidding
rules offer sufficient flexibility for VSRs, by allowing them to amend their bids or offer explanations
to AEMO if they cannot follow dispatch instructions.165 Other stakeholders suggested that if
conformance criteria are to be defined in the VSR guideline, it should ensure VSR participation is
accurate, creating a level playing field for all scheduled resources.166
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Box 7: VSR conformance should be set at a level that reflects their impact
The Commission recognises that accurate participation is essential for the efficient operation of
central dispatch. However, VSR conformance criteria should be set at a level that does not
disproportionately disincentivise participation.
Large scheduled resources are designed around constant spot market operation to a high degree
of accuracy. This reflects both:
• the impact they can have on the market and power system
• that their primary reason for operation is to earn revenue in the spot market and when they
made their investment cases they knew they would be subject to such requirements.
By contrast VSRs are likely to be comprised to small aggregated resources and, initially, would not
materially impact the system. Furthermore, VSRPs will have the option to participate in dispatch,
reflecting that the underlying resources are likely to largely have other primary purposes (for
example, minimising residential customers’ bills) for operation.
If conformance criteria for VSRs are set at the same level as existing scheduled resources, this
would likely be disproportionate to their impact and significantly disincentivise participation. This
would lead to resources continuing to participate out of market. This will cause the inefficiencies
as outlined in section 2.2.3 and lead to an even worse outcome on the power system than had they
participated with lower conformance than existing scheduled resources.
Our final rule maintains that AEMO will set the conformance criteria for VSRs, subject to the
principles enshrined in the VSR guideline. Allowing conformance to be set at a level that
encourages participation and maintains the efficient operation of the market.
The Commission maintains that VSR conformance is best defined in the VSR guideline and
determined by AEMO under guidance from the principles outlined above. This is consistent with
the conformance process for existing scheduled resources, which have their conformance criteria
determined by AEMO through the dispatch operating procedure.167
It is important to note that conformance is an operational tool for AEMO to monitor how
scheduled resources are performing. VSRPs are still required to comply with dispatch instructions,
with instances of non-compliance investigated by the AER. VSRPs are also subject to the same
bidding rules as other scheduled resources, as outlined above.
AGL and the CEC suggested that VSRPs should not be accountable for instances of non-
conformance due to changes in distribution network limits outside of their control.168 AEMO may
consider how to address these concerns when establishing the conformance criteria in the VSR
guideline.
We acknowledge that AEMO will face a complex trade-off in setting conformance criteria to
reduce the barriers to entry by aggregated resources and ensuring reliable participation in
dispatch. The Commission’s guideline principles in appendix A.2.4 aim to guide AEMO and
participants in managing this trade-off.
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The final rule for Enhancing reserve information requires the publication of information on energy
availability in the operational time frame, including:
• state of charge (SOC)
• maximum storage capacity.
VSRs are required to provide AEMO with the aggregated actual generation, actual load and actual
energy stored as part of their operation. Extending the Enhancing reserve information decision to
VSRs maintains the signals participants would have on the levels of storage available in
operational time frames.
VSRs will be eligible for frequency performance payments but not required to provide mandatory
primary frequency response
VSRs are not required to provide mandatory primary frequency response (PFR) but are eligible for
FPPs.
The AEMC’s final rule for Clarifying Mandatory Primary Frequency Response Obligations For
Bidirectional Units provided that batteries that are 5 MW or bigger must provide PFR when
exporting or importing energy, including when providing a regulation service.177 We consider that
the relative immaturity of smaller distributed resources, which are expected to participate as a
VSR, justify their exclusion from providing mandatory PFR.
The AEMC’s final rule for Primary Frequency Response Incentive Arrangements introduces new FPP
arrangements.178 These incentivise market participants to operate their plant in a way that helps to
control power system frequency.
VSRs are defined as an eligible unit and will be able to receive FPP, subject to being able to comply
with relevant requirements.179 See appendix B.4.3 for further details on FPPs.
VSRPs will not be deemed non-compliant with their dispatch instruction when providing a
frequency response to power system conditions.180 VSRPs will however need to inform AEMO of
their frequency response settings and require permission from AEMO to change these settings.181
177 AEMC, Clarifying mandatory primary frequency response obligations for bidirectional plant, Rule determination, 7 March 2024, p. i.
178 AEMC, Primary frequency response incentive arrangements, Rule determination, 8 September 2022, p. i.
179 See clause 3.15.6AA of the final rule.
180 See clause 4.9.8(a1) of the final rule.
181 See clause 4.9.4(e) of the final rule.
AEMO may set out the process for approving frequency response settings for VSRs through the VSR guideline.
182 See clause 3.9.7 of the NER.
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If network constraints do need to be managed using a VSR they may be directed, as outlined
above.
VSR treatment during supply scarcity events
An issue raised in discussion between AEMO and the Commission between the draft and final
determinations was whether AEMO would be required to turn off VSR load before other load in
supply scarcity events (for example lack of reserves level 3 (LOR3)). AEMO and the Commission
consider this would be undesirable as it would provide a disincentive to participate in dispatch
mode. However, upon further investigation, we do not consider this is the case under current rules,
and have therefore not made changes to the draft rule to resolve this. Our reasoning is set out
below.
Our final rule includes VSRs as scheduled resources, meaning any consumption needs to be bid
and dispatched through the market.183 During supply scarcity events, such as the lead up to load
shedding, VSRs that have bid to consume at the price cap will continue to be dispatched. VSRs
would still be subject to load shedding, that is have their load interrupted, in the same way as if
they were not VSRs.
The rules specify that the central dispatch process operated by AEMO needs to maximise the
value of spot trading subject to a variety of factors.184 One of these factors is the non-scheduled
load requirements in each region. As outlined earlier, VSRs will retain their underlying
classification from Chapter 2 when nominated as a VSR. This will mean that under this clause VSR
load will be considered non-scheduled load, as non-scheduled load is defined as any load which is
not classified as scheduled load under Chapter 2.185
Despite being considered non-scheduled load in this clause, VSRPs are not exempt from the
obligations outlined in appendix A.2.3, such as submitting bids and following dispatch
instructions.
The Commission considers that load requirements for VSRs would be any load bid that is within
merit order. For instance, a bid to consume 10 MW when the price is less than $1000/MWh:
• would be a load requirement if the price is $150/MWh (i.e. bid to consume is in merit order)
• would not be a load requirement, if the price is $1500/MWh (i.e. bid out of merit order).
In the extreme, any VSR load bid at the price cap would be a load requirement in all instances. This
would mean that during supply scarcity, any VSR bids at the price cap must be dispatched, up until
the point of load shedding.
We understand that AEMO will consult with industry on how best to achieve this outcome in its
systems.
Ramp Rates
VSRPs will provide minimum and maximum ramp rates for the VSR for use in the verification of
their offers.186 AEMO will review the dispatch operating procedure to see whether changes are
required to best facilitate VSR ramp rates in central dispatch.187
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For aggregated VSRs, the aggregated capacity would be used when calculating the minimum
ramp rate requirement.188 This is consistent with our position in the draft rule.189
SA Water and AGL noted that ramp rates will be difficult for aggregated portfolios to meet and
suggested more flexibility be given to VSRs.190 AGL suggested there should be a transitional
period where VSRPs can test and improve their ramping capabilities.
VSRPs are able to bid in their ramp rates for their VSR, which can take into account any limitations
on their ability to ramp. VSRPs may also submit a fixed loading level for the VSR.191 VSRPs will not
be able to submit a dispatch inflexibility profile, consistent with the Commission’s previous
decision removing the ability for BDUs to use inflexibility profiles.192
We recognise that there may be situations where VSRPs may want to use inflexibility profiles or a
similar mechanism for their VSRs. In developing the VSR guideline we would encourage
stakeholders to outline what mechanisms they would expect to need for VSRs, so these can be
implemented through AEMO systems and procedures changes.
We are requiring AEMO to review the dispatch operating procedures, which contain further
information on the ramp rate requirements for scheduled resources. In this review AEMO will need
to take into account the principles set out in appendix A.2.4. This will allow participants to outline
any changes that can be made to ramp rate within this procedure to best accommodate VSRs to
increase participation in dispatch.
We also expect that VSRPs will have the opportunity to test the ramping performance of their
resources prior to nominating their resources as part of AEMO’s testing framework in the VSR
guideline.193
A.3 The final rule provides flexibility to participants about when they
operate in the mechanism
Our final rule includes two options that allow VSRPs to remove a VSR from dispatch obligations.
These options recognise the challenges aggregated portfolios may face if required to continually
participate in central dispatch.
The two options being introduced are:
• Deactivation — allows VSRPs to remove a VSR from most dispatch obligations but still submit
bids and send real-time data to AEMO.
• Hibernate — allows VSRPs to remove a VSR from all dispatch obligations, including sending
bids and real-time information to AEMO.
These options provide a necessary safety net for VSRs and recognise that some resources may
only be able to participate over specific periods. This is in contrast to larger scheduled resources
which are designed for constant participation and can disconnect from the grid when they
encounter an issue in order to resolve it.194
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We consider that this flexibility is necessary to assist in encouraging participation, as the risks of
central dispatch operation can be managed. The need for flexibility was also highlighted by
stakeholders to assist overcoming the complexity of participation.195
195 Submissions to the draft determination; Enel X, p. 2. Energy Australia, p. 5. AGL, pp. 2-3.
AEMC, TWG #5 minutes, 17 April 2024.
196 This process is similar to the opt-out process proposed in the rule change request.
197 Submissions to the draft determination; AGL, pp. 2-3. AEMO, p. 4.
198 See clause 3.7.3(h) of the final rule.
199 See clauses 3.10A.2(b)-(c) of the final rule.
200 See clauses 3.10A.2(d)-(e) of the final rule.
201 See clause 3.10A.2(f) of the final rule.
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202 AEMO may still issue clause 4.8.9 instructions to inactive VSRs.
203 See clauses 3.10A.2(g) and 3.10A.2(j) of the final rule.
204 See clause 3.10A.2(g) of the final rule.
205 The date otherwise determined by AEMO must be made in accordance with the VSR guideline, which can specify the alternate date needs to be
agreed by the VSRP.
206 See clause 3.10A.2(l)(2)(ii) of the final rule.
207 See clauses 3.10A.2(j) and 3.10A.2(k)(4) of the final rule.
208 See clause 3.10A.2(k) of the final rule.
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Where a VSRP submits a hibernation notice in accordance with the above then the VSR will be
considered hibernated and no longer a scheduled resource.209 While hibernated, AEMO may
impose conditions on the VSR in accordance with the VSR guidelines.
To re-enter the central dispatch process, a VSRP must submit a resumption request to AEMO
before the end of the maximum 18-month hibernation period.210 This request will outline when the
VSR is to return to dispatch and follow the process contained in the VSR guideline.
Where a VSRP fails to submit a resumption request prior to the end of the 18 period:
• the VSRP ceases to be a VSRP for the hibernated VSR
• each qualifying resource in the hibernated VSR ceases to be a VSR.
A.3.3 Deactivated and hibernated VSRs may still participate in contingency markets
When deactivated or hibernated, VSRs will still be able to offer and be dispatched for market
ancillary services, but not regulation FCAS as this requires being scheduled.
This means that inactive or hibernated VSRs can continue to provide contingency FCAS. This in
enacted in the final rule by specifying that for market ancillary services, VSRPs will still be required
to follow dispatch instructions and will not be excluded from the provisions in appendix A.3.1.
Hibernated VSRs are not a scheduled resource, and not excluded from the provisions in appendix
A.3.1, meaning they need to follow any applicable ancillary service dispatch instruction.
Deactivating or hibernating would not impact a VSR’s classification as an ancillary services unit
under Chapter 2 of the NER, allowing these resources to provide market ancillary services.211
This is a clarification from the draft rule, which merely specified that where deactivated, VSRs
would not have obligations to follow any dispatch instruction. The Commission considers that
deactivated or hibernated VSRs should continue to be able to provide ancillary services, as being
scheduled is not a requirement to deliver these services.
Our final rule gives AEMO discretion on whether to accept bids from deactivated VSRs.212 This
discretion allows AEMO to reject any bid for energy or regulation FCAS from deactivated or
hibernated VSRs, but accept bids for the contingency FCAS markets.
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A.4.3 VSRPs will still be responsible for managing distribution limits and dispatch obligations
Consistent with the draft rule, VSRPs will be responsible for ensuring that their bids and any
subsequent dispatch are within any applicable FEL across their VSR. This means that the VSRP
needs to ensure that each NMI in the VSR (if aggregated) would stay within any applicable FEL
imposed by a DNSP at that NMI.
We expect that over the short term, FELs would not pose a significant limit on the operation of
price-responsive resources, but this may change over time, requiring their integration with
dispatch instructions. As the design and implementation of FELs progresses, AEMO and DNSPs
can investigate incorporating FELs into dispatch instructions to VSRs.
Our final rule includes information sharing provisions between AEMO and DNSPs
The VSR guideline will set out data-sharing arrangements between AEMO and DNSPs (see
appendix A.2.4). This provision can be used to ensure appropriate data is shared between AEMO
and DNSPs when setting distribution limits.219 This provision may also be used to ensure
alignment between AEMO and DNSP systems, such that FELs can be included as part dispatch
instructions to VSRs in the future.
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specified by AEMO in the VSR guideline. AEMO has proposed that this process would be managed
through AEMO’s portfolio management functions developed for WDRM.
Data
Ralph Energy would need to provide information about its VSR to AEMO when nominating and in
real-time during operation. Specifics on how this data would need to be structured and transmitted
to AEMO would be defined by AEMO through the VSR guideline.
A high-level overview of the data requirements is outlined in Table A.2 below.
Bidding
Ralph Energy bids to charge its aggregated batteries during negative prices and discharge when
prices > $300 and nothing at all other times. It would comply with existing bidding rules, such as
bidding in good faith.
2 MW of the aggregated battery capacity is reserved to smooth out the passive load and manage
unexpected changes to customers’ load to comply with dispatch instructions.
These intentions are reflected in the table:
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Dispatch
Ralph Energy’s bids are sent to AEMO and incorporated into the central dispatch process
(NEMDE). When dispatched, Ralph would receive a single bi-directional dispatch instruction for the
VSR. Ralph Energy would then disaggregate the dispatch instruction amongst the NMIs in the VSR
and control the batteries to meet the instruction, such as linearly ramping between dispatch
targets. An indicative example of Ralph Energy’s VSR performance across a trading day is shown
in Figure A.4 below.
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Source: AEMC
Note: The aggregated battery charge and discharge response to wholesale prices is limited by aggregated capacity of 15.5 MWh. This
limitation would need to be reflected by Ralph through its rebids.
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technical solutions prior to commencement.222 The CEC suggested Q1 2027 and AEMO’s
preference was May 2027 for new commencement dates.
The Commission agrees that greater time to understand and prepare for the requirements of
dispatch mode will help to drive participation. In extending the commencement date, we note that
AEMO does not make significant system changes over the summer period, so May 2027 was the
next available time to implement dispatch mode. The timeline to complete the VSR guidelines is
unchanged from the draft, and is required to be complete by 31 December 2025.
The Commission has also considered the need for a post-implementation review of dispatch
mode. We consider that performing a post-implementation review is generally best practice given
the scope of changes being introduced. We will consider whether a review is required once these
amendments have been in operation for an appropriate period of time. If a review is required, we
will use our self-initiation review powers to commence this.
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B.1.1 The incentive mechanism will include at least two tenders between April 2026 and December
2031
The final rule provides a time-limited incentive mechanism running between 1 April 2026 and 31
December 2031.223 It also requires that AEMO run a minimum of two tenders within the period.
Some stakeholders provided comments to the draft determination that the incentives would be
hard to remove.224 We note that the incentive period is defined. A stakeholder would need to
submit a new rule change request in order for it to be considered to be extended. The Commission
would require new evidence before it would consider a request for an extension to the period, as it
currently is. As noted in section 3.3.5, longer-term changes anticipated in the market are expected
to drive participation in the absence of the tender process.
The Commission recognises there is also value in allowing AEMO flexibility as to when it runs the
tender process. There may be reasons to not run tenders in particular years. For instance, if in one
year there is a highly competitive tender process with a variety of resources across all
jurisdictions, it may be in the interest of consumers to procure more in that year and defer running
the tender process in the following years. The final rule provides AEMO with flexibility as to how
often it runs the tender process, but does require a minimum of two tender processes during the
incentive period.225
Between the draft and final determination, the commencement date of the incentive period was
brought forward from January 2027 to April 2026. In its submission, AEMO proposed that the first
round of incentives should be awarded well in advance of the commencement of dispatch mode
to provide investment certainty for VSRPs and support VSRPs’ customer acquisition, technical
development and testing.226 The Commission agrees that there is benefit in allowing the incentive
mechanism to commence earlier. Moving the date earlier extends the incentive period by eight
months to five years and eight months (noting there is no requirement on AEMO to commence a
tender process at the start of the period).
223 See clause 3.10B.1 of the final rule, definition of incentive period.
224 Submissions to the draft determination, AEC. p. 2, Ausgrid, p. 3.
225 See clause 3.10B.2 (a) of the final rule.
226 AEMO, submission to the draft determination, p. 6.
227 See clause 3.10B.2(a) of the final rule.
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processes, including the Settlement Residue Auctions, the Victorian Distributed Wholesale Gas
Market Capacity Credit Auctions and the Day Ahead Auction in the East Coast gas market.
While a tender process will result in some administration and implementation costs to both the
mechanism operator and to participants preparing tenders, the Commission considers that AEMO
running the tender process will:
• ensure the market benefit is maintained
• target the lowest cost participants to be engaged first
• allow for some flexibility to adjust to market conditions.
B.1.3 The objective of the incentive mechanism is to increase dispatch mode participation in the long
run, at the lowest cost
The primary objective of the incentive mechanism is to maximise the benefits to the market from
having additional participation of VSRs in dispatch in the long run, whilst minimising the cost of
payments made to successful tenderers.229
In order to ensure this, the rules provide for a number of considerations that AEMO is to account
for in assessing resources for which prospective VSRPs are seeking funding, to meet the VSR
incentive principles.230 Two of these considerations are consequential to the objective of
maximising market benefit, specifically:
• The relative availability of the resource. Not all resources will have the same characteristics —
some resources are seasonal in nature, while others might have a lower capacity factor, yet
these resources may still be of benefit to the market if they are scheduled. As such, instead of
excluding participants that plan to regularly hibernate from the tender process, the rule
requires AEMO to consider the relative availability of the resource when it is considering
tenders.
• The relative price-responsiveness of the resource. Resources that are able to participate
actively in dispatch, changing their consumption or generation on a regular basis in response
to normal variations in spot prices, would likely provide greater market benefit than resources
that only change their behaviour at the extremes. For example, a battery that responds to
changing market conditions each day will likely provide greater market value than a stable load
that only changes its behaviour when the wholesale price reaches the market price cap.
The final consideration speaks to the broader intention to build capability across the market,
namely:
• The variety of resource types participating as VSRs. As noted earlier, one of the key drivers of
this incentive mechanism is to build capability across the market in the early years after the
VSR option becomes available. As part of this, there is benefit from having a diversity of
resource types participating (for example, not just 4 MW batteries). This would assist in
building the ability for more diverse resource types to participate as scheduled participants
once the incentive scheme ends. Further, having a diversity of resource types in dispatch could
have benefits of greater reliability across a range of market conditions, and lead to more
competition in dispatch.
228 AEMC, Improving security frameworks for the energy transition, final determination, 28 March 2024.
229 See clause 3.10B.1 of the final rule, definition of VSR incentive objective.
230 See clause 3.10B.2(e) of the final rule.
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To assist AEMO with these considerations, tender participants must outline their capacity, that is
the number of MW (not MWh), region, types of resources and the availability of the resources that
would be scheduled for the length of the contract.231
There were few submissions on this feature. AEMO noted that the objective may have the
unintended consequence of prioritising VSR capacity over VSR capability building.232 The intention
is for AEMO to consider how to prioritise participation in dispatch mode in the long run. This will
require a variety of resources and participants to potentially test their capabilities through
participation. For the final determination, the definition of VSR incentive objective was amended to
include “in the long run” in response to AEMO’s submission.
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IES modelled these benefits to support the draft determination. We expect that AEMO would draw
on the IES modelling when determining the VSR Benefits in the first instance. Alternatively, if
AEMO:
• considers that market conditions have sufficiently changed, or
• is interested in detailed exploration of jurisdictions or sub-regions,
it has the option of conducting new modelling to support a more accurate assessment.
In its submission, AEMO requested further prescription in how it should calculate and determine
the price caps.237 AEMO noted in particular that economic assessments of consumer benefits are
typically outside of AEMO’s remit, would require non-trivial assumptions and scenarios and time-
consuming consultation would likely be needed to mitigate the risks. We have not provided further
prescription for a number of reasons:
• we expect that AEMO would use the IES modelling outlined above
• prescription on how to calculate the price cap could reveal the cap and result in potential
gaming of offers.
B.1.5 The incentive mechanism will be capped to $50m, but external funding can also be used
The final rule limits the amount of participation payments that can be recovered from Cost
Recovery Market Participants to $50m. This sets a boundary on the total amount that can be paid
over the incentive period. This will:
• cap the overall payments faced by consumers
• establish market expectations for the incentive mechanism
• assist AEMO in scoping out the number of contracts and tender processes.
There is no single optimal approach in determining the payment cap. Instead, the following
information informed our decision:
• Customer Impact — One relevant factor is what the ‘cost’ to end consumers would be for the
life of the project. Note that the market benefit requirement of the incentive price cap would
ensure these costs are outweighed by cost reductions elsewhere in the market. However,
based on around nine million NMIs (roughly equivalent to customers) in the NEM today, adding
an additional cost of $1 per customer per year would be equivalent to a $45m payment cap.
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• Market Benefit — Another consideration is to explore the expected market benefit over the five
years the tender process would operate. In IES’s low uptake scenario, the social benefit from
the first five years is around $167m.
• Participant cost — A final input is the likely costs to be covered and how many projects could
be funded under the tender process. Based on a recent study by GHD for the Commission the
upfront costs of a new scheduled generator to set up:239
• forecasting systems range from $5,000-$30,000,
• generation management system ranges from $90,000-$340,000 and
• SCADA system ranges from $700,000-$1,000,000 (noting most VSRPs would be expected
to use SCADA-lite which would have substantially lower generation management and
SCADA costs).
If it is assumed that on average set up costs are around $250,000- $500,000, then a revenue
cap of $50m could fund 100 - 200 participants. EnergyAustralia in its submission noted that
these cost ranges seem unrealistic, with potentially material costs to manage aggregated
resources.240 Shine Hub also noted that participants would also need to make significant
investments in research and development, including developing price forecasting and bidding
systems.241 CEC stated that there is a level of unknown regarding the expected costs to
participants that will only become apparent once AEMO testing has started.242 We agree with
stakeholders that given the novelty for some of these resources’ participation, the costs are
not fully predictable. Having the incentive mechanism will assist with early participation.
Based on these inputs, the final rule sets the payment cap that can be recovered from Cost
Recovery Market Participants to be $50m over the five-year incentive period.243
Submissions to the draft determination suggested that an AEMO process could also receive
external funding. Alinta proposed external funding could support an AEMO-led tender process.244
Likewise AEMO in its submission asked for consideration of scenarios where:245
• AEMO could increase the cap where it sees a benefit from doing so, for example by seeking
additional funding from jurisdictions or other organisations.
• A jurisdiction approaches AEMO to provide a conditional ‘top-up’ to the cap to incentivise more
participation.
We agree that flexibility in allowing additional funding to be channelled through the AEMO
incentive mechanism could be beneficial. In response to this we have allowed external funding to
be used in addition to (or instead of) the $50m to fund the incentive mechanism.246
EnergyAustralia suggested that the total $50m cap be increased, to reflect a greater share of the
social benefits.247 We do not agree with increasing this cap. Retaining the $50m cap provides an
appropriate balance between providing incentives and minimising the cost that consumers will
ultimately pay. However, we note that through the added flexibility for external funding to be used
through this mechanism, there is an ability to increase the amount using external funding.
239 GHD Advisory, Assessment of scheduling costs: Final report, June 2021.
240 EnergyAustralia, submission to the draft determination, p. 4.
241 Shine Hub, submission to the draft determination, p. 1.
242 CEC, submission to the draft determination, p. 4.
243 See clause 3.10B.2(f)(2) of the final rule.
244 Alinta, submission to the draft determination, pp. 1-2.
245 AEMO, submission to the draft determination, p.6.
246 See clause 3.10B.1, external funding definition, and clauses 3.10B.2(j) and 3.10B.3 of the final rule.
247 EnergyAustralia, submission to the draft determination, p.4.
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B.1.7 Resources will only be eligible for one contract for one to three years
To align with the objective of maximising participation in dispatch mode and specifically
addressing the high set up costs, there will be limits on long and repeated contracts. Contract
length will be set at between one and three years.251 The trade-off is that a single-year contract
would only secure the participation of the VSR for a shorter period, while a longer contract could
include inflated numbers to cover the risk associated with a longer time period. Introducing a
range of one to three years for contract length seeks to assist AEMO in balancing these
competing considerations.
Once a contract has been awarded, the resource underwriting the offer would not be eligible to
offer into the tender process again.252 For example, if a FRMP has a NMI that it offers into the
tender process and is successful, the FRMP will not be able to submit an offer including that same
NMI in a future tender process. As noted above, one of the drivers of the incentive mechanism is
to support participants in recovering some of their initial establishment costs through
participation payments. By limiting a single contract per resource, participants would be able to
provide offers for their establishment costs, with the view of setting their ongoing operational
business case to be sustained on the other market incentives.
B.1.8 VSPRs must meet requirements set out in the participation agreement
VSRPs must meet the requirements set out in the participation agreement.253
A successful tenderer who does not comply with the participation requirements specified in its
contract will face consequences, as detailed in the contract. For example, if a successful tenderer
offers to participate in the market year-round with no hibernation periods and then, in practice,
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only offers availability for a short period over the year, it will likely be in breach of the contract
terms. As such, it will face consequences that could include cancellation of future incentive
payments, a requirement to repay part of the payments it has already received, or other penalties.
The details of these consequences will be set out in the contract. This is aligned with current
practice for other AEMO system service contracts such as RERT.
B.1.9 Payments will be recovered from Cost Recovery Market Participants and administrative costs
from Registered Participants
Payments made under contracts between AEMO and successful tenderers will be recovered from
Cost Recovery Market Participants based on their share of consumed energy. As Market
Customers and other energy consumers would likely be the primary beneficiaries of reduced
generation costs, reduced FCAS, and reduced RERT costs, they are the preferred group of
participants to recover these costs from.
Recovery of costs will be on a yearly basis to reduce the administrative burden on AEMO.254 As a
result, we understand that AEMO will likely set payments under the contracts to be on a yearly
basis, shortly before the costs are recovered. This will ensure that AEMO will not carry debt from
making payments throughout the year.
The cost recovery equation was updated between draft and final rules to confirm that the amounts
will be recovered across the NEM (not regionally) based on share of energy consumption in a
billing week. The adjustment for VSR consumption has been removed because a VSR’s
consumption does not reflect the benefit that they are providing or how much they are
participating in dispatch. It is simpler to recover from all registered participants. The cost recovery
provisions also now explicitly require AEMO to account for any external funding that occurred
during the year, before recovering any remaining amounts from Cost Recovery Market
Participants.255
The equation is set out below, and is aligned with other cost recovery approaches present in the
rules today:256
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The costs incurred by AEMO to establish and run the incentive mechanism (excluding any
administrative costs associated with external funding) would be recovered from Registered
Participants through AEMO’s usual participant fee processes.257 The commencement of the
incentive mechanism would likely align with AEMO’s next participant fee determination process,
which would assist in integrating these additional costs.
B.1.10 AEMO will publish a report annually and at the end of the incentive period
AEMO will report on the amounts paid after the first tender process and then annually
thereafter.258
Within 12 months of the completion of the incentive period, AEMO will publish a report exploring
the relative success of the incentive mechanism. This report will cover:259
• a summary of the outcomes from the tender processes, including AEMO’s opinion of whether
the objective of the incentive mechanism was satisfied
• a summary of AEMO’s learnings and insights from the incentive mechanism
• an analysis of the participation prices in the incentive mechanism
• an analysis of the types of VSR contracted through the incentive mechanism
• any other information AEMO considers relevant or useful to include.
This report would be a useful input into broader considerations around the future of any VSR
incentives moving forward.
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B.2 Participants will be excluded from RERT and directions cost recovery
The Commission’s final rule would amend the RERT to exclude a VSRP’s adjusted consumed
energy from the RERT cost recovery calculation.260 In doing so, we recognise that by participating
in dispatch, a VSRP is delivering a broader social benefit by reducing the size of the RERT event
and the corresponding costs.
Participation of VSRPs in dispatch is expected to result in substantial RERT cost savings by
reducing the number of times RERT is activated.261
When RERT is activated by AEMO, AEMO pays those costs on behalf of consumers which are then
recovered from Cost Recovery Market Participants in subsequent billing periods.262
Our decision to remove the adjusted consumed energy of VSRs from RERT cost recovery aligns
with the Commission’s decision to remove the adjusted consumed energy of scheduled bi-
directional units from RERT cost calculations.263 This came into effect through the National
Electricity Amendment (Integrating Energy Storage Systems into the NEM) Rule 2021.
We received limited feedback on this change. Enel X stated that it is unlikely to provide a strong
incentive for participation for three reasons:264
1. RERT costs are inherently uncertain, meaning it is difficult to justify an investment based on
relief from these costs.
2. the benefits do not flow to the market participant, who usually incurs the set-up costs to
enable market participation.
3. in theory, participation in dispatch mode should reduce the need for AEMO to activate RERT
and so these costs would be expected to reduce over time anyway.
We agree that this change is unlikely to be a significant driver of participation. However, given that
the costs to make this change are unlikely to be material, our rule provides for these incentives to
participants.
In conversations with AEMO following the draft determination, excluding VSRPs’ consumed
energy from directions cost recovery was also raised. We agree that this would be aligned with the
existing provisions which remove BDU and other scheduled load consumption from directions
cost recovery. Our final rule excludes these resources.265
Only active VSRs are excluded from RERT and directions cost recovery
For a VSR to be excluded from RERT and directions cost recovery, it must be participating in
dispatch. The energy consumed by VSRs that are inactive or hibernating would not be excluded
from the calculations under clauses 3.15.8(b) and 3.15.9(e) of the NER and the relevant VSRPs
will be subject to those costs.
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(retailers and other parties that purchase electricity directly from the wholesale energy market) are
on notice to enter into sufficient qualifying contracts with generators to cover their share of a 1-in-
2 year peak demand forecast. They are also required to report their net contract position (NCP) to
the AER.
The final rule, consistent with the draft rule, allows for VSR capacity to offset the relevant FRMP’s
liable load in the RRO.266 This is a potential benefit as reducing a liable entity’s NCP reduces the
amount of additional qualifying contracts that it needs to purchase in the event of these reliability
scenarios. Shell Energy’s submission to the draft determination highlighted that an offset to a
liable entity’s liable load for VSR capacity would be an additional incentive to participate in the
scheme.267 SA Water also supported the inclusion of these resources in a Liable entity’s NCP.268
The materiality of the VSR offset depends on the firmness that is determined for these resources.
The AER assesses all NCP against criteria described in the AER’s Contracts and Firmness
Guidelines.269 Submissions to the draft determination highlighted the importance of updating
these Guidelines. Shell Energy stated that the timing of updates is important as the value of these
assets in the development of a liable entity’s position would only become evident after
publication.270 SA Water also acknowledged the importance of the update to the AER’s Guidelines.
271
We agree that the Guidelines need to be considered in a timely manner to provide certainty to
potential VSR participants. The final rule requires the AER to use the normal consultation
processes to update the Contracts and Firmness Guidelines by 30 September 2026.272 The draft
determination proposed that the guidelines were considered by 1 June 2026. However, the AER
requested that this be extended by four months, to provide it with flexibility to consider changes
for this rule after the amendments associated with the Retailer reliability obligation exemption for
scheduled bi-directional units rule change.273 As the extended timeframe still ensures that
participants will have clarity on the treatment of resources in the RRO before participating as
VSRPs in dispatch, this provides an appropriate balance between implementation considerations
and incentivising participation.
We expect that when updating the Guidelines the AER would give consideration to the resources’
capabilities from participating in dispatch.274 Participating as a VSRP requires more control and
predictability than unscheduled demand response resources.
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B.4.1 Co-optimisation of energy and FCAS would maximise the capabilities of VSRs
The final rule enables VSRs to participate in dispatch. When participating in dispatch, NEMDE will
co-optimise VSR energy and FCAS bids, as it does for all scheduled resources. This would
maximise the bids of VSRs in FCAS and the wholesale market by enabling their optimal dispatch.
Co-optimisation is the process of trading off between energy dispatch and FCAS enablement to
achieve the total lowest cost.275 NEMDE conducts co-optimisation of energy and FCAS bids for
scheduled and semi-scheduled generating units, wholesale demand response units, and
scheduled loads.276
This incentive would be most beneficial for unscheduled resources currently providing
contingency FCAS as joining dispatch will automatically enable co-optimisation.
275 AEMO, Guide to Ancillary Services in the National Electricity Market, October 2023, p. 3.
276 AEMO, Guide to Ancillary Services in the National Electricity Market, October 2023, p. 8.
277 AEMO, Rule change request – Scheduled Lite Mechanism in the National Electricity Market, p. 59.
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ancillary services price and the amount of the ancillary service provided in each dispatch
interval.278
Regulation FCAS corrects supply and demand imbalances in response to minor changes to supply
or demand in the NEM.279 It is controlled centrally by AEMO. The AGC system sends control
signals through SCADA every four seconds to participants enabled to deliver regulation FCAS.280
This alters the output of generation units or the electricity consumption of loads to correct the
demand and supply imbalances.
Participation in regulation FCAS requires a resource to be scheduled so that a set point can be
determined from which a response can be provided and managed.281
AEMO’s SCADA Lite initiative will enable a communication stream between AEMO and a VSRP to
allow a VSR to provide regulation FCAS. This bidirectional connection will facilitate the exchanging
of operational information (telemetry and control), and means a VSR would receive the necessary
signals to participate in regulation FCAS.282
278 AEMO, Settlements guide to ancillary services payment and recovery, June 2024, p. 7.
279 AEMO, Guide to Ancillary Services in the National Electricity Market, October 2023, p. 5.
280 AEMO, Market ancillary service specification, June 2024, p. 13.
281 AEMO, Market ancillary service specification, June 2024, p. 14.
282 AEMO, SCADA Lite, accessed November 2024.
283 See rule 2.3D of the NER.
284 See clause 3.15.6AA of the final rule.
285 AEMC, Primary frequency response incentive arrangements final determination, September 2022.
286 FPPs were introduced under the National Electricity Amendment (Primary frequency response incentive arrangements) Rule 2022.
287 AEMO, Frequency Contribution Factors Procedure, February 2024, p. 11.
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VSRPs would likely benefit from FPPs, however, we recognise that VSRs may be negatively
affected by being subject to FPPs if they do not follow their reference trajectory (or dispatch target
trajectory).288
288 Reference trajectory is the expected active power output or consumption of an eligible unit or the Residual, see AEMO’s Frequency Contribution
Factors Procedure, p. 11.
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289 The reporting framework focuses on improving transparency of the impacts that unscheduled price-responsive resources may have on market
outcomes which is a defined term in the final rule. This will not include price-responsive resources that participate in central dispatch.
290 See clauses 3.10C.2(b)-(d) of the final rule.
291 See clauses 3.10C.2(b)(5)-(6) of the final rule.
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C.1.1 AEMO are to measure the impact of unscheduled price-responsive resources and publish trends
annually
AEMO will be required to publish a report on its website on an annual basis within three months of
the completion of the financial year. This report will analyse the medium-term implications of the
issues it monitors. It will also set out the changes AEMO is making to its forecasts to account for
unscheduled price-responsive resources and to reduce deviations from forecasts. An annual
reporting requirement will provide industry with a better overall view of how the forecast
deviations change between seasons, at different levels of demand, and over time.
The final rule specifies topics that AEMO must cover in its reporting, with a requirement for AEMO
to publish a guideline outlining how it will fulfil this reporting requirement.292 When it develops and
amends the guideline, AEMO must consult publicly using the Rules consultation procedures. Input
from the AER during this consultation process will be important as AEMO’s reporting approach will
influence the AER’s reporting.
This section sets out the AEMO reporting topics included in the final rule. While the final rule is
principles-based and AEMO will determine metrics, the following information guides stakeholders
regarding how we have thought about the metrics.
Topic 1A: Summary statistics to identify trends with unscheduled price-responsive resources
AEMO will report on the volumes and types of unscheduled price-responsive resources recorded
in the DER register and demand side participation information and their contribution to forecast
deviations.293 We consider this requirement is a more detailed look at a subset of information
already included in AEMO’s existing annual reporting requirements.294 The current rules require
AEMO to publish volumes of DER generation information and demand-side participation
information on an annual basis, without requiring an analysis of how this is changing over time.
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We have made a minor change between draft and final rules to address feedback provided by
AEMO.295 The final rule has been amended to reflect that direct visibility of unscheduled price-
responsive resources is limited. Informed by information gathered through the DER register and
the DSPIP, the use of unscheduled price-responsive resources is derived from deviations between
forecast and actual demand. The final rule reflects this implementation consideration.
Topic 1B: Deviations between demand forecasts and actual outcomes, and the contribution of
unscheduled price-responsive resources to these deviations
AEMO is to report on demand forecast deviations and the reasons for them at a range of price
thresholds.296 For the analysis of forecast deviations, the period of interest is pre-dispatch and
dispatch. Pre-dispatch forecasts are prepared up to 36 hours ahead of the dispatch interval.
Dispatch forecasts are used to issue dispatch instructions and set spot prices. Given AEMO’s
different approaches to dispatch and pre-dispatch forecasts, the methodology AEMO may use to
fulfil this reporting obligation for those periods could be different.
We note that determining the contribution of unscheduled price-responsive resources to a regional
demand forecast deviation will be challenging for AEMO.297 Electricity demand can deviate from
forecasts for a wide range of reasons, such as variations in solar output or price responsiveness,
and disentangling the underlying reasons is challenging. For dispatch, this can be especially
challenging because the regional demand forecast is currently conducted using persistence
forecasting, which means that dispatch forecasts and dispatch instructions are largely determined
based on the demand in previous dispatch intervals.
We expect AEMO to use best endeavours to fulfil this reporting requirement. We also expect that
AEMO will progressively develop more sophisticated techniques to conduct this analysis over time
in proportion to the scale of the problem and their experience. AEMO will also need to consider
how to best provide accurate and timely information to the AER (discussed in appendix C.4).
We consider analysis of demand forecast deviations and the reasons for them at certain price
thresholds is key to determining patterns of unscheduled price-responsive resources. This is
because we anticipate that unscheduled price-responsive resources may respond at very high and
very low prices or during different seasons. It is also essential to support the AER’s work to
determine market impacts. Therefore, as part of developing its reporting guideline with respect to
this topic, we expect AEMO to consult with the AER to determine relevant price thresholds and
publish them as part of the reporting guidelines.
Topic 1C: Analysis to identify the contribution of deviations from forecast demand to ancillary
services costs and frequency performance payments
AEMO is to report on how forecast deviations due to unscheduled price-responsive resources
contributed to higher ancillary service costs and frequency performance payments (FPP).298 We
consider an analysis of FCAS is critical to determine whether the inefficiencies associated with
not accounting for unscheduled price-responsive resources are increasing. In particular:
• FPP. The rules on FPP will take effect in 2025. While not yet in effect, increasing FPP
allocations for FRMPs could be a flag for the inefficiencies of not accurately accounting for
unscheduled price-responsive resources in regional demand forecasts. While we have given
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AEMO flexibility to determine the specific metrics, we consider it could be useful for AEMO to
consider the following.
• The magnitude of FPP due to scheduled vs. unscheduled resources to help determine
whether the issue is increasing over time for unscheduled resources.
• The magnitude of the ‘noise’ and ‘flat’ components as described in our visibility market
model published alongside the final determination.299 Theoretically, the ‘flat’ component of
FPP would be systematic and predominantly due to unscheduled price-responsive
resources. Therefore, analysis and publication of the ‘flat’ and ‘noise’ components of FPP
could be an effective way to determine if unscheduled price-responsive resources are
negatively impacting market outcomes.
• Regulation FCAS enablement quantities and the utilisation of that enablement. Our analysis
indicates that AEMO may be required to use more regulation FCAS if material dispatch
forecast deviations emerge. This is because AEMO would have higher forecast errors and
therefore increase the amount of regulation FCAS it enables to manage this uncertainty.
AEMO currently does not report on the costs associated with FCAS enablement quantities
from not accurately accounting for unscheduled price-responsive resources in dispatch
forecasts and therefore using more FCAS than necessary. Similarly, AEMO does not report on
how much of the FCAS enablement is used.
Topic 1D: The extent to which accounting for unscheduled price-responsive resources has
helped or hindered demand forecasting in operational timeframes
AEMO is required to publish information about how it accounts for unscheduled price-responsive
resources in its dispatch and pre-dispatch regional demand forecasts.300 The purpose of this
reporting topic is to increase transparency of how AEMO accounts for unscheduled price-
responsive resources in its forecasting. This was an issue raised in stakeholder submissions to
both the consultation paper and the draft determination.301 EUAA in particular commented on the
interactions between this framework and AEMO’s forecasting. They expressed a concern that the
focus on unscheduled price-responsive resources is limiting as forecast deviations arise for a
number of reasons, of which price-responsiveness is just one. The Commission notes that both
the draft and final rule require AEMO to report on the factors that contribute to the size of the
forecast deviation, not just price-responsiveness.
Currently, AEMO is required to describe in general terms how it uses demand side participation
information to inform its forecasts.302 The final rule will increase transparency on how
unscheduled price-responsive resources are used in operational time frames and the specific
limitations AEMO experiences with that data. The final rule requires AEMO to report on the
following issues annually:
• The methodologies AEMO uses to account for unscheduled price-responsive resources in its
regional demand forecasting for pre-dispatch and dispatch timeframes.303
• Any changes it made to its regional demand forecast methodologies for the pre-dispatch and
dispatch timeframes and the level of success of the changes in reducing regional demand
forecast deviations associated with unscheduled price-responsive resources.304 This could
299 Creative Energy Consulting prepared for AEMC, A Market Design to integrate Demand Response into NEM Pricing and Dispatch, 25 July 2024.
300 See clause 3.10C.2(b)(7) of the final rule.
301 Submissions to the consultation paper, CS Energy, p. 3, EUAA, p. 3
Submissions to the draft determination, CS Energy, p.2, EUAA, p.3.
302 See rule 3.7D(d) of the NER.
303 See clause 3.10C.2(b)(7)(i) of the final rule.
304 See clause 3.10C.2(b)(6) of the final rule.
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also include any changes that AEMO is considering in the future to address demand forecast
deviations, particularly deviations due to unscheduled price-responsive resources.
• Any barriers AEMO is experiencing with improvements to regional demand forecasts in
operational timeframes.305
AEMO must set out how it will meet the above obligations in its unscheduled price-responsive
resources reporting guidelines.306 The Commission’s intention is to increase transparency and
availability of information and analysis of issues associated with unscheduled price-responsive
resources, relating to operational demand forecasting. AEMO remains able to publish more
information on its broader forecasting processes if it wishes, as part of this work or separately.
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C.1.3 AEMO proposed other changes to the draft rule that have not been implemented in the final rule
AEMO proposed several other detailed changes to the draft rule in its submission. The Commission has decided for various reasons that these changes
should not be implemented in the final rule. They are summarised below.
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Draft Rule Draft wording AEMO proposal Rationale for not implementing
“The AEMO price responsive
reporting guidelines must specify:
AEMO may benefit from the ability AEMO already has extensive information gathering powers
(1) how AEMO will meet its reporting
to request new information to under DSPIP and ESOO reporting obligations. Stakeholder
3.10B.2 (f) obligations under paragraph (b); and
meeting reporting obligations under feedback was that AEMO should utilise this rather than be
(2) the information and metrics that this framework granted additional powers.
AEMO will include in the reporting
required pursuant to paragraph (c)”
“AEMO must develop and publish,
AEMO is entitled to enter a separate rule-change proposal
and may amend, the AEMO price
AEMO would like to amend the to alter the consultation requirements in the rules. Currently,
3.10B.2 (e) responsive reporting guidelines in
guidelines without full consultation the consultation requirements in the rules are
accordance with the Rules
commensurate with the size of the change.
consultation procedures”
Source: AEMO submission to draft determination
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C.2.1 The AER will estimate costs and efficiency implications, and publish a report annually
The AER will be required to report annually, with the report to be published within six months of the
end of the relevant year.312 This reporting function provides a longer term view of the costs and
impacts of demand forecast deviations caused by unscheduled price-responsive resources.
The AEMC’s benefits modelling revealed that demand forecasting deviations cause a series of
inefficient outcomes including inefficient prices and dispatch.313 Our benefits modelling found
there are five key areas where unscheduled price-responsive resources could cause inefficient
outcomes, leading to higher costs for all energy consumers, as well as higher emissions.
Under existing processes, AEMO produces a price inelastic demand forecast for every dispatch
interval. Figure C.1 demonstrates the outcomes in dispatch costs, prices and security, when
unscheduled price-responsive resources respond to prices in a dispatch interval.
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Source: AEMC
As AEMO does not know the intentions of these resources, it forecasts demand to require
Q(dispatched) and uses generator bids to achieve this level of supply. This results in a price point of
P(spot). However, where there are unscheduled price-responsive resources that will reduce their
consumption or increase generation at this price point, actual demand will be Q(efficient) and the
efficient price would have been P(efficient). To balance supply with the actual demand level, frequency
control ancillary services (FCAS) are required.
IES’s modelling demonstrated the following market outcomes:
• inefficiently high spot prices which resulted in scheduled resources being paid more than is
necessary
• unnecessary costs were incurred by scheduled resources to meet the forecast demand which
was higher than actual outcomes (noting that this category of cost is not entirely separate
from the point above)
• market ancillary service costs are incurred to bring supply and demand back into balance
• likely higher than necessary emissions because there is a close correlation between high
marginal cost generators and high emissions generators
• RERT use and associated costs, especially in circumstances where demand and supply
conditions are particularly tight.
The final rule sets out these five topics for the AER to consider with the requirement for the AER to
publish a guideline outlining how it will fulfil this reporting requirement. While the rules are
principles-based and the AER will be left to determine metrics, the following sections set out our
thinking on how each topic could be considered. We have made minor changes to the relevant
draft rules to clarify the level of accuracy this monitoring and reporting framework implies is
necessary.314
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Topic 2A: Inefficient spot prices as a result of regional demand forecast deviations from
unscheduled price-responsive resources
The AER will report on the increased amounts paid to scheduled market participants that provide
electricity into the wholesale market (generators, IRPs and Demand Response Service Providers
(DRSPs)) due to inefficiently high spot prices resulting from demand forecast deviations.315 To
prepare this analysis, the AER could consider the size of the forecast deviation due to
unscheduled price-responsive resources and compare that against price sensitivities. This will
enable the AER to determine a counterfactual price and quantity which, multiplied together, will
identify the higher revenues paid to generators and other relevant market participants from
consumers.
Topic 2B: Inefficient costs incurred by scheduled market participants as a result of regional
demand forecast deviations
The AER will report on the increased costs incurred by market participants that provide electricity
into the wholesale market due to over-dispatch as a result of demand forecast deviations.316 To
prepare this analysis, the AER could consider the individual generating, storage and demand
response assets that were issued dispatch instructions because AEMO was unable to account for
unscheduled price-responsive resources. The AER could then multiply this inefficient dispatch of
certain assets against estimates of their costs.
Topic 2C: Increased market ancillary service requirements as a result of regional demand
forecast deviations
The AER will report on the increased market ancillary service requirements and FPP allocations
due to demand forecast deviations.317 To prepare this analysis, the AER could consider the FPP
allocations, FCAS enablement and the proportion that is utilised as discussed in AEMO topic 1C in
appendix C.1.1.
Topics 2D: Increased emissions as a result of inefficient generation
The AER will report on increased emissions as a result of inefficient dispatch (topic 2B), increased
ancillary service requirements (topic 2C), and inefficient RERT use (topic 2E).318 To prepare this
analysis, the AER could consider the emissions intensity of the marginal generator, drawing on the
emissions factors published by AEMO under clause 3.13.14. The AER could also apply a standard
intensity factor by asset type, and then multiply the tonnes of additional emissions by the agreed
value of emissions reductions.319
Topic 2E: RERT use and associated costs as a result of inefficient generation use
The AER will report on the increased amounts paid to RERT providers for inefficient RERT use as a
result of demand forecast deviations.320 To prepare this analysis, the AER could consider the size
of the forecast deviation due to unscheduled price-responsive resources and compare that
against RERT use at the same time (if relevant). If RERT is activated during this time, the AER will
need to consider the costs associated with RERT and its impact on the counterfactual demand
and price levels. However, unlike the above topics, RERT is triggered based on pre-dispatch rather
than dispatch forecasts. Therefore, the AER may consider instances where a dispatch forecast
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deviation coincided with RERT use and/or where AEMO used RERT based on a pre-dispatch
demand forecast that is materially higher than actual demand.
C.2.2 Relevant data and analysis to support the AER’s monitoring and reporting
The reporting framework set out in the final rule outlines some information that the AER will
require for its analysis but does not currently have access to. Therefore, the AER will require
additional information and analysis from AEMO to fulfil its reporting requirements. We note that
the AER currently has general information-gathering powers which it could use to obtain
information from AEMO for this purpose. However, for the reporting function to be effective, the
AER should be able to easily access the necessary information.321 The final rule makes explicit
that the AER can collect information from AEMO to fulfil this reporting obligation.322 We
understand that the AER could develop an ongoing information request for the timely receipt of
information from AEMO.
The AER will likely need to collect information from AEMO on several topics to fulfil the reporting
obligation. In particular:
• For energy costs, the AER would require:323
• The contribution of unscheduled price-responsive resources to these forecast deviations
(this is set out as one of the metrics AEMO would prepare under its reporting functions).
• More granular price sensitivities to demand changes. This is a key tool that the AER
currently uses to determine drivers of differences between forecast and actual price
outcomes.324 However, if the AER is to understand components of demand forecast
deviations, sensitivities smaller than the current levels of plus or minus 50MW in some
regions may be needed.
• Detailed information on unscheduled price-responsive resources from the DSPIP and DER
register that AEMO receives on a confidential basis.
• For ancillary services costs,325 the AER will require information to determine the contribution of
unscheduled price-responsive resources to the enablement values of market ancillary
services. We understand that this information could be on FPP ‘flat’ and ‘noise’ components,
as discussed above in Topic 1C.
321 We consider that the AER should not require any additional information from market participants to fulfil this function.
322 See clause 3.10C.3(e) of the final rule.
323 The AER would report on this under clause 3.10C.3(c)(1) of the final rule.
324 AEMO publishes pre-dispatch price sensitivities for each NEM region. See, Pre-Dispatch Sensitivities, March 2021.
325 The AER would report on this under clause 3.10C.3(c)(3) of the final rule.
326 See clause 11.180.4 of the final rule.
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body will only have six months of new data (to the extent that AEMO prepares new
data/analysis for this function). However, informed by discussions with AEMO and
stakeholder feedback, we consider these first reports should also include a backward-looking
analysis for the previous three years (to the extent information is available) to form a sufficient
baseline and data set.
Figure C.2: Implementation lead time for AEMO and the AER reporting
0
Source: AEMC
C.4 We will consider whether a market model for the visibility problem is
needed in a later review
The AEMC will consider a longer-term regulatory solution in a review if the inefficiencies
associated with AEMO’s account of unscheduled price-responsive resources become material.
The trigger for this review will be informed by the AER’s annual reporting, which will include
recommendations to be made to the AEMC.
The review should be informed by evidence from AEMO and the AER reports and
recommendations. We consider, at this time, there is not sufficient evidence to warrant large
regulatory changes or increase burdens on market participants. In the future, should an issue
materialise, we could consider the following regulatory approaches which we have consulted on or
received stakeholder submissions on throughout this rule change:
• Whether we should implement a model that enables participants to provide visibility
information to AEMO. Following stakeholder submissions to the consultation paper, we
considered an alternative visibility model. This model was designed to enable market
participants to provide information to AEMO to be incorporated into dispatch. We published
this model in December 2023 and tested it with the TWG and other stakeholders. Following
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feedback, we refined this visibility market model and have published an amended detailed
design alongside this final determination.327 We consider this model would be fit for purpose
should the inefficiencies become material as this would drive incentives for participants to
provide accurate information to reduce their frequency performance payments.
• Whether we should enhance AEMO’s information-gathering powers to collect appropriate
information from market participants on unscheduled price-responsive resources. The
reporting frameworks by AEMO and the AER should reveal the extent to which AEMO can
account for unscheduled price-responsive resources in its forecasting in operational time
frames and the way it uses information it currently receives. We received feedback from
stakeholders in response to the consultation paper and draft determination that AEMO could
more efficiently collect and use information collected in the DSPIP.328 We will consider the
effectiveness of AEMO’s information on unscheduled price-responsive resources in the review
process. This is because improved reporting will increase transparency and provide evidence
of the deficiencies with the current information.
327 Creative Energy Consulting prepared for AEMC, A Market Design to integrate Demand Response into NEM Pricing and Dispatch, 25 July 2024.
328 Submissions to the consultation paper, Origin, p. 5, Energy Australia, p. 3, Flow Power, p. 5,
submissions to the draft determination, Hydro Tasmania, p. 1, Origin, p. 1.
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Table D.1: Summary of other issues raised in submissions on the draft determination
Stakeholder Issue Response
To nominate a resource as a VSR, the participant would need
to be the FRMP at the market connection point. In this
Ausgrid noted that they currently have nine community batteries example, the offtaker would need to be the FRMP at the
in operation which will rise to 25 in October 2025. The capacity market connection point of the community battery.
of these batteries is leased out to offtakers, for example
retailers, to operate. The obligations of participating in dispatch mode apply to
Ausgrid, p. 2. the FRMP only.
Ausgrid questioned what obligations, if any, they would face if
the offtake partner chose to use its share of the battery to At any market connection point there can only be one FRMP.
participate in the scheduling and dispatch procedures facilitated If there are multiple offtakers at a single site, only the FRMP
by this rule change. would be able to participate in dispatch, in relation to the
whole battery. However, this may involve coordination with
the other offtakers.
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SAPN strongly recommend that AEMO’s VSR Guideline require The VSR guideline required under our final rule will set out
the MW provision of VSR bid data to DNSPs. Receiving this data processes for data sharing between VSRPs and DNSPs or
will allow DNSPs to better understand, model and forecast the TNSPs. As well as data sharing arrangements for VRSP data
behaviour of unpredictable price responsive resources such as collected by AEMO to be shared with DNSPs or TNSPs.
VPPs, large batteries and large flexible loads. Providing more These data sharing arrangements do not require data to be
efficient allocation of network capacity under a DOE to these shared between the parties, but allow the guideline to set out
SAPN, pp. 6-7. resources. efficient processes for sharing data where agreed. Existing
In the absence of this data provision, DNSPs must make provisions in the rules and agreements between the parties
assumptions regarding the behaviour of price-responsive can be used where there is a need for data.
resources, with these assumptions typically being conservative The data sharing arrangements can allow for VSRP bid data
and resulting in sub-optimal allocation of network capacity to to be provided to DNSPs to assist in calculating DOEs. Where
these resources. aggregated the VSRP bid data would be for the entire
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Box 8: Key changes between the draft rule and final rule
• The definition of Market Participant has been removed from Chapter 2 of the NER, as it is
covered in Chapter 10 and amended by the final rule to include VSRPs.1
• There have been small drafting changes to clarify that AEMO’s approval to nominate the
relevant resource as a VSR means it becomes a scheduled resource despite not being
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Note: 1 — See Chapter 10 of the final rule for the definition of Market Participant. 2 — See clause 3.10A.1(h) of the final rule.
Chapter 2 of the NER specifies the requirements for registration and classification. The categories
of registration for different types of participants and the associated classifications are largely
based on the characteristics of the plant or equipment, or the activities of the registered
participant. The final rule does not change these requirements. The new framework for VSRs can
only apply to a person who is already registered under Chapter 2 and has classified its relevant
resources in accordance with the relevant requirements.
The final rule enables (but does not require) a person who is already registered as a Generator,
Integrated Resource Provider or Market Customer in respect of one of the types of qualifying
resources specified in the final rule to apply to AEMO to nominate its qualifying resource as a
VSR.329 A Generator, Integrated Resource Provider or Market Customer who has received approval
for nomination of a VSR is called a VSRP.
The resources that are defined to be qualifying resources, and therefore able to be nominated as a
VSR, are the following:330
• a market generating unit that is a non-scheduled generating unit
• a market bidirectional unit that is a non-scheduled bidirectional unit
• a market connection point that is non-scheduled load
• one or more small generating units or small BDU (or any combination) at a small resource
connection point classified as a market connection point in (accordance with clause 2.2.8).
Therefore, qualifying resources are all resources that would otherwise be non-scheduled, but are
participating in the market (i.e. resources at a market connection point - which may be a
secondary settlement point, introduced in the Unlocking CER Benefits rule change). The effect of
nominating a qualifying resource as a VSR is that it becomes a scheduled resource.331
Approval of a qualifying resource as a VSR:
• means the Generator, Integrated Resource Provider or Market Customer who nominates their
qualifying resource as a VSR (the VSRP) must now comply with the obligations imposed on
scheduled resources in relation to the VSR (unless otherwise specified).
• does not change the underlying classification of the qualifying resource as a non-scheduled
generating unit, non-scheduled bidirectional unit, non-scheduled load or small resource
connection point (as applicable) to be a scheduled generating unit, scheduled bidirectional
unit or scheduled load (as applicable) but imposes additional obligations on those qualifying
resources as scheduled resources.
• does not affect the underlying classification of that resource as a market generating unit,
market bidirectional unit or market connection point (as applicable).332
In other words, the final rule does not remove the registration requirement for that Generator,
Integrated Resource Provider or Market Customer or change the classification criteria of the
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qualifying resource. This is why the final rule uses the terminology of ‘nomination’ and sets out a
process in Chapter 3 rather than Chapter 2. The registration and classification approved under
Chapter 2 remain in place, while scheduling obligations are layered on top.
The obligations on the Generator, Integrated Resource Provider or Market Customer continue to
apply. In addition, the person must comply with the obligations of a VSRP for a VSR.
Note: 1 - See clause 3.8.3 and Chapter 10 of the final rule for the definition of voluntarily scheduled resource.
The final rule allows for the aggregation of multiple qualifying resources.333 The final rule defines
‘voluntarily scheduled resource’ as either a single qualifying resource, or two or more qualifying
resources that have been aggregated in accordance with clause 3.8.3.334 Therefore, references to
VSR throughout the final rule refer to an aggregated VSR where it has been aggregated.
The aggregation process for VSRs aligns with the existing process for aggregation in the NER,
which requires AEMO to approve the aggregation of resources or units for the purposes of central
dispatch.335 The final rule requires a VSRP seeking to nominate its resources as VSRs, and who
wishes to aggregate those qualifying resources so they are treated as one VSR, to apply to AEMO
to do so.336 In practice, the Commission expects AEMO would be able to undertake the nomination
approval under clause 3.10A.1 and the aggregation approval under clause 3.8.3 concurrently.
Where two or more qualifying resources have been aggregated, AEMO can treat those individual
resources as one resource for the purposes of central dispatch. This means that the disparate
resources are collectively seen as one DUID for the purposes of bidding and dispatch. However,
the final rule also allows AEMO to impose conditions on the VSRP, which may include
circumstances in which AEMO requires disaggregation, or for reporting obligations to be met by
each individual qualifying resource rather than the aggregated VSR.337
Where multiple qualifying resources have been aggregated, the aggregated VSR consists of
multiple market connection points, each with its own NMI. An example of an aggregated VSR
could be the consumer energy resources associated with a number of small customers. Given
customers may switch retailers, the VSRP (who would be registered as a Market Customer and be
the retailer for those small customers) would need to notify AEMO immediately if a resource no
longer forms part of the VSR (for example, because a customer is no longer a customer of the
retailer and therefore the Market Customer is not the financially responsible market participant for
the market connection point).338
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The VSRP also has an obligation to notify AEMO as soon as reasonably practicable, and in any
event, within 10 business days of becoming aware that a VSR ceases to be a qualifying resource
for any reason.339 For example, this might occur because the characteristics of the plant or
equipment change such that it no longer satisfies the requirements for the underlying
classification approved by AEMO under Chapter 2 and it would require a change to its
classification. The Commission is recommending that these provisions (3.10A.1(m)(1) and (2)) be
classified as Tier 1 civil penalty provisions - see appendix F.5.
Box 10: Key changes between draft rule and final rule
• The VSR guidelines must include processes for data sharing, collection and disclosure
between VSRPs, DNSPs, and TNSPs.1
• The factors which AEMO must have regard to when drafting the guidelines have been
amended for clarity.2
• The date for AEMO’s review of the VSR guidelines has moved to 23 May 2030 in the final rule.3
• AEMO must not implement any change to a zone in which VSR are able to participate in central
dispatch prior to 23 May 2030.4
Note: 1 - See clause 3.10A.3(b)(6) of the final rule. 2 - See clause 3.10A.3(d) of the final rule. 3 - See clause 11.180.3(c). 4 - See clause
11.180.5 of the final rule..
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qualifying resources might be suitable for nomination before formally applying to AEMO under
final rule clause 3.10A.1.
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• VSRs have been added to clause 3.14.6, so they can be eligible for compensation due to an
administered price cap or administered floor price.
• Energy consumed by VSRs (not including inactive or hibernating ones) has been excluded from
the share of energy used to determine funding of compensation for directions under clause
3.15.8, in the same way it has been excluded from the funding of contracting for reserves
under clause 3.15.9.
• VSRs have been added to clause 3.15.6A(k) on cost recovery for ancillary services, with the
effect that they are not assessed as contributing to the need for such services in certain
cases.
• A bid validation data table has been added for VSRPs in schedule 3.1.
• The definitions of Affected Load Participant and Affected Participant in chapter 10 have been
redrafted for clarity (no changes to policy); VSRPs are included in those terms as they were in
the draft rule.
Note: 1 - See clauses 5A.B.3(a)(6) and 5A.E.3(c)(9) of the final rule. 2 - See clause 3.7.3 of the final rule. 3 - See clause 3.8.3A of the final rule.
4 - See for example clauses 3.8.6(h) and 3.15.3(a) of the final rule.
As noted above, under the final rule, VSRs are scheduled resources. The VSRP is also a market
participant. Therefore, the obligations placed on scheduled resources and market participants in
the NER apply to VSRPs in respect of their VSRs (for example, some VSRPs may be Cost Recovery
Market Participants). Many of these obligations in the NER are captured because the final rule
amends the Chapter 10 definition of ‘scheduled resource’ to include VSR. The final rule also
amends the definition of ‘Market Participant’ to include VSRPs for clarity, noting that the entities
that are VSRPs will already be included as Market Participants under their Chapter 2 registration
as Market Generators, Integrated Resource Providers or Market Customers.
However, some specific changes have also been made to the NER by the final rule to expressly
refer to ‘voluntarily scheduled resource’ where required. Sometimes all scheduled resources have
the same obligation in the NER. However, at other times, the obligations are different for different
types of units or resources. In the latter case, VSRs are separately identified so that it is clear
whether and if so, how, the obligation applies to the VSR.350
The most substantial effect of VSRs being scheduled resources is that the VSRP participates in
central dispatch by submitting dispatch bids for a VSR,351 and then conforming to their dispatch
instructions for dispatch.352 Principally, the final rule achieves this by amendments throughout rule
3.8.
The final rule includes a clause that sets out the consequences of a VSRP failing to conform to
dispatch instructions in relation to its VSR.353 This rule does not apply to inactive VSR or
hibernated VSR. This is because inactive ones are only required to submit bids into central
dispatch (but are not dispatched) and hibernated ones do not participate in central dispatch at
all.354 Inactive and hibernated VSRs are discussed further below.
350 For example, compare clause 3.8.9 of the NER (which is not amended by the final rule because it captures Market Participants which includes VSRPs)
and clause 3.8.4 of the final rule (which has been amended by the final rule to refer to VSRs, in the provisions with references to specific types of
resources).
351 See clauses 3.8.2 and 3.8.6 of the final rule. This may also include rebids under clause 3.8.22 and 3.8.22A.
352 See clause 3.8.23B of the final rule.
353 See clause 3.8.23B of the final rule.
354 See clause 3.8.23B(a) of the final rule.
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VSRs that successfully participate in central dispatch will contribute to the setting of spot
prices.355 However, VSRs will not be able to be constrained on under NER clause 3.9.7.
VSRPs who are successful in the VSR incentive mechanism receive financial payments to
incentivise participation in central dispatch (the incentive program is discussed further below).356
These payments are in addition to any amounts payable or receivable in the spot market.
A VSRP may also receive a direction or clause 4.8.9 instruction from AEMO under NER clause
4.8.9 in relation to its VSR (however, inactive or hibernating VSR are not subject to directions).357
Consultation between DNSPs and affected VSRPs is required where the model standing offer or a
proposed change to a connection policy imposes non-static limitations on Distribution Network
Users’ maximum capacity of supply into the distribution network.358
Box 12: Key changes between the draft rule and final rule
• The approval and request mechanism for deactivation, reactivation and hibernation has been
replaced with notices, which can be issued by a VSRP and must be made in accordance with
certain requirements and the VSR guidelines.1
• Inactive VSRs can now retain that status indefinitely. The VSRP can now choose to reactivate
or hibernate its inactive VSR at any time.2
• The modifications to certain obligations that apply to a VSRP during which its VSR is inactive
have been amended.3
Note: 1 - See clause 3.10.A.2 of the final rule. 2 - See clause 3.10A.2(i) of the final rule. 3 - See clause 3.10A.2(f) of the final rule.
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AEMO will specify the information required to be included in the notices as well as the process for
submitting notices in the VSR guidelines.365 In a deactivation notice, the VSRP does not need to
propose a deactivation period.366 In contrast, in a hibernation notice, the VSRP must specify a
proposed hibernation period.367
A hibernated VSR will continue to have that status until:
• the VSRP submits a resumption notice to remove its status as hibernated, in which case it
becomes a scheduled resource again; or
• the VSRP submits a notice to withdraw the nomination as a VSR, or the maximum hibernation
period ends. In this case, the resource ceases to be a VSR, and will only be subject to the
obligations applying due to its existing classification as a generating unit, bidirectional unit or
market connection point under Chapter 2.368
Impacts of becoming an inactive or hibernated VSR
Under this framework, the person whose VSR is approved as an inactive or hibernated VSR
remains a VSRP. However, the obligations that apply to that person in respect of that resource are
reduced.
Final rule clauses 3.10A.2(f) and 3.10A.2(l)(2)(ii) outline the modifications that apply to a VSRP
while its VSR is an inactive or hibernated VSR. More specifically:
• an inactive VSR remains a scheduled resource (and is still required to submit dispatch bids)
but is not required to conform to its dispatch instructions369
• clauses 3.8.8, 3.8.23B, 3.8.22A, 4.8.9 (in relation to directions), 4.9.2 and 4.9.8 do not apply to
an inactive VSR370
• a hibernated VSR is not a scheduled resource and none of the requirements applying to
scheduled resources apply to a VSRP in respect of the hibernated VSR371
• because the VSRP retains its underlying registration as a Generator, Integrated Resource
Provider or Market Customer, the VSRP must continue to comply with the obligations that
apply to a Generator, Integrated Resource Provider or Market Customer in respect of the
relevant qualifying resource.
Clause 3.8.2B in the final rule outlines the requirement on a VSRP to participate in central dispatch
and how this is varied when the VSR is recorded as an inactive or hibernated VSR.
Box 13: Key changes between the draft rule and final rule
• The clause numbering has changed such that the incentive mechanism is now contained in a
separate rule 3.10B, rather than grouped with the VSRs provision in clause 3.10A.1
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• The incentive period has changed such that it is now between 1 April 2026 and 31 December
2031.2
• The incentive mechanism has been amended to allow external bodies other than AEMO to
provide funding, grants or other financial support to meet part or all of AEMO’s costs of
implementing a VSR incentive mechanism, including to meet any participation payments.3 This
is referred to as “external funding” and will not be included in cost recovery calculations.4
• The incentive MW price cap has been increased from half the VSR benefits, to any amount less
than the VSR benefits.5
• In the cost recovery calculation, energy consumed by VSRPs is no longer excluded, the share
of energy is determined over a billing week rather than over the whole year, and the calculation
is done across the NEM rather than regionally.6
Note: 1 - See rule 3.10.B of the final rule. 2 - See clause 3.10B.1 of the final rule for the definition of incentive period. 3 - See clause 3.10.B.1 of
the final rule for the definition of external funding. 4 - See clauses 3.10B.3(c) to (e) of the final rule. 5 - See clause 3.10B.1, definition of
incentive MW price cap, in the final rule. 6 - See clause 3.10B.3(e) of the final rule.
372 See clause 3.10B.1 of the final rule for the definition of incentive period.
373 See clause 3.10B.2(a) of the final rule.
374 See clause 3.10B.2(c)-(e) of the final rule.
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In order to be eligible to participate in the VSR incentive mechanism, a participant must be a VSRP,
or someone who is not yet a VSRP but intends to be if it is successful in the mechanism (an
intending VSRP).375
If successful, the VSRP must enter into a contract (a VSR participation agreement) under which
AEMO pays the VSRP a participation payment, and the VSRP participates in central dispatch in
accordance with the terms of the agreement and any requirements specified in the VSR incentive
procedures.376
Incentive objective and VSR benefits
The VSR incentive mechanism must be structured and run by AEMO in a way that achieves the
VSR incentive objective, which is to maximise VSR benefits in the long run by incentivising market
participants with qualifying resources to nominate those resources as VSRs, while minimising the
cost of facilitating participation through participant payments.377
The VSR benefits are the expected benefits to consumers (as a whole) of VSRs participating in
central dispatch, including where the participation results in reduced system security services
costs, avoided generation, avoided emissions and reduced RERT costs.378
Incentive MW price cap and overall cap
The price paid to a successful VSR incentive mechanism participant (the participation price) must
not exceed the incentive MW price cap. The price cap is a price (in $/MW) determined by AEMO
that must be less than the VSR benefits (calculated in $/MW) that AEMO expects will accrue from
successful VSR incentive program participants participating in central dispatch, in relation to a
particular VSR tender process.379
AEMO must determine the incentive MW price cap for each NEM region before commencing each
VSR tender process and must notify the amount to the AER and AEMC.380 All three market bodies
must keep the incentive MW price cap confidential during the incentive period.381
Therefore, no one successful participant can be paid (per MW) more than the incentive MW price
cap under a VSR participation agreement.382
In addition to the incentive MW price cap, the aggregate of all payments made under all VSR
participation agreements (i.e. participation payments) must not exceed a total amount of $50
million plus the value of all external funding (if any).
How the costs of the incentive mechanism will be recovered
There are two main types of costs arising from the introduction of the VSR incentive mechanism:
• AEMO’s costs and expenses incurred in establishing, administering and conducting the VSR
incentive mechanism, and
• the amounts payable as participation payments under VSR participation agreements.383
375 See clause 3.10B.1 of the final rule for the definition of Intending VSRP.
376 See clause 3.10B.2(i) of the final rule.
377 See clause 3.10B.1 of the final rule for definition of VSR incentive objective and clause 3.10B.2(e) of the final rule.
378 See clause 3.10B.1 of the final rule for definition of VSR Benefits.
379 See clauses 3.10B.1 and 3.10B.2(f) of the final rule.
380 See clause 3.10B.2(g) of the final rule.
381 See clause 3.10B.2(h) of the final rule.
382 See clause 3.10B.2(j)(3) of the final rule.
383 See clause 3.10B.3(b) of the final rule
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The final rule requires AEMO to recover the first type of costs from all Registered Participants as
part of the fees imposed in accordance with rule 2.11 (i.e. participant fees).384
For the second type of costs, the final rule sets out a cost recovery framework.385 These amounts
are to be recovered from cost recovery market participants (which may include VSRPs) in
accordance with the formula specified in the final rule.
AEMO must determine the amounts of participation payments in respect of the previous financial
year, less any external funding received in that year, within 40 business days of the completion of
that financial year and then allocate that amount between cost recovery market participants
based on their share of energy consumed during a billing week.386 The amount for each participant
is then included in the next preliminary statement provided to that participant. This links these
payments to the settlement processes in Chapter 3 of the NER.
AEMO will report annually and after the end of the incentive period
Following the completion of the first VSR tender process, and annually thereafter, AEMO must
publish the aggregate amount of all participation payments payable in each financial year under
all VSR participation agreements. This obligation continues for every financial year in which there
is an amount payable under a VSR participation agreement.387 This means that the reporting of
payments could extend beyond the incentive period because VSR participation agreements
entered into at the end of the incentive period may nonetheless continue until the expiry of their
term, which could be up to three years.388
Following the completion of the incentive period, AEMO must publish a report within 12 months
that includes a summary of the outcomes from the VSR incentive mechanism, an analysis of the
participation prices paid to participants under the VSR participation agreements, as well as an
analysis of the types of VSRs contracted under those agreements.389
Box 14: Key changes between the draft rule and final rule
• In AEMO’s report on statistics and trends relating to unscheduled price responsive resources,
two sub-topics on forecast deviations have been combined into one.1
• While the topics the AER is required to report on have not changed, it has been clarified that
the AER’s report will provide estimates of the five areas of costs that may arise from the
impact of unscheduled price responsive resources on forecast deviations.1
Note: 1 - See clause 3.10C.2(b)(1) of the final rule. 2 - See clause 3.10C.3(c) of the final rule.
The final rule introduces a reporting function on AEMO and the AER to report on the impact that
unscheduled price responsive resources have on forecast deviations. Forecast deviations are the
difference between forecast load for a particular trading interval developed for pre-dispatch and
dispatch, and the actual load during that trading interval. Unscheduled price responsive resources
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refer to resources that are not a scheduled resource, are capable of changing output or
consumption depending on changes in forecast or actual spot prices. They include hibernated
VSRs, but not other voluntarily scheduled resources.390
AEMO’s reporting functions
The final rule requires AEMO to report on the impact that unscheduled price-responsive resources
have on forecast deviations, and the resulting market outcomes.391 The product of this reporting is
two things: an annual report, and quarterly data produced as a source of information that is
updated at least quarterly.
By 30 September each year, AEMO must publish a report that covers the previous financial year.
The report must include AEMO’s analysis of the statistics and trends of:
• the volumes and types of unscheduled price-responsive resources reported by Registered
Participants, using the DER register information and demand side participation information392
• patterns in forecast deviations, including to the extent identifiable, the approximate
contribution of unscheduled price-responsive resources to those deviations, in response to
forecast and actual spot prices.393
The report must also include AEMO’s best estimate of:
• the impacts of unscheduled price-responsive resources on the load forecast used by AEMO
for pre-dispatch and dispatch, including in comparison with outcomes published in previous
reports394
• the impact of unscheduled price-responsive resources on forecast deviations in relation to
additional amounts paid to ancillary service providers for the additional ancillary services
enabled and to cost recovery market participants for the ancillary service transaction
payments made.395
The report must include AEMO’s identification of additional information or inputs required to
improve or account for unscheduled price-responsive resources in load forecasts.396
The report must include AEMO’s description of:
• any actions taken by AEMO to reduce forecast deviations by accounting for unscheduled
price-responsive resources, where those actions have resulted in improved market
outcomes397
• the methodologies used by AEMO to consider and manage the impacts of unscheduled price-
responsive resources on load forecasts for pre-dispatch and dispatch398
• any barriers to AEMO using those methodologies to improve forecasting.399
The annual report must also be supported by a source of information that presents the
information and metrics specified by AEMO in its reporting guidelines. The source of information
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must be updated when new information becomes available and at least once each calendar
quarter.400 This source could be in the form of a webpage that can be readily updated and
accessed by interested parties.
The AER’s reporting functions
The final rule also requires the AER to publish a report by 31 December each year that covers the
previous financial year.401 The objective is to provide transparency on the impacts of unscheduled
price responsive resources on efficient market outcomes to inform future market reform.402 The
monitoring and reporting framework established by the final rule is part of the AER’s existing
wholesale market monitoring and reporting functions under section 18C of the NEL.
The AER’s report must analyse the impact of unscheduled price responsive resources on forecast
deviations, and the consequential impacts on the efficiency of the market, including estimates in
relation to:403
• additional amounts paid to Generators, Integrated Resource Providers and Demand Response
Service Providers for different quantities and prices of electricity and wholesale demand
response that are dispatched
• additional amounts paid to Ancillary Service Providers for additional market ancillary services
that are enabled
• additional amounts paid to Cost Recovery Market Participants for ancillary service transaction
payments under clause 3.15.6AA
• additional amounts paid to Registered Participants for RERT for scheduled reserves that are
dispatched and unscheduled reserves that are activated
• additional emissions resulting from the relative increases referred to for the previous items.
The report must also identify the trends and outcomes on the efficiency of the market as a result
of those matters when compared to previous financial years and the AER’s recommendations for
how to improve the efficiency of the market in respect of those matters.404
The AER may request AEMO to provide information to the AER if it considers it reasonably
necessary to satisfy its reporting obligations, including confidential information that AEMO has
received from registered participants, and AEMO must comply with any such request from the
AER.405
The final rule requires both AEMO and the AER to prepare and publish price responsive resource
reporting guidelines, which specify how each will meet their respective reporting obligations.406
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409 The National Electricity (Northern Territory) (National Uniform Legislation) Act 2015 (NT Act). The regulations under the NT Act are the National
Electricity (Northern Territory) (National Uniform Legislation) (Modifications) Regulations 2016.
410 Clause 14A of Schedule 1 to the NT Act, inserting section 88(2a) into the NEL as it applies in the Northern Territory.
411 These are specified Northern Territory systems, listed in schedule 2 of the NT Act.
412 Clause 14B of Schedule 1 to the NT Act, inserting section 88AA into the NEL as it applies in the Northern Territory.
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A uniform rule is a rule that does not vary in its terms between the national electricity system and
one or more, or all, of the local electricity systems, and has effect with respect to all of those
systems.413
413 Clause 14 of Schedule 1 to the NT Act, inserting the definitions of “differential Rule” and “uniform Rule” into section 87 of the NEL as it applies in the
Northern Territory.
414 Further information about civil penalties is available here.
415 The Decision Matrix and Concepts Table is available here
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Proposed
Clause Description of clause Reason
classification
after becoming aware that a
voluntarily scheduled resource
ceases to be a qualifying resource.
Failure to be able to comply
with dispatch bids may
This clause requires Voluntarily affect the efficient operation
Scheduled Resource Providers to be of the power system.
4.9.8(g) Tier 1
able to comply with their latest
dispatch bid. This Tiering is also
consistent with similar
CPPs within clause 4.9.8.
Where the final rule amends provisions that are currently classified as civil penalty provisions, the
Commission will not recommend any changes to the classification of those provisions.
The final rule does not amend any provisions currently classified as conduct provisions, and the
Commission will not recommend that any new provisions introduced by the final rule be classified
as conduct provisions.
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