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Energy Insights

Potential New Rules for Better-Integrating Energy Storage in the NEM

In mid-July 2021, the Australian Energy Market Commission (AEMC) published a draft rule determination on better integrating energy storage into the National Electricity Market (NEM). The rule change originated from a 2019 request made by the Australian Energy Market Operator (AEMO). 

The driver behind AEMO’s request for the rule change was the increasing growth of variable renewable energy and the increased need for energy storage.  In addition, it is becoming more critical that the NEM is no longer centred around old definitions of customers and generators. Instead, the structure is around the two-way flow of energy to and from the grid. Energy storage will be a key enabler for the bi-directional flow of energy.

What does the new rule mean for the energy market?

The draft rule has several components.  One key feature is creating a new, flexible and technology-neutral category of energy market participants.  This category is called an 'Integrated Resource Provider', which will cover various participants with bi-directional energy flows that may both offer and consume energy, and ancillary services, including storage, hybrid facilities and aggregators of small generation and storage units.

In this context, hybrid facilities include parties that pair different resources together at the connection point to the grid, for example, load and generation, load and batteries, batteries and generation.  As more and more large customers consider behind the meter storage or generation, they could consider becoming an integrated resource provider.

On the face of it, the draft rule appears to be a small change. However, it is one of the most recent significant changes in the NEM that can have longer-term benefits and implications.

The most immediate benefit of the draft rule is removing barriers to storage and hybrid systems participating in the market and creating a more level playing field for all participants. Currently, these participants have to register twice, once as a load and once as a customer. This adds unnecessary cost and complexity.

In the longer term, these changes align with the Energy Security Board's vision of a two-sided market and are the first steps along this path in which technical obligations are placed on services, not participant categories.

What could this mean for energy customers?

As the market transitions towards two-sided, this rule change can provide customers with new opportunities and benefits.  One such example is the enablement of implementing a 'trader service' model, which the ESB identified, where:

  • The market would further simplify the many customer registration categories to a single 'trader' category.  This would be one universal registration category covering all commercial parties participating in the NEM (e.g. retailers, aggregators, generators, scheduled loads, ancillary service providers).
  • This would enable 'traders' to provide multiple services to customers without registering in multiple categories.
  • It would enable potential new participation models that allow customers to obtain services from more than one party at a site. For example, a customer may contract with a party providing standard retail services for one part of their consumption and a separate arrangement with another party to trade any controllable load or generation.   The commencement of the Wholesale Demand Response mechanism in October 2021 is an early example of this concept. A customer can contract with a retailer for their energy consumption and a demand response service provider for demand response services.

What are the next steps?

Recognising the significance of the rule change, its complexity, and the high degree of interest, the AEMC is running an extended consultation period until mid-September.  A decision is expected in late October 2021, with implementation approximately 18 months later in early to mid-2023.  The subsequent reforms on two-sided markets and trader services models will progress separately over a likely longer but yet defined timeframe.

If you have any questions or need advice on the opportunities for energy storage or behind the meter generation for your business, please get in touch with your Energy Action account manager or click here.

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