between AEMO, TOs and distribution companies, which may lead to better coordinated and
more efficient transmission planning.
When considering major new transmission
investments, TOs are required to perform a
cost-benefit analysis known as the regulatory
investment test for transmission (RIT-T). The
process involves compiling a complete list of
network and non-network investment solutions,
with the help of stakeholder engagement, and
choosing the solution with the highest expected
return. Cost categories considered include construction and other asset provisions, operation
and maintenance, and regulatory compliance.
Benefit categories include more efficient dispatch, increased security of supply, reduced need
for other investments, lower network losses or
ancillary service costs, and contribution to
renewable generation targets.
AEMO provides only a monitoring role in this
process, ensuring that TOs comply with the
RIT-T protocol. The procedure applies only to
projects involving network enhancement, not to
maintenance, and only when an option’s costs
exceed AUD 5 million. In Victoria, AEMO is
directly involved in transmission planning and
operates a competitive tendering process for
projects that do not affect the assets of the
incumbent TO, AusNet Services.
The Australian Energy Market Commission
(AEMC) recommended enhancing AEMO’s role
in developing national transmission plans and in
overseeing TO planning and investment tests.
The commission also found that Victoria had
similar levels of reliability and service, but paid
less in achieving this, suggesting that AEMO-led
investment planning is more efficient than
incumbent TO planning. This could be due to the
regulatory asset value (RAV) approach, which
can lead to conflicts of interest and incentives for
gold-plating (the more a TO spends on infrastructure, the more it gets paid by the government).
(3) Level of locational pricing
The NEM uses a hybrid of full nodal and zonal
pricing, in which the price at each connection point
is determined relative to the price at a common
regional reference node. The spot price at each
network connection point is calculated as the
regional reference node price multiplied by a factor
that accounts for intra-regional losses associated
with that connection point. Under this system, costs
of supply are generally higher for loads further
from the regional reference node, reflecting higher
losses. When capacity constraints are non-binding,
prices across regions will vary based on network
losses only. By contrast, when congestion occurs,
differences in regional prices will depend on marginal generation costs in each region.
Spot prices in each reference node are calculated as the time-weighted average of dispatch
prices and vary every 30 min. Dispatch prices are
determined through central dispatch at each node
and vary every five minutes.
(4) Modernising network arrangements
A set of market-based arrangements for frequency control, known as frequency control
ancillary services (FCAS), has been in place
since 2001. FCAS provides eight separate
real-time spot markets for frequency control.
These markets are considered highly progressive:
they are market-based with standardised parameters. For example, products to raise or lower
frequency are specified for 6-second, 60-second
and 5-minute response times. This contrasts
sharply with markets for ancillary services in
other countries, such as the UK, where products
do not have standardised parameters and are not
open to providers across all technologies.
Automaker and energy company Tesla built
the world’s largest electricity storage facility in
South Australia in 2017 to provide frequency
response under FCAS:
• In 2016, Southern Australia experienced a
catastrophic state-wide power outage (black
system event), in which more than 800,000
customers lost power supply. In the initial
stages of the system failure, high wind speeds
damaged transmission lines, causing sequential faults and a dip in voltage. This led to an
interconnector failure, islanding of Southern
Australia from the remainder of the NEM,
and supply failure as the system could not be
balanced.
122
W. Xiaoming et al.
more efficient transmission planning.
When considering major new transmission
investments, TOs are required to perform a
cost-benefit analysis known as the regulatory
investment test for transmission (RIT-T). The
process involves compiling a complete list of
network and non-network investment solutions,
with the help of stakeholder engagement, and
choosing the solution with the highest expected
return. Cost categories considered include construction and other asset provisions, operation
and maintenance, and regulatory compliance.
Benefit categories include more efficient dispatch, increased security of supply, reduced need
for other investments, lower network losses or
ancillary service costs, and contribution to
renewable generation targets.
AEMO provides only a monitoring role in this
process, ensuring that TOs comply with the
RIT-T protocol. The procedure applies only to
projects involving network enhancement, not to
maintenance, and only when an option’s costs
exceed AUD 5 million. In Victoria, AEMO is
directly involved in transmission planning and
operates a competitive tendering process for
projects that do not affect the assets of the
incumbent TO, AusNet Services.
The Australian Energy Market Commission
(AEMC) recommended enhancing AEMO’s role
in developing national transmission plans and in
overseeing TO planning and investment tests.
The commission also found that Victoria had
similar levels of reliability and service, but paid
less in achieving this, suggesting that AEMO-led
investment planning is more efficient than
incumbent TO planning. This could be due to the
regulatory asset value (RAV) approach, which
can lead to conflicts of interest and incentives for
gold-plating (the more a TO spends on infrastructure, the more it gets paid by the government).
(3) Level of locational pricing
The NEM uses a hybrid of full nodal and zonal
pricing, in which the price at each connection point
is determined relative to the price at a common
regional reference node. The spot price at each
network connection point is calculated as the
regional reference node price multiplied by a factor
that accounts for intra-regional losses associated
with that connection point. Under this system, costs
of supply are generally higher for loads further
from the regional reference node, reflecting higher
losses. When capacity constraints are non-binding,
prices across regions will vary based on network
losses only. By contrast, when congestion occurs,
differences in regional prices will depend on marginal generation costs in each region.
Spot prices in each reference node are calculated as the time-weighted average of dispatch
prices and vary every 30 min. Dispatch prices are
determined through central dispatch at each node
and vary every five minutes.
(4) Modernising network arrangements
A set of market-based arrangements for frequency control, known as frequency control
ancillary services (FCAS), has been in place
since 2001. FCAS provides eight separate
real-time spot markets for frequency control.
These markets are considered highly progressive:
they are market-based with standardised parameters. For example, products to raise or lower
frequency are specified for 6-second, 60-second
and 5-minute response times. This contrasts
sharply with markets for ancillary services in
other countries, such as the UK, where products
do not have standardised parameters and are not
open to providers across all technologies.
Automaker and energy company Tesla built
the world’s largest electricity storage facility in
South Australia in 2017 to provide frequency
response under FCAS:
• In 2016, Southern Australia experienced a
catastrophic state-wide power outage (black
system event), in which more than 800,000
customers lost power supply. In the initial
stages of the system failure, high wind speeds
damaged transmission lines, causing sequential faults and a dip in voltage. This led to an
interconnector failure, islanding of Southern
Australia from the remainder of the NEM,
and supply failure as the system could not be
balanced.
122
W. Xiaoming et al.