NEM settlement under zero and negative regional demand conditions

26/11/2020
Market National Electricity Market
StageDiscussion Paper
ConvenorAEMO NEM
Initiated26/11/2020
Accepting submissions?Yes
Submissions close15/12/2020

As the national electricity market (NEM) transforms, challenges continue to emerge. One of these is the
impact of minimum demand conditions on market and system operations, with increasing distributed
energy resources installed at ‘load’ connection points.

AEMO has identified that its settlement systems as currently configured will not operate to settle the NEM
if there is zero or negative regional demand in a trading interval.

The National Electricity Rules (NER) require AEMO to allocate all or a portion of some non-energy costs to
Market Customers, based on their share of energy at connection points in a given trading interval, or set of
defined trading intervals. The cost recovery formulas in the NER use aggregate regional demand in the
relevant trading interval(s) as the denominator for the allocation of these costs, and each Market
Customer’s share is based on the sum of the net metered energy amount for all its classified loads in the
region for the same time period.

The NER and AEMO’s settlement systems were not designed for a power system of two-way flows at

significant scale, and did not envisage a scenario in which there may be no ‘customer energy’ from which
to recover non-energy costs that are allocated to energy users. Mathematically, if aggregate regional
demand is zero or a negative number, AEMO’s settlement system will not be able to calculate the relevant
non-energy cost recoveries. This will cause the entire automated settlement run to fail, as energy and
reallocation transactions are part of the same integrated process for settlement purposes. Not only would
the NEM not be settled, but there would be no information available to determine prudential
requirements.

AEMO’s current analysis suggests minimum demand could occur in South Australia from spring 2021. The
introduction of five-minute settlement from 1 October 2021 increases the likelihood of multiple trading
intervals being affected by zero or negative regional demand.

In this paper, AEMO explains the issue and the market system changes that must be implemented prior to
September 2021 to ensure the NEM can be settled if a zero or negative total regional demand occurs in a
trading interval. The paper identifies options to substitute regional demand, for stakeholders to provide
feedback on. Because any solution to settle the NEM will result in AEMO being non-compliant with the
NER, AEMO intends to pursue a rule change with the AEMC to address the non-compliance associated
with this temporary solution.

AEMO notes that the Integrating Energy Storage Systems in the NEM rule change proposal, currently
under consultation by the AEMC, identifies the issues associated with recovering non-energy costs based
on net energy flows. It proposes that for bi-directional facilities these amounts would be calculated using
both produced and consumed energy flows. This may also provide a long-term path to address the
challenges of allocating non-energy costs to market loads in low or negative demand conditions.

However, as system changes must be in place within nine months to ensure NEM settlements can
continue, AEMO has considered how this can be achieved without eliminating any longer term options.
This requires minimising the impact of these changes on market participants, at the lowest feasible cost
and least risk to existing market change projects. Given that change windows are limited, stakeholders are
invited to submit written feedback on the options or provide alternative suggestions to address the
identified issue by 5pm (AEST) 15 December 2020.

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