An Overview of the Connections Reform Roadmap
Fast Facts
On 16 December 2021, the Australian Energy Market Operator (AEMO) and the Clean Energy Council (CEC) published the Connections Reform Roadmap (the Roadmap), the culmination of seven months of work by the Connections Reform Initiative (CRI), through extensive collaboration with industry.
The Roadmap identifies priority reforms needed to overcome the challenges in connecting generators to the grid, particularly given the pace of the energy transition – “The vision for the connections process is one that is consistent, predictable, efficient and collaborative”.
The Roadmap sets out 11 recommendations across four key reform areas – access standards, information and modelling, batching, and investment certainty – intended to speed up connection process timeframes, lower the cost of connection, and improve hosting capacity and system strength.
While the Roadmap outlines proposed solutions, there is still a significant body of work to be undertaken. It will be imperative that the CRI maintains momentum and progresses the reforms in a timely manner, particularly given the significant volume of renewable energy forecast to enter the system in coming years.
Background
The transition of the Australian energy system is predicted to be rapid, with ~122GW of additional variable renewable energy capacity by 2050 under AEMO’s updated Step Change scenario [1]
Why is Connections Reform needed?
Connecting parties have been raising concerns about the connections process for some time – such as lengthy connections process timeframes, and complex and time-consuming technical and system strength assessments – which can have significant implications for renewable energy investment and project development. The Clean Energy Investor Group (CEIG) Investor Principles, published in August 2021, identified that network connection risks create uncertainty that is extremely difficult for investors to quantify and is the source of a material risk premium on their cost of capital.[2]
These risks and complexities have been exacerbated in areas where multiple parties seek to connect at the same time in areas of the NEM with low system strength, such as the West Murray Zone in Victoria. In this case, assessment timeframes required by the rules were not always able to be met, and AEMO was required to develop an alternative ‘sequencing’ approach to progress uncommitted projects through the connections process.[3]
What is the Connections Reform Initiative?
Initiated in Q2 2021, the Connections Reform Initiative (CRI) is a unique construct sponsored by the Clean Energy Council (CEC) and AEMO working collaboratively with approximately 100 industry participants across a diversity of generators, investors, OEMs and network companies, as well as the AEMC. It was established with the objective of formulating a consistent and predictable connections process to improve efficiency and quality of information and create a collaborative working model.
The culmination of the work to date is the Roadmap – which is an outline of the recommended avenues for reform to develop a fit-for-purpose grid connections process for the future. The Roadmap is intended to drive implementation of the reform initiatives throughout 2022.
Recommended Reforms
The Roadmap sets out 11 reforms across 4 Reform Areas – (a) Access; (b) Information and Modelling; (c) Batching; and (d) Investment Certainty. For each reform area, the Roadmap details the problem statement, objectives, proposed solution/s, key issues to be resolved, and high-level implementation timeline. The reforms will be delivered through a series of rule, guideline and process changes. A summary of the reforms is provided below.
Access Reforms
There are three proposed access reforms:
Network access – to enable lower or more flexible minimum access standards, where a lower standard would lead to better network performance at a specific connection point;
OEM whitelisting – to provide more flexibility and speed around the processes for Dynamic Model Acceptance Tests (DMAT);
Collaboration – to develop forums to support a more collaborative and innovative approach to managing connection processes between stakeholders and address connection challenges.
Information and Modelling Reforms
There are four proposed information and modelling reforms:
Use of PSCAD model – to provide flexibility to developers regarding the current requirement for all new projects to be assessed using EMT tools such as PSCAD, and to consider the viability of sharing a wide-area EMT model to connecting parties;
Model quality – improving both the consistency and quality of connection application information to avoid rework and speed up the connection process;
Black Box EMT models – requiring or incentivising the provision to AEMO of black box EMT models while preserving IP and commercial sensitivity;
Information asymmetry – focused on improving the network and generator information provided to project proponents, particularly through the connection enquiry and application phases.
Batching Reform
One of the critical issues with the rapid deployment of renewables has been the speed that AEMO has been able to respond, particularly in areas of the system with significant constraints, low system strength and where large numbers of projects have initiated connection processes on similar timelines. The current approach of evaluating projects individually is posing a risk to timely approval of access standards, often a condition precedent for financial close.
This reform proposes a coordinated connection application assessment process that batches projects with similar timeframes to undertake integrated NEM-wide technical studies. The batching process would run four times annually.
Investment Certainty Reforms
This initiative proposes a suite of complementary reforms that create a more stable investment environment with reduced risk of changes or delays between project commitment and revenue, including:
Switching the onus of proof for system security to AEMO or NSP’s;
Clearly defining a ‘material change’ through a guideline;
Introducing an independent review mechanism;
AEMO/NSP compliance and enforcement post-revenue; and
Collective retuning to meet system security obligations.
Introducing BESS Behind Existing Generation
Many existing wind and solar generators are looking to retrofit BESS behind an existing an existing generating system, often requiring a reassessment of the plant’s generator performance standards. This reform aims to explore options to ‘cordon off’ a generator’s existing legacy plant from reopening its GPS and undertaking additional modelling when retrofitting a BESS.
Defined Process to Introduce Changes to AEMO Guidelines
Currently underway, this reform aims to achieve a consistent and fit-for-purpose process for collaborating, engaging and communicating with industry on AEMO guidelines and documents.
Our Insights
Reform of the connections process has been needed for some time. AEMO and NSPs have struggled to progress renewable energy connections in a timely manner over recent years and this issue has been consistently raised by generators as a critical issue for deploying capital into the sector.
There is no doubt that this is a positive initiative in resolving such a critical issue. While the Roadmap is non-binding in nature, the co-design approach adopted by the CRI and extensive engagement with industry provide a sound basis for the proposed reforms given the work that has gone into defining the problems and identifying the proposed solutions. At the very least, having collaboratively identified suite of problem statements and industry momentum towards agreed outcomes, reduces the risk of individual and piecemeal rule change requests to address the issues.
While the Roadmap provides high-level solutions, it does highlight the need for further work and detailed design to be done on the proposed reforms, and presents a high-level implementation timeline and governance model for overseeing and delivering on the Roadmap. Many of the reforms will require rule changes and subsequent guideline and process changes – these processes are important as they allow for due consideration of the issues and broader consultation, but they will take time. There is a significant body of work to still be done, and so it will be critical that the CRI maintain momentum and drive forward the reforms in a timely manner.
On a final note, while the objective of the Roadmap is to deliver a connections process that is consistent, predictable, efficient and collaborative, there remains a question as to the level of resourcing that will be required, particularly within AEMO’s connections team, to process the significant volume of applications that will accompany the Step Change scenario. Over recent years, workload, complexity of issues, and timelines have been challenging. The Roadmap will alleviate some of this pressure, but consideration should also be given to the investment in human capital needed to deliver a fit-for-purpose connections process.
[1] AEMO, Draft 2022 Integrated System Plan, December 2021, pp35, 36
[2] CEIG, Clean Energy Investor Principles, August 2021, p20 available at CEIG_Clean-Energy-Investor-Principles.pdf
[3] The WMZ sequencing approach is available at AEMO | West Murray
