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). Jointly sponsored by AEMO and the CEC, the Roadmap was developed through extensive collaboration with industry using a co-design approach.
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. The proposed reforms are intended to speed up connection process timeframes, lower the cost of connection, and improve hosting capacity and system strength.
The document is comprised of: the endorsed reforms; program establishment, including a high-level plan and schedule; the proposed CRI governance model; a set of principles to guide approaches to Rule Changes; a proposed funding mechanism; and potential future reforms. It is anticipated that the Roadmap will continue to evolve as the reforms are further designed and progressed.
While the Roadmap outlines proposed solutions, there is still a significant body of work to be undertaken, including detailed design and rule changes processes, to deliver its outcomes. It will be imperative that the CRI maintains momentum and progresses the reforms in a timely manner – particularly given the ~122GW of additional variable renewable energy capacity by 2050, forecast under AEMO’s latest Step Change scenario. [1]
The Roadmap is open for stakeholder feedback although no due date for submissions has been provided.
Background
The transition of the Australian energy system is predicted to be rapid, with the rate of renewable energy capacity entering the grid materially increasing in line with AEMO’s Step Change scenario. AEMO forecasts a nine-fold increase in utility-scale variable renewable energy capacity by 2050; and expects coal generation to exit two to three times faster than anticipated in its 2020 ISP, with most brown and black coal generation to be withdrawn by 2032. [2] In fact, AEMO has started preparing for 100% instantaneous renewable penetration, which could become a reality as early as 2025 in periods of low demand. [3]
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. [4]
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. Connecting generators in the West Murray Zone (WMZ) in Victoria for example, experienced significant delays in network service provider (NSP) and AEMO project assessments due to the volume of connections, and the complexity of assessments required to confirm the impact of new connections on system security and quality of supply. This meant that assessment timeframes required by the rules were not always able to be met, and AEMO needed to develop an alternative ‘sequencing’ approach to progress uncommitted projects through the connections process. [5]
Acknowledging the CRI process underway, in November 2021, AEMO submitted a rule change request to the AEMC seeking a ‘reasonable endeavours’ qualification for its assessment of negotiated access standards in connection processes rather than the 20 business days timeframe currently required under the rules. [6]
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.
Key Issues
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 – aim to enable lower and more flexible minimum access standards, where a lower standard would lead to better network performance at a specific connection point. Under current NER negotiating framework, new generators are required to meet the automatic access standard or propose a negotiated access standard. Proposed rule and guideline changes are intended to limit the potential adverse network impacts of the current minimum access standards, and provide greater flexibility for negotiation between the minimum and automatic access standards;
OEM whitelisting – aim to provide more flexibility and speed around the processes for Dynamic Model Acceptance Tests (DMAT). The process has been identified as time consuming and inefficient as it requires AEMO to assess the full DMAT scope across each connection application, and does not enable rapid verification and selection by developers across alternative OEM options. The proposed reforms intend to create a new public register for OEM products covering baseline requirements, and a new registration category for OEMs resembling that of an “intending participant”. This would lower barriers to entry for new OEMs, and the effort required by a developer to propose equipment offered by a new entrant OEM.
Collaboration – intends to develop forums to support a more collaborative and innovative approach to managing connection processes between stakeholders and address connection challenges. This reform will be further progressed through a forward schedule of meetings.
Information and Modelling Reforms
There are four proposed information and modelling reforms:
Use of PSCAD model – potential rule and guideline changes to provide flexibility to developers regarding the current requirement for all new projects to be assessed using EMT tools such as PSCAD. While PSCAD modelling will continue to be used, the intention is to provide clearer guidance on when it might be appropriate to assess plant performance using less costly and complex RMS tools such as PSSE. The reforms will also consider the viability of sharing wide-area EMT model to connecting parties early in the connections process to reduce delays and rework.
Model quality – aimed at improving both the consistency and quality of connection application information to avoid rework and speed up the connection process. The reforms propose the development of a Connection Application Template, establishing a due diligence framework to provide early feedback during the connection process and undertaking formal lessons learned sessions after each application phase.
Black Box EMT models – aimed at requiring or incentivising the provision to AEMO of black box EMT models relates. Currently, wide-area EMT studies to demonstrate system performance cannot be undertaken by NEM participants, leading to information asymmetries and delays and additional costs in the connection process. An approach is sought where NEM participants can perform robust, current and consistent modelling of the system required of them and provide this information to AEMO while preserving IP and commercial sensitivity. The roadmap notes that AEMO working toward an online EMT simulation platform that would allow NEM participants to undertake modelling of their own plant in a full wide-area simulation environment while protecting sensitive information.
Information asymmetry – focused on improving the network and generator information provided to project proponents, particularly through the connection enquiry and application phases. The reforms propose a rule change to include distribution projects in the Key Connection Information provided to developers; and improved information provided by NSP’s in the pre-application stage to enable developers to prepare better base cases, or alternatively that NSP’s would develop bases cases and supply to developers.
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 processed on similar timelines. The current approach of evaluating projects individually is posing a risk to timelines for having access standards approved, often a condition precedent for financial close.
The Batching reform proposes a rule change to create a coordinated connection application assessment process that batches projects with similar timeframes to undertake integrated NEM-wide technical studies. These would run four times annually, with connection applications accepted by specified timelines (e.g., 30-Jan, 30-Apr, 30-Jul, 30-Oct).
Investment Certainty Reforms
This initiative proposed 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 – requiring AEMO or NSP’s to prove energisation will cause of worsen a system security risk;
“Materiality” definitions – clearly defining a material change through a guideline to ensure formal changes are required for material issues;
Review mechanism – offering the opportunity for discussions regarding issue interpretation or a materiality decision with an expert engineer independent to the process;
AEMO/NSP compliance and enforcement post-revenue – amend the rules to allow AEMO/NSP to make R1 GPS capability determinations to be met during commissioning i.e., a ‘conditional’ registration; and
Collective retuning – Rule change amendments to enable AEMO/NSPs to request operational generators to re-tune their plant 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. While there is no detailed design yet, the 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. A rule change request and guideline changes are anticipated.
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. This includes making it easier for stakeholders to understand when changes or updates are made to 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. It is therefore curious that connections reform was not key area of focus the Energy’s Security Board’s Post-2025 market design.
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 Roadmap sponsors, leadership team and delivery teams maintain momentum and drive forward the reforms in a timely manner – particularly given the pace of change and significant volume of renewable energy capacity forecast under AEMO’s most likely Step Change scenario.
A key issue yet to be resolved is the funding model for progressing the reforms. The Roadmap identifies the need for dedicated resourcing with associated costs relating to facilitation and project management support, consulting support, and reform-specific execution costs, substantially by AEMO and CEC. The proposed funding mechanism is a charge on parties applying for connection on a fixed per MW basis. Given both the CEC and AEMO are already largely funded by industry, it’s unclear why a separate charging mechanism is needed. Consideration could be given to incorporating the costs within existing fee structures. Transparency of costs, funding mechanism and implementation progress will be important to maintain stakeholder confidence in the process.
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 within AEMO’s connections team in particular, to process the significant volume of applications that will accompany the Step Change scenario. Over recent years, the workload faced by this team, the complexity of the work, and the timelines has been challenging. The Roadmap will alleviate some of this pressure, but consideration should also be given to the investment in human capital needed to set a reformed and fit-for-purpose connections process up for ongoing success.
For more information, contact Simone Rennie at srennie@renniepartners.com.au
[1] AEMO, Draft 2022 Integrated System Plan, December 2021, pp35, 36
[2] AEMO, Draft 2022 Integrated System Plan, December 2021, pp36, 44
[3] AEMO, Draft 2022 Integrated System Plan, December 2021, pp41
[4] CEIG, Clean Energy Investor Principles, August 2021, p20 available at CEIG_Clean-Energy-Investor-Principles.pdf
[5] The WMZ sequencing approach is available at AEMO | West Murray
[6] The rule change request is pending and available at Reasonable endeavours qualification for AEMO assessment of negotiated access standards | AEMC
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