Powering progress Clean Energy Councils rule change request

What you need to know

In 2020, the Clean Energy Council (CEC) and the Australian Energy Market Operator (AEMO) brought together industry stakeholders to form the Connections Reform Initiative (CRI), which aims to address systemic concerns involving the grid connection process.  The CRI identified 11 recommendations in a Connections Reform Roadmap.

Off the back of these recommendations, on 17 May 2023 the CEC submitted the Investor Certainty in the 'R1' Process Rule Change Request to the Australian Energy Market Commission (AEMC).  This rule change is the first step to address the CRI's recommended reforms to the R1 connection process.

The rule change request proposes to amend the R1 process for assessing a generator's ability to meet performance standards by clarifying roles, timeframes and obligations, and introducing new standardised "types" that allow applications to more flexibly and efficiently address issues identified in the process.

CEC intends that the rule change request will:

• Reduce the uncertainty associated with the R1 connection process;
• Lower investment costs through reduced risk premiums, which will flow through to wholesale prices;
• Speed up connection of new generation and manage reliability risks; and
• Result in a clear allocation of responsibility for managing system security and power quality issues.

What you need to do

Review the rule change request, and keep up to date with any calls for submissions by subscribing to our energy alert series.

Objective of the proposed rule change

As part of its review, the CRI has identified that the National Electricity Rules (NER) are currently unclear on the requirements, process, steps and responsibilities associated with assessing and approving the performance of a generator at the R1 stage of the connection process. The rule change addresses this issue by improving the efficiency, certainty and transparency of the R1 connection process.

By improving connection timeframes, the rule change will speed up entry of new generators and in turn increase competition, reduce wholesale prices and improve system reliability and security for consumers.  Further, the CEC intends the rule change to reduce the barriers to entry for new generation by removing the uncertainty in the R1 process and the associated investment risk and costs.

The R1 connection process

The R1 process is a key stage of the connection process where an "R1 model" is assessed against original modelling in the applicant's agreed access standards.  R1 models are more detailed then those at earlier stages and can produce technical performance data different to that which underpins the agreed performance standards.

In such cases, it is necessary to ascertain whether the applicant can comply with the agreed performance standards.  The current process involves a three-way discussion between the applicant, the relevant Network Service Provider (NSP) and AEMO.

Issues with the current R1 connection process

The CRI working group has identified there is very little guidance provided around the process for verifying compliance with the performance standards in R1, including how decisions are made, by whom they are made and in what timeframe they must be made.

The R1 process is inflexible, as AEMO cannot provide conditional approval for the R1 package or make minor downwards adjustments to performance standards and R1 decisions are not easily reviewable.  Further, the R1 process disadvantages generators, which are held responsible under the current process for external system changes which affect their R1 modelling even where such changes are outside their control.

These issues reduce the overall efficiency of the market, leading to poor outcomes for new entrants, NSPs and AEMO, while creating uncertainty that can cause higher costs for consumers.

The CEC notes that the issues with the existing rules have the following impacts:

• increased wholesale prices as applicants seek to recover the extra costs associated with the increased risks of projects being delayed or not proceeding;
• inefficiently high wholesale market price outcomes as delays in new entry of generation and storage assets results in greater supply side concentration and reduced wholesale market competition;
• greater potential for reliability issues due to delays in the connection process; and
• inefficient choices being made on security procurement issues identified at the R1 stage, resulting in higher overall costs.

Key elements of the proposed rule change

The CEC's rule change involves the following key elements:

• Applicants will initiate the R1 process by providing an initial self-assessment.
• Formalising the R1 assessment process in the NER to align with other stages of the connection process, and clarify assessment criteria, responsibilities and timeframes.
• Introduce arrangements for NSPs to evaluate and resolve power system security or quality issues that are identified in the R1 modelling but are external to the applicant.
• Ensuring parties in the R1 process have the tools and information to make appropriate decisions and allocate risk.

Applicant initiates R1 process

Under the rule change, the applicant will initiate the R1 process by providing an initial self-assessment.  Where any issues are identified, the applicant will consider the materiality of the impact on the system and mitigating actions, whether the issues can be resolved at a later stage in the connection process, and whether issues are due to changes in the external power system. 

Classification into types

The rule change creates a process for issues identified by the applicant at the initiation stage to be resolved efficiently.  This will be actioned through a defined framework of proposed solutions proportionate to the type of system security issues identified under the R1 process, identified in the table below:

These types introduce a concept of materiality, which allows parties a level of flexibility to resolve issues based on the size, location, impact of the issue and technology type.

Clear timeframes and obligations

The rule change clarifies an applicant's obligations and timeframes, including:

• An obligation for the applicant to resolve material discrepancies between the negotiated access standard and the modelled outcome between the finalisation of the connection agreement and full energisation;
• A requirement for applicants to demonstrate to AEMO what efforts have been made to address discrepancies and rectify issues;
• A new enforcement power to ensure that connecting applicants meet these obligations;
• Situations where requests for further modelling can be made;
• A new time-limited process;
• The roles and obligations of AEMO and NSPs; and
• A new process for facilitated review in the event of disputes.

Next Steps

The AEMC will now publish the CEC's rule change request on its website as a pending rule change. It will then proceed to formally initiate the rule change process by publishing:

• a notice of the rule change request; and
• a consultation paper setting out the request and seeking submissions from stakeholders.

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Authors: Andre Dauwalder, Counsel; Alexandria Brown, Graduate; and Murray Rissik, Paralegal.