FTI Consulting examined options for the long-term provision of ancillary services (or "essential system services") in the National Electricity Market ("NEM") in Australia, by drawing on the international experience of our UK and US experts.
Many of the essential system services that are necessary for the secure operation of Australia's National Electricity Market have historically been provided without explicit compensation. Instead, they have been supplied as a by-product of energy produced by synchronous - typically coal-fired - generators.
In the coming years, these generators are scheduled to progressively retire and be replaced by renewables generation which usually does not supply the necessary essential system services as a by-product of operation. This means it will be increasingly challenging to secure the necessary system services to ensure the ongoing secure operation of the Australian energy market.
In light of these growing challenges, FTI Consulting examined how the current essential system services arrangements in the NEM may need to evolve, both in terms of procuring the services (i.e. ensuring that there is sufficient investment so that adequate resources exist to provide the services) and in terms of scheduling them (i.e. dispatching existing resources in real time).
Our report focused on the essential system services where the case for change appeared strongest (notably system strength, inertia, operating reserves and frequency response) based on the current and expected market and technical features. We presented options for changing the procurement and scheduling of those services, including through the concept of spot-market based demand curves. We also considered how the wider regulatory framework may need to adapt to deliver those changes in the context of the Post 2025 Market Design initiative in the NEM.
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