First published July 2. Updated with correction: 5 July
This is the first of a 2-part article series on this AEMO decision. In the second article, we explore why AEMO likely made the decisions they have, and seeks to provide some solutions to address their concerns - read it here.
A small but critical development for behind-the-meter batteries and virtual power plants (VPPs) happened a few weeks ago. Sellers, purchasers and owners wanting their behind-the-meter batteries to participate in FCAS markets need to take note.
FCAS is an important revenue source for batteries and VPPs, making a third to a half of all revenue for batteries and up to 75% for VPPs. VPPs have also proven to be a significant source of contingency reserve. For example, last year Energy Locals and Tesla’s VPP achieved the milestone of registering 10 MW into all six contingency FCAS markets through the VPP demonstration trials. These trials were undertaken to assess whether the standards for participation in the Frequency Control Ancillary Service (FCAS) markets - those defined by the Market Ancillary Services Specification or “MASS” - could be relaxed so that distributed energy resources (DER - think batteries, solar, controllable loads) could more easily participate in them.
Many had hoped and even assumed (as we at New Energy Ventures did) that the changes to the MASS to facilitate the VPP demonstration trial would be permanently adopted into the MASS. On 14 June, the Australian Energy Market Operator (AEMO) released a Draft Report and Determination on whether it would change the MASS and adopt the change. In short, they have chosen not to. It has left many in the industry wondering what was the point of the VPP Demonstration trial.
Based on our work assisting businesses to set up VPPs, we think the decision by AEMO could have significant ramifications. This will be especially so for VPPs that have been developed on the basis of the VPP demonstration FCAS specification, but also for the existing batteries and VPPs that have been installed through the VPP demonstration trials such as the Tesla Energy Locals VPP.
This article has two parts:
In Part 1 (this document), we provide guidance on what it means to the battery and VPP industry for AEMO not to change the MASS.
In Part 2, we present AEMO’s arguments for not changing the MASS, why we think they didn’t get the balance right and provide some solutions that might address AEMO’s concerns.
What’s all the fuss about the MASS?
Before we continue, sorry this topic and this article is about as “energy nerd” as it gets. I'm going to assume that if you’re reading this article you probably have at least a passing interest and understanding of FCAS markets. For those not into the details of FCAS, jump to the end of the article for a short refresher. For those in the know, read on...
The MASS or Market Ancillary Services Specification is the technical specification that participants must meet to be able to participate in the FCAS market. They set out:
a detailed description of each kind of market ancillary service; and
the performance parameters and requirements that must be satisfied to qualify as a market ancillary service.
Through the VPP Demonstration Trials, AEMO was considering whether to relax the specification set out by the MASS in two key ways:
Change the measurement of frequency and power flow from 50 millisecond to 1 second intervals for the 6 second raise and lower markets (the most valuable of each of the three raise and lower markets).
Change the metering point from the connection point (a defined term in the National Electricity Rules in most cases meaning the point of supply where a site connects to the grid) to the point of the inverter or controllable asset, provided certain requirements are met.
At the nub of it, both these changes would allow for more flexibility around how VPPs can supply FCAS. The change in measurement resolution would, in many cases, allow vendors to use their existing hardware and not require a dedicated meter, thereby saving on costs and complexity of an additional meter. Furthermore, the change in metering location to allow device level metering would mean that:
Providers of FCAS would need to be less concerned about the status of an uncontrolled load. This is especially important if the load is significantly larger than the asset providing FCAS.
(Again) have the flexibility to incorporate power and frequency metering into the inverter and not duplicate the metering requirements.
Two solutions now exist to provide FCAS in VPPs, we’ll call them for arguments sake:
The “Reposit solution” with main control unit FCAS measurement (see figure 1)
The “Tesla solution” with a dedicated battery and inverter FCAS measurement point (see Figure 2).
With AEMO not changing the MASS, solution 2 will no longer be an option. The implications of this are serious for companies deploying VPP technologies. It rules out not just Tesla’s solution but other solutions in the market for residential VPPs. Tesla has argued that the cost of implementing site level metering could be as high as $15,000 (but there is some contention here as we discuss in Part 2).
The “Reposit solution” with main control unit FCAS measurement
Figure 1 - The main control unit FCAS measurement point. Source: VPP Demonstration FCAS Specification
The “Tesla solution” with dedicated battery and inverter FCAS measurement point
Figure 2 - Dedicated battery and inverter FCAS measurement point. Source: VPP Demonstration FCAS Specification
So, has AEMO just killed off VPPs?
Not exactly. But AEMO has definitely made it harder for VPPs and DER to participate in the FCAS markets (arguably when they should be making it easier). We don’t think AEMO has got the balance right on their decision.
The issues raised by the various respondents align closely to their technology and existing commercial positions in the market. The review also highlighted the wide gulf of technology capabilities by various VPP providers. As an example:
Reposit Power, Landis + Gyr and Intellihub will be pleased with the outcome as their technology solutions appear to align with the current MASS standard. Their submissions made it very clear that they were not supportive of relaxing the MASS standards.
Tesla and Evergen will no doubt be livid about the outcome. On the face of it, the VPP Demonstration trial was very informed by their technology solutions so unless AEMO concedes ground in the final determination they’ll need to innovate or be edged out of the market.
AEMO has clearly leaned on the evidence of those supporting the status quo and not incorporating the VPP Demonstration FCAS specification.
It may be possible to use embedded network arrangements to still provide device level metering but this is only practical and economic in C&I VPPs.
We strongly recommend that those with an interest in establishing VPPs push for AEMO to accept device level metering. To that end, responding to the current consultation process in the Draft Report and Determination is advised. The consultation process closes on 6 August. If you would like to get involved, we suggest that you read Part 2.
If there are no changes to the MASS, providers will need to work within the current technical standard to participate in FCAS markets. Specifically, this means using metering capable of measuring power flow and frequency at 50ms and offering FCAS at a site level only. This will lift the barriers to VPPs and those barriers might be insurmountable for some battery installations.
If AEMO doesn’t budge on their decision, those businesses participating in the VPP Demonstration Project will have until 30 June 2023 to transition to the current MASS standard from the relaxed rules of the VPP Demonstration FCAS specification.
This is the first of a 2-part article series on this AEMO decision. In the second article we explore why AEMO likely made the decisions they have, and seeks to provide some solutions to address their concerns - read it here.
Correction issued 5 July
The article initially stated that C&I VPPs would be greatly affected by AEMO not adopting the VPP Demonstration FCAS specification into the MASS. On further analysis, New Energy Ventures determined that it will still be possible to do device level metering through the application of the embedded network frameworks and the creation of child metering points on devices intending to participate in the FCAS market. This approach is only practical and economic for C&I VPPs given the nature of the value stack. In general the arguments hold true more generally for VPPs and that AEMO should reconsider its position.
About James Allston and New Energy Ventures
James Allston is the founder and managing director of New Energy Ventures (NEV), a specialist management consultancy and data-driven services provider that specialises in new energy technology and service models. NEV provides advice on the commercial, technical and regulatory aspects of virtual power plants and is working with many of Australia’s leading energy companies to develop them.
There are eight Frequency Ancillary Service Markets (FCAS), two for regulation FCAS (used to raise and lower frequency, updating every 4 seconds) and six for contingency FCAS markets (used to raise and lower frequency back to normal limits over time periods of 6 seconds, 60 seconds or 5 minutes). The FCAS markets’ role in the energy market is to keep the frequency within an acceptable range around 50Hz (The Normal Operating Frequency Band is 49.85Hz to 50.15Hz to be precise). The frequency of the market changes due to mismatches in supply and demand. Too much supply (generation) and the frequency goes up, too much demand (load) and the frequency goes down.
The contingency markets are especially interesting. They are capacity markets, meaning participants are paid to sit and wait for a contingency event to happen. By “contingency event” we mean a frequency deviation caused by large disruption to the grid like a transmission line getting knocked out, a coal fired power plant tripping, or a cloud going over the sun. When this happens, providers of FCAS need to very quickly respond and fill the gap between the supply and demand created by the event.