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Did AEMO just kill off Virtual Power Plants? Part 2

This is the second of a 2-part article series on this AEMO decision. In the first article we introduce and critique the decision made by AEMO.

Detail on AEMO decision and solutions to address AEMOs concerns

This article looks at the reasons why AEMO chose not to incorporate the VPP Demonstration FCAS specification into the MASS and seeks to provide some solutions to address their concerns. We agree with some of their justifications, but ultimately don’t think they got the balance right.

Why did AEMO not allow 1 second metering of Fast Contingency FCAS?

The main argument for 1 second metering is that 50 ms sampling of frequency and power flow is prohibitively expensive (but this is contentious - more below) meaning that it is not practical for small-scale DER. Through the trials and the consultation process, AEMO determined:

  1. One second metering can introduce uncertainty of the order of 16% in power measurements (via Reposit Power). Below is one example of how this might happen, based on measurements from a real DER FCAS provider. In simplified terms, the calculation of Fast FCAS payment is dependent on the average power “response” in the 6 seconds from when the frequency departs from the Normal Operating Frequency Band. Again in simplified terms, the amount of Fast FCAS delivered is a function of the “area under the curve”. You can clearly see in the chart that 1s resolution metering means a much greater area under the curve, overestimation of energy delivered (or withdrawn) and therefore over compensation for the service delivered.

Figure 1: Comparison of DER FCAS Provider data at measurement resolutions of 50 ms and 1 second. The Right Riemann sum method is used to interpolate the 1s data, consistent with the FCAS Verification Tool. Source: AEMO MASS Draft Determination

  1. Metering equipment for 50 millisecond resolution frequency and power data is cheaper than most had budget for. The submissions to the Review highlighted that the marginal cost of high speed metering could be as little as $120 (ref. Reposit Power) and as high as $15,000 (ref. Tesla) if FCAS metering requirements were set to 50ms. AEMO determined that if the marginal cost of meeting the 50ms standard is just $120 and could be incorporated into smart NMI meters, then there shouldn’t be a cost issue to meet the standard.

  2. Inverters (typically used for metering at 1 second intervals) can’t be trusted. Several respondents to the review highlighted that inverters do not respond uniformly to network faults and power system disturbances, creating power system security concerns. This looks to be an area for further investigation by AEMO.

  3. 50ms metering will be needed for future services for Frequency Control. Rumour is that the AEMC is considering a 1 second market for frequency response. No doubt VPP providers will want to participate in these new markets, so forcing the industry to lift its game is probably the right move.

New Energy Ventures’ view on this decision

Fair enough. Frequency control is one of the more important parts of the energy market for managing power quality and security. If a large proportion of contingency FCAS was coming from “low quality” sources, the error introduced into the power system is understandably undesirable. If metering costs are as low as Reposit Power asserts they are, then a dedicated meter for FCAS should not be a major barrier to participation. It is concerning that there is not a lot of consensus on the metering costs, but perhaps this review will assist in converging the market.

Why did AEMO not allow the change in meter point to allow device level metering for FCAS for DERs?

The argument for device level metering over connection point metering is that you do not have to duplicate metering hardware that already exists in the inverter or control unit of, for example, a battery. If AEMO were to allow 1 second metering and device level metering, FCAS verification metering could be performed by the inverter or control device. The arguments against device level metering are as follows:

  1. Metering energy at the device is not an accurate representation of the FCAS delivered to the grid. The argument is that device level metering does not account for losses and other assets could “soak up” energy delivered or absorbed from the participating device. For example, the site’s load could increase during an FCAS raise event which would result in the power being delivered at the grid being lower than the actual response from the battery.

  2. Potential for multiple agents coordinating devices at a single site should be avoided. The argument is that allowing device level metering means that multiple devices could all be participating in the market and either cancel each other out or conflict with each other in some way.

  3. Load and solar doesn’t cancel much over the measurement period so connection level metering should not be a barrier to participation. The logic here is that changes in load and solar shouldn’t impact the amount of energy dispatched from say, a battery as seen at the connection point. Therefore metering at the connection put should not be an issue.

  4. Device level metering could incentivize gaming of the system. AEMO is vague at best here, but I assume they mean you might have two controllable assets, one exporting and the other importing thereby providing no benefit to the grid and without interrupting a site’s operation.

New Energy Ventures’ view on this decision

In our view, the justifications for this decision are very weak and should be challenged. Limiting measurement to the connection point will make it more costly (albeit potentially marginally so) where a separate meter is required in addition to metering that is in an inverter or control unit.

In C&I VPPs there will still be the possibility of using the embedded network frameworks to place an on-market child meter on the battery. This arrangement will enable access by the C&I batteries into the FCAS at a device level through the creation of a new connection point. (The ESB is even considering whether to formalise these arrangements with Flexible Trading Relationships). But it is not practical and economic for residential VPPs to use this arrangement as it financially isolates the battery from the solar, removing the battery’s ability to provide solar storage. Device level metering can and should be considered to enable more flexibility for VPPs to provide their services.

We spell out some remedies for AEMO’s concerns below.

Addressing AEMO’s concerns regarding site level metering

We agree that settlement needs to be done at a connection point level but the issues raised can be dealt with through a series of practical measures to allow for metering at a device level:

  1. If losses exist between the device and the connection point, this can and should be addressed by measuring the losses and applying a discount factor to the energy dispatched. There is precedence for this approach with the use of Marginal Loss Factors (MLFs) in the broader National Electricity Market. Generators at the end of a long skinny line will only get paid for what reaches the market, not what is generated at the terminal or connection point thereby accounting for the losses. The same approach could be applied where the losses between the asset providing FCAS and the connection point of the site are applied as a discount to the volume of services. Alternatively, AEMO could propose a standard, conservative, value for this for small DER devices to avoid the overhead of measuring losses at every new FCAS installation.

  2. If multiple participating devices at a site could present an issue, limit participation to either whole-of-site level or a single device. This at least gives some flexibility about how to meter for FCAS and for vendors to offer their services. Trying to solve for multiple participants behind-the-meter is pre-emptive and well beyond the current status of the market and should be considered in the future.

  3. Regardless of where the device is in the system, it is electrically connected to part of the system. Once accounting for losses is configured (see point 1 above), an asset should be compensated for its services. Metering at a site level can mask a low-cost, high value contribution to FCAS where the participating asset is significantly smaller than the load of the site it’s located within, especially in a C&I context.

  4. Gaming the market can be dealt with through clear requirements and penalties that already exist. CS Energy just recently was fined $200,000 for being unable to deliver on it’s bids. Frankly, there is a strong incentive anyway to actively participate in rather than game the system if you have that much control of your load.

Not adopting asset level metering has been made unnecessarily more difficult than it needs to be and limits important innovation in VPPs. In the context of the National Energy Objective, making it harder for VPPs to participate in the market is not a good outcome for consumers. Specifically:

  • Allowances for asset level metering will bring more resource options into the mix. More supply with fixed demand ultimately means reduced prices for FCAS and therefore prices in the grid. VPPs have the advantage of not needing to recover all their costs through wholesale market and FCAS markets’ participation as grid scale batteries do. Therefore they should be able to supply FCAS at much lower cost.

  • Reliability of the grid is potentially impacted because we have services delivered by a small number of assets. The strength of VPPs is the diversification of their resources. Diversification ultimately leads to more resilience and better security of supply. (If you need a case study for grids without good diversification of resources, look no further than the recent history of blackouts in South Australia.)

  • Quality and safety of supply should not be impacted if AEMO deals with losses as we outline above.


This is the second of a 2-part article series on this AEMO decision. In the first article we introduce and critique the decision made by AEMO.

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.


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