Develop methods to harmonize the allocation of market compensation and ESS costs with the producer pays principle, as far as is feasible and efficient. Market fees to reimburse AEMO for its market management services, system design services and market management services;. Coordinator's fees to reimburse the Coordinator's expenses for the Coordinator's functions under the WEM Rules and the costs and expenses of the MAC Chair.
Literature review of the methodologies for allocating market fees and ESS costs in other jurisdictions. Mid-April to mid-May 2022 In consultation with the MAC working group, evaluate whether, and to what extent, the current allocation method for the Market Fees and for the. Identify the options that can be practically and efficiently applied in the WEM to allocate the Market Fees and each ESS cost;.
Develop details of cost allocation methodologies in consultation with MAC Working Group September-October 2022 Develop and publish a consultation document on the design of allocation methodologies and seek stakeholder feedback. November-January 2023 Develop publication of a detailed design information document for allocation methodologies. It is a requirement under clause 2.5.1C of the WEM Rules that the Coordinator consult with the Market Advisory Committee (MAC) before commencing the development of a Rule Change Proposal.
Stakeholder engagement will primarily occur through briefing and comment sessions with the CARWG and the MAC.
Policy Assessment Approach
What are the costs of providing this service and what is the key driver of these costs. Whose actions (causer) affect the cost carriers and the total cost of providing these services. Who bears the costs or is entitled to changes in the total costs of providing these services.
If the above is not easily chargeable, we may spread costs widely across industry and customers to recover costs (eg industry levies).
A potential framework for determining cost allocation
Services Covered by Market Fees - Development and Implementation of Rules and Procedures; Design, implementation, operation and maintenance of systems and processes to facilitate wholesale electricity trading, capacity credits and ESS; market control; monitoring market performance and managing market development. Services covered by ESS fees – maintenance of the power system within the technical operating limits necessary for its safe and stable operation.
Applying the framework
What is the nature of the goods and services being provided
Importance of Ancillary Service Payments in the WEM
Key Drivers of Costs
Drivers of Frequency Control ESS
RoCoF
Whose actions (causer) are influencing cost drivers and affecting the total cost of providing those services?
Who is bearing the costs or the beneficiary of changes to the total cost of providing these services?
Identifying Causers and Beneficiaries
Identifying causers and beneficiaries
Retailers can earn profits from trading on WEM, while large customers can buy reliable, secure and competitively priced energy. Grid configuration and grid outages affect wholesale market operations (eg thermal losses, thermal and non-thermal grid constraints) and wholesale market costs. An investment in generation or storage facilitated by the wholesale market can ease a grid constraint and push up grid CAPEX (and vice versa).
Investing in behind-the-meter technologies in response to wholesale market signals (peak energy and/or utility prices) may result in the need for additional CAPEX (or vice versa). Therefore, there is some rationale for allocating market and ESS costs to market participants based on the principles of payer and payer. Many other organizations or user groups that are not official WEM participants are also contributors and/or beneficiaries.
This includes Embedded Storage/Generation owners, Microgrid owners/operators, End Customers, TNSPs and DNSPs and the WA State Government. Ultimately, end customers, integrated generators and microgrid owners will incur WEM costs or earn net revenues from the provision of WEM services by Market Participants. However, the manner in which WEM service costs are passed on from multiple parties to End Customers, integrated generators and microgrid owners may raise equity and efficiency concerns.
Summary on identify causers/beneficiaries
- Can the causer be charged for any detriment that results from their actions?
- If the causer cannot be charged easily, can the beneficiary be charged?
- If the causer or beneficiary can be charged, how much should they pay?
- If the above cannot be easily charged, can we allocate costs broadly across industry and customers to recovery costs (e.g., industry levies)
For example, does the levying of the levy lead to actions by parties to reduce the impact of their actions and do the benefits of their actions exceed the costs for society? If the imposition of the levy is unlikely to have a significant efficiency impact, we must still allocate costs to those participants who cause the costs. If the above cannot be easily accounted for, then we can broadly allocate costs across industry and customers by recovery costs (e.g. industry levies) recovery costs (e.g. industry levies).
Can we charge causers or beneficiaries? Should they be charged?
Impactors or risk creators (causers);
Beneficiaries; and 3. Taxpayers
Should governments be allocated costs based on “causer pays” principles
Early findings from Policy Assessment
Literature Review
Burden of the current cost allocation on different classes of users – generators, loads, storage providers, hybrid facilities, aggregators and network operators. Emphasis on user-pays or beneficiary-pays principles in developing cost allocation methods. Emphasis on economic efficiency in the development of cost allocation methods (including costs to implement user-pays cost recovery).
Emphasis on convention or precedent in the development of cost allocation methods, i.e. easy-to-understand costs of implementation are low and efficiency losses do not. The applicability of other jurisdictional approaches to WEM, given the WEM's "capacity and energy" market design. Installation of grid connected storage facilities (both transmission and distribution connected) for fixed power supplies from intermittent generation sources.
Behind the meter' or Distributed Energy Resources (DER), which includes rooftop and ground-mounted solar power, battery systems and electric vehicles; the latter also has the ability to export power to the grid. Moving from unidirectional flow systems (i.e. generation, transmission, distribution and ultimately end use) to bidirectional flow systems (i.e. behind the meter solar array to grid and.
Energy Transformation
Electricity markets will have to move to 'gross' definitions of energy supply and demand given the increasing importance of DER. These resources will increasingly need to be dispatched and controlled by system operators and, on a cause or payee basis, will increasingly be allocated market and ESS costs. Intermittent generation and storage have high fixed costs and low variable costs, implying that energy and ancillary services markets that rely on variable unit costs ($/MWh) to determine market or service prices will not adequately cover investment costs.
Power systems will increasingly need to recover costs through charging practices based on capacity utilization (kVA, kW), and the type and number of customer connections to power grids (i.e. unidirectional meter, bidirectional meter, voltage level, etc.).
Consequences for this study
If grid demand is reducing due to growth in behind the meter demand, should we be levying charges based on gross or underlying demand?
Discussion Points
AEMO undertook a major review of NEM fee structures in 2020, partly due to the need to accommodate new technologies and new entrants not charged in the current fee structure. With declining operational consumption in many NEM regions, billing on a $/MWh basis may no longer be an appropriate driver for cost sharing. While most stakeholders supported the existing $/MWh charging mechanism, others supported a change to the charge per connection point ($/NMI) or a combination of variable and fixed tariffs.
Recovery of major transformational initiatives undertaken by AEMO (e.g., Five Minute Market Settlement, DER integration, Energy Consumer Data Right etc.) can be based on recovery of market customers only, DER resources (based on beneficiary pays principle ), and/or. Increase the percentage allocation of core NEM accrued costs to Generators, MNSP, SGAs and MASPs/DRSPs as of July 1, 2023, reflecting increased involvement in revenue requirements for AEMO's core NEM business;. NMI on a 50/50 allocation to give some consideration to demand elasticity for a volume rate, reflecting the differences between small and large customers, and to reflect the fact that the majority of AEMO's costs are fixed;
Introduce a separate breakdown of core NEM function costs for TNSPs and for DNSPs from 1 July 2023 to reflect the extent of their involvement in AEMO's core NEM activities, based on energy consumed; and. Notes: Managed Network Service Provider (MNSP), Small Generation Aggregators (SGA), Market Ancillary Service Provider (MASP).
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