IEEE Power & Energy Magazine - September/October 2021 - 34

nonlinear, and failure prone. There are additional asymmetric
costs of market efficiency and market failure. While
designers may prefer complex, multilayered, and co-optimized
markets, operators may desire conservative, expensive,
and unoptimized solutions. Striking the right balance
to develop efficient and robust economic solutions to technical
challenges requires the rigorous and combined efforts of
power system engineers and economists.
Policy makers have a variety of regulatory and market
instruments available to them. Options include technical standards
and licenses, operational directions and interventions,
regulatory delegations (including network monopolies and
other central agencies), individual contracts with providers,
ESS auctions, and tenders and short-term spot markets. Regulated
approaches can provide greater comfort in the technical
provision, especially given complex security services (such
as system strength). While market approaches provide the
opportunity for greater efficiency, there is potential for financial
innovation to outcompete technological innovation. Market
solutions can also optimize against the technical specification
of a service, creating a lack of resilience.
A case in point is the design of contingency frequency
response markets in the NEM, where technical specifications
guided by normal operating frequency bounds resulted in
1
* ESS Procurement Design to Facilitate an
Overall Efficient Dispatch
Operational
Efficiency
(Subject to
Quality of
Service)
* Efficient Price Signals in Operational
Time Frames for Availability and Utilization
of Existing Resources (Subject to the Quantity,
Quality, and Nature of Service)
* Should Be Based on Voluntary Bids and
Offers and Subject to Rules to Mitigate
the Exercise of Market Power
* Some ESSs Would Be Co-Optimized With
Energy
* Maximize Market-Based Outcomes/
Minimize Intervention by AEMO
Transparent
Process
2
Efficient
Investment
Signals and
Overall Grid
Resilience
* Market Design That Promotes Efficient and
Timely Investment in, and Provision of,
ESSs, Which Delivers the Desired Levels
of Reliability and Security
* Market Design That Delivers ESSs That
Promote Overall Grid Resilience
(i.e., Holistic Perspective)
7
3
Cost
Recovery/Risk
Allocation
* Participants That Cause Costs Should Be
Exposed to Them; Risks Should Be Borne
by Participants Best Able to Manage Them
No Undue
Discrimination
* Equal Treatment for all Participants
(Subject to Relevant Technical and Economic
Differences) but no " Undue " Discrimination
* Market Participants Able to Respond to
Incentives and Act Without Discrimination
* Mitigation of Excess Market Power
figure 2. Principles of market design for ESSs. (Source: Adapted from the 2020 FTI Consulting Report to the ESB.)
34
ieee power & energy magazine
september/october 2021
6
Adaptability
* Market Design That Is Flexible to Adapt to
Evolving Market and Technical Circumstances
* Supports Innovation and Encourages
" Learning by Doing " by Exploring Previously
Uncharted Territory
Proportionate
Procurement
4
* ESSs may Be Provided via a Competitive
Process, or as a Mandatory Service
(e.g., Licence Condition); the Choice Should Be
Appropriate for the Type of Service Procured
* If a Competitive Process Is Used, a Clear
Process and Terms of Contract Should Be
Applied
* No Excessive Complexity That Would
Unnecessarily Delay Procurement of ESSs
5
* Minimize Operator Interventions, Particularly if
They Are Seen as Opaque by Market Participants
* Requirements Should Be Communicated in a
Timely and Clear Manner to all relevant Parties
* Outcomes of any Procurement Process
(Competitive or Mandatory) Should Be
Communicated
wide frequency governor dead bands. In the face of uncertainty,
this led to poor frequency performance and system
fragility, only recently corrected by the reimplementation of
stringent mandatory primary frequency response requirements.
By contrast, the WEM complements a spot market
for regulation services with an obligatory droop requirement,
which has led to improvements in frequency management.
Tradeoffs abound for investment considerations, given
commercial risk appetite. While spot markets, if appropriately
designed, can provide efficient scarcity price signals, investment
decisions on long-duration assets are typically made in
the context of longer-term revenue and cash flow visibility. In
the design of ESSs, it is relevant to consider the following:
✔ Framework flexibility is needed in managing current
principles of provision (such as from synchronous
generators and synchronous condensers) while accommodating
future innovation (inverters providing
" synthetic inertia " and grid-forming capability).
✔ The locational nature of service provision must be
taken into account. For example, fault current and
system strength are highly locational relative to inertial
frequency response, which is system wide.
✔ The complexity of co-optimization in the context of
uncertainty needs to be understood.
IEEE Power & Energy Magazine - September/October 2021

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