IEEE Power & Energy Magazine - September/October 2021 - 35

✔ The challenge of valuing ESSs and the consequent
difficulty of allowing procurement quantities beyond
minimum levels to provide additional robustness and
resilience will have to be met.
✔ The tradeoffs of operational complexity and market
sophistication are important: complex markets create
more points of failure.
During this period of rapid change, adaptive governance and procurement
approaches are helpful. For ESSs, a flexible contractual
framework would support operators to mitigate fast-evolving
system risks, potentially accompanied by an adaptive regulatory
change process that supports participant decision making.
Other International Approaches
While Australia's power system finds itself in uncharted
territory with the penetration of variable renewable energy
(VRE) and distributed solar, there are pioneering advances in
market design for system services being explored across the
world. This section reviews some key developments in comparable
systems in the United Kingdom and the United States.
In the United Kingdom, electricity system operation and the
procurement of system services are delegated to the National
Grid Electricity System Operator (NGESO), a subsidiary of
the for-profit, private National Grid UK, which also owns and
operates the transmission network. This framework provides
a comparatively high degree of flexibility in the approach to
procurement, with the NGESO utilizing competitive tenders
of varying duration and structure in procuring services.
Standardized system-wide frequency and reserve products
have contributed to shorter-term, frequent contract auctions,
while more individually tailored and longer-term contracts
were used to secure requisite investment for services with locational
requirements and smaller provider pools. A recent initiative
is the stability pathfinder tender, which procures a combination
of services, including fault levels and inertia. Reactive
power, traditionally an obligatory service, is also increasingly
obtained through competitive tender approaches.
The NGESO is subject to a unique financial incentive
scheme with payments based on performance evaluated by
the regulator Office of Gas and Electricity Markets through an
annual scorecard assessment. The discretion provided to the
Office of Gas and Electricity Markets has been particularly
useful in a rapidly changing environment, providing flexibility
to respond to evolving technical scarcities and to modify
and adapt procurement on an ongoing basis. This has also left
the NGESO to deal with the issue of supporting investment
by initially procuring newer services via longer-term contracts
(to underpin investment), moving toward shorter-term
auctions as business models become established.
By contrast, regulatory regimes in the United States and
Ontario, Canada, have delegated system services to independent
system operators (ISOs), which are not-for-profit entities with
relatively less discretion to make decisions about ESS procurement.
Procurement approaches tend to be codified in regulations,
with changes subject to detailed review, stakeholder engagement,
september/october 2021
market participant votes, and, in some cases, approval of the
U.S. Federal Energy Regulatory Commission. Given the need
for transparency, ESSs have tended to be obtained via either
short-term spot markets (predominantly frequency and reserve
products) or mandatory provision. Spot markets have provided
transparency and price visibility, enabling financial markets to
develop around services underpinning investment.
However, given regulatory structures, incentive mechanisms
for U.S. ISOs have proven to be challenging due to narrow
incentive thresholds and forecasted delivery targets. In
practice, these obstacles, combined with the regulatory processes,
have limited the ability of ISOs to develop new products
expediently. While many jurisdictions are adapting technical
standards for inverters, there has been less emphasis in
international jurisdictions on service procurement concerning
system strength. The meshed nature of North American grids
means system strength and the provision of fault current is of
less concern from a technical perspective, and as a result, it
is not explicitly defined as a system service for many regions,
including New York ISO, Midcontinent ISO, and Ontario
Independent Electricity System Operator.
Australian market designs have strong parallels with security-constrained
gross power pool models common across
markets in North America, apart from procedures for centralized
unit commitment and two-settlement market clearings,
which are not part of the NEM. However, given the extent
of VRE penetration and the unique operational phenomena
observed in Australian grids, the networks will likely have to
forge novel approaches to procure these complex and multifaceted
technical services. These approaches will also have to
work alongside the broader challenge of a 5-min spot market
framework without ahead and capacity markets.
Spectrum of Opportunity
Procurement Frameworks
Having identified a case for change and reviewed the principles
of market design for ESSs, the challenge progresses
to canvasing the " spectrum of opportunity " in resolving the
missing services that arise as IBRs replace synchronous generators.
There are many options to procure ESSs, but frameworks
can be broadly categorized along an axis of market
efficiency, as follows (see Figure 3):
1) market operator interventions and the self-provision of
services without market-based remuneration (currently
used for system strength, inertia, and operating reserves)
2) structured procurement via nonspot market mechanisms
(currently used for emergency out-of-market reserves,
voltage control, and network support/control)
3) spot market-based provision of services (currently
employed for energy, regulation, and contingency frequency
control).
Although there is a preference for real-time signaling, not
all system services are suited for market-based procurement.
The market design assessment for each service includes
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