Rules relating to intermittent generators - Assessment under section 172F(1) 1

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1 Rules relating to intermittent generators - Assessment under section 172F(1) 1 1 Sections 172E and 172F of the Electricity Act 1992 (Act) set out the requirements on the Electricity Commission (Commission) regarding consultation on, and assessment of, a rule before recommending that an amendment to the Electricity Governance Rules 2003 (Rules) be made to the Minister of Energy (Minister) 2. 2 As the proposal constitutes a rule amendment the process set out in the Act must be followed. 3 This appendix is a statement of proposal under section 172F(2) of the Act, for the purposes of consultation under section 172E(2)(b)(ii). As such, it is required to set out a detailed statement of the proposal, a statement of the reasons for it, provide an assessment of the proposal and reasonably practicable options identified by the Commission, and any other information that the Commission considers relevant. Overview of the proposal 4 The proposed changes collectively meet the objective to enable the power system to accommodate the increasing amounts of wind generation expected in the next few years. The rule changes are proposed as an interim solution while the Commission (through the WGIP) considers more long-term arrangements. 5 The proposal is a package of proposed rule changes, with each element of the package addressing a certain issue identified by the Commission through the course of the Tactical Wind Project. The three 3 elements are summarised in table 1 below: The assessment included here as Appendix 1 is that assessment which was prepared for the purposes of consultation on the proposed amendments, and published with the consultation material in August It is important to note that the rule changes now recommended differ in certain (comparatively minor) respects to the rule changes proposed in consultation, as a result of the Commission s consideration of the submissions made. A discussion of these changes is contained in the body of the paper to which this assessment is appended. Footnotes have been used in this appendix to provide updates to reflect the revisions made to the rule change recommendations. Section 172H(3) of the Act provides that if the Minister makes, or the Commission recommends, a rule for a purpose for which an electricity governance regulation may be made, the Minister and the Commission must comply with the same conditions and process that would apply under section 172D(3), section 172E, or section 172F if they were making recommendations on that electricity governance regulation, and those sections apply (with all necessary modifications) accordingly. Following consideration of submissions, the Commission has decided to defer the third of these to the WGIP process.

2 Table 1: Summary of proposed amendments Part Part A Defined Terms Part G Trading Arrangements Part C Common Quality Proposed Amendments A change to the definition of 'synchronous' so that intermittent generating stations are treated as synchronised for the purposes of the rules in section III of part C An amendment to rule in section II to ensure intermittent generators first obtain must-run auction rights for any electricity they wish to price at $0.00 An amendment to a new rule 8.3 (proposed under a separate rule change process) to be added to technical code C of schedule C3 of part C requiring intermittent generators making offers under rule 3.1 of section II of part G to provide indications and measurements specified in rule 4.1 in technical code C at intervals equal to or less than four seconds 4 6 The amendments relate to parts A, C and G of the Rules. Details of the proposed rule amendments are set out in Appendix 2 to this paper 5. 7 This Statement of Proposal is structured around the three elements of the proposal that collectively deliver the interim solution proposed by the Commission pending the WGIP process. For ease of reference, the elements are labelled as follows: Element A: 'Synchronism' Element B: 'MRDA' ensuring AOPOs are applicable to asynchronous wind turbines; ensuring intermittent generators have must-run (dispatch) auctions rights (MRDA) to price generation at $0.00; and Element C: 'Refresh Rate' ensuring intermittent generators are required to provide measurements at a specific refresh rate. 6 The proposal (Synchronism) 8 The proposal is to amend the definition of synchronism in part A of the Rules to ensure that the AOPOs in section III of part C are applicable to asynchronous wind turbines. 9 After considering alternative approaches, the system operator s advice, feedback from the CQAG and WMAG, and advice from its own legal staff, the Commission proposes (as an interim measure pending Following consideration of submissions, the Commission has decided not to pursue this rule change at this time, and has instead referred the issue to the WGIP. The appendix referred to here related to the consultation proposal. It has since been superseded and is no longer relevant. Instead the recommended set of rule changes is presented in Appendix 4. Following consideration of submissions, the Commission has decided not to pursue this rule change at this time, and has instead referred the issues to the WGIP.

3 completion of the WGIP process) to alter the definition of synchronised in part A of the Rules, as follows: synchronised means the condition whereby a synchronous machine is connected to a network and the electrical angular velocity of the machine corresponds with the network frequency and synchronise, de-synchronise, synchronising, synchronism and synchronisation have corresponding meanings;. Intermittent generating stations will be treated as being synchronised for the purposes of rules in section III of part C Statement of the reasons for the proposal (Synchronism) 10 The reasons for the proposed rule amendments are outlined in section 6 in the main body of this consultation paper In summary, the reason for the change is to clarify the applicability of the provisions using the term 'synchronous' (or similar) to asynchronous wind turbines. In particular, the objective is to make a change relatively urgently to make it clear to current asset owners and future investors that asynchronous generators are required to contribute to voltage and frequency management. Identification and assessment of reasonably practicable options (Synchronism) 12 Section 172F(1) of the Act requires the Commission to seek to identify all reasonably practicable options for achieving the objective of the rule. Section 172F(1) of the Act requires the Commission to assess: a. the costs and benefits of each reasonably practicable option, including the proposal; b. the extent to which the objective would be promoted or achieved by each option; and c. any other matters that the Commission considers relevant. 13 The Commission considers that the lack of clarity with the current rules in this area is such that preserving the status quo is not a reasonably practicable option. 14 The Commission considers that the only reasonably practicable option is to change each rule referring to synchronism in some manner (rather than the definition of the term 'synchronous' itself) so that it appropriately includes/excludes asynchronous generators. 15 The Commission does not favour this alternative. It considers that this option raises a number of other issues of clarity, broader than just those 7 This cross-reference relates to the consultation paper published in August The material referred to from that document (particularly paragraphs 6.3 to 6.13) setting out the description and rationale for these recommended rule changes has been included in the body of this paper to the Minister beginning at paragraph Error! Reference source not found..

4 needing urgent attention. It therefore considers that the rules in part C would require careful redrafting and extensive and thorough consultation given the consequences for asset owners and on system operation. Consequently, the Commission considers it more appropriate that this exercise be carried out by the WGIP as part of its comprehensive review of the AOPOs. Benefits and costs (synchronism) 16 The Commission has considered and decided that it is not possible to calculate the costs and benefits of the proposal and the alternative with any reasonable degree of accuracy. Therefore, the benefits and costs of its proposal and the alternative have been evaluated in qualitative terms. 17 The Commission considers that the benefits of the proposed change include: certainty for wind generation asset owners and investors regarding their obligations under these rules; clarity for the system operator in terms of the level of compliance with these rules it can expect from intermittent generators; and reduced compliance and monitoring activity and associated costs. 18 The only cost identified by the Commission is the cost associated with making this rule change. 19 The benefit of the alternative is greater than the proposal as it would provide more clarity in a number of other areas but at an increased cost in time and resources. Importantly, the Commission considers that the time required to undertake a more comprehensive review would adversely affect the Commission s ability to progress the urgent changes it considers are required. Therefore, the Commission considers the proposal to be relatively less costly and time consuming and, as a result, is superior to the alternative. Extent to which the proposal and the alternatives meet the objective (synchronism) 20 The objective of the change is to make a relatively urgent change to make it clear to current asset owners and future investors that generation alternatives are required to make a contribution to frequency and voltage management whether or not the machines are synchronous. The Commission considers this proposal meets the objective more swiftly than the alternative. Therefore, the Commission favours the proposal over the alternative. The proposal (MRDA) 21 The proposal is to ensure the rules are clear that intermittent generators must first obtain must-run auction rights for any electricity they wish to price at $0.00.

5 22 After considering alternative approaches, the system operator s advice, feedback from the CQAG and WMAG, and advice from its own legal staff, the Commission proposes (as an interim measure pending completion of the WGIP process) to alter rule in section II of part G of the Rules, as follows (text inserted is under lined): Specify Price Specify a price of either $0.00 (subject to rules 2.13 and 2.14 of section IV of part G) or $0.01 for the price band. Statement of the reasons for the proposal (MRDA) 23 The reasons for the proposed rule amendment are outlined in section 6 in the main body of this consultation paper In summary, the reason for the change is to clarify the existing rules to ensure intermittent generators must obtain must-run auction rights for quantities of electricity they wish to price at $0.00. Identification and assessment of reasonably practicable options (MRDA) 25 The Commission considers that the lack of clarity with the current rules in this area is such that preserving the status quo is not a reasonably practicable option. 26 Given the minor nature of the change proposed, the Commission considers that there is no other reasonably practicable option. Benefits and costs (MRDA) 27 The Commission has considered and decided that it is not possible to calculate the costs and benefits of the proposal with any reasonable degree of accuracy. Therefore, the benefits and costs of the proposal have been evaluated in qualitative terms. 28 The benefits of the proposal are that it provides certainty for wind generation asset owners and investors regarding their obligations under the Rules and clarity for the system operator in terms of the level of compliance with the Rules it can expect from intermittent generators. 29 The only cost identified by the Commission is the cost in making the rule change. Extent to which the proposal meets the objective (MRDA) 30 The objective of the change is to clarify the existing rules to ensure intermittent generation must obtain must-run auction rights for quantities 8 This cross-reference relates to the consultation paper published in August The material referred to from that document (particularly paragraphs 6.14 to 6.24) setting out the description and rationale for these recommended rule changes has been included in the body of this paper to the Minister beginning at paragraph 32.

6 of electricity they wish to price at $0.00. The Commission considers the proposal meets this objective by including a reference to rules 2.13 and 2.14 of section IV of part G. The proposal (refresh rate) 31 Following consideration of submissions, the Commission has decided not to pursue this rule change at this time. It has instead referred the issue to the WGIP for further consideration. 32 The proposed rule amendment below applies to a new rule, 8.3, which forms part of a complete replacement for technical code C, which, if accepted, is expected to come into effect in October Maximum interval between indications and measurements Station net MW, generating unit gross MW, station net Mvar and generating unit gross Mvar measurements provided in accordance with rule 8.1 from intermittent generators must be updated at the grid owner s SCADA remote terminal or the system operator s interface unit at least once every 4 seconds when provided by the primary means of data transmission communications. All other Each indications and measurements provided in accordance with rule 8.1 must be updated at the grid owner s SCADA remote terminal or the system operator s interface unit at least once every 8 seconds when provided by the primary means of data transmission communications. Statement of the reasons for the proposal (refresh rate) 33 The reasons for the proposed rule amendments are outlined in section 6 in the main body of this consultation paper In summary, the reason for the change is that, due to the continual and rapid variation in their output, intermittent generators appear to have greater potential to create temporal error in their measurements. The objective of this change is to reduce the potential temporal error associated with the measurements provided by intermittent generators. Identification and assessment of reasonably practicable options (refresh rate) 35 The Commission considers that the only reasonably practicable option is the status quo ie intermittent generating stations provide measurements at the same refresh rate as other generating stations. 9 This cross-reference relates to the consultation paper published in August 2006.

7 Benefits and costs (refresh rate) 36 The Commission has considered and decided that it is not possible to calculate the costs and benefits of the proposal and the alternative with any reasonable degree of accuracy. Therefore, the benefits and costs of its proposal and the alternative have been evaluated in qualitative terms. 37 The Commission considers that the benefits of the proposal over the alternative are: a reduction on the level of dispatch error, and a corresponding reduction in the level of frequency keeper deviation from its set point; and an improvement in the operation of the system operator s state estimator tool which is used to conduct contingency analysis and other security checks on the system. 38 The Commission s initial view 10 is that the cost of both the proposal and the alternative is the same. 39 Therefore, the Commission considers the proposal to be superior to the alternative. Extent to which the proposal and the alternatives meet the objective (refresh rate) 40 The objective of this change is to reduce the potential temporal error associated with the measurements provided by intermittent generators. The Commission s initial view is that the proposal meets the objective to a greater degree than the alternative and therefore the proposal is superior 20. Summary of the assessment The assessment of the benefits and costs of the proposal and reasonably practicable options all support the proposal. 42 The Commission considers that the proposal meets the objectives of each rule amendment to the greatest extent. 43 Accordingly, overall, the assessment of the benefits and costs of, and the extent to which the objective would be promoted and achieved by, each option supports the proposal. Other means to achieve the objective 44 The Commission must ensure that the objective of the rule is unlikely to be satisfactorily achieved by any reasonably practicable means other than the making of the rule (for example, by education, information, or voluntary compliance). The Commission considers that the objective of 10 Following consideration of submissions, the Commission has decided not to pursue this rule change at this time, and has instead referred the issue to the WGIP.

8 the rule is unlikely to be satisfactorily achieved by any reasonably practicable means other than the making of or amending the rule because the changes to the rules provide the greatest degree of certainty to participants as to their obligations. For instance, investors are unsure of their obligations to contribute to frequency and voltage management because the rules are unclear. The Commission considers changing the rules to be the best option to remove the ambiguity inherent in the existing rules. A voluntary arrangement would not give the system operator the certainty it requires regarding the capability of assets, which materially affects the system operator's ability to meet the Principal Performance Objectives (PPOs).