AUFLS information paper

AUFLS information paper Contents 1 Introduction... 1 2 The under-frequency management challenge... 1 3 Overview of current arrangements... 3 3.1 The current AUFLS exemptions... 4 4 Initiatives to address AUFLS issues... 4 4.1 Development of long-term revised AUFLS arrangements... 4 4.1.1 How? Improved technical implementation... 5 4.1.2 What & How much? Development of the AUFLS standard... 5 4.1.3 Who & When? Development of the AUFLS allocation framework... 6 4.2 Addressing the 30 September expiry of the current AUFLS exemptions... 6 5 On-going stakeholder engagement... 7 6 Timetable... 7 7 Links to additional information... 8 1 Introduction This information paper is intended as an update to stakeholders about the status of the various initiatives relating to AUFLS in the North Island 1, in particular: the possible changes coming out of the broader under-frequency management review; and specific issues relating to the expiry of the temporary AUFLS exemptions held by the six North Island direct connect customers. However, to assist stakeholders in appreciating the drivers behind such changes, this note first provides a brief overview of under-frequency management generally, and the key issues that have been identified with the current arrangements. 2 The under-frequency management challenge Because of the need to constantly keep electricity supply and demand in balance, the sudden loss of a major source of supply (i.e. a generation or transmission asset) could result in system frequency starting to fall rapidly. If the supply-demand balance is not rapidly restored either by increasing generation and/or reducing demand total system collapse could occur within a matter of seconds. The relatively small size of the New Zealand system makes this particularly challenging, because the size of potential supply interruption events as a proportion of system load is much larger in New Zealand than for overseas jurisdictions. Accordingly, system frequency can move particularly rapidly, giving rise to a need for particularly responsive and fine-tuned resources for managing under- 1 There are other issues in relation to AUFLS in the South Island. These are the subject of separate (although related) workstreams, but are not the subject of this information note. AUFLS information paper Page 1 of 8 Printed: 11-May-12

frequency events. This is becoming progressively more of an issue in New Zealand as the mix of generation and demand on the system is changing such that the amount of system inertia (which can help slow down the rate of frequency drop) is declining. Also more generation is being built that can t tolerate wide frequency excursions. There are three main types of resources available for managing under-frequency events: spinning reserves from generators that can rapidly increase generation in the event of a drop in system frequency. This effectively requires having extra generation capacity available and spinning in real-time 2, over and above the amount of generation required to meet expected demand. load that can be interrupted rapidly in the event of a drop in system frequency; and asset owner performance obligations (AOPOs) which require generation and transmission assets to perform in a particular way during under-frequency events 3. Determining how much of each of these various under-frequency resources should be procured and by what mechanism is a challenge given that: The amount and type of response required will vary significantly according to: The size of the supply interruption. Thus a very large supply interruption will require a much greater level of response, delivered much more quickly, than a small interruption The nature of the system at the time. Thus for a given sized supply interruption, a materially faster speed of response will be required at times of low demand (and consequentially low system inertia) than at times of high demand. The probabilities of these different types of supply interruption events occurring will vary significantly, with small events being much more likely than large 4. There is significant variation in the performance and cost characteristics of the various underfrequency resources which can manage such events. For example: Spinning reserves generally have high availability costs but low event costs. Availability costs are essentially the fixed costs of building extra generation to be available plus any opportunity and efficiency costs associated with operating in spinning reserve mode. Event costs are the costs incurred in rapidly increasing output if called to perform in an event. Conversely, the reverse is generally true for load interruption i.e. it can be costly to suddenly drop customer load in an event, but the fixed costs of making such capability available are generally low. Further, the costs of load interruption can vary significantly among customers, ranging from close to zero for dropping hot-water load, through to hundreds of thousands of dollars per MWh for customers for whom sudden loss of supply could result in irreparable damage to equipment or health and safety impacts. The speed of response of these different types of resource can vary significantly both between spinning reserve and load interruption, and within these different groups (i.e. some 2 Such spinning reserve can either come from partially-loaded generation, or from hydro plant operating in tail-water depressed mode (effectively having the turbines spinning using compressed air, making them ready to quickly start generating through releasing water through them at short notice). 3 In the simplest of terms, such AOPOs require generators to continue to generate during the under-frequency event in order that they do not exacerbate the situation by tripping off. However, if system frequency drops below a certain level, generating units will start to disconnect automatically from the grid to prevent catastrophic damage, increasing the risk of cascade failure of the system. Accordingly, AOPOs specify a system frequency range within which generating units are required to continue to generate. 4 Because there are a large number of generating units most of which are of a relatively small size it is likely that there will be several medium sized events every year. However, the likelihood of the loss of multiple supply assets gets progressively smaller with the size of the event. For example, the likelihood of the loss of both poles of the HVDC is estimated to be of the order of once every five to ten years, and the loss of even greater numbers of supply assets is less likely still. AUFLS information paper Page 2 of 8 Printed: 11-May-12

types of spinning reserve can perform much faster than others, as can some load interruption). As can be seen, determining the most appropriate mix of resources not only requires careful technical consideration, but also is strongly driven by economic considerations. 3 Overview of current arrangements The current under-frequency management (UFM) arrangements in New Zealand generally reflect this technical and economic trade-off. In brief, the key elements of such arrangements are as follows: Instantaneous Reserves (IR) are able to counter a contingent event (CE) 5, the response being fast enough to limit the fall in frequency to within the limits set out in the Electricity Industry Participation Code 2010 (Code) and then return the frequency to within the normal band. Instantaneous reserve comes in the form of interruptible load, partly loaded spinning reserve and tail water depressed reserve. Automatic Under-Frequency Load Shedding (AUFLS) is used alongside IR to recover the system from an extended contingent event (ECE) 6 and protects against other rare events such as the loss of multiple generating units or other undefined events. AUFLS comprise of two 16% demand blocks in each island, connected to electrical relays which will automatically disconnect the load when the system frequency falls below limits set out in the Code. This means 32% of demand can be shed in two stages to stop the frequency from falling below the minimum frequency standards. Asset Owner Performance Obligations (AOPOs) are mandated via the Code and, in simple terms, require generators and transmission asset providers to maintain output while system frequency stays between 47 and 52 Hz in the North Island, and 45 and 55 Hz in the South Island 7. While such arrangements have helped to insure New Zealand against the risk of a system collapse, work undertaken by the system operator and the Electricity Authority over the past couple of years has revealed that the current arrangements are not optimal. In the specific context of AUFLS (noting that there are initiatives to address issues with IR procurement and generator AOPOs) the key concerns are: The current 2 x 16% AUFLS block configuration using fixed frequency and time triggers is not ideal, and may not avoid system collapse in the event of particularly large (although relatively unlikely) supply interruption events, plus result in unnecessary dropping of load in other AUFLS events. The tendency for distributors to at times materially over-provide AUFLS relative to the 2 x 16% requirement is increasing the risk of system collapse from an over-frequency event 8. The blanket obligation on all participants to provide 2 x 16% of AUFLS is leading to sub-optimal economic outcomes such that: 5 Contingent events are events which happen regularly enough that it is important that there are sufficient reserves available to restore the system frequency to 50Hz without impacting on end-users. Typical contingent events include the loss of a transmission circuit, the loss of a single generation unit 6 Extended contingent events are events involve the loss of multiple supply assets and are expected to occur much less frequently than contingent events and therefore it is deemed to not be cost effective to procure reserves alone to cover these types of events. Typical extended contingent events are the loss of the entire HVDC link, or the loss of a 220kV interconnecting transformer, or the loss of a single busbar. 7 For specified time limits at certain frequencies. 8 If the quantity of AUFLS load dropped is much greater than required, system frequency can shoot up beyond 52Hz, at which point some generators will start to trip off, and which may then lead to a frequency collapse again but this time without the AUGLS load available to help arrest such a fall. AUFLS information paper Page 3 of 8 Printed: 11-May-12

There are instances of relatively high value load from one party being placed under AUFLS and relatively low value load from another party not. This is exacerbated by some parties finding it much harder than others to configure their load to provide particular block sizes; and There are instances where load which would be more valuably used as IR is prevented from doing so because of the need to meet the AUFLS obligation. In relation to the sub-optimal economic allocation of load, provisions exist within the Code to enable participants to meet their AUFLS provision through the use of equivalence arrangements (e.g. one party taking on a greater share of AUFLS load in order to relieve another party). However, to-date no such equivalence arrangements have been implemented, potentially because of a variety of factors including the high transaction costs of developing such arrangements, and the perceived lack of incentive on the part of distributors to undertake such arrangements. These factors will be considered as part of the AUFLS initiatives outlined in section 4 below. In addition, the six direct connect industrial customers have had temporary exemptions from the need to provide AUFLS and thus haven t needed to pursue equivalence arrangements. 3.1 The current AUFLS exemptions These exemptions were sought by the direct connect industrials due to concerns relating to the suboptimal economic allocation of load such as those outlined above. When these exemptions were initially considered by the Electricity Commission, it was found that the Electricity Governance Rules were unsatisfactory with regards to determining an appropriate evaluation approach. Accordingly, the Commission granted exemptions on a temporary basis pending development of more appropriate and durable arrangements. For a number of reasons it wasn t possible to implement such revised arrangements, with the result that it was necessary to extend the exemptions on a number of occasions. The most recent such extension occurred in 2010 when it was identified that the regulatory arrangements were due to be fundamentally overhauled with the passing of the Electricity Industry Act 2010. At the time it was deemed inappropriate for the Commission to develop significant new arrangements shortly before the introduction of such a new framework. These exemptions are now due to expire on 30 September 2012. 4 Initiatives to address AUFLS issues 4.1 Development of long-term revised AUFLS arrangements The system operator and the Electricity Authority are actively working on establishing revised AUFLS arrangements. There are three main aspects of such arrangements: How? Improved technical implementation; What & How much? Development of an appropriate standard to govern provision of AUFLS; and Who & When? Development of an AUFLS allocation framework. Each of these aspects is described in more detail below. AUFLS information paper Page 4 of 8 Printed: 11-May-12

4.1.1 How? Improved technical implementation With respect to the technical implementation of AUFLS, the work undertaken in 2010 and 2011 identified that the existing arrangement of just two blocks, triggered by fixed frequency & time relays 9 gave rise to a number of potential problems: For some very large events the rate of system frequency fall would be so great that the second block in particular would be triggered too late, such that system frequency would have fallen below the critical 47Hz threshold before the AUFLS load would have come off. For some other events, the relatively large size of the blocks would result in too much load being dropped. As well as resulting in unnecessary interruption costs for consumers under AUFLS, the studies identified that in some cases this dropping of excessive amounts of load could give rise to over-frequency collapse risks; The system operator identified that the optimal improved technical solution consists of two main elements: Moving to a greater number of smaller blocks which collectively deliver the same overall quantity of AUFLS load (e.g. 4 x 8% blocks rather than 2 x 16%). This solution addresses the problem of too much AUFLS load being dropped in some events. Four blocks were identified as being the appropriate number rather than the current two10. Implementing rate of change of frequency (ROCOF) relays. Such relays enable AUFLS to be triggered more rapidly in the event of particularly severe events, and thus will address the problem of AUFLS load being triggered too late in such severe events. The system operator is moving towards implementing this new technical solution. In doing so it is also seeking to ensure that any new AUFLS relays are implemented in such a way that maximises other potential benefits including: Installing control devices such as timers or communications links which better enable the quantity of AUFLS load to be adjusted to the desired level for the different times of day and year. Improving the shedding of appropriate value loads (e.g. better enabling the avoidance of high value loads such as hospitals, and targeting lower value loads such as residential suburbs instead) by implementing, where possible, AUFLS relays sufficiently low-down in the network (i.e. at the feeder rather than GXP level). 4.1.2 What & How much? Development of the AUFLS standard At present, the AUFLS obligation is for obligated parties to provide a minimum of 2 x 16% of their load under AUFLS at all time. However, in reviewing the technical performance of AUFLS and identifying a more appropriate configuration for technical capability, it is also necessary to review the appropriateness of the standard which governs the provision of AUFLS. The System Operator is working on developing a revised AUFLS standard that reflects these changing requirements, and provides clarity on the purpose of AUFLS in terms of the magnitude and type of events it will assist in covering. This workstream is still in progress. However some of the key elements of a revised standard which could emerge are: 9 Such fixed frequency & time triggers essentially mean that AUFLS are triggered if system frequency falls below a set trigger, or system frequency stays below a higher trigger point for a sufficiently long period of time. 10 More information can be found at http://www.systemoperator.co.nz/aufls AUFLS information paper Page 5 of 8 Printed: 11-May-12

Varying the quantity of AUFLS required according to the time of day and year. This recognises that the optimal amount of AUFLS required on the system will vary according to the system conditions at the time. Thus, instead of having a flat % AUFLS requirement at all times, the requirement may change according to factors such as the level of demand. It has yet to be determined whether such a requirement will be static (i.e. pre-set for particular times of the day or year), or dynamic (i.e. varying close to real time according to the known state of the system including factors such as hydrology). Set maximum and minimum quantities for AUFLS requirements on participants to address the over-frequency collapse risks associated with over-provision of AUFLS load. 4.1.3 Who & When? Development of the AUFLS allocation framework The last main characteristic is the development of an allocation framework that supports the AUFLS standard. This allocation framework now involves a number of discrete work-streams. including: An initiative exploring options for load that is required for AUFLS to be able to be released for use as Instantaneous Reserves if it is more valuable to do so, providing there is sufficient AUFLS on the system. An initiative exploring options for parties with the ability to provide a technical solution that meets the objectives of the AUFLS standard but not the specifics in terms of the number or size of blocks specified in the standard. An initiative exploring options for developing market-based mechanisms to facilitate the coordination of AUFLS load provision among various parties. In particular: o o enabling parties with relatively low value load to take on a higher level of AUFLS in order to relieve parties with relatively high value load; and enabling coordination of AUFLS load among parties to deliver appropriate block sizes. This is to address difficulties some parties may have in delivering AUFLS load of particular block sizes, but collectively among all parties there should be sufficient diversity of load to deliver appropriately sized AUFLS blocks. An initiative to identify any exceptions to a party s ability to meet the standard, to determine appropriate criteria for equivalence, dispensation and/or exemption, and to develop assessment criteria, costs and application requirements. An initiative considering the potential implications of the price control regime operated by the Commerce Commission on the incentives and ability of distributors to implement such revised AUFLS arrangements. 4.2 Addressing the 30 September expiry of the current AUFLS exemptions While the system operator and Authority are working towards developing these more appropriate and durable arrangements for AUFLS provision, it is unlikely that all the key elements will have been fully developed and implemented in time for the expiry of the current AUFLS exemptions on 30 September 2012. Accordingly, the Authority and system operator are working on determining the most appropriate interim arrangements to put in place such that the most appropriate intermediate outcomes are AUFLS information paper Page 6 of 8 Printed: 11-May-12

achieved 11, while enabling all participants to work with the system operator to develop plans to maintain compliance with the Code after 30 September 2012. 5 On-going stakeholder engagement As well as further general communication of the nature of this information paper, the system operator will be talking with individual AUFLS obligated parties to discuss the specifics of their situations. Such discussions will aim to facilitate parties implementing revised AUFLS arrangements in the near term which will also best future-proof them to meet potential evolving arrangements in the medium to longer-term. The Electricity Authority and system operator will also be looking at other existing systems such as the rolling outages to see if load prioritisation principles can be applied to or developed for AUFLS. More detailed guidance documents setting out expectations on how load should be allocated to the various uses will be developed and made available as part of the overall project 6 Timetable Improved Technical Specification Performance Capability Technology proof of concept AUFLS standard Maximum system disturbance Risks to be covered Block specification Economics of covering risk Technology Review process for standard AUFLS allocation framework Boundary determination Load allocation framework Exception framework Equivalence Dispensation Exemption Assessment criteria Application process Cost implication & allocation Transitional Arrangements Allocation Framework Review Facilitation of AUFLS framework Market development Load allocation improvements Economic costs Code Changes Interim Arrangements Review process One on one discussions with AUFLS obligated parties Consultation on proposals and documentation Guidance documents (priority & allocation of load) 11 i.e. there is not an inappropriate addition of currently exempt load into AUFLS such that system security is compromised through exacerbating over-frequency risk and/or causing unnecessary increases in IR and energy prices. Nor that participants expend time and money towards achieving compliance, only for revised arrangements to supersede such revised compliance approaches such that the time and money is wasted. AUFLS information paper Page 7 of 8 Printed: 11-May-12

7 Links to additional information If you would like further background information on these various under-frequency management and AUFLS initiatives, the following web links are likely to be useful: http://www.systemoperator.co.nz/ufm. This web page provides detailed information about the broader Under-Frequency Management (UFM) project http://www.systemoperator.co.nz/aufls. This web-page details the various elements of the System Operator s investigations into the performance of existing and potential new AUFLS arrangements. (Note: There is overlap between this page and the UFM project page). http://www.ea.govt.nz/our-work/programmes/pso-cq/under-frequency-management/aufls/. This web page provides more information about the issues associated with the AUFLS exemptions, and the Authority s proposed approach to addressing the issues identified. AUFLS information paper Page 8 of 8 Printed: 11-May-12