SubmissiontotheNEMVPPDemonstrationsProgramConsultationPaperRobPassey1,2,3,AnnaBruce1,3andIainMacGill1,2

1CentreforEnergyandEnvironmentalMarkets,UNSWSydney2SchoolofElectricalEngineeringandTelecommunicationsEngineering,UNSWSydney3SchoolofPhotovoltaicandRenewableEnergyEngineering,UNSWSydneyCorrespondingauthor:RobPasseyr.passey@unsw.edu.auDecember2018

Page2of7

AboutCEEM

TheUNSWCentreforEnergyandEnvironmentalMarkets(CEEM)undertakesinterdisciplinaryresearchin the design, analysis and performancemonitoring of energy and environmentalmarkets and theirassociated policy frameworks. CEEM brings together UNSW researchers from the Faculty of

Engineering,theAustralianSchoolofBusiness,theFacultyofArtsandSocialSciences,theCRCforLowCarbonLiving,theFacultyofBuiltEnvironmentandtheFacultyofLaw,workingalongsideanumberofAustralianandInternationalpartners.

CEEM’sresearchfocusesonthechallengesandopportunitiesofcleanenergytransitionwithinmarketorientedelectricityindustries.Keyaspectsofthistransitionaretheintegrationoflarge-scalerenewabletechnologies and distributed energy technologies – generation, storage and ‘smart’ loads – into the

electricity industry. Facilitating this integration requires appropriate spot, ancillary and forwardwholesale electricity markets, entirely reenvisaged retail markets that suitably facilitate distributedresources, efficient network regulation that also supports beneficial innovation and incentivises

distributedresourcestoprovidecompetitivenetworkservices,andcoherentandcomprehensivewiderenergy and climate policies that can deliver the low carbon energy future required to address

dangerousglobalwarming.

DistributedEnergyResources(DERs)areavitally importantsetoftechnologies,withvitally importantstakeholders, for achieving low carbon energy transition and CEEM has been exploring the

opportunities and challenges they raise for the future electricity industry for over a decade. Moredetails of this work can be found at the Centre website. We welcome comments, suggestions andcorrections on this submission, and all our work in this area. Please feel free to contact Associate

ProfessorIainMacGill,JointDirectoroftheCentreati.macgill@unsw.edu.au.

www.ceem.unsw.edu.au

Page3of7

Introduction

We commend the Australian Energy Market Operator and its partners for this proposed VPPdemonstration frameworkand,moregenerally,AEMO’sbroaderworkprogramonbetter integratingDistributed Energy Resources (DERs) into the electricity industry, and appreciate the opportunity torespondtothisconsultationpaper.

CEEMaims to contribute to this consultationasaUniversityResearchCentrewitha teamofaroundtwentyresearchers–academicstaffandresearchstudents–allworkingonaspectsofAustralia’scleanenergytransitionchallengesandopportunities.OneoftheCentre’sthreeresearchstreamsisfocussedonDERs,andoursubmissiondrawsuponarangeofthiswork.Ourstartingpointistheurgentneedforrapid decarbonisation of the electricity sector. DER integration needs to be assessed, andmanaged,with this objective in mind. Optimal integration of DER in this context has less to do with cost-minimisation and, instead, should focus on robust frameworks that can rapidly drive down industryemissions throughdeploymentof clean supply anddemand technologies and associatedbehaviours.However,transitionalsorequiresahighlevelofsocialconsensus,andthiswillhingeontheaffordabilityand security of electricity provision as well as the perceived fairness, for both consumers with andwithoutDER,ofthesearrangements.Inthisregard,whiletherearearangeofpotentialopportunitiesforDERstocreatevalue,includinguncoordinatedbehindcustomermeters,asnetwork-controlledload,in peer-to-peer trading, embedded networks or microgrids, we envisage VPPs playing a potentiallyvaluable role in facilitating appropriate DER integration and maximising its broader industry value,especially intheshorttomediumterm. Inthe longerterm,thecapabilitiesofDERsseemlikelytogowaybeyondtheabilitytoemulateconventionalthermalplantandparticipateinmarketarrangementsexplicitlydesigned forsuchplant.GiventhediversityofDER integrationapproaches,weseesense innarrowingthisdemonstrationprogramtoVPPs,butnote that the functioningandregulationofVPPsshouldbe consideredwithin the context of thebroaderDER integration task, in particular to ensureefficient investment and equitable approaches to grid access.We appreciate that these longer-termperspectivesarebeingaddressedintheOpenEnergyNetworksandbroaderDEIPprocesses,althoughwehaveconcernswiththeapproachtakentheretodate.

WenotethattheNEMVPPDemonstrationsProgramConsultationPapertakesadifferentapproachtotheOpenEnergyNetworksprocess.WhereasthelatterassumestheneedtocentrallycoordinateDERthrough one of three market frameworks, this VPP Consultation Paper focuses on helping VPPproponents demonstratebasic control and coordination capability, providingAEMOwithoperationalvisibility,andassessingtheneedforneworamendedregulatoryarrangements–whichwebelieveisanappropriate and considered course of action given the current uncertainty about the cost-benefit ofservicesofferedbyDERsandcustomerpreparednesstoparticipateinpotentialmarkets.

Weareconcerned,however,withtheapparentexclusivefocusoftheConsultationPaperonVPPsthatbidintospot/FCASmarkets,withlittleconsiderationofVPPsthatprovidenetworksupport.AlthoughitisunderstandablethatAEMOwould focusonthe former, theConsultationPaper itselfstates“AEMOhasestablishedaDERProgram toeffectively integrateDER intoAustralia’spower systemoperationsandenergymarket frameworks”,and“Thedemonstrationsprogramaims tomapapathwaytowardsfull integration of DER”. These outcomes cannot be achieved without consideration of VPPs thatprovide network support. All the VPP examples in Section 1.4 of the Consultation Paper have anemphasis on providing network support. Although bidding into spot/FCAS markets by these VPPscannot be ruled out, this does indicate the current market preference for network-focussedfunctionality.Aswediscussbelow,thereareotherreasonsfortheDemonstrationsProgramtoincludethesetypesofVPPs.

Page4of7

Excluding them may provide a distorted view of what is actually likely to occur and so couldoverestimate the impacts of spot/FCAS VPPs, which in turn could result in the implementation ofunnecessarypolicymechanismsandregulation.

AnotherconcernisthatthisVPPframeworkshouldreallybebetterintegratedwithdemandresponseinitiatives already underway. The potential future challenges of visibility and even power systemstabilitywithVPPswouldalreadyseemtobeapparentwithexistingunscheduledbutprice-responsivedemand.ThisdemandalsoliesoutsidepresentAEMOdispatcharrangementsbutcandrivesignificantand very rapid step changes in demand to be met by scheduled generation, posing challenges forforecasting and frequency control services. The VPP program could potentially be extended to testarrangementsforDRspotmarketparticipation.

Significantsynergies

AsexplainedinourresponsetoQuestion2.1,theConsultationPaperVPPObjectivesapplyequallywelltobothspot/FCASVPPsandnetworkVPPs.Thisisespeciallyrelevantwherevaluestackingismaximisedthrough designing VPPs that can participate in both spot/FCAS and network markets. UndertakingDemonstrationsthatfocusonlyonspot/FCASVPPswouldthereforeappeartobeawastedopportunity.

Network VPPs and non-participating DERs could have amore significant impact on AEMO’soperations

VPPs engaged in spot/FCASmarkets will be responding to price signals and so will tend to be self-regulating–ahighpricetriggersaresponse,whichlowerstheprice,whichreducestheresponse.VPPsproviding network support will be responding to local network constraint signals, which may notcorrelatewithspot/FCASpricesignals,andsocouldbemoreproblematicforAEMOthanVPPsengagedinspot/FCASmarkets.1

Notwithstanding the above point that network VPPs could have a more significant impact thanspot/FCAS VPPs, it is possible that neither could have a particularly significant impact even beyond2030.AEMO’sESOO2018projectionofhouseholdbatteryuptakeis2.6GWby2038.Thisprojectionisbasedonanassumedsizeof5kW,whichwouldmean520,000householdswithbatteries,ofwhich28%are estimated to be aggregated into some sort of VPP (making 145,600 VPP households). An ABSprojectionhas about 11millionhouseholds in theNEM statesby 2036,2whichmeansonly 1.32%ofhouseholdswillbepartofaVPP.Thesewillbesplitbetweenspot/FCASandnetworkVPPs.Althoughwebelievetheseprojectionstobeconservative,evenifbatteryuptakeistripletheAEMOprojection,onlyaround4%ofhouseholdswouldhaveVPPs(splitintospot/FCASandnetworkVPPs).LargenumbersofuncoordinatedDERsmay create challengeswhere they respond in aggregate to system level events,whichmaybepotentiallymoresignificantthantheimpactsofVPPs.

Thus,whiletheConsultationPaperdescribesAustraliaashavinga“highlyengagedcustomerbase…totest commercial models for VPPs”, a particularly relevant question is whether any work been

1 Note that, as detailed in our submission to the Open Energy Networks consultation process, we do not believe thatcentralised coordination of DER will definitely be necessary tomaintain network integrity. In summary, this is because (i)centrally coordinated dispatch of DER would have very intensive data and communication requirements, and acomputationallywouldbeverydifficult tooptimise, (ii) asabove, it isnot clear that therewill be sufficientlyhigh levelsofuptakeofVPPstocausenetworkproblems,and(iii)significantprogressisbeingmadeinthecreationofoperationalenvelopesdesignedtomaintainnetworkintegrity(whichhasnowbeenrecognisedinthelatestOENConsultationResponse).2http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/3236.0Main%20Features82011%20to%202036?opendocument&tabname=Summary&prodno=3236.0&issue=2011%20to%202036&num=&view=

Page5of7

undertaken to assess the likely uptake of VPPs for either spot/FCAS or network markets, and theirsubsequentimpact?

Responsestoquestions

1.1 The primary focus of these trials is to demonstrate VPP aggregating battery storagesystems. Do intending participants envisage incorporating demand response resources intoyouraggregatedportfolios,andshouldthisbeincorporatedintotheVPPDemonstrations?

Althoughwearenot,anddonotexpecttobecome,aVPPprovider,wecertainlysupporttheinclusionofdemandresponseintoVPPdemonstrations.EnelXcurrentlyprovidesaggregateddemandresponsefrom 30 or so customers for FCAS markets. Note that demand response has for some time beenprovidingnetworksupportandwillcontinuetodoso.Moregenerally,VPPsbasedonPVandbatterystoragereallyshouldbelookingatopportunitiesto includedemandresponse.As justoneexample,aripplecontrolledhotwatersystemeffectivelyrepresentsaroughlyequivalentenergystoragetoaTeslaPowerwall,albeitonlyuni-directional.

2.1 Are the VPP Demonstrations objectives logical and achievable? Should any otherobjectivesbeconsideredfortheseVPPDemonstrations?

TheVPPDemonstrationsobjectivesarelogicaland,webelieve,achievable.Again,asdiscussedabove,thereislikelytobeasignificantnumberofVPPsprovidingnetworksupport,oftenwithoutparticipatinginFCAS/spotmarkets.

Thefirstobjective(demonstratingbasiccontrolandcoordinationcapability)isalsoapplicabletoVPPsthatprovidenetworksupport.Assuch,theDemonstrationsshouldbedesignedinsuchawaythattheycanalsohelpcreatenetworksupportcapabilities.Nottodosowouldbeawastedopportunity.ThiswillbeespeciallyvaluablewherevaluestackingismaximisedthroughdesigningVPPsthatcanparticipateinbothFCAS/spotandnetworkmarkets.

The second objective (demonstrating operational visibility) is also relevant to VPPs that providenetwork support, which may in fact have more impact on AEMO’s systems than VPPs involved inspot/FCAS,especiallyiftheyaremorenumerous(although,asabove,bothmaybelessthanapparentlyexpected).This is complicatedby thedegree towhich theoperationof spot/FCASVPPsandnetworkVPPs are correlated (i.e. the correlation of high prices and high demand), or not (i.e. local networkconstraintsmaynotcorrelatewithsystem-widepricepeaksorFCASrequirements).

And of course the third objective (developing new or amended regulatory arrangements) is alsorelevanttoVPPsthatprovidenetworksupport,notintermsoftheregulatoryarrangementsrelevanttospot/FCASmarkets,but in termsof thirdpartyoperationofbehind themeterDERs.Thus,again, theDemonstrations should be designed in such a way that they can also contribute to a betterunderstanding of new or amended regulatory arrangements for network VPPs – again especiallyrelevanttovaluestacking.

Also,theConsultationPaperstatesthatthedemonstrationswon’t“testnewparticipantcategoriesormultiplerelationshipsatasingleconnectionpoint“.Ingeneral,wesupporttheuseofdemonstrationstoprovideasafespaceforregulatoryexperimentation.Inthiscase,thedemonstrationprogramcouldpotentiallybe incrementally expandedbeyondVPPparticipationaccording to thedraft specificationsfor DER provision of regulation FCAS, to allow VPP operators that are not retailers to participate inenergymarkets,andtotestDRparticipationinenergymarkets.

Page6of7

2.2 How can the VPP Demonstrations projects better capture consumer insights andimprovecustomerexperienceandoutcomes?

Asdiscussedabove, thereappears tobe littleunderstandingof the likely levelofuptakeofVPPs foreitherspot/FCASornetworkmarkets,andtheirsubsequentimpact.AvaluablecontributionwouldbetoextendtheAEMOanalysisonbatteryuptaketoincludeconsumerinterest inparticipatingineithertypeofVPP.

Moregenerally,AEMOshouldseektoestablisharrangementsthatallowawiderangeofstakeholderstoaccesssuitablyanonymiseddatafromthesedemonstrationprojects,particularlygiventheproposedpublic fundingsupport.OurUniversityresearchgroup is justonesuchstakeholderthatwouldgreatlybenefit fromgreaterdatatransparency.There isaparticularopportunityheretoprovidedatathat iscurrently only available to registered market participants in order to maximise learnings throughengagement of a wider group of stakeholders, and to increase transparency around subsequentdecision-making.ReleasingdatawouldallowpotentialVPPaggregatorstolearnfromthetrial,eveniftheywerenotselectedtoparticipate.Further,accesstodatawouldfacilitatedeeperengagementfroma range of stakeholders in any consultations around proposed changes to market rules or networkregulation, includingassessmentofpotential impactsonconsumersandcommunities.The legitimateconcernsofthemarketoperatorandnetworksmustbebalancedwiththoseofconsumers,andgiventhat the only member of the (steering committee) representing consumers is the ECA, withcomparatively limited resources, and the potential disincentive from AEMO or ENA to share certainfindings,engagementfrombroaderstakeholdersincludingresearchgroupswillbecritical.

2.3 Is AEMO’s high-level approach to the VPP Demonstrations appropriate?What otherarrangementscouldbetestedundertheVPPDemonstrationsframework?

As discussed above, the Demonstrations should include VPPs designed to provide network support.Moregenerally,greaterthoughtmightbegiventothecostsandrisksforparticipationbyVPPownersandoperatorsinarrangementsthatmightonlyhaveaverylimitedduration.

4.1 AEMOwould like the aggregated VPP dataset to be refreshed every fiveminutes toalignwithitsoperationalforecastingfunction.AreVPPoperatorsabletoprovidethisdataona5-minuterefreshbasis?

Wearenot, anddonotexpect tobecome,aVPPoperator.However,wedoworkwithanumberofinnovativeDERserviceproviderswhousetheirownmeteringequipment,andwhocollectDERdataatmuchmorefrequentintervalsthanfiveminutes.

4.2 Shouldthevaluesbereportedasanaveragevalueacrossthe5-minute intervaloraninstantaneousvalueattheendofthe5-minuteinterval,orboth?

WewouldsuggestmorefrequentdatacollectionthanfiveminutestomaximisethevalueoftheseVPPdemonstrationsforunderstandingandmodellingVPPparticipationinFCASmarkets.

4.3 WhatistheappropriatefrequencyforVPPoperatorstosubmitthedeviceleveldatasettoAEMO? Is thereamaterialdifference inresourcesrequiredtouploadthedataonadaily,weekly,ormonthlybasis?

Noresponse.

Page7of7

4.4 Arethereanyregulatoryorotherobstaclestoparticipantsfacilitatingthedatasharingarrangementscontemplatedinthissection?

Noresponse.