The wait is almost over for the implementation of the new Frequency Performance Payments.
In 2022, the Australian Energy Market Commission (AEMC) published a final determination and rule to change the way Primary Frequency Response (PFR) payments and regulation Frequency Control Ancillary Services (FCAS) payments are made. The rule change went into sandbox mode (non-financial industry trials) at the end of 2024 but will commence industry-wide on June 8, 2025.
As the National Electricity Market (NEM) evolves and quicker frequency response is required, maintaining grid security and keeping the power system frequency within the tight band around 50Hz becomes increasingly imperative. While electricity prices can be “controlled” by generators through bids into the dispatch mechanism, the ancillary services market has pass-through charges, which are levied onto end users to cover costs for inefficiencies in the system.
The new rule will introduce a double-sided frequency performance payment process, which will calculate, on a 5-minute basis, a generator’s ‘Contribution Factor’ to show the extent to which the unit has helped or is detrimental to the system frequency. As an end user, your previous calculation of FCAS, based on the ‘causer pays’ allocation, will also be replaced. The pass-through costs of FCAS will now also be calculated in 5-minute intervals, which will be based on the contribution factors. Those who have a helpful impact on frequency will receive payments, but those who are unhelpful will pay the penalty.
Those who react quickly to the market (batteries and hydro plants) will likely be the largest winners from this new mechanism. However, this will be funded by end users and renewable generators (solar and wind), who cannot react to the conditions. As such, this shake-up will likely have wide-reaching impacts upon financial inception.
