How new (and old) power system operating constraints map to Australia’s wholesale electricity market model

Abstract

The ongoing clean energy transition is accompanied by changes to the system security constraints that apply to electrical networks. Consequently, the nature of the impacts that participant actions have on the operations of the broader power system are changing — for example, transmission constraints in renewable-heavy regions bind with more frequency, and the system security benefits provided by synchronous technologies become more relevant when the share of thermal generation decreases. However, the wholesale market design determines the extent to which whole-of-system costs and benefits from a participant’s actions enter their private operating incentives. This paper describes how power system constraints map to the wholesale market design behind Australia’s National Electricity Market (NEM). We then highlight inefficiencies stemming from pricing rules that do not accurately capture the value of transmission congestion and losses, and from an inability to co-optimize energy and system services tied to the commitment status of generating units. We use a series of cases to demonstrate why aligning the NEM’s market design with the physical realities of the power system should be a priority, with inaction to prevent the ability to operate a low-carbon grid at least-cost.