The Australian Energy Market Operator (AEMO) has introduced a significant reform in the National Electricity Market (NEM) aimed at enhancing frequency management. This new rule, known as the Frequency Performance Payments (FPP) reform, officially commenced on June 8, 2025. AEMO regards this initiative as a crucial advancement for the NEM, as it establishes a double-sided incentive mechanism. This mechanism rewards or penalizes market participants in real-time based on their contributions to system frequency, specifically targeting the optimal range around 50Hz.
Under this reform, participants who positively influence frequency will receive financial incentives funded by those whose actions have a negative impact. This creates a zero-sum system that encourages generators and battery energy storage system (BESS) owners to actively provide frequency response, thereby improving stability and reliability across the grid.
The FPP reform replaces the existing ’causer pays’ model with a more precise framework that incorporates a five-minute contribution factor. This updated approach aims to ensure fairer and more transparent cost allocation for regulating Frequency Control Ancillary Services (FCAS). AEMO believes that by offering clearer pricing signals, the reform will enhance operational decision-making for all market participants.
Michael Gatt, AEMO’s Executive General Manager of Operations, highlighted that this reform prepares the NEM for future challenges by incentivizing beneficial frequency performance and facilitating the integration of new technologies vital for maintaining grid stability. He stated, “By recognizing and valuing the role of emerging technologies such as batteries and responsive loads, the FPP enhances investment signals and supports innovation across the sector. It ensures that those who contribute positively to system frequency are fairly compensated, while costs are recovered from those with an unhelpful contribution—aligning market behaviors with system needs.”
This reform is part of AEMO’s ongoing efforts to modernize the NEM and ensure its continued relevance as Australia transitions to a greater reliance on renewable energy generation and energy storage solutions. Earlier this year, concerns were raised regarding the outdated design of the NEM, with the Clean Energy Investor Group (CEIG) advocating for improvements to stimulate investment. According to CEIG’s Future Market Design Paper, Australia must establish suitable market conditions to attract the AU$122 billion (approximately US$75.9 billion) needed for its renewable energy transition. The report warns that even a modest investment shortfall of 6-9% could lead to a renewable energy capacity deficit of 12-18GW by 2040 and 15-23GW by 2050.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/aemo-introduces-frequency-performance-payments-reform-to-enhance-stability-in-australias-national-electricity-market/
