How will the Frequency Performance Payments reform impact BESS owners in Australia?

But how will this likely impact battery energy storage system (BESS) owners and generators? ESN Premium speaks with Sahand Karimi, co-founder and CEO of Australian AI-driven energy management company OptiGrid, who spent two years working for AEMO on the FPP framework.

The replacement of the ‘causer pays’ model

One of the significant changes brought in via the FPP framework is replacing the ‘causer pays’ model with a new, “more accurate” framework that uses a five-minute contribution factor.

Karimi believes this is one of two major changes introduced via the framework. Specifically, replacing the ‘causer pays’ model is the first major change, which “mostly impacts semi-scheduled assets like solar PV and wind farms.”

The other major change comes in the levying of costs and subsequent remuneration for frequency performance, Karimi says.

“There’s another bucket of money created due to the FPP reform, which is essentially taking money from the units with poor frequency performance and paying it to the units with good frequency performance.”

Karimi believes this will benefit BESS owners as “batteries have always had good frequency performance because they can respond to frequency relatively fast.”

He adds that the FPP intends to incentivise primary frequency response through this mechanism. A good portion of this will go to BESS, thus benefiting the industry through the framework change.

This is because a BESS asset must have a good frequency response to connect to Australia’s NEM. As such, without much change to existing operations, BESS owners will likely reap the benefits of the introduction of the FPP framework.

When quizzed on what asset owners could do to maximise the profitability of the BESS, Karimi responds that, beyond the necessary good frequency response required for the NEM, he “cannot think of anything that they [owners] should do beyond that.”

“We have primary frequency response requirements, so having a primary frequency response is mandatory. It’s not an option. And if they have it, they can benefit from this new bucket of revenue somehow,” Karimi says.

‘Business as usual’ for battery storage owners

With the introduction of the new framework and Karimi’s previous comments on what owners can do to maximise profits, the real message is that it should be “business as usual” for most. There is, however, some advice for owners of older BESS assets.

“If some batteries are relatively older, they might want to assess whether it’s worth upgrading their systems to provide better primary frequency response, which results in higher FPP,” Karimi says.

“Some of the older assets might want to do that, as, to the best of my knowledge, the new ones have good primary frequency response capability, and they will benefit from this new bucket of money that incentivises these fast-responding systems.”

The FPP framework is also likely to introduce additional benefits. Alongside additional revenue for energy storage, it is also expected to attract international investment in energy storage in the NEM, ensuring grid reliability is maintained in Australia as coal-fired power stations close and investor generation becomes increasingly prevalent.

“From a broader viewpoint, this is a welcome change in incentivising good frequency response. As we add more inverter-based generation like solar, wind, and batteries, the power system’s frequency can be affected. Higher deviations and mechanisms like this are definitely going to be helpful,” Karimi says.

However, the introduction of the FPP framework will have implications. Indeed, Karimi notes that the change to the ‘causer pays’ model will likely impact how large-scale solar PV power plants and wind sites fare in the market.

“The way that the cost is allocated among different solar and wind farms is changing, and that means they can no longer use some of the loopholes, some of the issues that were in the old ‘causer pays’,” Karimi adds.

As a result, Karimi suggests that a new trend may emerge in the market, whereby solar and wind farm owners will “seek more accurate forecasting to minimise their ‘causer pays’.”

“It will change some predictions around the revenue they [solar and wind plant owners] make from Frequency Control Ancillary Services (FCAS). Things like this show the importance of accurate modelling in accurately estimating the revenue streams and costs associated with the battery, wind, and solar,” Karimi adds.

Ensuring Frequency Performance Payments are fit-for-purpose

Another interesting aspect of the FPP framework is that AEMO has made it configurable. In this sense, levers have been included in the framework, which allows AEMO to respond to future market trends and changes to ensure it is still fit-for-purpose in the NEM.

“As we continue the energy transition, some of the requirements might change. For example, how fast should the frequency response be? That’s a technical thing. FPP can still have adjustments in the future, but the whole mechanism has been implemented and is financially operational,” Karimi says.

As previously reported by Energy-Storage.news last month, the sweet spot for system frequency in the NEM is around the 50Hz zone.

“The mechanism has levers to adjust, but the fundamental calculations will not change. AEMO can pull levers to make minor adjustments in response to how different assets perform due to this change,” Karimi adds.

Karimi will be speaking at Solar Media’s upcoming Battery Asset Management Summit Australia 2025, which will be held from 26-27 August in Sydney. You can get 20% off your ticket using the code ESN20 at checkout.