System strength services ensure that the system remains resilient in the face of contingencies such as transmission line failures. System strength is provided by, among other technologies, rotating mass from sources such as electric motors, conventional thermal generators and synchronised condensors. When operating they have inertia which limits the rate of change of frequency when there is sudden change in the system.
When regions of the NEM become unbalanced — for example, the case when SA becomes islanded and there is insufficient system strength in the absence of local synchronised generators — and there is also surplus energy from renewable generation, spot energy prices (including 90th percentile prices over the previous year) are likely to below the cost of fossil, particularly gas, fired energy generation. These generators, important contributors to system strength, will prefer not to run absent a direction to do so. Accordingly, system strength will be insufficient absent a direction.
The value of system strength services when this happens is large, but under the current market rules, generators directed to supply system strength may get little or no compensation. This could bias new investment decisions away from generating technologies that provide system strength services.
The following report details how compensation for directed system strength services is determined under the National Electricity Rules.