30/09/2022

Key points

  • The 'Black System Event’ in South Australia was an unprecedented state-wide blackout that occurred on 28 September 2016 and resulted in widespread blackouts across the state for a period of 8 hours, a period of market suspension for a further 13 days and, not without controversy (particularly to developers and owners of critical renewable energy assets), an enormous volume of regulatory reviews, rule changes and enforcement action, ostensibly designed largely to ensure that such an event never occurs again.
  • As part of its regulatory response, in August 2019, the Australian Energy Regulator (AER) commenced proceedings in the Federal Court against four wind farm operators for alleged breaches of the National Electricity Rules (NER) during the blackout.
  • The court proceedings were finalised without contested hearings, with the last proceeding finalised on 28 June 2022, as all four wind farm operators admitted to various contraventions of the NER and agreed to declarations and the imposition of pecuniary penalties ranging from $550,000 to $3.5 million.  The operators of the four wind farms also each provided the AER with enforceable undertakings relating to the maintenance of their wind farms’ generator performance standards.
  • Notably, the AER did not ultimately pursue its initial allegations that the wind farm operators’ contravening conduct was a contributing cause of the Black System Event and blackout throughout the SA region of the NEM, meaning that the Court made no findings as to causation in respect of the Black System Event.
  • 6 years on from the Black System Event, with the last of the regulatory enforcement action taken by the AER now concluded, it is possible to look back at the history of the event and have a holistic view of the subsequent response.
  • The Black System Event is a reminder of the highly complex and interconnected nature of the system that delivers us the electricity we use every day and the critical importance of all parties who operate in that system working together to keep the lights on.  In particular, the Black System Event is a reminder to generators and regulators to remain engaged on the system protection aspects of connection and new projects.
  • The response to the Black System Event stands as an example of how quickly and extensively the rules of the electricity system can change in response to new events and the importance of all market participants maintaining robust systems for staying up to date on these changes, complying with the NER, and providing accurate and timely information to regulators when required.  This is particularly pertinent in an environment where the AER and the Courts have shown a willingness to enforce contraventions of even the most technical of rules.

Background

On 28 September 2016, South Australia (SA) experienced a state-wide blackout that left 850,000 homes and businesses without power.  The blackout, known as the Black System Event, resulted from unprecedented circumstances that affected the entire state-wide network and left the wholesale market in SA suspended for 13 days.  This was the most significant market event since the establishment of the National Electricity Market (NEM) in 1998.

With industry leaders and policy makers often using the phrase “keeping the lights on”, it comes as no surprise that the blackout left the nation wondering what went wrong.  In the six years following the event, the AER, Australian Energy Market Commission (AEMC), Australian Energy Market Operator (AEMO), and other industry participants have worked together to reduce the likelihood of a similar event occurring in the future and improve the power system framework.  Additionally, in August 2019, the AER commenced legal proceedings in the Federal Court of Australia against four wind farm operators for alleged breaches of the NER during the blackout. 

The first judgment, Australian Energy Regulator v Snowtown Wind Farm Stage 2 Pty Ltd (Snowtown 2), was delivered on 22 December 2020.  The second and third judgments, Australian Energy Regulator v HWF 1 Pty Ltd (HWF 1) and Australian Energy Regulator v Pacific Hydro Clements Gap Pty Ltd (Pacific Hydro), were delivered on 1 July 2021.  The fourth and final judgment, Australian Energy Regulator v AGL HP 1 Pty Ltd (AGL), was recently delivered on 28 June 2022.  It is therefore timely to examine the Court’s decisions and provide an overview of the changes to the energy industry since the Black System Event.

The Black System Event

On 28 September 2016, a “once in a 50 year” weather event damaged transmission and distribution assets in SA, triggering a chain of events that led to the state-wide blackout.  Multiple power system faults occurred in quick succession due to the storm activity and damage to transmission lines, which created significant voltage disturbances.  In response to these voltage disturbances, the active control systems of a number of wind farms operating at the time caused these wind farms to disconnect from the generation system.  This resulted in a sustained reduction of 456 MW of wind generation, a substantial loss given that nearly half of SA’s electricity supply was from wind farms.  The relevant active control settings are a normal and important part of a generator’s operating systems and are designed to protect the plant from catastrophic failure which can arise from operating in abnormal conditions.

The shutting down of wind generation resulted in a rapid increase of power flow from Victoria into SA over the Heywood Interconnector.  This caused a large shock to the power system which activated the automatic loss of synchronism protection system on the interconnector, causing it to be shut down.  The loss of the Heywood Interconnector separated SA from the rest of the NEM and substantially reduced the available supply to meet demand.  The power system frequency in SA fell rapidly due to the imbalance in electricity supply and demand and low inertia, causing the remaining electricity generators in SA to shut down and the State’s grid to dark from 16:18 to 19:00 AEST.

All of these events took place within a two-minute window.

After the blackout, AEMO and ElectraNet, the Network Service Provider of the transmission network within SA, attempted to implement a system restoration strategy that was unsuccessful due to technical issues.  AEMO then proceeded with the planned restart of the system using the Heywood Interconnector.  Most power supplies were restored in eight hours, however AEMO suspended operation of the spot market in SA immediately after the collapse of the power system.

The following day, on 29 September 2016, a Ministerial direction made under the Essential Services Act 1981 (SA) directed AEMO to keep the market suspended.  The direction was extended on 6 October and ultimately lifted on 11 October, meaning the wholesale market in SA was suspended for 13 days.

In the immediate aftermath, governments and industry participants set out to identify the root cause of the blackout and what needs to be done to strengthen the NEM to prevent such a blackout from happening again.  What followed was a series of, in some instances controversial, reviews, investigations and reports into the Black System Event, as well as rule changes to the energy market and, surprisingly, court proceedings against four wind farm operators.

How regulators and the industry responded to the Black System Event

Key reports

The Black System Event raised a number of questions around the management of the power system and the performance of generation in SA.  To this end, the AER, AEMC, AEMO and other industry participants conducted reviews and investigations into the Black System Event and made detailed recommendations for future action. 

1. AEMO’s Final Report, Black System South Australia 28 September 2016

The AEMO Final Report about the events before, during and after the Black System Event was published in March 2017.  The report highlighted a number of challenges relevant to improving power system security and customer supply reliability, particularly in light of the changing NEM generation mix.  It also made a number of conclusions from its investigation, including:

  • access to correct technical information about grid-connected equipment is critical for system security;
  • wind turbines successfully rode through a number of grid disturbances, however it was the action of a control setting responding to multiple disturbances that led to the blackout; and
  • had the generation deficit caused by the disconnection of the wind turbines not occurred, AEMO’s modelling indicates SA would have remained connected to Victoria and the Black System Event would have been avoided.

AEMO made 19 recommendations requiring AEMO action or input in relation to the pre-event, event, system restoration and market suspension periods of the Black System Event.  The main publications AEMO has since released in relation to these recommendations include:

2. AER’s The Black System Event Compliance Report: Investigations into the Pre-Event, System Restoration, and Market Suspension Surrounding the 2018 September 2016 Event

In December 2018, the AER published a report which reviewed compliance by various NEM participants against the NER.  The AER’s review of the events immediately preceding the Black System Event was subject to a separate investigation, with the related issues coming before the Federal Court in the four proceedings examined below.

The AER found that AEMO did not breach any of its core obligations around managing power system security or operating the market.  However, the AER did find that AEMO contravened five clauses of the NER concerning actions during the pre-event and market suspension periods:

  • clause 4.2.3A(b) (monitoring of abnormal conditions);
  • clause 4.2.3A(c) (notifying Market Participants);
  • clause 4.2.3B (reviewing reclassification criteria);
  • clause 4.8.5A (publishing notices where AEMO may need to intervene); and
  • clause 4.8.9(b) (developing procedures for the issuance of directions).

The AER identified 13 recommendations and remedial actions in respect of each of these to improve processes and the overall NER framework in key areas.  Actions proposed by the AER included:

  • standardising notifications for market participants during abnormal weather conditions;
  • improving AEMO operator training;
  • clarifying roles and responsibilities of the market operator and network service providers regarding system restoration; and
  • addressing areas in which the AER and AEMO have differing viewpoints about the NER.

In February 2020, the AER published an update on the implementation of recommendations identified in its compliance report, with all but one of the recommendations and remedial actions having been implemented by that time.

3. The AEMC’s Final Report, Mechanisms to Enhance Resilience in the Power System: Review of the South Australian Black System Event

On 12 December 2019, the AEMC published its Final Report for its review into the Black System Event.  The report presented recommendations from the AEMC’s review, which was commissioned by the COAG Energy Council.  The Council required the AEMC to identify and report on any systemic issues that contributed to the Black System Event or affected the response.

In particular, the review identified the following set of systemic issues:

  • a changing and more uncertain power system risk profile arising from a transitioning generation mix;
  • reduced power system resilience to non-credible events accompanied by a less certain power system response to disturbance conditions; and
  • a lack of overarching processes for identifying and managing emerging 'indistinct' risks to power system security. 

To this end, the review presented a series of recommendations for changes to NER frameworks for power system security in three areas:

  • implementation of a general power system risk review;
  • implementing protected operation as a means of enhancing power system resilience to indistinct events associated with abnormal conditions; and
  • clarifying the applicability of the NER during market suspension.

The AEMC and the Reliability Panel have also conducted various reviews of power system issues, including:

Rule changes since the Black System Event

Since 28 September 2017 and the publication of these reports, there have been a number of reforms to enhance the resilience of the power system and reduce the risk of another Black System Event happening again.  AEMO updated and revised operational actions, and AEMC made a number of rule changes to deliver improved strength, inertia and emergency frequency control following rule change requests from the AER, AEMO and COAG Energy Council.  The rule changes include:

Court proceedings

Following the AER’s investigation into the circumstances of the Black System Event, in August 2019 the regulator commenced proceedings in the Federal Court against four wind farm operators over alleged non-compliance with the NER during the Black System Event:

  • Snowtown 2 – Tilt Renewables Limited in relation to the Snowtown 2 Wind Farm, comprising the Snowtown Wind Farm Stage 2 North and Snowtown South Wind Farm;
  • HWF 1 – Neoen SA in relation to the Hornsdale Wind Farm;
  • Pacific Hydro – Pacific Hydro Pty Ltd in relation to the Clements Gap Wind Farm; and
  • AGL – AGL Energy Limited in relation to the Hallett 1, Hallett 2, Hallett 4 and Hallett 5 Wind Farms.

The AER sought declarations, penalties, compliance program orders and costs against the wind farm operators.  In substance, among other things, the AER alleged that during relevant periods the wind farm operators operated the generating units of the wind farms and allowed those generating units to supply electricity when the settings for the repeat low voltage ride-through protection system applied to them had not been approved in writing by the network service provider or AEMO in contravention of the NER.

Each proceeding was finalised without a contested hearing as all four wind farm operators admitted to various contraventions of the NER and agreed to declarations of contravention of the NER and the imposition of pecuniary penalties.  The pecuniary penalties imposed ranged from $550,000 to $3.5 million.  In addition to the imposition of pecuniary penalties, the Court also ordered that each wind farm operator implement a compliance program in relation to their compliance with generator performance standards.  The operators of the four wind farms also each provided the AER with enforceable undertakings relating to the maintenance of their wind farms’ generator performance standards. 

Notably, the AER did not ultimately pursue its initial allegations that certain of the wind farm operators’ conduct was a contributing cause of the Black System Event and blackout throughout the SA region of the NEM.  Accordingly, the Court made no findings as to causation in respect of the Black System Event.

The controversy

The AER’s decision to pursue court action was controversial.  The then AER Chair, Paula Conboy, said that the AER “brought these proceedings to send a strong signal to all energy businesses about the importance of compliance with performance standards to promote system security and reliability”.  However, there was a sense of shock and disappointment in the industry following the AER’s decision to instigate proceedings, which reignited the political debate around the performance of wind farms and raised questions as to why the regulator did not sue fossil fuel generators that were meant to provide “black start” capabilities that failed to work as required. 

The then EnergyAustralia CEO, Catherine Tanna, criticised the AER’s action, describing it as disappointing and a “blame game”.  Clean Energy Council Chief Executive, Kane Thornton, also described the action as disappointing and said it will reignite misleading claims that wind farms were responsible for the Black System Event.  A common industry perspective was that renewable generators were being scape-goated and disproportionately held responsible for aspects of the Black System Event.  Indeed, at the time the AER commenced its court action there were fears that any findings could lead to a class action against the wind farm operators by claimants seeking compensation for any damage incurred in connection with the blackout.  No such class action eventuated (and any class action against the operators may now likely be time barred as it is 6 years from the Black System Event).

The AER’s own investigation into the conduct of AEMO the Black System Event concluded that “[w]hile we have found some areas of non-compliance with administrative requirements in the [NER], we do not intend to take enforcement action in respect of these matters, as we consider that it would be more effective to focus on remedial recommendations for improved processes”.  The compliance report also noted that the AER would not commence proceedings given “the circumstances under which the non-compliances occurred, and the actions that have been taken by AEMO and others since September 2016 to address some of the issues identified”.  The same approach to enforcement was not adopted in relation to operators of the wind farms.

It has been reported that the AER’s decision to commence proceedings followed further investigation of issues relating to the actual event, which were not included in its compliance report.  Additionally, the AER’s decision not to take enforcement action was made in respect of instances of non-compliance by AEMO, and not generators.  Regardless of these facts, the AER’s decision to commence proceedings against the wind farm operators generated strong objection from the industry.

The allegations

1. Breach of Clauses 4.4.3 and S5.2.2 of the NER

The AER’s allegations were highly technical in nature and related to the performance of the wind farms during the Black System Event.  The AER alleged that the wind farm operators contravened Clauses 4.4.3 and S5.2.2 of the NER during the relevant periods by operating the generating units of the wind farms and allowing those generating units to supply electricity to the power system when the settings for the repeat low voltage ride-through (LVRT) protection system that applied to them had not been approved in writing by ElectraNet or AEMO.

Clause 4.4.3 of the NER imposes an obligation on generators of electricity to have protective systems in place to deal with episodes of abnormal voltage in the power system.  Their purpose is to ensure that the generating units remain in continuous operation during specified disturbances and thereby assist AEMO in maintaining power system security.  Clause 4.4.3 provides that:

Generators must, in accordance with Schedule 5.2 and Chapter 5, provide any necessary automatically initiated protective device or systems to protect their plant and associated facilities against abnormal voltage and extreme frequency excursions of the power system.

Schedule 5.2 of the NER contains the requirements and conditions to which Clause 4.4.3 refers.  These requirements include that the equipment associated with each generating system must be designed to withstand, without damage, the range of operating conditions which may arise consistent with the system standards (Clause S5.2.1(d)).

Clause S5.2.2 commences with the following condition concerning the application of settings in protection systems:

A generator must only apply settings to a control system or a protection system that are necessary to comply with performance requirements of this Schedule 5.2 if the settings have been approved in writing by the relevant Network Service Provider and, if the requirement is one that would involve AEMO under Clause 5.3.4A(c) of the Rules, also by AEMO.  A generator must not allow its generating unit to supply electricity to the power system without such prior approval.

The technical requirements in the Schedules to Chapter 5 that concern the ability of generating units to “ride through” sudden episodes of reduced voltage in the transmission network, each of which is designated an AEMO advisory matter, includes the following:

  • generating system response to voltage disturbances (Clause S5.2.5.4);
  • generating system response to disturbances following contingency events (Clause S5.2.5.5); and
  • protection of generating systems from power system disturbances (Clause S5.2.5.8).

The effect of Clause 4.4.3 is that the wind farm operators must provide a protective device or system of the specified kind and must do so in accordance with Schedule 5.2 and Chapter 5.

2. Initial allegations not pursued by the AER

Certain allegations made by the AER were dropped during the course of proceedings, including allegations that:

  • the activation of the repeat LVRT protection system which caused the generating units at the wind farms to cease generating active power was a contributing cause of the Black System Event and blackout throughout the SA region of the NEM; and
  • by ceasing to supply active power as a result of the activation of the repeat LVRT protection system, the generating units at the wind farms did not meet or exceed, and were not operated to comply with, the NER or the relevant performance standards.

Importantly, this means that the Court made no findings that the admitted failures to comply with the relevant technical rules contributed to the Black System Event itself.

The agreed facts

The parties in AGL, Pacific Hydro, HWF 1 and Snowtown 2 ultimately agreed to statements of facts.  Key elements of these agreed facts are summarised here.

Each of the wind farms are, and were during the relevant periods, a generating system comprising a number of wind turbine generating units.  The ability of wind farm turbines to “ride through” periods of voltage fluctuations (within particular depths and of particular durations) is an important requirement for their connection to the power system in the NEM.  That feature reduces the ability of voltage disturbances arising from faults and other occurrences to cause cascading failures in the system and is therefore important to the ability of AEMO to maintain “power system security” and, in particular, to avoid blackouts.  For this reason, during the relevant periods, each wind turbine at the wind farms had LVRT capability.  The LVRT capability was a control system that was activated when the voltage at the generating unit terminals dipped below a certain percentage of the nominal voltage level.  The purpose of the LVRT capacity was to enable a wind turbine to ride through transient voltage dips of specified depths for specified durations.

The wind turbines at each of the wind farms also included a number of protection systems, including a repeat LVRT protection system.  This system was set so as to be triggered if the LVRT capability was activated a certain number of times within a certain period of time.  The purpose of the repeat LVRT protection system was to avoid the potential for damage to, and failure of, the wind farms’ generating units and plant caused by multiple voltage disturbances in a short period of time on the external network.  Unexpected failure of the generating units could, in turn, potentially jeopardise power system security. 

In the event that the repeat LVRT protection system was triggered, it caused the rotational speed of the wind turbine to slow and the wind turbine to cease generating active power.  In this way, during the relevant periods, the repeat LVRT protection system prevented the generating unit’s LVRT capability from operating in certain circumstances.  As at 28 September 2016 (the date of the Black System Event), the repeat LVRT protection systems on the generating units had not been approved by ElectraNet or AEMO. 

The technical nature of the agreed contraventions

By operating the wind turbines with the repeat LVTR protection system in circumstances where the system settings had not been approved for use by ElectraNet or AEMO, and supplying the electricity generated to the national grid, the wind farm operators contravened Clauses 4.4.3 and S5.2.2 of the NER.  The Court noted that these contraventions did not arise from deliberate or reckless conduct, but rather inadvertent failures to identify that the common generating units used across the wind farms had the repeat LVRT protection system.

Notably, none of the respondents were aware of the repeat LVRT protection system or of its settings that had been applied to the wind turbines at the wind farms.  The relevant settings were applied by international wind turbine suppliers Suzlon and Siemens Ltd (Siemens), who designed, supplied and installed each of the wind farms in question.  Indeed, it was not until after 28 September 2016 that the wind farm operators became aware that the repeat LVRT protection systems on the generating units designed and applied by Suzlon and Siemens had not been approved by ElectraNet or AEMO. 

Despite this, and despite the fact that the wind farm operators did not derive any financial benefit by reason of their contraventions, the Court ultimately found that the contraventions were serious, because they compromised AEMO’s ability to maintain the power system in a secure operating state.  The failure to obtain written approval for the repeat LVRT protection system settings that applied to the wind farms’ turbine generating units meant that the respondents caused AEMO to operate with incomplete information.  In AGL, Besanko J said this compromised AEMO’s ability to determine the secure operating limits of the power system and ensure its resilience during abnormal conditions.  As the events of 28 September 2016 indicate, a compromise of the security power system can have extensive and serious consequences.

Interestingly, because the AER ultimately dropped its allegations that the wind farm operators’ contravening conduct was a contributing cause of the blackouts, the Court made no findings as to causation in relation to the Black System Event.  

Outcome of court proceedings

The parties in AGL, Pacific Hydro, HWF 1 and Snowtown 2 ultimately each agreed the terms of a declaration of contravention of the NER and pecuniary penalties, which were approved by the Court.

The pecuniary penalties imposed on the wind farm operators ranged from $550,000 (against a maximum possible penalty of $1.4 million) to $3.5 million (against a maximum possible penalty of $49.8 million).  Higher penalties were imposed in the AGL case compared to those that were imposed in the three other proceedings. 

In imposing these penalties, the Court considered the relevant mandatory factors under section 64 of the National Electricity Law, which is set out in the Schedule to the National Electricity (South Australia) Act 1996 (SA) (NEL).  These mandatory factors include the nature and extent of the breach, the nature and extent of any loss or damage suffered as a result of the breach, the circumstances in which the breach took place, whether the respondent has engaged in similar conduct and been found to be in breach of the NEL or NER in respect of that conduct and whether the respondent had in place a compliance program approved by the AER and its compliance with that program. 

In the case of AGL, the parties agreed that a higher penalty was appropriate for the following reasons:

  • the respondents cooperated with the AER at a later stage in the proceeding than the respondents in the three other proceedings;
  • the respondents contravened the NER in respect of four wind farms;
  • the respondents’ four contraventions of the NER, which continued for 1,235 days, were longer than the contraventions in the three other proceedings;
  • the respondents’ four contraventions involved 167 turbines, exceeding the number of turbines involved in the three other proceedings; and
  • the respondents engaged in the contravening conduct for over three years.

The above factors make clear that, beyond just the nature and extent of any contravention, the manner in which market participants engage and cooperate with the AER during any enforcement action will be highly relevant to a court’s assessment of appropriate pecuniary penalties.

In addition to the imposition of penalties, the Court also ordered that each wind farm operator implement a compliance program in relation to their compliance with generator performance standards.  The operators of the four wind farms also each provided the AER with enforceable undertakings under section 59A of the NEL relating to the maintenance of their wind farms’ generator performance standards. 

Conclusion

The delivery of the Court’s judgment in the AGL case on 28 June 2022 marked the conclusion of the AER’s enforcement action relating to the Black System Event. 

The AER’s response to the Black System Event and the related Court decisions, taken together with the numerous regulatory reviews and rule changes, serve as a reminder to market participants to ensure they remain compliant with the NER, keep up to date with any relevant rule changes, and provide timely and accurate information to AEMO. And also hopefully as a reminder to all stakeholders of the need for fair mindedness and a collaborative spirit when approaching these highly technical issues.

Generally, the Court decisions serve as a reminder to generators and regulators to remain engaged on the system protection aspects of connection and new projects.  This is particularly important in light of the fact that neither the wind farm operators nor AEMO had specifically considered the relevant system protection settings prior to the Black System Event.  Indeed, in the case of the four wind farms, the relevant system protection settings were applied by the wind turbine suppliers Suzlon and Siemens.  Despite this, as generators, each of the wind farm operators were technically still obliged to ensure that accurate and complete information was provided to AEMO about the technical settings of their wind turbines – even in the absence of interest from the regulator.  The Court decisions demonstrate that the failure to provide such information, even when inadvertent, can lead to potentially significant and costly consequences.

The response to the Black System Event also highlights, given the increasing role that private companies are playing in funding and building Australia’s renewable generation capacity, the need for all parties involved in the development of generation capacity to remain engaged with any rule changes and to maintain robust systems for staying up to date on these changes.  As well as the need among all stakeholders (including regulators) for sensible and fair spirited collaboration. This is particularly pertinent in an environment where the AER and the Courts have shown a willingness to enforce contraventions of even the most technical of rules.

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