AEMC confirms 5-minute settlement to begin in 2021

A major rule change that will change the settlement periods on Australia’s electricity markets and offer major incentive to fast acting technology such as battery storage and demand management has been confirmed.

The Australian Energy Market Commission on Tuesday confirmed a “final” rule change to change the settlement period for the electricity spot price from 30 minutes to five minutes, starting in 2021.

It described it as a “fundamental change” will provide a better price signal for investment in fast response technologies, such as batteries, new generation gas peaker plants and demand response and enable the power system to operate in a more dynamic way.

“With more wind and solar generation entering the market, along with the retirement of thermal generators, there is an important role for fast response generation and services to plug the gaps when the wind isn’t blowing and the sun isn’t shining,” said AEMC Chairman John Pierce.

Proponents of the rule change – which began with Queensland zinc refiner Sun Metals nearly two years ago, also say it will limit the ability of fossil fuel generators to “game” the market.

Numerous studies have shown how big generators have taken advantage of the 30-minute settlement period by adjusting their bidding patterns to create scarcity in one five minute bidding period, pushing the price up and then flooding the market with capacity that is suddenly made available.

The price rise in the one five minute period guarantees a high price over the 30-minute settlement period. The new rules make that less possible, and also gives an incentive to fast response technologies to capture any high priced events.

The AEMC’s decision to delay the entry of the 5-minute settlement until 2021 has been criticised by many, including leading economist Ross Garnaut, particularly given that the AEMC is proposing equally important changes in the National Energy Guarantee that it wants to introduce by 2019.

The details of that policy have not even been worked out – other than a vague idea of requiring an emissions and a reliability obligation that will be met through contracting by the big retailers. Many see this as fundamental a rule change as the five minute settlement.

Greens climate spokesman Adam Bandt said ‘five minute rule’ is an important step towards fixing the “broken” National Electricity Market, but criticised the delay.

“As we feared, the AEMC is delaying the change to protect the big, polluting power companies,” he said. “This change should be happening next year, not in 2021. COAG should overrule the AEMC and act to accelerate this reform.”

The AEMC said the July, 2021 starting date for the 5-minute settlement would give the industry time to adjust to this major change which affects the spot and contract markets, metering and IT systems.

Pierce said the new settlement period should lead to more efficient bidding, and flow through to lower wholesale costs.

ACT climate change and sustainability minister Shane Rattenbury welcomed the change, saying the current rules result in slow responding generators such as coal, gas and hydro being paid high prices for energy delivered up to 25 minutes after it was needed.

 “This rule change brings the pricing and generation intervals into line, so electricity generators are paid for the amount of energy delivered in a five minute period at the price calculated for that five minute period.

 “This decision is a win for the ACT, which has embraced smart, fast-response, energy storage technologies as part of its drive to 100 per cent renewable energy by 2020 and zero net greenhouse gas emissions by 2050 at the latest,” Rattenbury said.

He said the new rule would have an immediate effect on new contracts.