The Australian Energy Market Commission (AEMC) is seeking input from interested stakeholders into a proposed 12-month delay to the introduction of a five-minute settlement rule that is likely to favour battery storage and other smart technologies over existing coal and gas generators.
The Australian Energy Market Operator (AEMO) formally proposed a delay to the switch to five-minute settlement in light of the need to focus on energy security measures, and to reduce the introduction of new regulatory measures, during the disruption caused by Covid-19.
In response to AEMO’s request, the chief market rule maker, the AEMC, has released a consultation paper to solicit views from stakeholders within the energy market on the proposed delay.
Some fear the AEMC’s mind may already be made up, given that in April it was one of three regulatory bodies, along with AEMO and the Australian Energy Regulator (AER), who wrote to energy minister Angus Taylor recommending a 12-month delay as part of a joint draft plan for the management of the energy market under Covid-19.
The plan produced by the three bodies sought to minimise disruption on the energy market and so put crucial reforms to the energy market rules on the back burner. The AEMC approved the rule change in 2017 after initially resisting it, but delayed its introduction to 2021, much to the despair of key energy market observers such as Ross Garnaut.
“We plan to treat this rule change as urgent due to the potential for Covid-19 to cause financial stress for retailers and financial contagion in the energy sector. We also understand discussions on changing the timing around reform causes uncertainty for industry,” AEMC Chair John Pierce said.
“We want to remove that uncertainty as soon as possible so we will weigh up the evidence and publish our final determination by early July.”
The switch to five-minute settlement in the National Electricity Market, which currently settles electricity trades in 30-minute intervals, is designed to better facilitate the participation of fast-response technologies like battery storage, as well as limiting the ability for large-incumbent generators to manipulate market prices.
The change to 5-minute settlements had been proposed in 2015 by Queensland zinc refiner Sun Metals, who – like so many in the industry – had grown sick of the clear rorting of the electricity markets by various coal and gas companies to deliberately push up prices.
The generators would do this by bidding up prices in one five-minute trading period, which would then average out for a higher price over the entire 30-minute settlement period, as outlined in this story.
The switch to five-minute settlement was set to occur 1 July 2021, but it is now being proposed that this date be pushed back by 12 months.
Large energy market incumbents are also seeking a similar delay to the introduction of a wholesale demand response mechanism, that is expected to be approved by the AEMC in June.
Large incumbent energy companies, including AGL Energy, Snowy Hydro, Origin Energy and EnergyAustralia, have called on the wholesale demand response mechanism to be delayed so that its introduction is aligned with any delayed introduction of the five-minute settlement rule.
The AEMC will seek feedback from energy market participants on how their operations have been impacted by Covid-19, and whether a delay to the five-minute settlement rule change would help participants manage any disruptions.
Participants will also be asked to provide input into how a delay might impact their ongoing business operations, including any contractual arrangements or investments made in response to Covid-19 or in anticipation of the introduction of the rule change.
The AEMC said that it acknowledged that electricity market participants were at a range of stages of preparation for the rule change, that will like require changes to project operations, IT systems and metering arrangements.
The AEMC stressed that the five-minute settlement will only be delayed, and that its implementation still remains a priority for the commission, particularly as it will support the entry of new energy storage projects to enter the market.
“Regardless of the decision on timing, five-minute settlement remains a critical market reform,” Pierce said.
“This means it will go ahead and indefinite delays are not on the table for consideration. Five-minute settlement will be important to keeping the lights on as the power system transitions because it will introduce dynamic new ways to keep the system stable and secure when the wind isn’t blowing and the sun isn’t shining.”
“We understand it is important to strike the right balance between adjusting for the impact of COVID-19 pandemic and protecting the most important energy reforms underway to deliver a cheaper, fairer, lower emissions power sector for families and businesses.”
Submissions to the consultation paper will close on 11 June, and the AEMC is expected to make a final decision on a delay to the five-minute settlement rule by 9 July.
