Batteries the winner, as 5-minute rule promises to end gas market gaming

The days of gas power generators deliberately “gaming” Australia’s electricity market are numbered, an expert has warned, with the market rule maker set to introduce new spot price settlement settings in 2021.

As Giles Parkinson has reported, the deliberate manipulation of capacity, availability and bidding strategies that ensures that incumbent fossil fuel generators maximise their profits, at the expense of consumers, is considered one of the biggest jokes in Australia’s energy industry.

But according to Marija Petkovic, managing director of Energy Synapse, that particularly jig will be up when the Australian Energy Market Commission changes the settlement period for the electricity spot price from 30 minutes to five minutes.

The rule change – submitted by renewables friendly zinc refiner Sun Metals in 2016 – is on track to be introduced in July 2021, after the release this week of a consultation paper from the Australian Energy Market Operator.

As the AEMC explains, the new rule will align operational dispatch and financial settlement at five minutes, reducing the time interval for financial settlement in the national electricity market from 30 minutes to five minutes.

“Price signals that align with physical operations lead to more efficient bidding, operational decisions and investment,” the AEMC says.

Over time, it notes, this will flow through to lower wholesale costs, which should lead to lower electricity prices.

“The current game of purposefully restricting your output to push the price up and then increasing your output after the fact to take advantage of the early price, that game’s going to be well and truly over with five-minute settlement,” Petkovic told the Australian Energy Storage Conference this week.

“When (the rule) comes in, each five-minute period will be settled individually. …So it will be whatever you generated in that five minute period, times the five minute price.

“There’s no opportunity to increase output after the fact and take advantage of past prices.”

This is the new reality that Australia’s incumbent gen-tailers are slowly coming to grips with, as they prepare for the rapidly increasing share of wind and solar on the grid, and the deepening of the so-called “duck curve” in demand.

And they are dealing with it in a number of different ways. AGL, for example, recently unveiled the first of 12 fast-start gas generators it is installing in South Australia – where it is the dominant electricity supplier – that will total 210MW and ultimately replace the ageing generators at the Torrens A gas plant.

But as Petkovic also told the Sydney conference on Wednesday, grid-connected batteries will be the really big winners from the 5-minute rule change – and existing fossil fuel generators the losers.

“Existing generation – a lot of it that’s currently in the portfolio – we expect is going to struggle to respond to these five minute prices, especially when they’re unexpected.

“So it’s going to be up to batteries to really be regulating and setting prices in the market,” she said.

“The energy market is going to be played the best by the people with the best algorithms, that’s where we’re going.

“The value is going to be captured by the people who can predict future prices the most accurately, and that’s where the biggest value going to be.

“Even if you are a relatively slow responder, if you can see that price coming, you will be able to respond to it. The key is to actually see what’s coming in the market.”