Battery boost: AEMO gives green light to 5-minute settlements from October

Victoria big battery Neoen Tesla
An artist’s impression of Neoen’s Victorian big battery.

The Australian Energy Market Operator has issued the greenlight for the switch to 5-minute settlement, marking one of the biggest changes to energy market rules in Australia, and which is expected to support investment in new technologies when they come into force on October 1.

AEMO had raised the prospect of a delay to the new rules, but said that after a detailed risk and readiness assessment it concluded that the National Electricity Market was ready to proceed with the switch as planned.

Historically, generators participating in the National Electricity Market have operated on the basis of auctions held every 5-minutes, with generators bidding in available generation capacity to meet customer demand.

However, the payments received by generators as a result of these auctions has been auction prices averaged over a longer, 30-minute interval prices (i.e. generators are paid the average price of the six 5-minute auctions held in a 30-minute period)

The difference between the two intervals has created the potential for market gaming by large incumbent generators. using short-term supply fluctuations to push prices temporarily higher, while also undermining the participation of fast-response technologies like battery storage and demand response.

In 2017, the AEMC signed off on changes to energy market rules to switch to 5-minute settlement, aligning the auction intervals with the prices ultimately paid to generators, after proponents successfully argued that doing so would provide a better investment signal and would support the emergence of new energy technologies.

The switch to 5-minute settlement is likely help spur new investment in large-scale battery storage projects that will be well placed to response to short term fluctuations in electricity supply and demand.

But it will require the transition of existing market systems, including those of AEMO and all electricity market participants. These changes applied to systems related to metering, billing and bidding processes, and had flow through implications for electricity retailers.

AEMO has been working to implement these changes so that they could commence on October 1, but had also sought to mitigate the risk that either AEMO itself, or a large number of market participants, where not ready to make the switch – despite four years of warning.

“This is an important market reform that reflects the evolving energy system and an initiative that aligns very closely to AEMO’s priority areas as we navigate the energy future to the benefit of the market and all consumers,” AEMO’s Chief Market Services Officer, Violette Mouchaileh, said.

“The extensive stakeholder collaboration has been valuable for the decision-making process and program outcomes, and essential for market readiness.

“Informed by, and completed in consultation with, market participants, AEMO’s comprehensive risk and readiness assessment measured essential criteria required for rule commencement – concluding that the NEM is on track for market start in October,” Mouchaileh added.

Michael Mazengarb is a Sydney-based reporter with RenewEconomy, writing on climate change, clean energy, electric vehicles and politics. Before joining RenewEconomy, Michael worked in climate and energy policy for more than a decade.

Get up to 3 quotes from pre-vetted solar (and battery) installers.