Big win for fossil fuels as regulators seek 12 month delay on 5-minute rule change

Australia’s main energy regulators and rule-makers have flagged they will seek to defer the implementation of the crucial 5-minute rule, one of the biggest and most fundamental reforms of the country’s electricity market that was designed to stop widespread rorting of prices.

The call to delay the 5-minute rule is included in a letter to energy minister Angus Taylor from the heads of the Australian Energy Market Commission, the Australian Energy Market Operator, and the Australian Energy Regulator.

The letter follows a review of the different bodies’ ability to progress reform and rule-changes in the midst of the Covid-19 pandemic. They are soon to publish an “implementation map” that will signal what projects can go ahead as planned, or will have to be delayed, but the biggest immediate casualty is the 5-minute rule.

The push to change Australia’s settlement period from 30-minutes to 5-minutes sparked a furious debate between energy incumbents determined to defend their turf, and large consumers and the proponents of fast-responding technologies such as battery storage and demand response.

The rule change had been proposed 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.

It was argued that the 5-minute rule would eliminate much of this bidding, and would also encourage new smarter, cleaner and quicker technologies such as battery storage and demand response. It is also encouraging utilities to invest in “fast-start” gas generators to replace less efficient and ageing

The proponents eventually won out, but the AEMC – the principal rule maker that had initially resisted the changes – insisted on the switch to 5-minute settlements not taking effect until July, 2021, five years after the proposal was initially made by Sun Metals – to the horror of the industry.

Professor Ross Garnaut was particularly critical, saying it would delay the introduction of battery storage and the transition to a clean energy system, while The Australia Institute said battery technology and renewables were being deliberately hobbled by the resistance of incumbents and vested-interests.”

Now the main regulatory bodies want the start date to be delayed for another 12 months.

Dan Cass, Energy Policy & Regulatory Lead at the Australia Institute said welcomed the decision to stick with some decisions like the  early implementation of wholesale demand response, before summer 2021.

However, he said it was “hard to fathom” how the energy sector can’t implement a reform such as the 5-minute rule that is already underway.

“Industry should make its case for delaying implementing five minute settlement reform public. The safe operation of the energy sector during the COVID-19 health crisis and protection of vulnerable consumers is the immediate priority, but that does not justify any delay to the major market redesign project slated for delivery in 2025.

“Once the health crisis is over and economic recovery has begun, Australia will need the economic and social benefits of NEM reform even more than we did before the crisis.”

 “This period when everyone working from home and there is a strong sense of common purpose, is prime time to work out how to set up the NEM for the next 50 years. The market agencies can be bold and chart how to stimulate NEM reform, to help with economic and societal recovery.