How 5-minute settlements changed the bidding game for coal, gas and renewables

“An early and readily observable impact of the change to 5MS from 1 October 2021 was the effective cessation of dispatch prices regularly falling to the market price floor of -$1,000/MWh following a very high price dispatch interval,” AEMO notes.

“Previously, loads and generators had a strong financial incentive to rebid after a price spike early in a 30-minute trading interval due to the effect of the spike on the 30-minute average settlement price.

“Under 5MS, this incentive is removed, and in most circumstances price spikes have not been followed by price collapses to the floor over the balance of a half-hour.”

But thermal generators are not the only ones to change the patterns of bidding behaviour.

Wind and solar farms will often bid to the market floor to ensure they are dispatched, at least when prices are in positive territory. (Although the nature of their contracts force them to bid high if the market price does go negative to they, or their off taker, are not force to pay others for the electricity they produce).

AEMO has observed a greater shift of bidding patterns from wind and solar farms to a band of offers around minus $35/MWh to  minus $50/MWh. That roughly equates to the value of large scale generation certificates and allows many of them to still break even at that price.

“A large proportion of semi-scheduled generators (the technical market term for large scale wind and solar), across the NEM have altered their bidding behaviour,” AEMO notes.

“During the week prior to 1 October 2021, on average over 8,600 MW of nominal capacity was offered at market price floor of -$1,000/MWh.

“However, since then volumes offered at this level have declined substantially, with only around 5,500 MW offered in the week after 1 October, as more VRE generators shifted their offers towards their break-even price or short run marginal cost (SRMC) within the -$100/MWh to -$35/MWh ranges.

Typically, a VRE generator’s break- even price is influenced by the value of an LGC, however other factors such as a generator’s power purchase agreements (PPAs) and portfolio position are also key determinant to this price.”