Regulator delays rule change that could accelerate battery storage

A proposed rule change that could accelerate the deployment of battery storage in Australia, increase competition and possibly reduce electricity prices has been put into the slow lane, with a draft determination delayed by seven months.

Just one week after the COAG energy ministers’ meeting vowed to provide more resources to the Australian Energy Market Commission to help it accelerate rule changes that could assist the energy transition, the main policy maker for the Australian energy markets has decided it needs more time.

The rule change has been proposed by Sun Metals, a major energy user, and calls for settlements on the wholesale electricity market to be made every 5 minutes, rather than every 30 minutes, so it can match the dispatch price interval.  Proponents and supporters say it will remove market distortion and increase competition, and reduce prices.

The rule has been supported by other energy users, battery storage and software developers, and independent energy analysts. Even the Australian Energy Regulator accepts it could reduce prices by removing a market distortion, and the Australian Energy Market Operator sees no technical issues and says it won’t cost much to implement.

But the proposal is being fiercely resisted by fossil fuel generators, particularly the owners of gas-fired generators, who fear losing their market power. Their principal lobby group – contradicting the assessment of the market operator – has argued that it will cause prices to rise and is not technically possible.

However, the AEMC announced on Thursday that the draft ruling would not be made this week, as originally planned, but would instead by delayed until March 30 next year, with a final decision not likely before July 31, 2017.

“The extended timeframe will enable the AEMC to evaluate the complex issues raised in responses to the consultation paper and consider the implications of inter-related AEMC projects,” it said in a statement. “It will also allow additional consultation with a large number of interested stakeholders.”

AEMC said the rule change represents a fundamental change to the price calculation in the wholesale electricity market, and was being made against the background of a market transformation, driven by the increasing share of renewable energy.

It warned that if it does agree to a rule change,  a transition period may be necessary to manage impacts on IT systems and contractual positions for retailers, generators and the market operator.

Some parties that had responded to the consultation paper argued that a rule change should be delayed to await the success, or otherwise, or new “bidding in good faith” rules.

Judging by the price spikes in South Australia in July, and independent assessments of bidding patterns by the dominant generators, these have had little impact. Indeed, the price gouging that these rules were supposed to remove has been endorsed by the country’ main competition regulator.

The Australia Institute said the recent price spikes in South Australia underscored the need for more competition in the market, which could be achieved by shifting settlement times to the same interval as dispatch prices.