The South Australian government has spoken out against a proposed delay to a switch to five-minute settlement in the National Electricity Market, saying the reform is key to bringing new technologies and business models into the market, as older fossil fuel incumbents start to exit.
In submissions to a rule change request currently being considered by the Australian Energy Market Commission, a number of energy market incumbents have supported the proposal by leading institutions for a 12-month delay to the key energy market reform, a move that could delay new and innovative technologies from getting a foothold in the market.
The National Electricity Market currently operates on a “30-minute” settlement arrangement, with wholesale electricity prices set at auctions held every 5-minutes averaged over the longer timeframe.
There had been growing concerns that the 30-minute price averaging had provided opportunities for some energy market participants, particularly fossil fuel generators, to “game” the market, and did not reward the value of fast-response technologies such as battery storage.
The AEMC approved a switch to five-minute settlement, effectively eliminating the price “averaging” process, with the implementation of the new rule was scheduled to start from 1 July 2021, six years after it was fist proposed.
Some large energy market participants have seized upon disruptions caused by Covid-19 to argue that implementation should be pushed back by 12-months, and a further rule change proposal was submitted by AEMO seeking the delay.
However, the South Australian government, through the Energy and Technical Regulation Division of the Department of Energy and Mining, suggests that these disruptions might be overblown and that delays to implementation may itself lead to higher costs, and delay benefits flowing through to consumers.
Its intervention is significant as the state is much further down the transition to wind and solar and storage than any other state, and has a target of “net” 100 per cent renewables that it wants to reach before 2030.
“[The] opportunity to implement new generation technologies as older generators retire and system security and reliability challenges are met exists in South Australia currently,” the South Australian government submission says.T
“he introduction of five minute settlements will allow their value to be clearly communicated to the market and support their development. To maintain investor certainty, we see it as crucial that key market reforms like five minute settlement proceed as originally signalled to the industry.
“Timely introduction of five minute settlement will ensure technologies entering the market are those that best reflect the cost of generating electricity and its value to consumers. To this end, the Division has always supported this reform being introduced with as short a transition period as practicable.”
“[The] Division is concerned that a significant delay in implementation may come at greater cost to the broader market, as the benefits and opportunities that will be realised under five minute settlement are further delayed,” the submission added.
Energy metering and data provider Plus ES also supported the introduction of the five-minute settlement rule change in line with the original timeline, saying that the electricity sector had not experienced as large a disruption as some had predicted due to Covid-19, and that as a metering provider, the delay did not appear necessary.
Energy management and demand response service provider Enel X added that a delay to the introduction of five minute settlement would inhibit the entry of new technologies into the energy market, including further installations of big batteries and demand response.
“Five minute settlement is critical because it provides more accurate pricing signals, encouraging investment in fast start, flexible technologies such as battery storage and demand response. These technologies are becoming increasingly important to support a reliable and secure grid as renewables continue to grow and fossil fuel generators become less reliable and ultimately retire,” Enel X managing director Jeff Renaud said.
“New entry into the market by battery storage and demand response providers will increase competition, leading to lower wholesale prices for customers, as well as helping shift the market to a low carbon future.”
It’s expected that the Clean Energy Council, representing the clean energy sector, and leading battery storage manufacturer, Tesla, will also speak out against any proposed delay.
The move sets up a clash between established incumbent energy market participants, primarily large retailers and fossil fuel generators, and new players trying to enter the market with new product offerings and technologies, including demand response and battery storage.
The “new” technologies had a win earlier in the day when the AEMC rejected calls to delay the implementation of the equally important wholesale demand response mechanism, which encourages smarter options to safe energy, rather than just burning more fossil fuels to meet demand peaks.
In a submission published on the AEMC website, ERM Power, which acts as a retailer for commercial and industrial energy users, said that the switch to five minute settlement should be delayed due to the “uncertain environment” triggered by Covid-19.
ERM Power was purchased by global oil and gas giant Shell, in a deal worth $617 million, which delivered a substantial payday for previous major shareholder, and Vales Point power station owner Trevor St Baker.
“In this uncertain environment, ERM Power supports this urgent rule change that provides a 12 month delay to the implementation of five minute and global settlements,” the ERM Power submission says.
“The five minute and global settlement system changes are far reaching and involve an enormous project undertaking with numerous participants.”
“Although the full costs of this major market change have never been made transparent, it is likely the costs to the industry will be in the hundreds of millions of dollars.”
Network infrastructure provider Ausnet, along with its subsidiary Mondo Power, added its support for a delay to five-minute settlement, saying that the extra time would help ensure the change would have a negligible impact on electricity customers.
“For a customer, the change from 30-minute data to 5-minute data should be seamless and not impact their billing in any way,” the Ausnet submissions says.
Ausnet added that it had already ceased work on the implementation of changes to network and metering arrangements necessary to support the implementation of the five minute settlement rule.
“AusNet Services considered it essential to act when the Rule Change proposal was announced and immediately paused implementation of our program. Immediate deferral of all non-critical program activities ensured AusNet Services could put in place the prudent financial management measures referenced above, and maximise customer benefits associated with our Covid-19 response,” Ausnet said.
With submissions on the proposed delay to the five-minute settlement rule now closed, the AEMC expects to deliver a final determination on the delay by 9 July 2020.
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