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Editor's Pick: AEMC progresses five-minute and settlement reforms

Josephine Lord Josephine Lord Consultant
30th September 2019

This article was originally published on 30 August 2019 in Energy:2030.

Australia’s Energy Market Commission (AEMC) has approved changes to the National Electricity Rules will improve wholesale market operations under five-minute settlement and rationalise settlement arrangements.

The determination issued on 8 August supports the AEMC’s decisions in November 2017 to align operational dispatch and financial settlement at five minutes and in December 2018 to introduce global settlement for the demand-side of the wholesale market in place of the current settlement-by-difference approach.

Implementation of five-minute settlement is due to commence on 1 July 2021 and it requires the Australian Electricity Market Operator (AEMO) and National Electricity Market participants to make changes ahead of this, including upgrading metering to provide five-minute granularity where required (see Figure 1).

The reform is expected to improve price signals and so achieve more efficient generation and use of electricity, more efficient investment in capacity and response technologies, as well as improving bidding incentives.

Two main rule changes have been approved. The first will provide AEMO with the flexibility to calculate Marginal Loss Factors (MLFs) using either 30-minute or shorter resolution data. MLFs have been an area of industry focus because of their impact on wholesale spot prices and therefore on generator revenues. However, as the values are averaged over a year, moving to a calculation based on five minutes is considered to have limited impact.

The second change will allow AEMO to accommodate fast-start inflexibility profiles in pre-dispatch. This detail is not required when the dispatch profiles have a 30-minute resolution.

Currently electricity supplied to a distribution area is billed to the incumbent supplier except for the loss-adjusted metered demand consumed by customers of independent suppliers. Under global settlement, which starts on 6 February 2022, every supplier will be billed on the loss-adjusted metered electricity, with unaccounted for energy (UFE) pro-rated by demand. Benefits of the change are expected to include that all suppliers compete on equal terms and improved risk allocation and transparency.

The rule changes also clarify the treatment of certain unmetered loads where costs and consumption are agreed between the local supplier, network service provider and the local council or telecoms company. All customer loads are to be considered market loads, so unmetered loads are removed from UFE and accounted for in settlement. No supplier has financial responsibility at a transmission/ distribution boundary point, in line with the revised treatment of UFE.

In addition, UFE will not be allocated to distribution-connected generators, to implement the policy decision that suppliers are best placed to manage this risk.

These are complementary but important rule changes. The changes to global settlement will chime with arrangements here, but the shift to five-minute settlement is showing us the way to go.

AEMC

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Energy:2030 is a monthly publication covering relevant and interesting developments including:

market mechanisms and regulatory incentives
technological developments and their anticipated impact
changing policy as it evolves both in the UK and worldwide.


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