The Australian Energy Market Commission (AEMC) has begun an independent assessment of whether postponing five-minute settlement will help or hinder energy businesses manage financially during COVID-19.
In a consultation paper released today, the Commission has posed key questions to help gather evidence from industry on how they would be affected by a rule change request from the Australian Energy Market Operator (AEMO) to delay the five-minute settlement start date by one year.
Five-minute settlement means the electricity spot price will be settled at five-minute, rather than 30-minute intervals. It is a major market reform that rewards fast-response energy generation like batteries, demand response providers and new generation gas peaking plants if they can quickly deliver electricity (or switch off) when the power system needs them to. It was due to begin on 1 July 2021.
“We plan to treat this rule change as urgent because due to the potential for Covid-19 to cause financial stress for retailers and financial contagion in the energy sector. We also understand discussions on changing the timing around reform causes uncertainty for industry,” AEMC Chair John Pierce said.
“We want to remove that uncertainty as soon as possible so we will weigh up the evidence and publish our final determination by early July.”
In April the three energy market bodies – the Australian Energy Regulator, Australian Energy Market Operator and the AEMC released a joint draft COVID-19 power plan for consultation with industry. The plan was designed to ease regulatory pressure during the pandemic while protecting the most important energy market reforms under way in the power sector. It included a proposal to continue AEMO’s extensive work on five-minute settlement but postpone the start date for industry by 12 months.
In a series of stakeholder workshops on the draft COVID-19 plan, participants said that a delay to five-minute settlement would affect individual businesses differently.
The AEMC understands that energy businesses are at different stages in preparing for five-minute settlement, which requires a large-scale industry response. The readiness work for five-minute settlement has involved major projects around IT and metering.
“Regardless of the decision on timing, five-minute settlement remains a critical market reform,” Mr Pierce said.
“This means it will go ahead and indefinite delays are not on the table for consideration. Five-minute settlement will be important to keeping the lights on as the power system transitions because it will introduce dynamic new ways to keep the system stable and secure when the wind isn’t blowing and the sun isn’t shining.
“We understand it is important to strike the right balance between adjusting for the impact of COVID-19 pandemic and protecting the most important energy reforms underway to deliver a cheaper, fairer, lower emissions power sector for families and businesses.”
The AEMC consultation paper says some of the relevant issues to consider include:
- How COVID-19 has affected energy business cash flows and capacity, and what impact a delay might then have (for example, if businesses have already signed IT vendor contracts to implement five-minute settlement reform)
- Whether a delay would provide flexibility for businesses whose staff activities have been constrained due to social distancing/working from home policies
- The effect a delay could have on the return on investments made in anticipation of five-minute settlement – such as batteries or fast-start generators
- How a delay would impact the contract market and how market participants manage risk.
About this rule change request
On 9 April AEMO submitted a rule change request seeking to delay the introduction of five-minute settlement by 12 months. It also requested a delay to introducing ‘Global settlement’ by 12-months.
Global settlement replaces the current approach used in the National Electricity Market known as ‘settlement by difference’. Under settlement by difference, the electricity supplied to a distribution area is billed to the incumbent retailer (local retailer) – except for the loss-adjusted metered electricity that is consumed by the customers of independent retailers in that area. As a result, incumbent retailers wear the risk of all residual electricity losses in that area (known as UFE – unaccounted for energy).
Under global settlement, every retailer is billed for the loss-adjusted metered electricity that is consumed by their customers within the area. UFE is allocated to market customers in a local area and pro-rated based on their 'accounted-for' energy.
The Commission will consider the rule change request to delay the start dates of global settlement and five-minute settlement together and publish a final determination on both in July.
Media: Kellie Bisset, Media and Content Manager, 0438 490041