The AEMC today published a draft rule to move settlement of the demand side of the wholesale electricity market to a global settlement framework.

This is a move away from the ‘settlements by difference’ approach to settlement which has been in place since the creation of the national electricity market. 

The draft rule sets out a detailed design for global settlements, including the level at which unaccounted for energy is allocated, how to allocate unaccounted for energy, and how to treat virtual transmission nodes and unmetered loads within global settlements.

The benefits of moving to global settlements include:

  • improved transparency and accuracy of settlements – resulting in decreased costs of resolving settlement disputes and the ability to undertake technical studies to reduce unaccounted for energy
  • better incentives for retailers to minimise unaccounted for energy, such as electricity theft
  • a more equal platform for competition in the retail electricity market by allocating unaccounted for energy to all retailers within each local area based on their customers’ consumption within the area.

Under the draft rule, the new global settlement framework would start on 1 July 2021. This would coincide with the start date of five minute settlement so IT system capabilities can be developed together. 

Stakeholder submissions are due by 25 October 2018.

Background: What are global settlements?

AEMO is responsible for settlement in the national electricity market – making sure that market generators are paid for the energy they provide and retailers pay for the energy their customers use.

The current market settlement framework, known as settlement by difference, has been in place since the start of the NEM. Under this approach, electricity within a distribution area is billed to the local retailer except for the loss-adjusted metered electricity that is consumed by the customers of independent retailers within the area. This means that the local retailer for an area bears the cost and risk of all residual electricity losses – known as unaccounted for energy (UFE). UFE includes unaccounted for technical losses, commercial losses and accumulation meter profiling errors.

Under a global settlement framework, every retailer is billed for the loss-adjusted metered electricity that is consumed by their customers within the area. The UFE is then allocated to market participants on the basis of a pre-determined methodology. Under the Commission’s methodology in the draft rule, UFE is allocated to market customers in the area, pro-rated based on their ‘accounted-for’ energy.

Media: Prudence Anderson, Communications Director, 0404 821 935 or (02) 8296 7817