The AEMC today published a final 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 final rule sets out a detailed design for global settlements, including how unaccounted for energy (UFE) is calculated and allocated, the treatment of unmetered loads, and metering responsibilities at network connection points.

The benefits of moving to global settlements include:

  • improved transparency and accuracy of settlements, resulting in decreased costs of resolving settlement disputes and reduced unaccounted for energy
  • better incentives for retailers to minimise electricity theft and other causes of unaccounted for energy
  • 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.

The soft start for global settlements, and the full commencement of five minute settlement, both begin on 1 July 2021. This aligns the development of systems and procedures for both changes, reducing implementation costs. Global settlements will fully commence on 6 February 2022. 

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 national electricity market. 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 their local area. This means that the local retailer for an area bears the risk of all residual electricity losses – known as UFE. UFE includes unaccounted for technical losses, commercial losses and 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 final 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