Five minute settlement: a fundamental change to the national electricity market design

In November 2017 the AEMC made a final rule to change the financial settlement period for the wholesale electricity spot market from 30 minutes to five minutes, starting in 2021.

Five minute settlement provides a better price signal for investment in fast response technologies, such as batteries, new generation gas peaker plants and demand response.

The final rule aligns operational dispatch and financial settlement at five minutes. Price signals that align with physical operations lead to more efficient bidding, operational decisions and investment.

Over time, this flows through to lower wholesale costs, which should lead to lower electricity prices than in a market with 30 minute settlement. Wholesale costs make up around one third of a typical electricity bill.

Next steps

Five minute settlement will start on 1 July 2021. This gives industry time to adjust to this major change which affects the spot and contract markets, metering and IT systems.

The timeframe balances the need to capture the benefits of moving to five minute settlement as soon as possible against the transitional costs and risks. It also gives industry a timetable for building and developing new fast response generation and technologies in preparation for the change in three years’ time – so this investment can start happening now.

The Australian Energy Market Operator (AEMO) will work closely with industry to develop an implementation plan, with policy guidance from the AEMC. The Australian Energy Regulator (AER) will monitor and report on the conduct of market participants and the effectiveness of competition throughout the transition.