Insights / April 21st, 2017

The five minute rule - moving to a fast response energy-market

In December 2015, Sun Metals Corporation Pty Ltd formally requested that the National Electricity Rules (Rules) be changed to align the dispatch and settlement intervals in the National Electricity Market.

Currently, at settlement the spot price is calculated on an average of six, five minute dispatch price intervals (over 30 minutes) which creates a disparity between the dispatch price and the spot price. This is because dispatch prices are determined every five minutes and spot prices can only be calculated at settlement on the average of that price over a 30 minute period. This leads to fluctuations in prices.

Those in the renewable energy sector have long advocated that this model creates inefficiencies in the operation and composition of the market as it does not reflect the increase in intermittent generation of energy, such as through wind and solar, that is feeding into the market.

Under the proposed changes generators, scheduled loads and market interconnectors will be required to settle at 5 minute frequencies with demand side and retail participants and between 5 minutes and 30 minutes for large consumers.

On 11 April AEMC released a discussion paper which identified the following benefits of the five minute settlement:

  • more efficient wholesale market outcomes;
  • more efficient investment and operation, which in turn reduces the wholesale component of retail electricity prices for consumers;
  • allowing the financial market for electricity to be cleared on the same basis as the physical electricity market;
  • encouraging more efficient bidding and operational decisions; and
  • enhancing system security and reliability by valuing supply or withdrawal from generators or large users when the power system needs it.

Despite there being some additional costs as a result of a transition to a five minute settlement, such as updating IT systems, metering infrastructure, financial contracts and possible contract market disruption, AEMC has recommended that the change to the Rules be adopted which means that:

  • the five minute settlement would apply to all market participants (generators and consumers);
  • revenue metering would be used for the five minute settlement; and
  • a transition period of three years would apply to the implementing of the five minute settlement.

Prior to making its final determination, AEMC is seeking feedback in response to the proposed changes.. Submissions are due on 18 May. AEMC plan to publish the draft determination for the rule change in July with the final determination released in September.

If you would like any assistance with making a submission, please contact one of our team.