Why five-minute settlement?
The National Electricity Market (NEM) operates as a gross pool market, where all electricity delivered to the market is traded 24-hours a day, seven days a week. The Australian Energy Market Operator (AEMO) manages trading in the NEM, according to trading rules governed by the National Electricity Rules.
AEMO dispatches electricity every five minutes, so generators are required to bid to supply the electricity in five-minute periods. For the past two decades, for the purposes of settlement, this price has been averaged out over 30 minutes — resulting in what is known as the spot price.
“In the NEM in its current form, there is a mismatch between dispatch and settlement: dispatch prices are calculated every five minutes, while the market is settled on the basis of the time-weighted average of the six five-minute dispatch prices over the 30-minute trading interval,” Peter Taylor, COO at Brave Energy Systems, said.
“The disparity between dispatch and settlement timeframes creates market distortions that lead to inefficiencies in operation and market composition (generation mix and demand response). The recent incidences of strategic late bidding by generators and manipulation of the market by withdrawing Queensland generation are market distortions, which are then accentuated by the current market structure of five-minute dispatch and the 30-minute trading.”
Studies have shown that generators can take advantage of the 30-minute settlement period by adjusting their bidding patterns to create scarcity in one five minute bidding period, pushing the price up, and then flooding the market with capacity that is suddenly made available.
Enabling the power system to operate in a more dynamic way
On 28 November 2017, the Australian Energy Market Commission (AEMC) made a final rule to change the settlement period for the electricity spot price from 30 minutes to five minutes.
The AEMC claims that over time, improved price signals will lead to more efficient decisions by generators, lowering wholesale costs which make up around one-third of a typical bill.
Five-minute settlement starts on 1 July 2021 to give everyone time to adjust and the AEMC recommends that, where necessary, retailers use the transition period to upgrade/make changes to the following IT systems:
- Settlement
- Risk management
- Trading
- Reporting
- Data collection and storage
Coping with the additional data load
The shift to five-minute settlement means that energy retailers will have additional meter data to manage, and more granular meter profiles, which will be at a five-minute increment rather than 15 or 30 minutes.
“Generally, meter data reads will increase six times (30 minutes to five minutes) or three times (15 minutes to five minutes). Major IT upgrades may be required depending on the robustness of the current solution to handle higher volumes of data,” Peter said.
“Utilities will need to assess the impact of this change and discuss with their IT service provider to determine if increased data storage capacity is required.”
The expected AEMO IT system interface changes related to retailers will involve: supporting five-minute metering data submission to AEMO; deciding whether to use a new or existing MDFF format for five-minute submission; and changes to MDM profiling for settlement to support 30-minute, five-minute and accumulation meter data.
AEMO will develop technical specifications to provide enough detail for participants to understand the required changes to their own systems/processes that interface with AEMO.
Peter Taylor said that choosing an accurate, market-compliant software solution is crucial in ensuring retailers and metering service providers can make a smooth transition to five-minute settlement.
“Brave’s Retail Billing solution will be fully compliant and able to handle five-minute settlement data across impacted modules. Even more importantly, Brave’s Meter Data Management solution will be capable of managing five-minute data, as will the specific metering service provider solution in order to package the five-minute data to the market. This means identifying and managing the data at the core of the system, enabling all modules to adapt to the new requirements.
Customers can also continue to enjoy the back-office service delivery with the knowledge that their solution will be compliant to the market when five-minute settlement data obligations come into effect.”
Australian Utility Week 2018
21-22 November 2018 will see all major utilities under one roof at the Melbourne Convention and Entertainment Center. What a perfect opportunity to visit Brave’s stand (D11) and talk more about these upcoming changes and what you can do now to prepare and comply.
Click here for more information on how to reach us at the Australian Utility Week expo.
