Five-minute settlement rule drafted by AEMC

The Australian Energy Market Commission (AEMC) has made a draft rule to change the settlement period for the electricity spot price from 30 minutes to five minutes.

AEMC chairman John Pierce said moving to five-minute settlement would align the physical electricity system – which matches demand and supply of electricity every five minutes – with the price signal provided by the market for that five-minute period.

“Price signals that align with physical operations lead to more efficient bidding, operational decisions and investment,” Mr Pierce said.

“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.”

More accurate price signals also encourage more efficient investment in flexible technologies such as aggregating distributed storage, new generation gas peaker plants and rapid demand response.

These technologies, which can back up the system in real-time when the wind stops blowing and the sun stops shining, are becoming increasingly important as more wind and solar generation enters the market and thermal generators retire.

The draft determination proposes a transition period of three-and-a-half years.

“Moving to five-minute settlement would be a fundamental change to the way the wholesale electricity market operates in Australia, including the hedge market that operates alongside the spot market,” Mr Pierce said.

“Three-and-a-half years is the shortest possible timeframe to capture the benefits of five minute settlement without posing unacceptable risks to system security or the operation of the spot market.”

The Australian Energy Market Operator (AEMO) has developed a high-level implementation plan, also published today, setting out the technical changes which AEMO and the industry would need to make.

In April, The Australia Institute identified the ‘five-minute rule’ as an immediate and responsible fix for Australia’s peak-load issues.

“While major new energy infrastructure can take years to finance and build there are several actions that Australian governments could adopt immediately and in the medium-term that would lower costs, enhance security and reduce emissions,” The Australia Institute executive director Ben Oquist said.

“The government should take action before next summer when potential peaks in demand will arrive again.”

Submissions on the Five Minute Settlement draft determination close October 17.