Energy leaders flag possible delay in move to five minute settlement, in letter to COAG Energy Council

There may be a twelve month delay in the transition to Five Minute Settlement (which is currently scheduled to commence on 1st July 2021).  This is due to concerns about the impacts of COVID-19 on the energy industry.

On the 7th of April, John Pierce (Chair of the AEMC), Audrey Zibelman (CEO of the AEMO) and Clare Savage (Chair of the AER) submitted this letter to the Chair of the COAG Energy Council in which they:
1)  identify timeframes that need to be reconsidered in light of the pandemic, and
2)  make recommendations on how the implementation of these are prioritised.
The possible delay of the market moving towards five minute settlement periods was amongst the changes flagged.

In the letter they state that their request to alter implementation dates are based on two objectives:
1) “The urgent need to address an immediate issue arising from the impact of COVID-19” and
2) “To change impact to industry and consumers of continuing projects”.

It is later stated that a new implementation map will be developed, and in regards to five minute settlement , the leaders noted:

“It is proposed industry be provided with a 12 month delay so they can defer the remaining expense associated with this initiative.”

This was followed on 9th April, with this formal rule change request from the AEMO to the AEMC to delay the implementation.  As of today, it is  marked as “Pending” and is currently waiting for initiation.

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(A)  Background to Five Minute Settlement

On 4th December 2015 this original rule change request was submitted to AEMC by Sun Metals, a Queensland zinc refiner.

On 28 November 2017 the AEMC made a final rule to change the settlement period for the electricity spot price from 30 minutes to five minutes, starting in 1st July 2021.  These pages on the AEMC website provide background to that rule change process.

Since that time, the AEMO has been working with industry to implement the many changes required in order to deliver this rule change.  These pages on the AEMO website explain more.

(B)  About the difference between Dispatch and Settlement

Since the start of the NEM, it has operated using 5 minute dispatch periods and 30 minute settlement periods, where:

1)   The market determines a Dispatch Price every 5 minutes, in conjunction with sending dispatch instructions to all Scheduled and Semi-Scheduled Generators – and a small number of Scheduled Loads.  This occurs every Dispatch Interval (i.e. 5 minute period).

By way of background, this explanation on WattClarity provides a beginner’s guide to how the dispatch process works.

2) Towards the end of every half-hour period (i.e. “Trading Period“) a Trading Price is  determined as the time-weighted average of all six Dispatch Prices in that half-hour.

(a)  Because the Trading Price requires every Dispatch Price to be known before it can be calculated, it cannot be calculated until approximately 26 minutes into a Trading Period.

(b)  This Trading Price is also known as the Settlement Price, because it is used for settlement:
i.  Generators are paid the Settlement Price for all energy generated in that half-hour period; and
ii.  Wholesale energy users (mostly the energy retailers, but also a growing number of large energy users, such as those we support) pay this Settlement Price for what they consume over the half hour.

(b)  This feature of what’s known as “the 5/30 issue” (i.e. not knowing what you’ll be paid, or pay, until that time has almost passed) has been the root cause of a number of strange outcomes in the NEM over the years.

The changes agreed under the AEMC Rule Change will make the Dispatch Price and the Settlement Price the same number.