A market reform that has been in the works for more than four years is expected to be introduced in less than 30 days with the Australian energy market operator this week, confirming that the five-minute settlement period will take effect on October 1, 2021.
Owners of fast-response power generation like batteries are expected to be among the big winners after the Australian Energy Market Operator (AEMO) announces that the National Electricity Market (NEM) is ready to operate under the five-minute rule. (5MS).
First approved by the Australian Energy Market Commission (AEMC) in 2017, the 5MS will move the current wholesale electricity spot market settlement period from 30 minutes to five minutes. This will align the settlement period with the dispatch process by which the generators are programmed, which has operated on a five-minute basis since the start of NEM in 1988.
The change involves changes to metering, settlement and tendering processes, as well as retail and wholesale electricity market systems.
AEMO said the new settlement period will more specifically reward fast-response power generation like batteries, which can provide supply or demand side responses exactly when they are needed by the power system.
The market operator said the 5MS is expected to lead to investments in new technologies such as batteries that can support the increasing amounts of variable renewable energy being deployed in Australia.
It should also encourage and reward consumer participation in the market, both through demand response and virtual power plants (VPPs).
“This is a significant market reform that reflects the evolution of the energy system and an initiative that aligns very closely with AEMO’s priority areas as we navigate the energy future for the benefit of the market and all consumers, ”said Violette Mouchaileh, AEMO Market Services Manager.
While AEMC has approved the introduction of 5MS, it will meet later this month to discuss the AEMO recommendation and industry feedback, before making a final decision.
Since the new settlement period was first approved, AEMO has been responsible for updating procurement procedures, designing and testing systems, and coordinating a industry readiness program.
Mouchaileh said some risks to the proper functioning of the five-minute market were noted as part of the readiness assessment, but mitigation and contingency plans for those risks were identified.
“The broad stakeholder collaboration has been invaluable for the decision-making process and program outcomes, and essential for market readiness,” she said.
“Informed by and completed in consultation with market participants, AEMO’s comprehensive risk and readiness assessment measured the essential criteria required for the rules to come into force, concluding that the NEM is on track for market start-up in October.
A “soft start” of Global Settlement (GS), a regulatory framework for the wholesale electricity market, is also planned for October.
AEMO said this aligns the development of systems and procedures for the two changes, reducing implementation costs. GS will fully begin on May 1, 2022.
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