Bye bye Power of Choice and hello 5-minute Settlement. From 1 July 2021, the National Energy Market (NEM) in Australia will be settled every five minutes. Settling every 5-minutes means the physical electricity system will be aligned with the price signal provided by the market for that 5-minute period. With standing data changes and additional meter data to manage, market participants need to assess their current IT systems and determine if they’re capable of handling the increased data load.
How does it currently work?
The NEM consists of AEMO dispatching electricity, and generators in the NEM bidding on the supply of electricity on a five-minute basis. These five-minute dispatch prices are then averaged (on a time weighted not volume weight basis) to produce the 30-minute Trading Price or spot price – this is then used for settlement. This “spot price” is the price retailers and large electricity users pay.
The current 5 – 30 arrangements have been in place since the start of the NEM (December 1999) and the 30-minute settlement interval illustrates the limitations in the metering and data handling technology at that time.
At present, the NEM in its current format presents a mismatch between dispatch and settlement. This disparity leads to inefficiencies in the operation and generation mix of the market. It specifically emphasises strategic late rebidding and impedes market entry for fast response generation and demand side response. Aligning dispatch and settlement prices is a logical step and will create a more accurate, reliable and transparent electricity market.
What will the change to 5 minute settlement mean?
One of the largest considerations with moving to 5-minute settlement is the increase of data. 5 minute settlement will produce around six times more meter data for utilities to manage and store. This means Australian utilities will need to assess the impact of this change and discuss with their IT service provider the capability of their current solution to handle higher volumes of data.
Moving to a five-minute settlement will allow the NEM to operate more dynamically and efficiently. It will further reward customers who respond to demand peaks, result in more efficient bidding, operational decisions and investments, and ultimately lower wholesale costs.
Currently, AEMO is in the process of developing technical specifications for market participants to understand the changes required to their own systems/processes which interface with AEMO.
What are the expected changes?
As with the POC process, we are working closely with regulators around the implementation.
Some of the key items impacts include:
- System interfaces will need to be reviewed/upgraded to handle 5-minute metering data
- A decision will need to be made around the MDFF format utilised for submissions
- Consideration around the MDM profile will also need to made, particularly related to the accumulation of meter data
Choosing an accurate, market compliant software solution that can handle the increased data load is crucial in ensuring retailers can make a smooth transition to five-minute settlement.
The industry is gearing up for this change and vendor meetings with AEMO have already kicked off. Between now and 2021, Hansen’s billing solution will be fully compliant and able to handle five-minute settlement data across impacted modules. More importantly, Hansen’s Meter Data Management and Market Gateway solutions 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.