AEMC gives energy businesses extra three months breathing space before major market reform

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The Australian Energy Market Commission (AEMC) has decided to give energy businesses an extra three months to prepare for the major market reform of five minute settlement. In the works since 2017, and originally slated for 1 July 2021, energy businesses will now have until October 2021 to orchestrate the most significant IT overhaul in the history of Australia’s energy market. 

The decision comes after the network rule-maker conducted an independent assessment of whether postponing five-minute settlement would help or hinder energy businesses coping under the economic strain of Covid-19, and to make up for time lost in responding to the early challenges of pandemic. 

The introduction of five-minute settlement to the National Electricity Market (NEM) is a major reform designed to improve price signals (the wholesale electricity spot price) from a 30-minute timeframe to a five-minute timeframe. The intention is to further stabilise the grid with swifter response times but also, importantly, to stimulate investment in capacity and demand response technologies, particularly energy storage, but also new generation gas peaker plants. 

“Since the onset of the pandemic,” said AEMC Acting Chair Merryn York, “we have been working in the interests of energy consumers to strike a balance between easing regulatory pressure on the energy sector while progressing critical power system reform.” 

In April, the three energy market bodies – the Australian Energy Regulator, AEMO and the AEMC released a joint draft Covid-19 power plan for consultation with industry. The plan was designed to ease regulatory pressure by slowing down or deferring some reforms and to prioritise work essential to maintaining a secure and resilient power system during the pandemic.

The original draft suggested a 12-month delay, but 3-months was agreed upon when independent modelling showed that the costs of a longer delay would outweigh the benefits that a delay would bring to businesses’ cash flow. “It would cost the industry between $19 million and $41 million to delay the reform compared with a savings benefit of $10-$24 million,” said York. 

Australian Energy Market Operator (AEMO) CEO and Managing Director, Audrey Zibelman, welcomed AEMC’s decision, saying the scheme will “ease pressure on companies as they manage outages and prepare for the coming summer.” 

The five-minute reform is critical not only for its own sake, but also for the sake of another key reform, the new ‘demand response mechanism’ which will allow large customers to trade their energy in the market. 

Decision Time 

The 3-month delay is not the only AEMC decision announced today, evidently, the network rule maker has been busier than a bottle of hand sanitiser at an arm-wrestling contest. 

The AEMC also confirmed its decision to continue supporting vulnerable businesses during this unprecedented time of pressure and cash-flow uncertainty. Eligible retailers, says the AEMC, will be able to defer bills owed to energy networks until February 2021. 

“This has involved many conversations with – and feedback from – stakeholders, who are experiencing the pandemic differently and have different views on the best way forward,” continued York. “It’s imperative the energy sector adapts to Covid-19 challenges and at the same time, we must protect the major reforms we’ve set in motion so the transformation going on in our energy sector stays on track. This is important now more than ever.” 

The Australian Energy Regulator (AER) says that more than 1,000 people a week are registering with their retailer for hardship assistance. Although this delay is designed to give such people breathing space, York stressed that this scheme is “not designed to tackle the long-term implications of a recession on the energy sector, but it will help as financial reality bites for many people in the second half of 2020.” 

AEMC’s priority is to ensure that too many retailers don’t go out of business at this unprecedented time, as the reduction in customer choice would be catastrophic to energy prices. Hence also why Government-owned retailers and the ‘Big 3’ providers (AGL, Origin and Energy Australia) are not included in the scheme. 

The AEMC’s paper on the deferred network charges now awaits stakeholder feedback as to the most practicable path forward. The AEMC will make a final ruling on the specifics in August 2020.