AEMO pushes ahead with settlement reform for NEM

Owners of fast-response energy generation like batteries are expected to be among the big winners after the Australian Energy Market Operator (AEMO) announced the National Electricity Market (NEM) is ready to operate in accordance with the five-minute settlement (5MS).

First approved by the Australian Energy Market Commission (AEMC) in 2017, the 5MS will shift the current 30-minute wholesale electricity spot market settlement period to five minutes. This will bring the settlement period into line with the dispatch process by which generators are scheduled which has operated on a five-minute basis since the start of the NEM in 1988.

The switch involves changes to metering, settlement, and bidding processes, as well as electricity retail and wholesale market systems.

AEMO said the new settlement period will more accurately reward fast-response energy generation like batteries, which can deliver 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 investment in new technologies such as batteries that can support the increasing amounts of variable renewable energy being deployed in Australia.

It is also expected to encourage and reward consumer participation in the market, both through demand response and virtual power plants (VPPs).

“This is an important market reform that reflects the evolving energy system and an initiative that aligns very closely to AEMO’s priority areas as we navigate the energy future to the benefit of the market and all consumers,” AEMO’s chief market services officer Violette Mouchaileh said.

While the AEMC has approved the introduction of 5MS, it will meet later this month to discuss AEMO’s recommendation and any industry feedback submissions, before making a final determination.

Since the new settlement period was first approved, AEMO has been responsible for updating market procedures, designing and testing systems, and coordinating an industry readiness program.

Mouchaileh said some risks to successful operation of the five-minute market had been noted as part of the readiness assessment but mitigations and contingency plans for these risks have been identified.

“The extensive stakeholder collaboration has been valuable 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 essential criteria required for rule commencement, concluding that the NEM is on track for market start in October.”

A “soft start” of Global Settlement (GS), a framework for the settlement of the wholesale electricity market, is also planned for October.

AEMO said this aligns the development of systems and procedures for both changes, reducing implementation costs. GS will fully commence on May 1, 2022.