5 minute settlement rule

At the end of 2017, the Australian Energy Market Commission (AEMC) made a landmark ruling: the price settlement interval for the wholesale electricity market, which has been set at 30 minutes for the last two decades, will be reduced to five minutes.

Now, as the mid-2021 implementation date for this five-minute settlement rule draws closer, utilities are having to consider the implications of the required upgrades to their metering and IT systems.

How much will these changes cost? How long will they take to implement? And how can they know for sure whether they’re adequately prepared?

Answering these questions starts with understanding just what the five-minute rule change entails, and what specific challenges utilities can expect to face as a result.

Dispatch versus settlement

The national electricity market (NEM) is built to make it easier for generators — producers of electricity — and retailers — those who distribute electricity to customers — to do business with each other.

Generators submit bids to the Australian Energy Market Operator (AEMO) to signal their willingness to supply electricity at a specified price. AEMO then collects these bids, sorts them by price, and chooses whose energy gets dispatched every five minutes.

While electricity is distributed in five minute blocks, the settlement price — what retailers pay the generators — is determined every 30 minutes in the current system. This ‘spot’ price that all generators receive is therefore the average of the six dispatch prices that happen each half hour.

The discrepancy between the five-minute dispatch interval and 30-minute settlement timeframe was necessary due to technological limitations when the system was established in the late 1990s, but data processing and metering technology have progressed to the point where the physical electricity system and the price signal can align.

The AEMC has determined to do exactly that on 1 July 2021 — the day when the new settlement rule goes into effect and reduces the 30-minute interval to five minutes.

Challenges and solutions

While the settlement–dispatch parity makes sense, the sixfold reduction in the settlement window brings new challenges for utilities.

In particular, forecasters will have to significantly increase the speed and sensitivity of their forecasting process in order to accurately predict prices in the shorter intervals.

Emerging technologies such as distributed energy resources increase the complexity of the situation even more.

Utility forecasters are already spread thin as they attempt to rework their systems to make room for batteries, solar panels and the other variables in the rapidly evolving energy market. Contemplating the five-minute settlement rule on top of all that can be a daunting prospect.

To solve this problem, many utilities are looking to supplement their internal forecasting efforts with help from analytical services organisations.

Analytics software provider SAS offers just such a solution with SAS Energy Forecasting. The comprehensive service supports the entire forecasting process, from data management and model development to predictive analytics and business reporting, and grants forecasters advanced knowledge of the energy/price curve for each interval period.

Grant Dyer, SAS“Without accurate forecasting, energy retailers risk buying too much and having to sell back at a loss, or purchasing too little and needing to pay a premium for the remainder,” said Grant Dyer, Energy, Utilities & Telecommunications Industry Lead for SAS Australia & New Zealand.

“Such mistakes can majorly eat into profits, and the companies who ultimately succeed in today’s fast-moving and ultra-competitive market will likely be the ones who stumble the least.”

Fortunately, forecasting mistakes are avoidable. SAS Energy Forecasting’s highly-sophisticated set of algorithms are purpose-built to increase margins, take full advantage of smart meter data, and enhance generation and trade operation decision-making for utilities.

Visit SAS.com to find out more.

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