Energy generators will get less time than hoped to prepare for major market shift

Power generators will get only an extra three months to prepare IT systems for major market reform amid COVID-19 disruptions.

Australian Energy Market Commission acting chair Merryn York.

The energy sector will only get an extra three months to prepare for the biggest overhaul of IT systems ever required, after the rule-maker for electricity and gas markets knocked back a request from the market operator to delay the move to five-minute settlements for a year.

The Australian Energy Market Commission said on Thursday it would delay implementation of the new settlement periods — which will mean the wholesale electricity spot price is settled every five minutes instead of every 30 minutes — until October 2021, rejecting a request from the Australian Energy Market Operator to delay the change until mid-2022.

AEMC acting chair Merryn York said she believed the delay would give generators and traders time to prepare for the move despite the impacts of coronavirus, but said the benefits of the switch to consumers meant longer delays should not be allowed.

“We tested whether a longer delay would help or hinder energy businesses during COVID – both in terms of managing cash flow stress and their resourcing capacity to continue working on the change,” she said.

“Modelling shows the costs of a longer delay would outweigh the benefits that a delay would bring to some businesses’ cash flow. It would cost the industry between $19m and $41m to delay the reform compared with a savings benefit of $10m to $24m.”

The switch to shorter settlement times is likely to benefit batteries and rapid demand-side management — in which major power users temporarily turn down their plants to ease pressure on the grid — potentially at the expense of slower gas-peaking plants.

The changes will allow batteries and other technologies able to rapidly deliver power into the grid to better take financial advantage of peaks in spot electricity prices, which the AEMC hopes will help smooth out wild swings in peak summer times and stabilise the grid.

Enel X, the world’s biggest demand response services provider, welcomed the decision on yesterday.

Asia and Oceania managing director Jeff Renaud said the three month delay provided a “sensible balance” between recognising coronavirus disruption to the market and delaying a reform that would improve power prices.

“Five minute settlement will now commence shortly before the new wholesale demand response mechanism takes effect. These complementary reforms together will enable and encourage new demand response capacity into the energy market, increasing competition and lowering wholesale prices for customers, as well as helping shift the market towards a low carbon future,” he said. “Five minute settlement will also be implemented in time to improve price signals over the critical summer period in 2021/22. The more accurate pricing signals will encourage investment in fast start, flexible technologies such as battery storage and demand response.”

AEMO managing director Audrey Zibelman said the market operator had proposed a delay to the implementation of the five-minute settlement rule after the industry had expressed concerns about the cost of the move amid the uncertainty created by the coronavirus crisis.

But she welcomed the AEMC decision, saying it would ease some of the pressures.

“I am aware some market participants remain concerned about implementation costs. AEMO will continue to work with the industry to identify lower-cost software solutions and to minimise overall implementation costs, to help ensure the consumer benefits of these reforms are fully realised,” she said.

The Australian Energy Council chief executive Sarah McNamara, who represents Australia’s major power providers, cautiously welcomed the decision to delay the reform’s implementation, saying AEMO and the AEMC had been faced with a difficult task to balance the “complex issues associated with resourcing IT projects during COVID-19”.

The AEMC says it may instead allow smaller power retailers to defer charges until February.