It’s been over three and a half years since the Australian Energy Market Commission (AEMC) declared that the settlement period for the electricity spot price on the National Electricity Market (NEM) would be changed from 30 minutes to five minutes — aligning financial settlement with the physical dispatch of energy. New technologies like Karit’s Virtual Power Plant platform are inherently rapid responders, but others within the industry needed time to prepare for the change. This ruling, which came into play on 1 October, heralds a significant change for the energy industry. Not only will it deliver efficiencies to the market, it’s another important milestone in the transition to a greener, more affordable and reliable energy system.
Background
On 28 November 2017, the AEMC announced it would change the settlement period for trading on the NEM from 30 minutes to five minutes. Given that this was a fundamental change, the AMEC gave the market time to prepare, so that they could renegotiate financial contracts and upgrade metering and IT systems. This change came into effect today (1 October).
Energy settlement refers to the reconciliation process used to pay generators for the energy that they provide to the NEM, and charge market customers for the energy that they use. This process is managed by the Australian Energy Market Operator (AEMO).
The financial process is now aligned with the physical electricity system, which has always matched demand and supply in five-minute intervals. According to the AMEC, the changes were designed to support “fast response energy.” Five-minute settlement will help to support the uptake of new technologies and variable renewable generation like solar and wind. It will encourage investment in new technology like batteries, efficient responses from generators and efficient demand response by consumers in the market.
Historically, when timeframes for dispatch and settlement were different, generators and large energy users benefited from price signals that could be up to 25 minutes after the physical energy system needed a response. The system was out of kilter and didn’t reward fast responders with new technologies who were looking to supply or curtail energy for shorter periods.
Benefits of five-minute settlement
Five-minute settlement will reward nimble market participants, who can respond quickly to the supply and demand needs of the power system. Over time, it will deliver lower wholesale electricity costs as generators make more efficient decisions based on improved price signals.
Customers will be rewarded when they respond to demand peaks. For example, they might avoid high spot prices by using smart platforms to switch off machinery or use smart batteries to export power to the grid when it’s needed, earning a high spot price.
The electricity system will become more reliable as people invest in smart energy technologies which are able to back up the system in real time.
What this means for Karit customers
This is a great outcome for Karit Virtual Power Plant (VPP) customers connected to the NEM.
Karit’s Brett Milne says that five-minute settlement is a game changer as it supports new technologies, fast response generation and demand response.
“Karit customers connected to the NEM will be able to benefit from the shorter settlement period as they respond quickly to demand peaks and troughs. The market will become fairer for market participants. Generators will no longer be incentivised to employ tactics to artificially inflate prices.”
Smart energy management technologies like Karit’s VPP help customers with distributed energy assets to generate, store, share and sell energy. Karit’s VPP can be fully integrated with energy market services. Karit’s energy management platform uses real-time data and market predictions to respond to wholesale market prices and energy demand. Helping customers to extract value from the wholesale market.
Five-minute settlement will deliver many efficiencies for the NEM and nimble market participants. It’s now an opportune time to invest in distributed energy resources and smart energy management platforms.
To find out how a Karit Virtual Power Plant can help you to intelligently manage your energy flows and drive commercial outcomes, contact Karit and speak to one of our experts today.
