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Energy companies rush to prepare for five-minute settlements

Australian energy retailers are rushing to prepare for the introduction of five-minute settlements for the wholesale electricity market which comes into effect on October 1.

Although the rule change by the Australian Energy Market Commission was delayed by three months because of the impact of COVID-19, energy companies are still spending millions of dollars to overhaul their IT software to comply with the new requirements by the deadline.

The change from 30-minute to five-minute settlements was introduced to help the National Electricity Market adapt to the changing energy mix with the rapid influx of renewables and will provide a boost to “faster responders” like batteries and other demand-response technologies.

Australian Energy Council chief executive Sarah McNamara – who represents 21 major electricity companies that had originally wanted a 12-month delay for the rule change – said its members had invested millions of dollars and substantial resources to implement the significant IT and system changes required for the introduction of five-minute settlements.

“The scale of the challenge involved was not insignificant and reflects the need for changes to multiple systems such as bidding, trading and settlement systems, as well as other operating procedures. Our members have worked hard to be ready for the 1 October start date,” she said.

Ms McNamara said the “welcome delay” for the introduction date of five-minute settlements reflected the scale of the technical challenge along with the real need to manage the impacts of the pandemic.

“Our initial reservations about the rule change reflected concerns about the overall cost benefits – whether the benefits that ultimately accrue will exceed the costs of implementation. We will watch with interest how this progresses,” she said.

The Australian Energy Market Commission, which drafted the rule change, acknowledged there would be costs with energy retailers overhauling their IT systems, but believed it was worth it.

It said five-minute settlements – where retailers will bid every five minutes as opposed to every 30 minutes – would provide improved price signals for the market and reward those that can provide demand side responses to the market quickly.

“Stakeholders have valid concerns about the magnitude of the costs and the time within which the required changes can be made,” the AEMC said when it announced the change.

“However, the commission considers that the enduring benefits of five-minute settlement will quickly outweigh the one-off and ongoing costs.”

New Zealand energy software company Flux Federation – which is launching its Flexibill product in the Australian market to help retailers deliver five-minute settlements – said energy retailers in Australia appeared to be struggling with how to commercialise the rule change.

“The costs are not insignificant but it will be a one-off,” Flux Federation chief client officer Jessica Venning-Bryan told The Australian Financial Review.

“But it’s almost beside the point because if it’s not this one, it will be the next one. Regulatory change is not going away but if we’re not thinking about evolving the way we think about technology to get ahead.

“You need to get to the stage where the software is good enough to deal with regulatory change.”

Flux Federation, which is in talks with about six energy retailers in Australia, said its Flexibill software would allow companies to reach new markets, build and offer a new tariff to customers almost instantly as well as prepare for the exponential growth of distributed energy resources and simplify interval billing.

“It will certainly give retailers a head start … But I do question how able the industry is to commercialise that change,” Ms Venning-Bryan said.

Flux Federation already has a foothold in the Australian market, servicing Powershop which supports more than 200,000 Australian customers.

Flux Federation chief executive Nic Kennedy said FlexiBill would help manage and bill new technologies, such as solar and home generation, battery storage, virtual power plants, complex behind-the-meter infrastructure as well as the bundling of non-metered products.

FlexiBill supports all meter categories and data types across all market segments.

Clean Energy Council chief executive Kane Thornton said five-minute settlement was an important reform for the NEM as it moves to a low-emissions future.

“It will ensure better alignment between energy pricing and production and in turn ensure that solutions like energy storage is fairly paid for its contribution to the grid,” Mr Thornton said.

“This is another step forward in ensuring an energy market fit-for-purpose for the 21st century and the suite of renewable energy and energy storage solutions.”

Source: Financial Review