Several critical market and regulatory reform initiatives are set to be implemented by the Australia Energy Market Operator (AEMO) by October 2021.
AEMO is working closely with the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER) to progress rule changes, including Wholesale Demand Response, Five-Minute Settlement and customer switching.
These initiatives are expected to create new value for consumers and market participants, through greater choice and competition, all enabled through efficient digital systems and access to energy-related data.
Five Minute Settlement
Five-Minute Settlement (5MS) is a key market reform which will reduce the wholesale electricity spot market settlement period from 30 minutes to five minutes.
This change aims to provide a better price signal for investment in faster response technologies (e.g. batteries, gas peaking generation) and to enable more efficient bidding, operational decisions and investments, aligned to smaller financial settlement periods.
AEMO is defining the required changes to market procedures, designing, testing, and implementing changes to its market systems, and coordinating, assisting and preparing the industry for the transition.
AEMO is progressing the project and will deploy the required system changes in March and April 2021, which will allow market participants to begin bidding and submitting meter reads at five-minute intervals if they so choose. During this “transition period”, the market will continue to be settled at 30-minute intervals.
Currently, AEMO is preparing for the industry readiness phase with market participants through the 5MS Working Groups.
This phase includes periods of industry testing and market trials prior to the switch to 5MS scheduled for 1 October 2021.
In addition, AEMO is also implementing the changes needed for the Global Settlements rule as part of the 5MS Program.
The Global Settlements rule commences on 1 May 2022. Global Settlements means that all retailers will be financially responsible for the Unaccounted for Energy (UFE) in their market area e.g. unaccounted for technical losses, commercial losses and meter profiling errors.
There will be a “soft-start” for UFE from 1 October 2021 and participants will begin to see their calculated UFE on their settlements invoice. Participants will not become financially liable for UFE until 1 May 2022.
Click here to learn more about 5MS.
Wholesale Demand Response
The Wholesale Demand Response rule change (WDR) is another important initiative underway that will increase customer and third-party access to markets, by providing another option for large customers to participate in the NEM.
Following consultation with AEMO and industry, the AEMC is introducing a new market participant category – the wholesale demand response provider (DRSP)– that will be responsible for coordinating and offering demand response into the NEM from October 2021.
The DRSP will classify and can aggregate the demand response capability of large market loads for dispatch through the NEM’s standard bidding and scheduling processes.
WDR is an interim step towards a two-sided electricity market where both the supply (generation) and the demand (consumer) side actively participate in dispatch and price setting. In this way, WDR provides opportunities to effectively use existing infrastructure and potentially defer the need for additional investment while new markets evolve.
WDR reform is strongly supported by consumer advocate bodies, as it gives large end-use customers the opportunity to actively engage and leverage their ability to manage energy demand during times of supply scarcity.
Further, WDR directly competes with scheduled generation, increasing competition in the wholesale market with potential flow-on price benefits to consumers.
Click here to learn more about WDR.
AEMO has worked with the AEMC to simplify and improve the customer switching process in the National Electricity Market (NEM). The new framework will reduce the time it takes customers to change electricity retailers, from months to a same-day transfer.
Following a recommendation in the ACCC’s Retail Electricity Pricing Inquiry report, AEMO developed and consulted on a process that will facilitate faster and more efficient switching, providing better outcomes for customers and electricity retailers.
Faster switching between energy retailers will make it easier for customers to transition to better electricity offers/rates and access new services and will provide retailers with a more streamlined process for switching in a new customer.
Click here to learn more about customer switching.
Together, 5MS, WDR and customer switching are expected to create better outcomes for market participants, consumers and a more efficient energy sector in Australia.