5 Minute Settlement could slide 12 Months

09 Apr 5 Minute Settlement could slide 12 Months

On the 26 March 2020, the energy market bodies including the Australian Energy Market Commission (AEMC), Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER) wrote a letter to the Australian Federal Government’s Energy Minister, Angus Taylor which advised and sought  for the consideration to consider a longer implementation time-frame for the market’s transition to the 5 minute settlement regime which was pegged to begin on 1 July 2021.

The Market bodies have stipulated the reasoning for this is due to the vast impacts to industry and the workforce that have occurred due to the COVID-19 outbreak. The letter to Mr Taylor proposes delaying the start date of 5 minute settlement by 12 months so industry can defer further/remaining expenses associated with preparing for 5 minute settlement.

It also states that AEMO will still work to the same deadline, albeit 12 months would provide AEMO with extra time to ensure 5 minute scheduling and dispatching engines are sound at least in a development environment. As yet we do not know if the 5 minute settlement will get the go ahead to be delayed, with market bodies still reaching out to market participants to advise as to whether this will be advantageous or not.

The impact of a 5 minute settlement delay to the market will be impact all participants and investment decisions, there are some calling out this only extends coal-fired generation’s life-span, but if you have been watching the futures prices and spot prices of late, coal-fired generation is already in a world of hurt with no doubt a lot of questions being raised about the remaining lifespan of some coal plant in both QLD and NSW. Should 5 minute settlement be delayed by 12 months, there is the likelihood we see the slide of investment in some fast start plant, such as new batteries and hydro.

Gas-fired generators who have not re-tuned/upgraded their synchronising and start time to less than 5 minutes will still have the 30 minute settlement price to fall back on at least for another 12 months and be able to capture any value the 30 minute average settlement price may represent. The flip side of 5 minute settlement is that it would be very good for renewable generation as it would make the thermal plat operators reassess their operating philosophies with gas likely more removed from the market, and propping up the price.

The 2021/2022 financial year was likely to be a more costly financial year given the introduction of 5 minute settlement, which would effectively mean a vast majority of gas plant would not be able to curb price spikes as effectively under the new settlement regime, resulting in a change to their operating philosophy, however both the impacts of COVID-19 an the recent oil price collapse has significantly changed this stance.

Unfortunately, there is no real way to know how much of an impact globally it will have, and how long the impacts of COVID-19 will last. Similarly, with Saudi-Arabia and Russia both engaged in a price/supply war over Oil (two of the largest producers of oil) it is all hard to depict how long the extremely cheap domestic gas prices will last, particularly with investment decisions in new domestic gas likely put on hold.

If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.