Battery storage: Five minute rule to be delayed, but only by three months

One of the most critical and urgent market reforms in the Australian electricity sector is to be delayed, but only by three months, after the principal rule maker threaded a needle between the demands for a longer delay from mostly incumbent utilities, and the push for reform by the providers of battery storage and smart energy systems.

The Australian Energy Market Commission on Thursday said the change to 5-minute settlements – instead of the heavily rorted existing 30-minute settlements – would be delayed to October 1, 2021, rather than July 1.

The delay was proposed by a group of influential coal and gas generators, using Covid-19 as the pretext. They aren’t happy about the change because it will encourage new competition in the market, particularly from battery storage, demand management, and even fast-start peaking generators.

They were supported by the majority of fossil fuel and hydro generators, including the federal government owned Snowy Hydro, and most network operators, some of whom wanted the proposed 12-month delay extended to 24 months. They argued against a six month delay, saying that a change on January 1, in the middle of the summer break, would be complicated.

The promoters of smart technologies opposed the delay, saying the industry already had already had four years to prepare for the change, and any further delay would slow down the clean energy transition and much needed “enabling” technologies.

This view was surprisingly supported by big utilities such as AGL and EnergyAustralia, who now have had first hand experience of the benefits and advantages of battery storage from their operations in Victoria and South Australia. The governments of South Australia and the ACT also argued against any delay.

The Australian Energy Market Operator also made clear that it systems would be ready for a July, 2021 switch from 30-minute settlements, where the price of six five minute trading periods is averaged, to the 5-minute settlement, and any delay would likely be costly.

On Thursday, the AEMC said the three month delay balances the capacity constraints placed on the industry by Covid-19 against the additional costs and deferred benefits associated with a longer delay to the commencement of these rules.

“The rule change proposed a 12 month delay to the commencement of 5MS and GS and the Commission found that this period of time was too long,” it said. “The impact of COVID-19 on industry capabilities was only in the order of two to three months and participants have so far had a number of years to implement each of the 5MS and GS reforms.”

It said while a 12-month delay would create cash flow benefits for some participants by deferring 5MS and GS implementation expenditure, the  implementation costs would increase and overall industry cash flows are expected to be worse than not delaying 5MS and GS.

It conducted its own modelling which showed that the costs of a longer delay ($19-$41 million) would outweigh the benefits that a delay would bring to some businesses’ cash flow ($10-$24 million).

“A 12 month delay would also defer the realisation of benefits associated with the 5MS and GS rules,” it said.

The Australia Institute, which opposed the delay, said it welcome the compromise decision, describing it as a big win for consumers.

“The AEMC has made a good decision on the basis of the evidence presented by market participants and its own analysis,” said Dan Cass, Energy Policy & Regulatory Lead at The Australia Institute.

“Far from delaying beneficial reforms, we should be pursuing a stimulatory approach to modern market design, bringing forward benefits to consumers and helping with economic recovery and decarbonisation.

“It beggars belief that some energy companies were proposing this reform should have taken a total of almost seven years to implement. At that rate of transformation, it would take Australia a century to get the grid ready for the end of coal.”

Enel X, which specialises in demand management, said it supported the decision, saying it struck a sensible balance between the impacts of Covid-19 while ensuring this important reform remains on track to deliver improved price signals and lower prices for customers.

“Five minute settlement will now commence shortly before the new wholesale demand response mechanism takes effect,” CEO Jeff Renaud said in an emailed statement.

“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.

“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.

“These technologies are becoming increasingly important to support a reliable and secure grid as renewables continue to grow and fossil fuel generators become less reliable and ultimately retire.”