New Energy Insights: Bulletin – A New NEM? 5-minute Settlements given go ahead from October

This article is part of our New Energy Insights series from our Energy, Infrastructure and Resources team. Stay tuned for regular updates and commentary on topical issues across the sector.

The Australian Energy Market Operator (AEMO) has given its final seal of approval to the change of the settlement period for the electricity spot price from 30 minutes to 5 minutes, coming into effect on 1 October 2021.

Previously, while bid prices in the National Electricity Market (NEM) were made on 5-minute intervals, the settlement price received by generators was over a longer 30-minute average price, ie the average price of the six 5-minute auctions held in that 30-minute period. This allowed large generators to manipulate their bidding strategy to inflate the 30-minute average price.

The major implication for the switch to 5-minute settlements (5MS) – and one which is in keeping with the ESB’s post-2025 electricity market design – will be to promote the emergence of new energy technologies (in particular BESS) which are capable of responding to short term fluctuations in electricity supply and demand. The change will favour technologies such as battery storage and other inverter-based systems and curtail bidding strategies based upon spiking the 5-minute interval price to benefit from the inflated 30-minute settlement price.

We are engaged with a number of energy trading experts in relation to the action’s generators should be taking ahead of the switch, and what the market should expect in the days, weeks and months post the switch to 5MS. We will be sharing these insights over the coming weeks.

The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.