At a glance, here are the potential benefits:
- Better price signals for load control, demand response technology and using batteries
- Improved bidding incentives
On the 1st of October 2021, “five-minute settlement” started for the National Electricity Market (NEM). This means there is a change in the way the wholesale price (the price paid to generators and paid by retailers) is calculated.
While this change to the market makes price signals more efficient, customers don’t need to worry about making changes for it being introduced. The changes will be managed by market participants like Flow Power. However, the introduction of five-minute settlement should strengthen the rewards for demand flexibility, so there’s never been a better time to explore the opportunities and potential benefits of demand response and automation!
What is the wholesale electricity price?
The wholesale electricity price (also referred to as the spot price) is the price of electricity in the National Electricity Market. All electricity passing through the grid is bought and sold in the wholesale market.
How is the wholesale price set?
The wholesale electricity price is set every thirty minutes based on supply and demand for electricity. The wholesale price for a thirty-minute window is set by averaging the price for six, five-minute intervals within the half-hour.
Every five minutes, generators (such as coal fired power stations or wind farms) make offers to the Australian Energy Market Operator (AEMO) to supply customers and AEMO will create a “bid-stack” that compares these offers. The cheapest generation offers are lower in the bid stack and the more expensive offers are at the higher end.
AEMO will dispatch the cheapest collection of generators needed to meet expected consumer demand, starting with the generators with the lowest priced offers. The price for the five-minute interval is set by the marginal generator offer. That is, the price of most expensive generator needed to meet consumer demand. The wholesale price is then set by averaging all of the five-minute prices in a thirty-minute window.
So, what is five-minute settlement?
The introduction of five-minute settlement changes the settlement timeframes in the NEM.
Settlement is the process of reconciling how much electricity a customer used and at what price so retailers (such as Flow Power) can bill them. It is also used to determine how much revenue should be paid to generators.
Before five-minute settlement, a wholesale price was set every thirty minutes in the NEM. This is the price used by electricity retailers for settlement. The wholesale price was set by averaging 6x five-minute prices to get the thirty-minute settlement price.
This price determination changed with the new five-minute settlement. Under five-minute settlement, the price set every five minutes is the price paid by retailers and paid to generators.
Why does changing to five-minute settlement matter?
Five-minute settlement means pricing in the market should be more efficient. Previously in the market the price was averaged, which can have the effect of making some high prices difficult to avoid and can reward generation that isn’t particularly flexible.
This should change under five-minute settlement. The wholesale market should provide stronger incentives for fast responding technologies like batteries and demand response.
What does this change mean for Flow Power customers?
Changes will appear in different ways depending on which Flow Power plan you have. For example, our Power Active customers will have Price Efficiency Adjustments (PEAs) calculated in five-minute increments, rather than thirty. For Virtual Generation Agreement (VGA) customers, their wind or solar outcomes are now calculated in five-minute settlements rather than thirty-minute settlements.
All Flow Power customers, whether you’ve signed up to Power Active, a Virtual Generation Agreement (VGA) or for Wholesale, use wholesale market signals. That means all Flow Power customers can take advantage of the wholesale price when its low and get value out of demand response when the price is high.
The introduction of five minute settlement should strengthen the rewards for demand flexibility, so there’s never been a better time to explore the opportunities and potential benefits of demand response and automation.
⚡ IMPORTANT: Customers don’t need to do anything – the change is all handled from market participants (such as Flow Power).
Will your bill change?
When your next bill arrives it will look the same, however, it will be based on five-minute prices instead of thirty-minute prices. Just like before, you have the opportunity to potentially benefit from being more price-efficient, avoiding high prices and using electricity in low priced periods.
Any questions? Our energy experts are here to help.
If you’re an existing Flow Power customer, please do not hesitate to reach out to your account manager.
If you’re not a Flow Power customer, feel free to contact our friendly team:
📞 1300 08 06 08
Alternatively, you can submit your questions through our website contact form here.