The encyclopedia · Engineering & Operations · Technical decision · 2021
Australia settled its electricity market every five minutes so speed got paid for
The NEM moved spot-price settlement from 30 to 5 minutes, so fast-response assets like batteries are paid for exactly when they respond.
Australian Energy Market Operator (AEMO) · Australian Energy Market Commission (AEMC) · batteries, gas peakers and demand response
the move
In a gross-pool energy-only market, generators bid into a dispatch engine run every five minutes and the marginal offer sets the price each period. The National Electricity Market ran that way, but the price used for settlement was the average of five-minute dispatch prices over a 30-minute interval.
That 30-minute settlement overstated the value of responding slowly and understated the value of responding fast. A battery that can respond in five minutes was being paid an average price that could be far below what it would have earned in exactly the five minutes it dispatched.
The Australian Energy Market Commission changed the settlement interval to five minutes, starting in September 2021. Now each five-minute dispatch price is settled on its own, so fast-response technologies — batteries, new gas peakers, demand response — are paid for the value they actually provide at the moment they provide it.
The rule change was explicitly justified as giving a more accurate signal of the value of investing in fast response and flexibility.
why it works
- Five-minute settlement means a fast asset is paid the price for the very interval it acts, not a 30-minute average.
- It signals the value of speed, which is exactly what batteries and quick peakers sell.
- Averaging over 30 minutes meant slow assets captured the peak of volatile prices while fast assets did not, distorting investment.
- The change required reworking dispatch and settlement to settle each five-minute auction price on its own.
what transfers
If your clock is coarser than the thing you reward, you price it wrong: shorten the settlement interval until it matches the asset's speed, and the market pays for speed.
what came after
Five-minute settlement took effect from October 2021 and is credited with improving the investment case for storage and flexible resources in an energy-only market, making prices more transparent and closer to real-time dispatch.
references
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