Five-Minute Settlement in Utilities: What You Need to Know

A fundamental change is coming to the Australian utilities market that will affect metering and IT systems as well as the spot and contract markets. The change comes into effect on 1st July 2021 and during this transition period utilities must assess whether their IT systems are ready and able to handle the flood of data that is coming.

What is Five Minute Settlement?
The Australian National Electricity Market (NEM) works as a pool or spot market where supply and demand are matched in real time through a dispatch process that is coordinated by the Australian Energy Market Operator (AEMO).

The dispatch process occurs every five minutes and works like this:

  1. Generators make offers to supply the market with certain amounts of electricity at a certain price.
  2. AEMO decides which generators are going to be needed to meet demand, starting with the lowest cost one and working up. The dispatch price for the five-minute interval will be the price of the most expensive generator that is needed.
  3. AEMO informs these generators of their target for the upcoming five-minute period, i.e. they are “dispatched”.
    However, the price that generators receive (known as the spot price) is currently only settled every 30 minutes and is calculated as the average of the dispatch prices during the preceding six, five-minute periods.

The diagram below helps to explain this.

Source: AEMC Fact sheet: How the spot market works

The dispatch price is set by the price of the highest cost generator required in the five-minute interval. For the six intervals in the graphic the dispatch prices are: $40, $80, $80, $100, $100 and $80.

This averages to $480/6 = $80 which is the spot price for the half-hour trading interval.

From 1st July 2021 the settlement period for the spot price will change from 30 minutes to five minutes, so both dispatch and settlement will occur at five-minute intervals. The spot price will be determined each five-minute trading interval instead of being an average across a half hour. This will align the market’s price signal with the physical electricity system.

Why are we doing this?

Let’s start with why we didn’t do this before. When the NEM was created in the 1990s, the five-minute dispatch period was chosen as the shortest that was practicable. However, limitations in metering and data processing back then meant that five-minute settlement was not considered feasible and a 30-minute settlement period was adopted.

It is expected that aligning the price signals with physical operations will lead to more efficient bidding, operational decisions and investment.

In the example above the spot price for the half hour interval came to $80 but Generator 5 was offering its electricity for $100 so in this case the generator would theoretically have lost money. Put simply, the AEMC considered that the misalignment between supply and demand was resulting in negative consequences for the wholesale market, which ultimately impacts consumers.

With a five-minute settlement period the behaviour of participants on both the supply and demand side will be more efficient because they will know that the five-minute price is the one they will be getting, rather than having to wait for the average over the 30-minute period. Essentially, it will more accurately reward those who can deliver supply or demand side responses exactly when they are needed by the power system.

It is expected to lead to efficient investment in new technologies (such as batteries) that can support the increasing amounts of variable renewable energy being deployed in Australia. This should allow wholesale prices to fall which should lead to lower electricity bills for consumers.

It should also encourage and reward consumer participation in the market, both through demand response and virtual power plants.

Also, it is expected to eliminate gaming of the market by generators. There is evidence that generators have been taking advantage of the 30-minute settlement period by bidding very high in one five-minute period to guarantee a high average price for the half hour, and then bidding very low to ensure their generation is dispatched.

How will this affect utilities?

The impact on utilities depends on the market role played by the participant. Impacts during the transition period prior to July 2021 as well as after are summarised in this document from the Australian Energy Market Commission (AEMC).

The biggest impact for utilities will be the amount of data they receive. In general, they will receive six times as much meter data for customers/sites with a smart meter (288 five-minute intervals instead of 48 half-hour intervals). This will not only impact database growth but also the performance of processes such as meter read upload, billing and any extracts to data warehouses or analytics. In addition, the network load will increase for consumers wanting to view their usage data via digital channels such as web and mobile.

Meter data providers will need to ensure their meter fleets are capable of recording data at five-minute intervals and their meter data collection, processing and publishing systems are all capable of handling the shorter interval while still meeting data delivery SLAs.

There will also be configuration changes required in the backend IT systems to change meter profiles to store the more granular data. Customer portals and self-service apps may need adjusting.

Impact on Utilities running SAP

SAP is committed to supporting Australian utilities to meet their 5MS obligations.

Interval Read Loading and Processing

SAP’s Industry Solution for Utilities (IS-U) is already set up with the option for five-minute intervals and is therefore 5MS compliant. This applies to all versions of IS-U.

In addition, stress tests performed back in 2011 demonstrated the ability of IS-U to scale to handle the processing of 960 million daily interval reads (10 million customers with 15-minute interval data) with no deterioration in performance. And that was before HANA and S/4HANA.

SAP IS-U run times for interval read upload, billing order preparation and ToU billing for 15-minute interval data and up to 10,000,000 customers. Source: AMI Performance white paper

Market Communications

SAP provides a framework to efficiently model, execute and monitor business processes in deregulated markets known as SAP Market Process Management (MPM). MPM provides utilities with a solution to handle market interactions such as B2B transactions and CATS notifications. The SAP Innovative Business Services Organisation (IBSO) tailors MPM to specific market participant roles.

With the 5MS detailed requirements unfolding, there may be changes to B2B procedures. This means that in July 2019, there could be additional B2B requirements that could impact MPM. For customers implementing MPM, the SAP IBSO can update their MPM solutions which will also be updated to include any changes to the NEM12 file format as required by 5-minute settlement.

SAP is working with utilities running SAP IS-U to review their current implementation and assess their readiness for 5-minute settlement. Considerations such as SAP system performance, sizing, customisations reviews and batch window implications are examples of what SAP can assist with.