From 30- to 5-minute settlement rule in the NEM: An early evaluation

Abstract

Australia’s National Electricity Market has shifted from 30- to 5-minute settlement (5MS)— a major regulatory reform since its inception. Using a Bayesian structural time-series model over the period 1 October 2021 to 31 May 2022, we demonstrate that despite having no immediate impact on price dynamics, 5MS eventually exerts upward pressure on spot prices over time. Price volatility remains essentially unchanged. Moreover, dispatch-weighted prices (DWPs) for flexible battery generators increase. DWPs for aggregated gas generators barely change, while DWPs for incumbent black coal-fired generators unexpectedly increase. These findings support the notion that the market is gradually adapting to 5MS. For a more effective adaptation, energy policies must be in place to lower entry barriers for flexible, dispatchable generation capacity and reduce market concentrations.