The Global Settlement change explained

The Global Settlement change explained

The Australian Energy Market Operator (AEMO) is responsible for settlement in the National Electricity Market (NEM).  Its role is to ensure that market generators are paid for the energy they provide, while retailers pay for the energy their customers use. 

What is settlement-by-difference and unaccounted for energy (UFE)? 

Since 1998, the Australian Energy Market Operator (AEMO) has settled the wholesale market in the NEM through a settlement-by-difference method which means the ‘local retailer’ for a distribution area bears the risk for all ‘unaccounted for energy’ (UFE)Not all energy consumed is currently accounted for by electricity retailers. UFE refers to the difference between the amount of energy being drawn into a distribution zone and how much is picked up on the meters that has been consumed by end customers after technical loss factors are applied. There are many possible sources of UFEthese include electrical losses, unmetered loads and estimation errors.

What does the settlement-by-difference approach mean? 

This approach has meant that the market was able to operate without the need for expensive metering upgrades for all customers. However, the local electricity retailers (who were the incumbent retailers at the start of the market) carried the risk more than those retailers who entered the market after this time.  

Since 1998, there have been significant changes in metering, with the roll-out of smart meters and advances in communication technology. There has been a significant number of customers that have changed retailers, meaning the concept of using the incumbent retailer was no longer applicable in many jurisdictions. 

How will Global Settlement work? 

Global Settlement will mean that AEMO settles the market using the same process for all retailers. This means all retailers will be billed for the energy uncertainties or UFE within a distribution area.  

Under the new rule, every retailer will be billed for the loss-adjusted metered electricity that is consumed by their customers within a given region. The AEMO will then allocate the UFE to market customers in that local area, pro-rated based on their “accounted-for” energy. These charges will then be passed on to customers by their retailer via their energy rates, or as separate market charges¹. 

Global Settlement will officially begin on May 1 2022, after being delayed due to the global pandemic from the original planned start date in February 2022. 

The AEMO will oversee the change and has been collecting and publishing data on Unaccounted for Energy (UFE) since October 1, 2021. 

Possible impacts to businesses 

Under the new AEMO rules, the cost of UFE, which was previously absorbed by the incumbent retailer, will be passed on to consumers. 

AEMO believes that the process will lead to fewer settlement disputes because of the improved ability to identify metering errors and will assist in other areas such as forecasting and the management of distributed energy resources¹.  

We encourage you to visit the AEMC website for further information on global settlement.  

 

¹https://www.aemo.com.au/-/media/files/electricity/nem/5ms/program-information/2020/global-settlement-fact-sheet-updated-july2020.pdf