Marchment Hill and State of Matter are leading advisors to the utility sector and have come together to develop a point of view on the recent decisions on Five Minute Settlement in a Covid-19 environment.
What is 5 Minute Settlement (5MS)?
5MS is about aligning dispatch of energy to settlements of energy (dispatch is at 5ms and Settlements is at 30mins). It’s a piece of work aligning both to 5 minutes.
Regardless of external influences, the Five Minute Settlement and Global Settlement (GS) changes demand the creation of complex – and costly – change programs. They also impact all market participants throughout the value chain, making any disruption a big deal.
In response to COVID-19, a 12-month delay was initially proposed by the Australian Energy Market Operator (AEMO) to help absorb the impact on program timelines, prioritise ongoing energy supply and to support customers dealing with the economic and social fallout of the pandemic. Whilst awaiting a formal decision, AEMO worked closely with market participants under this assumption, encouraging some market participants to divert resources and management focus away from implementing 5MS and GS.
The impact of Covid-19
In some important respects, Covid-19 has had a limited impact on the energy market. Whilst commercial demand is down and residential demand is up, we have not seen any major supply issues and both spot prices and futures are down. There will be impacts on revenue as customers struggle to pay their bills. We expect issues with bill collections to play out over the next year or so.
The primary business impact has been managing organisational complexity and dealing with the rapid transition to remote working which has posed a significant challenge to entrenched ways of working and cultural norms.
The Formal Delay
Despite the prevailing assumption of a 12-month delay, The Australian Energy Market Commission (AEMC) announced that the implementation of 5MS and GS will be delayed by just three months. They determined that this balanced the impacts on the industry’s capability to implement 5MS/GS changes against the “additional costs and deferred benefits associated with a longer delay”.
Any participant who spent the last four months preparing for a lengthy delay is now faced with the task of pivoting back to their original 5MS/GS timelines, but may not be able to recover the lost time.
This poses a serious risk that some participants will be non-compliant ahead of the new commencement dates.
These market participants must ask themselves two key questions in light of the AEMC announcement:
- What is the Minimum Viable Product (MVP) needed to ensure compliance and how can it be delivered within an appropriate risk profile?
- What are the most significant dependencies with concurrent transformation / improvement programs that contribute to achieving the MVP successfully?
AEMO have also stated that they will continue to work towards their original timeframes, expecting market participants to keep up with them. This further strengthens the need for participants to focus on achieving compliance by October 2021.
Marchment Hill and State of Matter have joined forces to develop a complete 5MS/GS solution offering. This solution combines the industry experience of both firms, with a focus on helping clients achieve compliance whilst also harnessing the transformation that 5MS/GS will bring.
Our tailored expertise includes:
- A deep understanding of 5MS/GS and how it sits within the broader reform agenda.
- Knowledge of the technical implications of 5MS/GS, including network reconciliation, billing, metering and ETRM, supported by a familiarity with common vendor roadmaps.
- Recognition that 5MS/GS will impact key industry functions such as metering, front and back office wholesale and market reconciliation, meaning that changes are not merely technical and will have significant cultural impacts on how teams work and interact.
- Rigorous risk management, especially when it comes to compliance.
- Program management skills that ensure the success of complex program delivery.
How we can Help
We can provide focused support to successfully deliver 5MS/GS changes, which include:
- Defining and agreeing the MVP and ensuring the delivery program is focused on delivering it within the context of the broader reform agenda.
- Implementing and governing a robust risk management process to ensure transparent and focused alignment to 5MS/GS requirements.
- Managing key technology partners across CRM, billing, reconciliation and EDPR to ensure requirements are aligned with the MVP. This support can include the evaluation of vendor product roadmaps.
- Assessing and designing tailored change management interventions to ensure the organisation is ready for 5MS/GS.
Getting this right can help you make up for lost time and implement the most cost effective, least risk solution available to you, creating a foundation for a smooth transition into other elements of the reform agenda such GS, CDR, Switching, Wholesale, Trading, MSATS standing Data.