Continued exploration of shorter settlement periods is ‘really exciting’

The government’s decision to continue exploring the possibility of shortening electricity market settlement periods is “really exciting,” an industry expert has told Utility Week.

Tom Luff, practice manager for electricity markets policy at the Energy Systems Catapult, said it is something his organisation has been looking at “for a number of years.”

Parties trading on the wholesale electricity market buy and sell power in 30-minute blocks, reflecting the current duration of Imbalance Settlement Periods. During each of these periods, they are charged by the Electricity System Operator for any imbalance between their contracted and physical positions.

Last week, the Department for Energy Security and Net Zero launched a second consultation for its Review of Electricity Market Arrangements, in which it revealed it is still considering reducing the length of settlement periods, perhaps down to as little as 5 minutes.

The department said the current half-hour periods are “arguably insufficiently granular with respect to the changes in supply and demand that might take place within a given period. This may deny opportunities to market participants that are able to act flexibly, in response to sudden price movements.”

DESNZ said shortening Imbalance Settlement Periods to 5 or 15 minutes, for example, could “potentially lead to greater market participation by smaller and innovative flexible and demand-side response assets, and reduce overall costs by moving volumes out of the Balancing Mechanism and into the wholesale market.”

Responding to its decision to keep this option on the table, Luff said: “It’s really exciting actually that it was included and it was slightly unexpected. It is something that we in the Energy Systems Catapult have been thinking about for a number of years.” 

He said shortening settlement periods could enable customers to earn more money for shifting their demand in response to market prices, noting that countries like Australia already have a 5-minute settlement periods.

Luff said it will be “really important to test those proposals with consumers and that’s something that we’d like to explore.” 

DESNZ said any decision to shorten settlement periods will require “careful consideration” of the likely costs and benefits, which could “vary significantly” depending on whether it adopts other reforms such as zonal power price and centralised dispatch of assets. It said the costs of upgrading metering and notifications systems to facilitate shorter settlement periods are likely to be substantial.