Market Efficiency – Sub-Hourly Settlement

Engagement outcomes

The AESO believes that SHS is a superior market design to the current hourly settlement interval as it allows for better price fidelity, incents flexibility, and reduces uplift payments. Over the course of the engagement, we have completed our analysis and concluded that the cost of implementing SHS far outweighs the benefits. Due to this we have made the decision not to pursue SHS at this time. We received stakeholder feedback from a majority of stakeholders supporting our decision to conclude the SHS engagement.  They agreed with the AESO’s cost-benefit analysis and concluded that now is not the appropriate time or environment to place additional costs on stakeholders.

Some load participants wanted to further pursue SHS as they believed it would lead to a more efficient market. The AESO agrees with the efficiency comments; however, our analysis shows that the implementation costs outweigh the static efficiency benefits. The AESO would like to re-iterate advice provided during the final stakeholder session that recommended market participants, when making future changes to settlement and billing system, enable shorter interval settlement flexibility. Further, should there be industry-wide metering and settlement technology advancements that would significantly lower implementation costs, the AESO would revisit this recommendation.

Adjustment for load on the margin

During the SHS consultation, market participants identified that adjustment for load on the margin (ALM) may provide value for loads and should be explored. It would allow for dynamic benefits of sub-hourly settlement to be realized with a much lower implementation cost, would incent load to bid into the market, and allow for the equivalent treatment for load, as generators who receive payment for suppliers on the margin. The AESO believes there is merit in exploring ALM and will update stakeholders on the next steps for engagement once we have finished the prioritization of initiatives for 2021. For more information view the on the ongoing ALM stakeholder engagement initiative.

Background

The AESO has launched its engagement to examine the merits of moving to sub-hourly settlement for the energy market. During previous stakeholder consultations, it was identified that to manage the evolving generation mix, more flexibility in the fleet may be required. This led to further exploration of the issue which identified that sub-hourly settlements had the potential to incentivize flexibility and improve price fidelity for the Alberta market. 

Efficient operation of the market relies upon access to accurate prices that reflect the marginal costs of generating and benefits of using electricity. The more closely prices reflect the physical condition of the market, the more efficient the price signals. The mismatch between dispatch and consumption and settlement intervals may result in a poor quality price signal, and potentially incentivizes adverse dispatch response.