The Math Explained…
AEMC has explained the mathematics as to how the 30 minutes settlement is calculated and how it leads to unfair pricing: The dispatch price is set by the price of the highest cost generator required in the five-minute interval. For the six intervals in the graphic, the dispatch prices are: $40, $80, $80, $100, $100 and $80.
This averages to $480/6 = $80 which is the spot price for the half-hour trading interval. Due to this averaging of the price, the generator bidding at $40 receives double the amount of what the bid was, whereas the generator with dispatch price as $100 incurs a loss.
The difference in time-period (dispatch at every 5 minutes and settlement at 30 minutes interval) was primarily due to historical arrangements prior to market start, including limitations on metering and data communications.
The technological advancements such as smart meters, enhanced metering infrastructure, analytics for better forecasting and fast generators in place, it has now become possible to dispatch and determine the spot price for every 5 minutes.
Let us now understand the impact of this rule change on the utilities value chain, trading and short-term trade life cycle.
(Source: AEMC Fact sheet: How the spot market works)