If you’re a business owner who consistently reviews your business electricity bills, or have your accounts department do it, then you may have seen a figure appear on your electricity bill which is labelled ‘Unaccounted for Energy’, and have wondered what this is.
From 01 May 2022, The Australian Energy Market Commission (AEMC) implemented a global settlement framework where every retailer is billed for the “unaccounted for” electricity that is consumed within a given area. This is allocated to retailers by the electricity market operator (AEMO) on a pro-rated based on the retailer’s total ‘accounted-for’ energy.
Global Settlement is the methodology that was adopted by AEMO to settle the energy market costs between the market participants. This method replaced the settlement-by-difference approach that had been in place previously.
Why was global settlement introduced?
AEMO is responsible for settlement in the National Energy Market (NEM) – making sure market generators are paid for the energy they provide, and retailers pay for the energy their customers use.
The wholesale market was settled through a settlement-by-difference methodology. This arrangement allowed the market to operate initially without the need for expensive and impractical metering to be installed. However, it entrenched different treatment of larger retailers, who were incumbent at the start of the market (referred to as Local Retailers) and those retailers that have subsequently entered the market.
With the roll-out of smart meters and advances in communication technology and the significant number of customers who changed retailers, the AEMC determined that it was time to change settlement processes to reflect these changes.
Previously the lost or ‘unaccounted for electricity’ in an area was charged to the local responsible retailer who was billed for all the electricity used, less the energy allocated to other retailers’ customers. By introducing the global settlement rule, this unallocated electricity was then more fairly allocated to all retailers – not just the Local Retailer.
So what is unallocated electricity? There are many ways that electricity is not unallocated – electricity is naturally lost as it passes through power lines, it may not be recorded at a meter due to theft or fault, a site may be energised and not properly metered, or – as is increasingly the case, electricity may be injected into the grid from solar energy systems.
How does Global Settlement work?
Global settlement works by first measuring electricity that is injected into a zone using “boundary meters” applying a loss factor and then allocating every electricity meter/use point to every retailer. The total energy that enters through the boundary meters is increased by the loss factors and the allocated energy is then deducted, leaving the unallocated energy. It is this unallocated electricity that is then allocated to each retailer on a percentage basis.
There are also a number of electricity using items connected to electricity networks that are not individually metered, such as street lights, telco boosters and some traffic lights. These items have defined electricity use levels and are allocated to retailers and billed to the responsible parties by the retailer.
Solar arrays will inject unused electricity into the local grid, where it is used by the next customer drawing from the grid. This added electricity offsets the unallocated used energy. In some areas, during sunnier periods, the amount of energy added by solar will offset unallocated energy completely.
What are the benefits of Global Settlement?
Global Settlement will mean that AEMO settles the market using the same process for all retailers. The new settlement process is expected to lead to fewer settlement disputes due to the improved ability to identify metering errors, and will assist in other areas such as forecasting and the management of distributed energy resources.
Global Settlement will also create an incentive for the industry to reduce unallocated electricity by rolling out smart metering and reviewing unmetered connections.
How will it impact Next Business Energy and its customers?
Global Settlement began on 1 May 2022. As the new Unaccounted for Energy rule comes into effect, Next Business Energy as your energy retailer will assess the impact of UFE on its customers and may elect to pass these charges through to its customers.
If you have any questions about Unaccounted for Energy, contact our team.