Transcript The Capacity Payment Mechanism in the Single Electricity

The Single Electricity Market
in Ireland
Tony Doherty
Northern Ireland Authority for Utility
Regulation
Outline
 Background
to the markets
 Challenges
 Objectives
 Market
 What
of market
Design
happens next?
Background

Northern Ireland
―
―
―
―
―
9,026 GWh
Installed Capacity 2270MW
Around 0.7 million
consumers
Fully privatised industry
Bilateral Physical Contracts

Republic of Ireland
―
26,627GWh
― Installed Capacity 7920MW
― Around 1.8 million
consumers
― State control of most of the
industry
― Bilateral Physical Contracts
Interconnection with GB; 500MW current with another
500MW planned
HHI (energy) ~ 3000
Average age of plant (by MW) on island ~18 years
Plant Mix NI
Generation Mix
Wind 9%
Other 1%
Coal 21%
Plant Mix RoI
Oil 10%
Gas 59%
Peat 4%
Distillate 10%
Hydro 6%
Wind 12%
Other 1%
Coal 22%
Gas 39%
Distillate 6%
Why are we doing this?
Government policy
―All Island Development Framework
―Political Drivers
―Economic Drivers
European policy
Challenges for the SEM
Relatively small market with little
interconnection
 Two Governments; two System Operators;
two Regulators
 New generation investment needed
 Potential for significant market power
issues

Objectives of SEM

Deliver efficient level of sustainable prices to
customers….supply that is secure in short and
long run on an all-island basis

Promote competition

Minimise transaction costs for participants and
customers; and

Enable demand side management
Design Selection – Centralised vs
Decentralised

Security of Supply - greater price transparency
improves longer term investment signals

Efficiency - transparency helps address
dominant structure improving market efficiency

Equity - obviates need for physical contract
making access easier for new entrants

Competition – harder to compete in
decentralised market with few players
Design Selection – Central vs Self
Commitment
 Security of Supply – greater flexibility to
TSO
 Stability – greater TSO control
 Practicality – reduction in pre-despatch
requirements
Key Features of the SEM
Gross mandatory marginal pricing pool
operated on an unconstrained basis
 Short Run Marginal Cost bidding in energy
market
 Explicit Capacity Payment Mechanism
(CPM)
 Directed Contracts
 Market Monitoring Unit
 New regulatory body for oversight of
market

Market Monitoring Unit
Directed
Contracts
Market Power
Suppliers
MWh
MWh
ESB
ESB PES
Pool
NI Gens
NIE PES
Others
Others
Generators
£
€
Risk
£ €
Single Market Operator (Joint Venture)
IT Systems / Invoicing / Settlement / Credit
Rationale for a CPM




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Prices – prospect of more stable prices;
Market entry and risk – stable predictable
cash flows will reduce the risk premia for
new investment;
Intervention – energy only pool would
attract more political/regulatory
intervention;
Transparency – greater transparency in
pool prices;
Competition – attract new entry and
improved availability;
Dominance – can help with dominance
Objectives of the CPM







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
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Incentivise appropriate levels of market entry and exit;
Not ‘double pay’ generators;
Reduce risk premium for investors;
Reduce market uncertainty;
Be compatible with the energy market;
Be transparent, predictable and simple to administrate;
Encourage short-term availability when required;
Encourage efficient maintenance scheduling;
Not increase costs to customers for desired security
margin;
Not unfairly discriminate between participants; and
Encourage an efficient mix of plant types.
CPM Key Features


Fixed amount of cash (the Pot) per year
Pot determined as Price x Volume
― Price: Best New Entrant Peaking Plant fixed costs
― Volume: Capacity required to meet adequacy
standard

Pot allocated for Generator Payments:
― Fixed (year ahead)
― Variable (month ahead)
― Ex-Post (month end)


Generators paid when available
Pot allocated for Supplier Charges:
― Based
on demand
Pot Profile from Nov 07 to Dec 08
€ 70,000,000
€ 60,000,000
€ 50,000,000
€ 40,000,000
€ 30,000,000
€ 20,000,000
€ 10,000,000
€0
Nov-07
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec-08
What happens next?

Market trials on track

Go Live on 1 November

All Island Gas Market

Regional Electricity Markets