Transcript Glide-path Revised

FUI Electricity Regional Initiative
Stakeholder Group Meeting
Update on Single Electricity Market
Michael G Tutty
Commissioner, CER
4 July 2008
SEM Background (1)
• MoU signed by both Regulators (CER
and NIAUR) in August 2004
• SEM is first major step towards AllIsland Energy Market
• SEM Vision (December 2004):
“Wholesale electricity trading arrangements which
deliver an efficient level of sustainable prices to
all customers, for a supply that is reliable and
secure in both the short- and long-run on an allisland basis.“
SEM Background (2)
SEM Vision is supplemented by 5
objectives:
1.
2.
3.
4.
Security of supply
Promoting competition
Minimising transaction costs
Fostering use of renewable, sustainable or
alternative energy
5. Demand side management
SEM Design
• Mandatory Gross Pool
o Single System Marginal Price (SMP)
– Set based on ex-post unconstrained schedule
o Centralised unit commitment
– Constraint payments
– D-1 Gate Closure
– Complex bid structure
• Capacity Payments based on annual capacity
pot (€569m for 2008)
• Strategy for Dealing with Market Power Issues
SEM Pricing - Gross
Mandatory Pool (1)
• Generator bids in at Short Run Marginal Cost
(SRMC) – bidding principle
• Complex bidding structure – start up, no load and
incremental costs
• Single SMP set for each half hour trading period
• SMP - cheapest price at which the demand on the
system can be met
• Suppliers pay SMP (+ capacity payment and imperfections
charge)
• Generators receive SMP
(+capacity payment, constraints
payment and make whole payment)
SEM Pricing (2)
Generators
Generators bid in SRMC and if
scheduled generate power
Generators receive
SMP
Pool
Wholesale
Market
Suppliers take
power at SMP
Suppliers
pay SMP
Suppliers
Retail
Market
Customers
consume power
Customers
pay supplier
Customers
Capacity Payments (1)
• Fixed revenue capacity mechanism – providing
some financial certainty to generators
• Annual fixed pot broken down 12 monthly
‘capacity periods’
– Further divided between Fixed and Variable
payments, which cluster around high
demand or high outage probability trading
periods
• All generators eligible for capacity payments
when available
Capacity Payments (2)
• Annual Capacity Payment Sum is determined by RAs:
– peaker cost (€/kW) times capacity (GW) required (security
standard)
– profiled into twelve monthly amounts weighted by demand forecast
• Monthly amount for generation split into three components:
– ‘Fixed’: allocated across TPs based on annual load forecast
– ‘Variable’: allocated across TPs based on ‘month-ahead’ LOLP (λ)
– ‘Ex-Post’: allocated across TPs based on ‘month-end’ LOLP (Ф)
• Generators paid pro-rata based on ‘Eligible Availability’ and
scaled by a price factor
• Suppliers charged pro-rata based on metered demand and
scaled by a price factor
Pool & CPM Cashflow
Generator
Energy
Capacity
Constraints
Make Whole
MO
Energy
Capacity
Imperfections
Supplier
Claire Madden and Peter McLay
Market Power
Definition
The ability of a market participant, acting independently, to
raise market prices consistently and profitably above
competitive levels for a sustained period of time.
Market Share 2008 – By Capacity
Moyle, 5%
Wind, 15%
Aughinish, 2%
Tynagh, 4%
Edenderry, 1%
ESBI
Coolkeeragh,
4%
Synergen, 4%
Huntstown1+2,
7%
ESBPG, 42%
PPB, 16%
Market Power
Objectives
• To prevent market participants from abusing their
market power
• To maintain efficient incentives for new entry and
exit
• To expose the incumbents to competitive pressure,
which should lead to increased efficiencies
• Not to unfairly discriminate between new entrants
and existing players
Market Power
Mitigation Strategy
1. Directed Contracts (2-way CfD)
•
(approx. 1/3 of ESBPG output)
2. Bidding Principles
• All generators to bid at SRMC
• Bidding Code of practice established by
RAs
3. Market Monitor
4. Ringfencing
Hedging in the SEM
• All electricity bought through pool
• Too risky for generation or supply to rely
solely on spot prices
• Contracts for Differences (CfDs) used to
manage risk by generators and suppliers
• A mixture of Directed Contracts and Non
Directed Contracts
CfDs Available in the Market –
Directed & Non Directed Contracts
• Directed Contracts
– Generators with large market shares required to sell
power forward in quantities and according to price
methodologies set by the Regulatory Authorities.
• Removes market price manipulation incentive,
where it exists
– The quantification of these contracts is based on
concentration in the market – HHI Index
•
Non Directed Contracts
– Expect a hedge market to develop for non directed
contracts
– IPPs, ESB PG and NIE PPB to offer hedges for
remaining load through non directed contracts
– PG and PPB Auction Allocation Method
Hedging
Generators
Generators
bid in
SRMC
Generators
receive
SMP
One Way CfD
SMP>Strike
Generator
compensates
supplier
Pool
Suppliers take
power at SMP
Two way
CfD
SMP<Strike
Supplier
compensates
Generator
SMP>Strike
Generator
compensates
Supplier
Suppliers
pay SMP
Suppliers
15
SEM Committee
• Market overseen by SEM Committee with
decision-making powers
• Composed of CER, NIAUR and an
independent member (from Spain) with
one vote each
• Working well and already clear that this
represents a real pooling of responsibility!
Experience so far (1)
• SEM Working well
• Disputes arose on interpretation of
bidding principles by some generators
• After investigation, SEM Committee
issued decisions which have been
accepted by participants
Experience so far (2)
• Frequent price spikes experienced
• Seem to be due to treatment of a dualfuel generating station
• Measures to resolve this being developed
Experience so far (3)
• Good interest being shown by potential
new generators
• Directed contracts sold and non-directed
contracts auctioned for year from 1
October 2008 – prices much higher than
for earlier year!
The End