The Single Electricity Market in Ireland

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The Single Electricity Market in Ireland

• Tony Doherty
• Northern Ireland Authority for Utility Regulation

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Outline

• Background to the markets
• Challenges
• Objectives of market
• Market Design
• What happens next?

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Background

• Republic of Ireland
• 26,627GWh
• Installed Capacity 7920MW
• Around 1.8 million consumers
• State control of most of the industry
• Bilateral Physical Contracts

• Northern Ireland
• 9,026 GWh
• Installed Capacity 2270MW
• Around 0.7 million consumers
• Fully privatised 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
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Generation Mix
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Why are we doing this?

• Government policy
• All Island Development Framework
• Political Drivers
• Economic Drivers
• European policy

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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

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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

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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

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Design Selection Central vs Self Commitment

• Security of Supply greater flexibility to TSO
• Stability greater TSO control
• Practicality reduction in pre-despatch
  requirements

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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

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Market Monitoring Unit
Suppliers
MWh
MWh
Pool
Generators
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Rationale for a CPM

• 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

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Objectives of the CPM

• 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.

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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

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What happens next?

• Market trials on track
• Go Live on 1 November
• All Island Gas Market
• Regional Electricity Markets