Irish Electricity Market Overview

1
Irish Electricity Market Overview Procurement
Opportunities

• Peter Duffy
• Enercomm International

2
Overview of Presentation

• Current electricity market
• New electricity market
• The Supply business Suppliers in the market
• Electricity Tariffs
• Components of electricity prices Price
  Increases
• Supply Options Scope for savings
• Seeking the best deal for your company
• Suggested approaches
• Longer-term options including multi-utility
  supply

3
Todays Electricity Market

• Licenced generators sell bulk power to licenced
  suppliers
• These are termed Bilateral Contracts
• Shortfalls surpluses are dealt with by Top-Up
  Spill
• TSO dispatches conventional plant
• Wind generators (normally) self dispatch
• Wholesale settlement done by SSA
• Suppliers supply customers issue bills
• Based on their tariffs electricity usage
  (metering)
• Green suppliers must balance on an annual basis
• Green tracking done through settlement system by
  SSA

4
Irelands New Electricity Market

• Mandatory centralised pool (all gens/suppliers)
• Eirgrid will be the SMO (System Market Op.)
• LMP (locational marginal pricing /nodal pricing)
• CER SMO will determine the nodes to be used
• SMO will dispatch energy reserve together
• Settlement at spot market prices for actual vol.s
• Generators will be paid LMP
• Suppliers will buy at Universal Price
  (ex.dispatchable)
• Gens suppliers can hedge risks (CFDs/FTRs)

5
Supply Business with TU Spill
Gen1
Sup1
Cus.1
Gen2
Sup2
Bilateral Contracts
Cus.2
Gen3
Sup3
Cus.3
Top-Up Spill
Cus.4

• All electricity traded bilaterally between Gens
  to Suppliers
• Shortfalls Surpluses addressed through TU
  Spill

6
Supply Business with Pool
SMO
Gen1
Sup1
Cus.1
Gen2
Sup2
POOL
Cus.2
Gen3
Sup3
Cus.3
Cus.4
Hedge

• All electricity traded through pool, not from
  Gen to Supplier
• Hedge is bilateral contract between Gen
  Supplier

7
Suppliers in the Market

• Airtricity
• Viridian Energy (Energia)
• ESB Independent Energy (ESBIE)
• Bord Gáis
• CH Supply Ltd.
• Bord Gáis - Cogen
• ESB Customer Supply (ESB PES)

8
Electricity Tariffs

• Regulated tariffs
• Approved/published by the CER for ESB PES
• ESB PES cannot vary these
• Unregulated tariffs
• Driven by competition
• Independent suppliers can devise/develop their
  own tariffs, and compete in the market

9
Regulated Tariff Categories

• Urban (Standard, Nightsaver and Group)
• Domestic Rural (Standard, Nightsaver and Group)
• Residential Business Premises
• Commercial and Industrial General Purpose
  (Standard and Nightsaver)
• Commercial and Industrial Maximum Demand (low
  voltage)
• Maximum Demand (medium voltage)
• Maximum Demand (38kV)
• Maximum Demand (110 kV) transmission
• Public Lighting

10
Unregulated Tariffs

• Come in all shapes sizes
• Some simply track the equivalent PES tariff
• offer a percentage discount
• Some broadly track equivalent PES tariff
• May offer a flat winter/summer price element
• Result in majority savings achieved during winter
• Others are more sophisticated, numerous elements
• Can be quite opaque difficult to compare
• Can deliver good savings
• More suitable to large very large users

11
Components of Electricity Prices

• Essentially five compnents in the price
• Energy (generation losses)
• TUoS (Transmission Use-of-System Charge)
• DUoS (Distribution Use-of-System Charge)
• Suppliers margin
• Levies (PSO Capacity Margin)
• Energy Suppliers margin are the competitive
  elements

12
Approx. Break-down of Price
13
Basis for Price Increases

• Assume independent suppliers buying most of their
  power from new independent generating plant
• BNE price reasonably represents capital/fuel
  costs
• BNE price for 2004, fuel 61, all other costs
  39
• Approx 6 to 4 ratio
• Assume fuel costs in 2005 increase 10 over 2004
• Then this should increase energy costs by 6
• In last slide, energy is approx 75 of supply
  costs
• 10 increase in fuel costs ? 4.5 increase in
  elec. Costs
• 20 increase in fuel costs ? 9 increase in
  elec. costs

14
What is Driving Price Increases

• Fuel
• To what extent have independent generators hedged
  their fuel (gas) prices versus spot purchases
• Wires Charges
• CER reviewing the wires charging regime
• 4 increase in these would result in approx 1
  increase
• PSO
• CER has published possible levy
• 50 increase in these would result in approx 1
  increase

15
EU Emissions Trading

• On average the powergen sector has received 77
  of its CO2 permit requirements free
• Wholesale prices should reflect the full costs of
  CO2
• Intended to claw back all windfall gains
• Pass Through of Allowance Shortfall Cost in 2005
• Gens to submit quarterly reports to CER
• 100 Allowance Cost Pass-Through and Recycling in
  2006
• Enabling legislation required to levy generators

16
Impact of EU Emissions Trading

• Consider 2006
• Assume 30 TWh total elec. 16.5 Mtonne CO2
• Assume 10/tonne CO2
• 23 shortfall ? 16.5 Mtonne CO2
• Cost of 23 is 38m
• Represents 0.127 cent/ kWh
• BNE 2004 price is 4.79/kWh
• Represents approx. 2.6 increase relative to BNE

17
Supply Options Short Medium Term

• Stay with or revert to PES on published tariffs
• Sign suply contract with independent supplier
• One or two-year contract or longer
• Fixed energy price with pass-through of reg.
  Charges
• Variable energy price with pass-through of reg.
  Charges
• Take out a supply licence (self supply)
• Must now negotiate with generator rather than
  supplier
• Greater admin costs, low economy of scale
• Difficult to cut a better deal or costs than
  supplier

18
1-year v. 2-year Contract Offer

• No advantage for wires charges levies
• Cannot avoid them will be included in both
• Advantage in 2-year contract if gas prices rise
• Possible advantage in production planning when
  energy costs are largely fixed for two years
• Disadvantage in 2-year contract if gas prices
  fall
• It is hard to see energy prices falling
  significantly
• Ensure there is common understanding in applying
  CER-approved increased charges for 2nd year

19
2-Year Contract

• Changes in both Wires charges and PSO levy will
  be passed through
• In effect, approx 75 of the electricity price
  for 2004 is fixed at the 2003 price
• The remaining 25 (approx) subject to change
• Price clarity for the year low risk
• Supplier takes the risk of fuel (gas) price
  increases and other generation costs
• Makes sound economic sense in a price-rising
  market

20
Suggested Approach

• If large production facility seeks to fix its
  costs over a longer rather than shorter period
• For example labour, input and energy costs
• Then 2-year contract offer is the better option
• This fixes approx 75 of electricity costs
• Enables better financial/production planning over
  2-year horizon
• If seeking to fix costs over a short period
• Then 1-year contract offers the better option

21
Seeking the Best Deal

• Forecast demand for next two years based on
  historical demand future production plans
• Invite bids from independent suppliers
• both 1-year and 2-year bids
• Analyse bids against forecast
• Suppliers usually have their own bid format
• Is bid for forecasted (not suppliers) profile?
• Check supply conditions, no hidden
  costs/surprises
• Seek last minute negotiations can bring results
• Check that savings achieved during contract

22
Supply Options Longer Term Considerations

• Is natural gas coming to your location?
• Is there scope for CHP or polygeneration
  (electricity/heating/cooling)?
• Is there scope for autoproduction (on-site
  generation)? significant wires savings
• Stake in gen plant? multinational supply?
• Possible savings through multi-utility supply?
• Electricity, gas and telecoms