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Creating a Single Electricity Market Across Borders: Pitfalls, Constraints, and Opportunities

Creating a Single Electricity Market Across Borders: Pitfalls, Constraints, and Opportunities . Paul K Gorecki Economic & Social Research Institute & Trinity College Dublin Energy Policy & Constitutional Change Scottish Constitutional Futures Forum 18 January 2013.

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Creating a Single Electricity Market Across Borders: Pitfalls, Constraints, and Opportunities

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  1. Creating a Single Electricity Market Across Borders: Pitfalls, Constraints, and Opportunities Paul K Gorecki Economic & Social Research Institute & Trinity College Dublin Energy Policy & Constitutional Change Scottish Constitutional Futures Forum 18 January 2013.

  2. Structure of Presentation • What is the SEM? • What is the legal basis for the SEM? • What is the SEM governance structure? • SEM success or failure? • Why has the SEM been a success? • Constraints/challenges: asymmetric shocks and EU policy

  3. What is the SEM? • Northern Ireland and Ireland • Wholesale electricity market • Live 1 November 2007 • Market rules in Trading and Settlement Code • Mandatory pool (>10MW bid into pool) • Bid price SRMC = fuel + carbon • Generators in merit order (supply schedule) • Demand = supply is SMP • Price set ex post 4 days after dispatch

  4. Wholesale Electricity Price Determination in SEM

  5. What is the legal basis of the SEM? • UK -Ireland MOU, “Single Electricity Market (SEM) Arrangements”, December 2006. • Objective: “the creation of a single, competitive, sustainable and reliable” wholesale electricity market • “The paramount importance of ensuring that the SEM is as competitive as possible … with regard to market power.” • Irish & UK legislation • Electricity Regulation (Amendment) (Single Electricity Market) Act 2007 • The Electricity (Single Wholesale Market) (Northern Ireland) Order 2007

  6. What is the SEM governance structure? • SEM Committee • Functions • SEM Decision making body • Governs operation of SEM (e.g. how to mitigate market power, complying with EU Target Model etc) • Organisation • Independent • Composition: 3 members Commission for Energy Regulation; 3 members The Utility Regulator, 1 independent member. • http://www.allislandproject.org/

  7. SEM: Success or Failure? • Objective: “the creation of a single, competitive, sustainable and reliable” wholesale market • Mitigating market power: mandatory pool, bid price SRMC, price based on merit order. Dominant firm divested generation capacity. • Facilitating Entry: regulatory credibility; market access; finding customers & pricing structure • Ensuring adequate generation capacity: Capacity Payments Mechanism linked to availability. • Result: General consensus that worked well.

  8. Why has the SEM been a success? • 1.Mutually beneficial to Ireland & NI • Smaller reserve • Pooling of expertise • More efficient dispatch & improved availability incentives • Greater competition • 2. Sound Analysis/Well Researched • “A Cost-Benefit Study of the Single Electricity Market”, NERA Consulting, November 2006. • Cost of SEM, €256.4 million in 2006 prices

  9. Why has the SEM been a success? • 3. Credible Regulatory/Governance Regime • Legislative underpinning • Independent, transparent & accountable regulation • Reduces regulatory risk = lower financing costs • 4. Consistent with EU Energy Policy • Second and Third Energy Packages • Promoting internal market in electricity • 5. All-Island Political Settlement • Good Friday Agreement (1998) • North-South Bodies under North South Ministerial Council • St Andrews Agreement (2006)

  10. Asymmetric Shocks and EU Policy • Asymmetric shocks • Affect Ireland or Northern Ireland only • Smaller partner accommodate larger partner • E.g. Carbon Floor price in UK • EU Policy • SEM and consistent with EU energy policy, but • Target Model and SEM • Central Dispatch vs. Self Dispatch • Mandatory Pool vs. Voluntary Bilateral Contracts • Limited intraday trading vs. continuous intraday trading

  11. Legal Documents: References • UK -Ireland MOU, “Single Electricity Market (SEM) Arrangements”, December 2006. • http://www.official-documents.gov.uk/document/cm70/7002/7002.pdf • Electricity Regulation (Amendment) (Single Electricity Market) Act 2007 • http://www.irishstatutebook.ie/2007/en/act/pub/0005/sec0003.html • The Electricity (Single Wholesale Market) (Northern Ireland) Order 2007 • http://www.legislation.gov.uk/nisi/2007/913/pdfs/uksi_20070913_en.pdf

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