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New Arrangements in the UK Market

New Arrangements in the UK Market. Brian Saunders CEO, ELEXON Ltd. The information in this presentation has been collated by ELEXON and while all due care has been taken to ensure the accuracy of this information, ELEXON accepts no responsibility for errors. Problems of the Pool. One price

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New Arrangements in the UK Market

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  1. New Arrangements in the UK Market Brian SaundersCEO, ELEXON Ltd The information in this presentation has been collated by ELEXON and while all due care has been taken to ensure the accuracy of this information, ELEXON accepts no responsibility for errors.

  2. Problems of the Pool • One price • Mechanism • Manipulation Supply sets the price Demand Takes the price • Barrier

  3. Years ahead (?) 24 hours (?) Longer-term bilateral trading Gate Closure Short-term bilateral trading Participants trade bilaterally on a range of markets (OTC and exchange based) emerging in response to market needs. …then fine tune their position on-the-day as uncertainty reduces. Exchanges are operating Participants secure the majority of their generation/load under longer term products ...

  4. Years ahead (?) 3.5 hours ½ hour Balancing Mechanism Trading period Gate Closure Bilateral trading Balancing services contracts To balance the system in real time and resolve transmission constraints the System Operator … ...accepts Balancing Mechanism Bids and Offers... ...and calls-off Balancing Services contracts Voluntary, pay-as-bid, firm At Gate Closure... …bilateral trading stops,… ...contracts volumes are notified to Settlement,... ...and Bids and Offers are submitted to the Balancing Mechanism Participants deliver/take energy based on contractual obligations

  5. Years ahead (?) 3.5 hours ½ hour After the event Balancing Mechanism Trading period Settlement Bilateral trading Gate closure Balancing services contracts Payments for bilateral contracts are settled between counterparties. In central Settlement… …participants’ energy imbalances only (contract volume less metered output) are cashed-out at imbalance prices ... ...and payments for BM actions are made

  6. How It Works Contract volumes Imbalances Meter readings Cash-out Payments Imbalance Bills x Balancing Bids and Offers Top-up and Spill prices Facilitates and has to be consistent with full competition in supply of electricity to all customers

  7. System Buy and Sell Prices Spill price (System Sell Price) £ SO Sells £ Bids to decrease output or increase consumption Over-production or Under consumption Settlement System Top-up price (System Buy Price) £ SO Buys £ Offers to increase output or decrease consumption Under-production or Over consumption (Compared to Contract Notification) Paid at Bid/offer prices Cash out prices -the average of bids and average of offers accepted (Compared to Physical Notification) Balancing Mechanism Imbalance Cash-out Before the Event After the Event (Note: the flow of money is shown for positive prices. Prices can go negative)

  8. What Changes Under NETA? • Little physical change • Generators still generate (FULL COMPETITION) • Suppliers still supply (FULL COMPETITION) • Customers still deal mainly with suppliers • SO still manages the system in real time • Half hourly • Changes in economic incentives, information & instructions and settlement • Changes in Governance - independent of industry

  9. What Changes Under NETA? • No Central Despatch - Balancing Mechanism and Balancing Services • Commitments are firm • contracts notified - imbalances are paid for • bids and offers are firm commercially • Settlement is nett • Balancing participation is voluntary • No explicit capacity payments

  10. Market Structure • 153 signatories to the new Code and rising • 116 active participants • 60-80 Separate entities • ~10 Pure traders • 8 Large vertically integrated

  11. Progress so far It’s worked but lots of operational challenges for the Company

  12. How Has It Gone? • >414,000 contract notifications • BM activity and indicative prices on BMREPORTS.COM

  13. Participation Contract Position? - close to total National Demand Physical Position? - System over notified

  14. What Does That Mean? Nett exposure to imbalance is small Volume in BM is small - Cash Out prices driven by small volumes - Price of energy not set by Imbalance Settlement or the Balancing Mechanism

  15. Imbalance Prices

  16. Volatility

  17. Summary of Market views and prices

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