Challenges for the SEM
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Day-ahead price coupling is a key feature of the final draft
Framework Guidelines on congestion management issued by ERGEG
in February 2011.
The Framework Guidelines will inform binding network codes to be
developed by ENTSO-E over the next two to three years
The network codes for day-ahead and intraday are expected to be
developed first, with finalised versions scheduled to be issued by Q1
2012
The key challenge for the SEM is that our market design is
fundamentally different from the approach used in the rest of North
West Europe
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The SEM market design is based on a ex-post
gross mandatory pool with central
commitment.
◦ All electricity must be sold and bought through a
central electricity pool.
◦ There is no opportunities for bilateral physical
power transactions outside the pool
◦ Generators are required to submit bids which
reflect their short run marginal costs and are
dispatched according to the merit of their offers.
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Price Formation
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Gate Closure
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Generator Offers include
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◦ System Marginal Price (SMP) based on a unconstrained
stack of available generation optimised over the trading
day.
◦ Set long in advance of real time to allow participants
time to plan based on indicative dispatch.
◦ Commercial bids (PQ) pairs and start-up costs
◦ And technical parameters such as minimum running
levels, ramp rates and minimum run times.
◦ SRMC
Transmission Constraint Payments
Explicit Capacity Payment Mechanism
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Price Coupling;
◦ Which means, simultaneous calculation of prices and volumes
across several markets by a ‘price coupler’ which operates at a
trans-national level.
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common gate closure times;
comparable prices and bid formats;
participation of buyers and sellers;
Firm day-ahead trades (Price and Quantities).
sharing of all bid data between power exchanges
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Number of physical markets
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Form of generation bids
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Market scheduling and dispatch
◦ SEM: Single Mandatory Pool based on Ex-post Price
◦ NWE: Multiple forward and spot markets
◦ SEM: commercial and technical bids (SRMC )
◦ NWE: Simple and Block bids
◦ SEM: Central scheduling by optimisation algorithm (TSO).
◦ NWE: Self-scheduling based on contracted positions
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Timing of gate closure
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Composition of wholesale prices
◦ SEM: Currently day-ahead at 10am for data submissions only.
◦ NWE: Intra-day gate closure within a few hours of real time
◦ SEM: Separate prices for energy and capacity
◦ NEW: Prices reflect a single product with no explicit separation
of energy and capacity
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Pöyry provided advice on the options for the
development of a day-ahead trading solution
for the SEM.
The SEM Committee asked for options for the
day-ahead trading solution which:
◦ allow a day-ahead coupling of the SEM and
neighbouring markets that is compatible with the
requirements set out in the draft Framework
Guidelines.
◦ not fundamentally alter the SEM rules.
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Six conceptual options for a day-ahead trading were propose. They
were derived from the answers to three key questions:
◦ Should participation in the day-ahead market be mandatory or voluntary?
◦ What is the form of generation bids into the local day-ahead market?
◦ How are day-ahead volumes made firm?
The options were assessed according
to TSC Objectives:
•Promotion of competition;
•Efficient administration of the SEM
•Efficient ex-post pricing
•Opportunities for risk management
•Size of constraint payments
•Compliance with European
developments
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The role of price coupler should be played either by a new
Irish power exchange or by some existing in the NEW region.
Given remit, the most plausible solution for the Irish dayahead market would be a CfD market with settlement in the
ex-post SMP.
Common bid format (Simple Vs. Complex)
◦ Market Participants or the price coupler would have to convert the
Irish complex bids into simple bids.
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Comparable prices (Energy Only vs. Explicit Capacity)(CfD?);
◦ Market Participants or the price coupler would have to bundle energy
and capacity in a single energy only bid.
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firm day-ahead trades
◦ In order to keep market participants whole between the Day-Ahead
and the SEM ex-post market, some sort compensation could be put in
place to eliminate the volume risk between the two markets.
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To a large extent, the SEM HLD reflects the
particular challenges that a small, relatively
isolated island system faces in maintaining a
secure supply and mitigating market power.
Whilst the electricity markets in North West
Europe differ from each other in detail, they
have similar characteristics for these highlevel features.