Day ahead market coupling
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DAY-AHEAD MARKET COUPLING. Challenges for the SEM. Framework Guidelines. Day-ahead price coupling is a key feature of the final draft Framework Guidelines on congestion management issued by ERGEG in February 2011.

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DAY-AHEAD MARKET COUPLING

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DAY-AHEAD MARKET COUPLING

Challenges for the SEM


Framework Guidelines

  • 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


SEM High Level Design (HLD)

  • 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.


Singular features of the SEM

  • Price Formation

    • System Marginal Price (SMP) based on a unconstrained stack of available generation optimised over the trading day.

  • Gate Closure

    • Set long in advance of real time to allow participants time to plan based on indicative dispatch.

  • Generator Offers include

    • 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


Interpretation of the key requirements for market coupling

  • Price Coupling;

    • Which means, simultaneous calculation of prices and volumes across several markets by a ‘price coupler’ which operates at a trans-national level.

  • 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


Comparison Of SEM and Other NWE Markets

  • Number of physical markets

    • SEM: Single Mandatory Pool based on Ex-post Price

    • NWE: Multiple forward and spot markets

  • Form of generation bids

    • SEM: commercial and technical bids (SRMC )

    • NWE: Simple and Block bids

  • Market scheduling and dispatch

    • SEM: Central scheduling by optimisation algorithm (TSO).

    • NWE: Self-scheduling based on contracted positions

  • Timing of gate closure

    • SEM: Currently day-ahead at 10am for data submissions only.

    • NWE: Intra-day gate closure within a few hours of real time

  • Composition of wholesale prices

    • SEM: Separate prices for energy and capacity

    • NEW: Prices reflect a single product with no explicit separation of energy and capacity


Day Ahead Options for the SEM

  • 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.


Poyry Proposals

  • 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

  • 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?


Implementation

  • 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 day-ahead 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.

  • 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.

  • 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.


Final Considerations

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 high-level features.


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