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Industry forum

Industry forum. Review of Electricity Trading Arrangements Sheldon Park Hotel 21 st November 2002. These presentation slides were accompanied by an oral discussion, so that the slides alone do not fully represent the presentation content.

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Industry forum

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  1. Industry forum Review of Electricity Trading Arrangements Sheldon Park Hotel 21st November 2002

  2. These presentation slides were accompaniedby an oral discussion, so that the slides alonedo not fully represent the presentation content. • This presentation represents the views of the speakers only. This presentation does not necessarily represent the views of others atPA Consulting or the views of our clients.

  3. Tom ReevesCommissioner Welcome and background Review timetable High level options Objectives and Terms of Reference Open forum Specific issues for Ireland

  4. Timetable for today Chair: Cathy Mannion, Head of Generation and Supply, CER

  5. Keelin O’BrienManager, Electricity Trading Welcome and background Review timetable High level options Objectives and Terms of Reference Open forum Specific issues for Ireland

  6. Rationale for revised arrangements • Ministers policy direction: • “The Commission for Electricity Regulation [would] carry out a review of the overall trading arrangements early in 2004, with a view to introducing, after completion of the transitional period, appropriate wholesale market arrangements applying equally to all bulk generation and supply in Ireland.” • Accelerated review to help provide certainty in the market and ensure adequate time for any implementation

  7. Objective of Review • The primary objective of the review is that: • the trading arrangements should deliver an efficient level of sustainable prices to all customers, for a supply that is reliable and secure in both the short and long-run.

  8. Commissions Duties & Functions • Other Objectives of review will be in line with the duties and functions of the Commission: • Security of Supply • Promoting Competition • Minimising of Entry Barriers • Transparency • Mimimising Risk • Minimising Transaction Costs • Fostering Renewables and CHP • These will be developed over the next few months

  9. Scope of Review • The scope of the review includes: • Trading Arrangement • Pool • Gross or net • Market Types • Energy • Capacity • Ancillary services • Financial Markets • Spot • Forwards and futures • Price Setting • Demand Side Options

  10. Network Issues • A number of network issues must also be considered including: • Dispatch Rules • Access Rights • Constraints and Payments • Treatment of Losses • Transmission Tariffs • outside trading arrangements but could impact on trading

  11. Market Structure Issues • Market structure issues are also need to be addressed: • Impact of Market Power • Arrangements for PES post 2005 • Supplier Of Last Resort • Tariff Regulation • Economic Purchase Obligation • Transition for Existing Competitors

  12. External Environment • There are a number of external factors which may impact on our market: • EU Developments • New directive • Cross border tariffs • Interconnection with NI / Scotland • E/W Interconnection • Possible Convergence of Markets • Inter-relationships between Gas / Electricity

  13. Stuart CursonPA Consulting Welcome and background Review timetable High level options Objectives and Terms of Reference Open forum Specific issues for Ireland

  14. Consultation process for the review • Principles of the review: • To begin with a broad range of possible options • To hold structured consultation throughout the review • To facilitate one to one discussion between stakeholders and the review team • To incorporate stakeholder feedback into the review • To gradually focus upon a single option following the consultation periods • This review does not begin with a pre-formed solution for the Irish Market.

  15. Forum to present more detailed options and areas requiring further consideration Consultation timetable Today’s forum to present high level options Project plan D J O N F M A Review framework Stakeholder consultation Option analysis Stakeholder consultation Detailed design Implementation planning Consultation period on option detail, concludes with decision on way forward by CER Stakeholder consultation period, bi-lateral meetings included. Concludes with a summary paper Detailed design and implementation planning begins before decision to allow improved decision making Deliverable CER workstream Consultation period

  16. Ed KeePA Consulting Welcome and background Review timetable High level options Objectives and Terms of Reference Open forum Specific issues for Ireland

  17. High level options • The purpose of this section is to: • Consider basic market structures used around the world • Gain a common understanding of the status quo • Consider which basic structures may be appropriate for Ireland

  18. Vertical Integration High level generic market types Bilateral Contract Mandatory Pool Balancing market Generation PPAs Pool Balancingmarket Dispatch Physical supply contracts Financial CfDs Transmission Distribution Supply/Retail France, US (pre-market) Australia, Singapore NETA, California, FERC SMD Examples Czech Republic, Malaysia

  19. Areas not for consideration • It has been decided that that the following models are not considered to be suitable future market types for Ireland: • Vertical integration • Bi-lateral contract only • It is unlikely that either of these would satisfy EU requirements

  20. Current industry structure ESB - PG Generation Independent market and system operator Independents Transmission Distribution ESB - PES Supply ESB - PES Customers

  21. ESB - PG Independent market and system operator Transmission Distribution ESB - PES ESB - PES Currently there is a regulated tariff arrangement between ESB PG and PES Regulated tariff arrangement Tariff based upon cost to serve analysis

  22. ESB - PG Independent market and system operator Transmission Distribution ESB - PES ESB - PES Independents enter the market via bi-lateral contracts Bi-lateral contracts Independent generators and retailers enter in bi-lateral contracts to hedge customer prices

  23. ESB - PG Independent market and system operator Transmission Distribution ESB - PES ESB - PES VIPP contracts VIPP contracts VIPP contracts allow ESB to supply independents, but these contracts expire before the end of the transitionary period

  24. VIPP contracts The transitionary arrangements have evolved into the current status quo ESB - PG ESB may be able to directly supply independents Regulated top-up and spill market Congestion management Regulated tariff arrangement Bi-lateral contracts Transmission Distribution ESB - PES

  25. Features of the status quo

  26. ESB - PG Contracts for power can be bi-lateral or via a power exchange Current regulated arrangements possibly stay in place, although their form may change Power Exchange Balancing market & system operator Transmission The exact nature of the power exchange may be defined or left to independent providers Distribution ESB - PES Decentralised market

  27. Features of a Decentralised market

  28. Centralised market ESB - PG All power is bought and sold through the spot market Financial CfDs between parties to hedge prices in the spot market Mandatory spot market Transmission Current regulated tariff may be replaced with financial contracts Distribution ESB - PES

  29. Features of a centralised market

  30. Ed KeePA Consulting Welcome and background Review timetable High level options Objectives and Terms of Reference Open forum Specific issues for Ireland

  31. A number of issues face Ireland • Some issues are specific to Ireland and some are common in all markets, although their relative importance may be different • Short-run issues: • Optimal real-time dispatch • Real-time locational price signals for generation or load • Liquidity in the contract or imbalance markets • Longer-run issues: • Generator investment incentives • Transmission congestion • Locational signals for new generation/new load • Cost recovery (congestion, PSO, etc) • Market dominance of ESB • Options for customers with access to market

  32. There are also important economic and physical inter-dependencies to be considered Interconnection with Northern Ireland which is, in turn, connected to Scotland Interconnection between England and Scotland is being upgraded The Irish economy has grown dramatically over the last decade and so has the consumption of electricity. The Irish economy is approximately 1% of the total EU economy. Existing wholesale market structure (e.g., small numbers of participants, ESB dominance etc.) must be reflected in any new market design. Low wholesale electricity prices due to overbuilding, NETA, and other issues. Britain is interconnected to continental Europe for both gas and electricity Continental Europe in the process of major electricity industry and market reform Potential for direct connection to England & Wales

  33. Two important institutional and structural issues • The paper highlights two key issues in Ireland: • Generation adequacy • Market dominance • There are a number of different possible solutions to these issues • There are also a number of other issues which also are very important and will be considered in due course, including: • Security of supply • Promotion of competition • Minimising transaction costs • Fostering renewables

  34. Generation adequacy • Generation adequacy is a key concern. Electricity markets address this by: • Energy and contract market price signals; or • Separate capacity markets or mechanisms • There is concern that markets alone may not deliver adequate generation • Separate capacity markets or mechanisms could include: • A default buyer who can enter into contracts to encourage new entry • Development incentives (outside market) tender for new generation • Capacity requirements upon retailers

  35. Default buyer Default buyer in a centralised market Possible new IPP The default buyer may enter into financial contracts with any new IPP and retailers if the market is not delivering sufficient reserve capacity ESB - PG Mandatory spot market Transmission Current regulated tariff may be replaced with financial contracts and may remain in place Distribution ESB - PES

  36. Market dominance • ESB PG currently controls more than 70% of generation capacity, new entrants may see this as a risk to entering the market • In some markets, hedging and vesting contracts have been imposed to reduce the impact of market dominance and maintain acceptable retail prices • Such contracts can be achieved in a number of ways including: • Direct regulated contracts between incumbent generators and retailers • Customers have contract rights and can transfer them between retailers • A third party regulated dominant buyer for all incumbent generation • Alternatively, price or bid caps could be imposed to control market power

  37. ESB - PES Dominant buyer Dominant buyer in a centralised market ESB - PG The dominant buyer is a party in all transactions between the business units of ESB and may enter into contracts with IPPs and retailers if the market is not delivering sufficient reserve capacity Mandatory spot market Transmission Distribution

  38. Cathy MannionHead of Generation and Supply Welcome and background Review timetable High level options Objectives and Terms of Reference Open forum Specific issues for Ireland

  39. Conclusion Welcome and background Review timetable High level options Objectives and Terms of Reference Open forum Specific issues for Ireland

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