All-Island Energy Market Forum

1. All-Island Energy Market Forum James Hutchinson Head of Electricity Markets Ofreg Drogheda 12 March 2004

2. Content • The NERA study • The Northern Ireland approach to Further Market Opening under the EU Energy Directive • The All-Island Wholesale Generation Market

3. The NERA study Part I

4. The NERA study • Ofreg chairs a consultative panel - the “IME Group” • Commissioned NERA economic consultants to conduct a study into: • (A): How to interface most effectively with MAE? • (B): What are the costs and benefits to NI electricity customers of joining MAE ?

5. NERA Part A • Published Jan 04 - Ofreg website, with CER response • Outlined the features of MAE • Proposed recommendations for efficient interface with MAE on the assumption that NI would trade with, and not join, MAE • Studied similar markets and interfaces for reference

6. NERA Part B • Currently under way • Aims to assess the cost/benefit to the NI customer of integrating fully with MAE • Modelling work being completed at present, expect report to be delivered to IME Group in draft form by end March.

7. Process : Interface • CER is in the process of determining final market rules • Interface arrangements discussed in MAE consultative groups • Ofreg and NI participants involved in the process • CER/Ofreg will opt for an interface arrangement which best suits the needs of both markets

8. Further Market Opening in Northern Ireland, 2004-2007 Part II

9. Background • Market must open to non-domestic customers in 2004 and fully by 2007 • 2004 : Phased market opening • Market Structure largely unchanged • bilateral contracts, half-hour on-line meters • modification to Top-up arrangements - introduction of a secondary top-up with a 15% tolerance band around nomination

10. Wholesale Electricity Pricing • Market opening takes place in the context of rising wholesale costs - coal, carbon etc • NI legacy contracts from privatisation - cost recovery would take place over a smaller customer base were market opening to proceed as it had up to 2001. • EU Directive required a movement of certain costs from the BST to the PSO levy

11. BST, PSO and SSS • Three charges to reflect the differing types of cost which originally made up the wholesale price under the NI single buyer structure • New arrangements reflect the move to a Long-Run Marginal Cost BST, with system charges and PSO levies as appropriate

12. Implementation • April 2004 : eligibility threshold reduced from 0.79 GWh to 0.5 GWh, equates to 1,000 eligible customers • “Soft Start” approach whereby systems will be procured and tested to facilitate full customer participation by January 2005, equates to 60,000 potential customers • Steering Group of IME overseeing the process

13. The All-Island Wholesale Generation Market Part III

14. Interconnector Energy Transfers • Data on interconnector transfers and ATC

15. Future Developments • Emissions Trading 2005 • M A E 2006 • ROI/Wales Interconnector

16. Post MAE • Northern Ireland will sell/buy from MAE market • Economically efficient trade limited by system constraints (330 MW NS, 0 MW SN) • Option of full incorporation in MAE • Good Neighbour trading has benefits

17. Good Neighbour Trading • recognises the physical limits • pushes towards joint transmission planning transparent sharing of security costs • reduces price of electricity in ROI and NI • provides additional safety net for transitional period

18. All Ireland Electricity Market: Conclusion • Cross border trade and price convergence • Physical constraints limit integration • Need to deal together with hardware issue; managing gas supplies, interconnectors, emissions reductions, security of supply