isem quick guide - eirgrid · quick guide to the integrated single electricity market 1. what is...

EirGrid Group ndash I-SEM Quick Guide (COVER 02)indd 1 01022017 1701

The current The future

Quick Guide to the Integrated Single Electricity Market

The I-SEM Project Version ˜

ISEM_Quick Guide_DM (branding fix) FApdf 2 14012017 1730


Contents

1 What is the I-SEM 3

2 Market coupling 4

3 Administration 5

4 Markets 6

5 Participation and roles 8

6 Trading options 9

7 Settlement and credit risk 10

Abbreviations and symbols

Abbreviation Term

BM Balancing Market

CfD Contract-for-Difference

CM Capacity Market

CMU Capacity Market Unit

DAM Day-Ahead Market

FWM Forwards Market

FTR Financial Transmission Right

IDM Intraday Market

IEM Internal Energy Market

I-SEM Integrated Single Electricity Market (arrangements)

MW MWh megawatt (electrical power) megawatt hour (electrical energy)

SEM Single Electricity Market

TSO Transmission System Operator

copy 2016 EirGrid plc Page 2



1 What is the I-SEM The Integrated Single Electricity Market (I-SEM) is a new wholesale electricity market arrangement for Ireland and Northern Ireland The existing market arrangements are replaced by multiple markets or auctions each spanning different trading time frames with separate (although related) clearing and settlement mechanisms covering both energy and non-energy commodities

Note The all-island electricity market is still referred to as the Single Electricity Market (SEM) but for the purposes of this document the existing arrangements are referred to as the SEM and the new arrangements are referred to as the I-SEM

The new market arrangements are designed to integrate the all-island electricity market with European electricity markets making optimal use of cross-border transmission assets which according to the SEM Committee1 is expected to ldquodeliver increased levels of competition which should help put a downward pressure on prices as well as encouraging greater levels of security of supply and transparencyrdquo In addition to integration with Europe some of the key considerations in the design of the I-SEM included how energy is bought and sold how generators are remunerated for availability forward trading arrangements and market liquidity market power controls and the systems policies and procedures that are required to operate the market

The new market arrangements present participants with many new challenges but they also offers participants many new opportunities Broadly the I-SEM arrangements are intended to

bull enable broad participation in energy markets bull increase the opportunities for participants to trade in different time frames bull provide participants with a variety of arbitrage and hedging opportunities bull maximise the efficient use of interconnectors in system balancing bull provide cost drivers for system balancing and bull integrate balancing and system security actions with market operation

The I-SEM arrangements are due to go live mid-2018

Note Following the UK Brexit referendum in June 2016 the SEM Committee voiced its continuing support for I-SEM noting that ldquothere are good economic reasons for the all-island market which exist independently of European Union law or policyrdquo

1 SEM Committee is the peak decision-making body for the SEM lthttpswwwsemcommitteecomgt



1-SEM

bull Coupled markets

Planned

-= lnterconnectors

$amp()amp+amp)amp-)01)(amp23)amp43)$0$5amp610)amp

gt4-$AB1C I634)8F((58lt43FT-5--3+4639)(+]U(87)3-8+8+X5)463)87)3-8+V R6385F)3+R(46463)345N1)53V()3-4([3-ltF--lt86)5851 4)8F((58lt43F74(-(823+451)538F)23446)5196)34L)(4(8[(463 =5lt-37843)588345)TX5)463)87)3-8+4554-8+U8+4634A3478588345) T7)3-8+45-3U

I637843)8-83)9lt=)234T7=UN5)3-34)((4lt8+9(5835N46323lt(--)N5) 4631)538(89-3F)234Q)334)+3)5Z5)+3)8+858A+()(F(84(58 Z34R338(843)8-8+)5AZ5)+3)4)84(58)3463N518+4(585N463(89-3 F)234(834633)-ltJJ$V46([((586Z338)59)3([3-lt)3-(3+46)5196 463)34(585N83R-39(-4(58Zlt4631)538M5FF((58

(46463(F-3F3844(585N4637A=(8$HV4637=R(--5F)(3$5184)(3 TQ(91)3UV(8-1+(897)3-8+8+X5)463)87)3-8+V51-3+ZltCH)5AZ5)+3) (843)588345)V584(8(89454-9383)4(89(4lt5N5[3)CV$$$43)R44TIU

DCA3 7$-1C-$amp6ECampamp8)$$ampFgtG3HI

=)23451-(89(463F38ZltR6(64633383)9ltF)234)3(8439)43+I5 38Z-3)5AZ5)+3)4)+3)51)53V3651-3+F)234(F-3F384 5FF58345N)1-38+48+)+(3+R65-3-34)+(89))893F384I6(( 6(3[3+Zlt+54(894631)538I)934=5+3-VR6(6(463Z-13)(84N5)F)234 (8439)4(58)54637=V(8-1+(894637A=a3ltN341)35N463I)934=5+3- )3`

$amp())(+- gt93D



bull A common price coupling algorithm for scheduling day-ahead markets and determining flows between geographic regions

bull Energy trading within regions and across borders up to close to real time bull A hedging facility for price differences between regions due to transmission congestion

bull Integrated balancing arrangements that will ultimately enable neighbouring system operators to trade between regions as part of balancing

In a coupled market energy transactions involving sellers and buyers from different bidding zones are centrally collected to maximise the most efficient and effective trades Trades from one bidding zone to another are only restricted by cross-border capacity Market coupling involves system operators working together to allocate cross-border capacity and optimise cross-border flows without the need for explicit auctions

In theory with market coupling as long as energy can flow freely there will be a single price When the network is congested prices diverge The price differential between bidding zones incentivises investment in the most efficient infrastructure to relieve the congestion

3 Administration The SEM Committee is the governing body for the I-SEM It oversees the design and implementation of the I-SEM and makes decisions on licenses and market codes relevant to the implementation of the I-SEM The mission of the SEM Committee is to protect the interests of consumers of electricity by promoting effective competition in the sale and purchase of electricity through the I-SEM

The Regulatory Authoritiesmdashthe Commission for Energy Regulation (CER) in Ireland and the Utility Regulator (UR) in Northern Irelandmdashare responsible for administration of the market codes licensing of market operators and participants and monitoring the operation of the I-SEM and the conduct of its participants

The Transmission System Operator (TSO) in Ireland is EirGrid and SONI is the TSO for Northern Ireland Responsibilities for market operations settlement and credit risk management are split between the TSOs SEMO (a joint venture between EirGrid and SONI) and the (European) Joint Allocation Office (JAO)

EirGrid and SONI are also the Nominated Electricity Market Operators (NEMOs) for their geographic regions2 in the (coupled) ex ante markets The NEMOs interact with the (European) Market Coupling Operator (MCO) who is responsible for running the market coupling process

2 TSOs in other bidding zones can also act as a NEMO in the SEM subject to complying with the NEMO rules



Years

Financial Months

Weeks

Days

Hours

Physical

Minutes

Seconds

Real time


5[3)8838++F(8(4)4(585N4637=8+(843)F)234834R5)25+3N--18+3) 463PE938ltN5)M553)4(585N83)9ltS391-45)TEMSU8+4631)538 X34R5)25NI)8F((58lt43FW3)45)N5)-34)((4ltTXIWAUEMS 5[3)33463+3[3-5F3845N4637=V8+XIWA()358(Z-3N5)+3[3-5(89 463+34(-3+4368(-8+5FF3)(-)3_1()3F384N5)F)23451-(89

M4-$amp I637A=5F)(34R53Y843C383)9ltF)234VZ-8(89F)234V4R5F)234 N5)N(88(-(84)1F384V8+F)234N5)(4lt)3F183)4(58I633F)234 53)43(8+338+384-lt8+58+(NN3)3844(F3-(83

DCAgt -$$0N-0amp

CI6343)F3Y843]F38N)5FZ3N5)3]8+(-(3+45F)234464)3)18Z3N5)3463383)9lt( +3-([3)3+V(3Z3N5)3)3-4(F3E83Y843F)234(-5)3N3))3+4554]F)234

$amp())(+- gt93amp



Ex ante markets There are two ex ante markets for physical energy the Day-Ahead Market (DAM) and the Intraday Market (IDM) As the names imply the DAM closes the day before delivery and the IDM operates in the interval between closure of the DAM and one hour before delivery

The DAM is a highly liquid pan-European market and is the cornerstone of European market integration The DAM is operated by the MCO and participants submit orders via their respective NEMOs who in turn interact with the MCO

The IDM operates in a similar fashion to the DAM (although there are some important differences) and provides traders with the ability to adjust their positions as market conditions fluctuate closer to real timemdashfor example an unscheduled outage

Balancing market Before and into real time the TSO calls on balancing services to keep the transmission system balanced (ie energy supply = energy demand) Energy balancing services are offered into the Balancing Market (BM) by generators (energy producers) and suppliers (energy consumers) For example if demand is higher than expected the TSO might instruct a generator with available capacity to increase its output The generator is then paid through the BM for the additional energy used to balance the grid

Note The TSO can also call on non-energy balancing services such as voltage regulation or energy reserves

A participantrsquos net energy position is the accumulated volume of all its trades in the ex ante markets (DAM and IDM) and any balancing actions taken by the TSO in the BM

Financial instruments The I-SEM provides market participants with hedging facilities against price fluctuations in the forwards time framemdashthat is months to years in advance of energy delivery4

A Contract-for-Difference (CfD) purchased in the Forwards Market (FWM) is a hedging instrument in which a price is struck (the rdquostrike pricerdquo) for a quantity of energy delivered on a future day The contract holder then receives or pays the difference between the contract strike price and the spot price (called the ldquoreference pricerdquo) As a financial trade the CfD results in a profit or loss in euros but there is no resultant net energy change

4 The Forwards Market and FTR auctions are European-wide and available to SEM participants but are not formally part of the I-SEM arrangements and not covered by the I-SEM design or codes




A Financial Transmission Right (FTR) purchased in an FTR auction is a hedging instrument that protects the holder from price differentials between coupled markets If energy flows freely between adjacent ldquobidding zonesrdquo (eg the islands of Ireland and Great Britain) then the price in each market will be equal However if flow on an interconnector is congested prices will diverge FTRs are offered by interconnector owners and the revenues they earn is called ldquocongestion rentrdquo

Capacity market Capacity is a commitment by a generator or interconnector owner to be available to deliver energy into the grid if called on to do so Capacity providers who are successful in the Capacity Market (CM) receive a regular capacity payment which assists with funding generation capacity The costs of purchasing capacity are socialised amongst suppliers and funded in part by the capacity providers returning revenues above a regulated ldquostrike pricerdquo back to suppliers

5 Participation and roles Participation in the Balancing Market is mandatory for most generators And participation in the Capacity Market is mandatory for interconnectors and most generators But participation in the other markets is at the discretion of the participant The roles available to participants in the I-SEM are outlined below

Role Description Markets

Generator

Supplier

Assetless Trader

Interconnector

Agent of Last Resort (AOLR)

Capacity Market Unit (CMU)

Generators supply energy to the grid

Suppliers take energy from the grid for consumption

Assetless Traders take positions in the ex ante markets but have no physical assets

Interconnectors offer capacity in the CM and FTRs in FTR auctions They do not trade in energy markets but they can have exposure in settlement of the BM for differences between dispatched and delivered positions

The AOLR is an automated data processing service provided through the market systems to facilitate participation by smaller generators in the ex ante markets

Interconnectors and large generators are represented in the Capacity Market as CMUs Small or intermittent generators can be aggregated

All

All

DAM and IDM

CM BM FTR auctions

DAM and IDM

CM



0 Capacity

remuneration

Capacity strike price

0

CfD strike price

Reference price (DAM)

Forwards hedge

~ Capacity Market

~ Forwards Market

i -c s

Net ex ante posit ion

Balancing action

~----_ Cw

Q) u -~ a

Quantity (MWh)

- Day-Ahead Market

- lntraday Market

Net position post balancing

C w

c u +- ro c V)

ol

Uninstructed deviation

gt -~ u ro c ro u

- Balancing Market


T42-CB$amp Ilt(--ltV9383)45)8+1-(3)R(--34Z-(66lt(-5(4(58(84633Y843 F)23445)3+13463()3Y51)3(8463L=I6(NN5)+4)+3)463N-3Y(Z(-(4lt5N +h14(89463()5(4(58(84637O=145583651)Z3N5)3)3-4(F3gt)4((848 N1)463))3+13463())(2Zlt+54(89)Z(4)938+63+9(894)439(3)(5)45 3843)(894633Y843F)234E4)+(89)56464F(964Z313+ZltVltV F3+(1FA45A-)939383)45)((--14)43+(8Q(91)3GVR6(6+3F584)435F35N463 4)+(8954(58[(-Z-345)4((84

DCAJ O-0B1$-CBamp$

5F3lt3)(8+[835N4634)+(89+ltV4639383)45)3--(4lt(8463M(4lt =)234I6()5[(+34639383)45)R(46)391-)(85F34)3F45N18+(4ltW8

463+ltV(N46354)(3(8463OE=T463)3N3)383)(3U3Y33+463(4lt4)(23 )(3V4639383)45)lt4633Y3)3[3813Z2454631-(3)7846(3V463 54)(3(-5R3)4684634)(23)(3V54639383)45)(854-(Z-3N5)8lt++(4(58- ltF384

5F3F5846(8+[835N4634)+(89+ltV4639383)45)1)63MNO(8463 Q5)R)+=)234I63MNO)54344639383)45)9(84-5R)(313+ZltVltV

1)-1(4ltN)5F1)53N-5R(89(845463=W8463+ltV46354)(3((8N4 -5R3)468463MNO4)(23)(3V8+54639383)45)((+463+(NN3)383Z34R338 4634R5)(3Zlt463)4ltR655-+463MNO7N46354)(3R6(963)V463

$amp())(+- gt93J


0


generator would instead pay the difference to the other party

The day before the trading day the generator succeeds in establishing a position in the DAM that reflects its expected delivery in that trading period The DAM is cleared daily and the generator is paid for the energy it successfully offered into the market at the DAM spot price

On the day due to improved weather conditions demand is lower than expected and the generator successfully adjusts its position in the IDM The generator effectively buys energy back at the IDM spot price which it sold the day before at the DAM spot price In this case the IDM spot price is lower than the DAM (because demand is lower than expected) so the generator makes a trading profit

But elsewhere in the grid there is a problem with a transmission line which is restricting flow from another generator And so to compensate the TSO instructs the generator to increase its output The generator will be paid for the energy it supplies for balancing at a price determined in the BM which might be higher or lower than the ex ante spot prices

However due to operational issues the generator is unable to achieve the instructed output level The generator is being paid for the balancing energy it failed to deliver (in 5) and so it must pay for this deviation at a price calculated in the BM for such deviations

The generatorrsquos net (post-dispatch) energy position is the sum of all its trades in the DAM and IDM plus any instructed energy balancing actions less any uninstructed deviations

The trading options available to suppliers are similar to the options described above for generators except that their net energy position will usually be negative

7 Settlement and credit risk Separate settlement and credit cover arrangements apply in each market and under the rules of each market operator

The ex ante markets are settled daily Each participant appoints a clearing membermdasha bank that is a member of the European Commodity Clearing (ECC) clearing housemdashwho settles with the market operator on behalf of the participant The ECC acts as a central counterparty for all payments in the market and guarantees payments in the event of a default by a participant The ECC assesses the collateral requirements of each clearing member and ensures it holds adequate security to protect against default Each clearing member then imposes similar obligations on the participant

The Balancing Market is settled weekly Settlement documents reflect balancing and capacity transactions in that billing period Credit management is in the form of credit cover provided by a qualified bank The market operator draws on the participantrsquos credit cover to cover any defaults and monitors the exposure of every participant Settlement in the BM takes into account instructed and uninstructed imbalances The payments and charges that arise from balancing depend on the nature of the

copy 2016 EirGrid plc 0



imbalance the commercial data submitted the status of the generating unit the available metering data and other data

Settlement and credit risk management for the FWM and FTR auctions are outside the I-SEM arrangements



The Oval 160 Shelbourne Road Ballsbridge Dublin D04 FW28 bull Telephone 01 677 1700 bull wwweirgridcom This document is subject to change Please contact EirGrid to make sure you have the latest version



Contents

1 What is the I-SEM 3

2 Market coupling 4

3 Administration 5

4 Markets 6

5 Participation and roles 8

6 Trading options 9

7 Settlement and credit risk 10

Abbreviations and symbols

Abbreviation Term

BM Balancing Market

CfD Contract-for-Difference

CM Capacity Market

CMU Capacity Market Unit

DAM Day-Ahead Market

FWM Forwards Market

FTR Financial Transmission Right

IDM Intraday Market

IEM Internal Energy Market

I-SEM Integrated Single Electricity Market (arrangements)

MW MWh megawatt (electrical power) megawatt hour (electrical energy)

SEM Single Electricity Market

TSO Transmission System Operator

copy 2016 EirGrid plc













1-SEM


Planned

-= lnterconnectors







$amp())(+- gt93D















Years

Financial Months

Weeks

Days

Hours

Physical

Minutes

Seconds

Real time




DCAgt -$$0N-0amp


$amp())(+- gt93amp



















Generator

Supplier

Assetless Trader

Interconnector









All

All

DAM and IDM

CM BM FTR auctions

DAM and IDM

CM



0 Capacity

remuneration


0

CfD strike price


Forwards hedge

~ Capacity Market

~ Forwards Market

i -c s


Balancing action

~----_ Cw

Q) u -~ a

Quantity (MWh)

- Day-Ahead Market

- lntraday Market


C w

c u +- ro c V)

ol


gt -~ u ro c ro u

- Balancing Market



DCAJ O-0B1$-CBamp$





$amp())(+- gt93J


0
































1-SEM


Planned

-= lnterconnectors







$amp())(+- gt93D















Years

Financial Months

Weeks

Days

Hours

Physical

Minutes

Seconds

Real time




DCAgt -$$0N-0amp


$amp())(+- gt93amp



















Generator

Supplier

Assetless Trader

Interconnector









All

All

DAM and IDM

CM BM FTR auctions

DAM and IDM

CM



0 Capacity

remuneration


0

CfD strike price


Forwards hedge

~ Capacity Market

~ Forwards Market

i -c s


Balancing action

~----_ Cw

Q) u -~ a

Quantity (MWh)

- Day-Ahead Market

- lntraday Market


C w

c u +- ro c V)

ol


gt -~ u ro c ro u

- Balancing Market



DCAJ O-0B1$-CBamp$





$amp())(+- gt93J


0


































Years

Financial Months

Weeks

Days

Hours

Physical

Minutes

Seconds

Real time




DCAgt -$$0N-0amp


$amp())(+- gt93amp



















Generator

Supplier

Assetless Trader

Interconnector









All

All

DAM and IDM

CM BM FTR auctions

DAM and IDM

CM



0 Capacity

remuneration


0

CfD strike price


Forwards hedge

~ Capacity Market

~ Forwards Market

i -c s


Balancing action

~----_ Cw

Q) u -~ a

Quantity (MWh)

- Day-Ahead Market

- lntraday Market


C w

c u +- ro c V)

ol


gt -~ u ro c ro u

- Balancing Market



DCAJ O-0B1$-CBamp$





$amp())(+- gt93J


0






































Generator

Supplier

Assetless Trader

Interconnector









All

All

DAM and IDM

CM BM FTR auctions

DAM and IDM

CM



0 Capacity

remuneration


0

CfD strike price


Forwards hedge

~ Capacity Market

~ Forwards Market

i -c s


Balancing action

~----_ Cw

Q) u -~ a

Quantity (MWh)

- Day-Ahead Market

- lntraday Market


C w

c u +- ro c V)

ol


gt -~ u ro c ro u

- Balancing Market



DCAJ O-0B1$-CBamp$





$amp())(+- gt93J


0





















0 Capacity

remuneration


0

CfD strike price


Forwards hedge

~ Capacity Market

~ Forwards Market

i -c s


Balancing action

~----_ Cw

Q) u -~ a

Quantity (MWh)

- Day-Ahead Market

- lntraday Market


C w

c u +- ro c V)

ol


gt -~ u ro c ro u

- Balancing Market



DCAJ O-0B1$-CBamp$





$amp())(+- gt93J


0





















0




















isem quick guide - eirgrid · quick guide to the integrated single electricity market 1. what is...

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