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DAY-AHEAD MARKET COUPLING

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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  1. DAY-AHEAD MARKET COUPLING Challenges for the SEM

  2. 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

  3. 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.

  4. 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

  5. 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

  6. 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

  7. 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.

  8. 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?

  9. 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.

  10. 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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