The Changing Face of the Electricity Market in the UK

2. The changing face of the Electricity Market in the UK Изменяющееся лицо рынка электроэнергии в Британии Университета Восточной Англии 25th October 2004 N. Keith Tovey, M.A. PhD, C.Eng MICE Energy Science Director Low Carbon Innovation Centre University of East Anglia, Norwich

3. The changing face of the Electricity Market in the UK • Abrief review of the UK Electricity Industry prior to 1990. • Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г • The Electricity Markets in the 1990s after Privatisation • Рынки электроэнергии в 1990 г после приватизации • The New Electricity Trading Arrangements • Новая система оптовой торговли НЕТА • The Supply of Electricity since 1990 • Сбыт электроэнергии с 1990 • Brief Review of the Regulator/Customer Protection/Metering

4. The changing face of the Electricity Market in the UK • Abrief review of the UK Electricity Industry prior to 1990. • Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г • Electricity Generation and Supply differences in approach between England / Wales and Scotland. • Генерация и сбыт - раличия между регионами • Fuels used for generation • Топливо, используемой для генерации

5. The Generation and Distribution of Electricity has always been different in Scotland compared to England and Wales (Шотландия всегда отличалась от Англии и Уэльса производством и распределением э/э ) Scotland (Шотландия): Two vertically integrated companies supplying discrete areas Scotland Шотландия 2000 MW EdF • Electricité de France England and Wales (Англия и Уэльс): One Generating Company (CEGB) and 12 Regional Electricity Suppliers (Одна генерирующая компания (CEGB) и 12 региональных поставщиков). [CEGB did NOT supply electricity to consumers] England and Wales Англия и Уэльс

6. Structure of Electricity Supply before and immediately after Privatisation in 1990 Scottish Hydro Scottish Power England & Wales Northern NORWEB Yorkshire Англия и Уэльс East Midlands MANWEB Midlands Eastern SWALEC London SEEBOARD Southern SWEB Scotland Шотландия • Scotland • Vertical Integration • two companies England and Wales 12 Regional Supply Companies also Distributed Network Operators.

7. Most Generating Capacity is in the North - most demand is in South Наибольший объем производства на Севере - потребления на Юге Interconnector to Scotland +1643 +7525 +418 -4709 -1963 Interconnector to France • Generating Capacity Surplus/Deficit • Избыток/дефицит объема производства • on February 12th 18:00 • (февраль 12, 18:00) • +ve: generating capacity exceeding demand (производство превышает потребление) • -ve: demand exceeding generating capacity (потребление превышает производство) MW

8. Immediately prior to Privatisation At start of New Electricity Trading Arrangments Mid 1990s

9. Изменяющееся лицо рынка электроэнергии в Британии • Demand has risen by 50% since 1970 (Потребление возросло с 1970 на 50 %) • Large rise in output from CCGT since 1993 • (Большой рост CCGT производства с 1993) • Nuclear output increased steadily but is set to decline • (Производство ядерной э/э возрастало постепенно, но пошло на убыль) • Coal [Oil] generation has fallen rapidly since Privatisation • (Производство угля (нефти) резко сократилось после приватизации)

10. Electricity Generation - pre 1990 Производство э/э - до 1990 • Decision on how electricity was to be generated was done on a generating set basis (Производство э/э осуществлялось согласно следующим принципам: • Generating Sets to run were selected on Merit Order. • Based on Marginal Costs (Основано на маргинальных ценах) • (i.e. the fuel costs - цены на нефть) Some generating sets were run OUT of MERIT ORDER where system constraints were an issue. • Generators sold electricity to Regional Electricity Boards (Производители продавали э/э региональным министерствам э/э) • Electricity Boards sold to consumers in their Area only (Региональные министерства продавли э/э потребителям только своей области) • Prices to consumers varied between regions (Цены для потребителей варьировались по регионам)

11. Изменяющееся лицо рынка электроэнергии в Британии • Most Generating Capacity in North(Наибольший объем производства на Севере) • Most coal-fired stations in North (Большинство угольных станций на Севере) • Most Oil-fired stations in South (Большинство нефтяных станций на Юге) • Nuclear stations - distributed around coast (Атомные станции рассредоточены по побережью) • Most Hydrostations are in Scotland (Большинство ГЭС в Шотландии) Significant power flows North > South

12. Privatisation of Electricity Supply Industry 1990 Приватизация в области энергетики в 1990 Central Electricity Generating Board Центральное National Power Национальная энергетика PowerGen Nuclear Electric • Coal (Угольные) Fired Power Stations • Oil (Нефтяные)Fired Power stations • Gas Turbine (Газовы турбины) Stations • Hydro Stations (ГЭС) • Nuclear Stations (Атомные) • Transmission (Трансмиссия) National Grid Company Национальная сетевая компания 12 Regional Electricity Companies (12 Региональных э/э компаний) 12 Regional Electricity Companies 12 Региональных э/э компаний

13. The changing face of the Electricity Market in the UK • A brief review of the UK Electricity Industry prior to 1990. • Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г • The Electricity Markets in the 1990s after Privatisation • Рынки электроэнергии в 1990 г после приватизации • The New Electricity Trading Arrangements • Новая система оптовой торговли НЕТА • The Supply of Electricity since 1990 • Сбыт электроэнергии с 1990 • Brief Review of the Regulator/Customer Protection/Metering

14. The changing face of the Electricity Market in the UK • The bidding process - Pool Input and Pool Output • Процесс подачи заявок в системе пула • The Electricity Pool • Электрический пул • The Electricity Markets in the 1990s after Privatisation • Рынки электроэнергии в 1990 г после приватизации

15. Scottish Nuclear (Атомная)* Scottish Hydro Consumers Потребители Scottish Power Electricité de France PowerGen Licensed Suppliers Лицензированные поставщики Consumers Потребители The Pool Пул Independents-Независимые BNFL (Magnox) RECs Industry-Промышленность Second Tier Consumers Вторичные потребители Nuclear Electric * Eastern ** Innogy Scotland England and Wales

16. The Operation of The Electricity Pool: 1990 – 2001 Функционирование Электрического Пула: 1990-2001 • Only the Generators (>100 MW) bid into the POOL to supply electricity e.g. National Power (now Innogy), PowerGen etc(В торгах POOL принимали участие только производители (>100 MW), таки как Национальная Энергетика (теперь Innogy), Powergen и т.д.) • The National Grid Company published projected demands for the following day and invited bids(Национальная сетевая Компания выдавала данные по спросу на следующий день и инициировала торги) • The Generators supplied bids for each generating set in each station for each half-hour period of the following day(Производители снабжали заявки на каждой станции для каждого получасового периода следующего дня) • The NGC sorted bids to determine which generating sets would be used for each particular period, and which ones would have capacity made available(NGC классифицировало заявки по каждому периоду

17. 1250 MW Bid from company E £19.50 per MWh Bid from company D £19.40 per MWh 1250 MW Bid from company C £19.32 per MWh 32500 MW 1250 MW Bid from company B £19.31 per MWh 1250 MW 1250 MW Bid from company A £19.20 per MWh (0.96R / kWh) • Range of bids from companies in range £18 - £19 per MWh • 0.90 - 0.95 Roubles per kWh • Range of bids from companies in range £15 - £18 per MWh • 0.75 - 0.9 Roubles per kWh • Range of bids from companies in range <£15 per MWh • 0.75 Roubles per kWh System Marginal Price = £19.31 SMP 10000 MW 10000 MW Companies up to and including B successful 10000 MW £1 ~ 50 Roubles

18. The Operation of The Electricity Pool Работа электрического Пула • All Companies who were successful were paid the SMP for all units generated irrespective of what their bid was (Все Компании, успешно оплатившие SMPнезависимо от цели заявки ) • The bids were for the single half-hour period and fresh bids were required for all half hour periods • (Заявки были на отдельные получасовые периоды и новый запрос делался каждые пол часа) • It was possible for companies to bid £0 and this would guarantee that they generated and paid SMP • (Было достаточно подать нулевую заявку и это гарантировало выработку ивыплату SMP) • However, if all Companies did the same they would have to generate electricity for nothing (Хотя если бы так поступали все компании электричество вырабатывалось бы в пустую) • In addition to the SMP, there was also a capacity charge relating to the generating capacity which was requested to be available

19. Value of Lost Load The Operation of The Electricity Pool • Capacity Charge paid to all Generators who had been requested to have capacity available. -based on formula(по формуле): LOLP * (VOLL - SMP) Loss of Load Probability VOLL: was set by the Regulator at around £2400 per MWH (Была установлена Регулятором примерно около 120 Roubles за 1 kWh) LOLP: normally a very low figure but could become significant if there was a shortfall in generating capacity(обычнонезначительная цифра может стать важной если наблюдается дефицит выработки) Capacity Charge: signal to ensure sufficient capacity was available. Pool Input Price (PIP) = SMP + LOLP * (VOLL - SMP)

20. Электрический пул System Constraints (Система давления): • Some Power Stations constrained “ON” to ensure security of supply even when their bid was more expensive • (Некоторые электростанции constrained “ON”обеспечить снабжение, даже в случае более дорогих заявок) • Some Power Stations constrained “OFF” even when their bid was cheaper (-excess of capacity in one region) • (Некоторые электростанции constrained “OFF”обеспечить снабжение, даже в случае более дешевых заявок) • Constrained Stations paid their “Bid” Price • (уплачивали их «заявочную» цену) • POOL Output Price: (POP) = Pool Input Price + Uplift • Uplift represented the additional charges incurred to National Grid Company because of System Constraints • Suppliers purchased Electricity at Pool Output Price • (Поставщики закупают э/э на Пуле по цене производителя)

21. Электрический пул: A Review • Need for strong Regulatory Body to ensure prices were not fixed. • Evidence suggested price manipulation took place in early years. • Regulator required major generators to dispose of some stations. • The lack of Demand Side Bidding was a weakness • Charges for Transmission Losses were averaged over whole Network. • Customers in North subsidise those in South • Generators in South subsidise those in North • These issues are still under discussion Separate discussions relating to Distribution Charges are also under way

22. Scottish & Southern Scottish Power Scottish Power Scottish & Southern • Take-over Scottish Power takes over MANWEB 1990 Changes in Regional Electricity Companies in the 1990s • Vertical Integration • nPower acquire Midlands • PowerGen acquire East Midlands • Mergers Scottish Hydro & Southern become Scottish & Southern United Utilities • United Utilities formed • in NORWEB area PowerGen nPower c. 1998

23. The changing face of the Electricity Market in the UK • A brief review of the UK Electricity Industry prior to 1990. • Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г • The Electricity Markets in the 1990s after Privatisation • Рынки электроэнергии в 1990 г после приватизации • The New Electricity Trading Arrangements • Новая система оптовой торговли НЕТА • The Supply of Electricity since 1990 • Сбыт электроэнергии с 1990 • Brief Review of the Regulator/Customer Protection/Metering

24. The changing face of the Electricity Market in the UK • The basic principles • Основные принципы • Gate Closure and Final Physical Notification • Закрытие периода и окончательная физическая нотификация • The Balancing Mechanism • Балансирующий механизм • The New Electricity Trading Arrangements • Новая система оптовой торговли НЕТА

25. Новая система оптовой торговли НЕТА • The basic principles [Основные принципы] How does it differ from the Pool? • Both Generating and Demand Side Bidding Takes Place • Most Electricity (>90%) is traded outside NETA Balancing Mechanism • NETA favours generators and suppliers who can guarantee specific levels of generation/supply in advance. • NETA favours generators and suppliers who can guarantee flexibility in output / demand at short notice.

26. Новая система оптовой торговли НЕТА • The basic principles [Основные принципы] How does it differ from the Pool? - continued • Generators and Suppliers are penalised if they deviate from their agreed level of generation / supply. • System security is maintained via the Balancing Mechanism [Балансирующий механизм] • Renewable Generators e.g. Wind and small CHP (~10 MW) can be adversely affected.

27. Новая система оптовой торговли НЕТА • The basic principles [Основные принципы] • Generation and Supply focuses on • Balancing Mechanism[Балансирующий механизм] (BM) Units • Generating BM Units may be a single generating set or a collection of small generating sets. • Demand BM Units may be a single large demand consumer or a collection of small consumers. • Trading can take place between Generating and Demand BM Units • Only the volume traded( not price)has to be notified.

28. The New Electricity Trading Arrangements • Gate Closure and Final Physical Notification • Закрытие периода и окончательная физическая нотификация • Each Generating or Demand BM Unit notifies System Operator of the projected Volume of Electricity to be Traded for each half hour period by 11:00 on preceding day. Initial Physical Notification (IPN) • System Operator checks sufficient capacity is available. GATE CLOSURE : Закрытие периода • Initially 3.5 hours before REAL Time - later reduced to 1 hour. • Final agreed Volumes to be traded noted before Gate Closure. • Final Physical Notification (FPN) окончательная физическая нотификация

29. The Balancing Mechanism Балансирующий механизм Current Day Day Before Real Time 30 mins Gate Closure Operation of Balancing Mechanism FPN IPN Summary 3.5 hours 1 hour • Changes to contract position cannot be made after Gate Closure • The Balancing Mechanism is operated after Gate Closure to provide System Security

30. The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА Time OFFER FPN OFFER FPN Time The Balancing Mechanism Балансирующий механизм • To allow system to remain stable • Too little electricity on the system • Generators can OFFER to INCREASE output • Suppliers can OFFER to REDUCE consumption • If OFFER is agreed then Generators / Suppliers are PAID for any electricity increased / reduced under the OFFER.

31. The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА Time OFFER FPN Bid OFFER FPN Bid Time The Balancing Mechanism Балансирующий механизм • Too much electricity on the system • Generators can BID to REDUCE output • Suppliers can BID to INCREASE consumption • If BID is agreed then Generators /Suppliers PAY for any reduction in generation / increase in demand under the BID.

32. 50 - 100 MW: £50 per MWh (2.5 Roubles per kWh) 25 - 50 MW: £30 per MWh (1.5 Roubles per kWh) 0 - 25 MW: £20 per MWh (1 Rouble per kWh) FPN окончательная физическая нотификация Example of Differential Offers from a Generator The Balancing Mechanism Балансирующий механизм Generators / Suppliers may submit OFFERs or BIDs which differ for different levels of deviation from the Final Physical Notification National Grid Company normally accepts OFFERS / BIDS which are cheapest unless System Constraints prevent this.

33. The Balancing Mechanism Балансирующий механизм What happens if System Operator has got it wrong? OFFER / UNDO BID: Pair +2 OFFER / UNDO BID: Pair +1 FPN BID / UNDO OFFER: Pair -1 BID / UNDO OFFER: Pair -2 • OFFERs / BIDs cannot be cancelled • UNDO BID removes an OFFER and is usually less than the OFFER • UNDO OFFER removes a BID and is usually more than the BID • OFFERs / UNDO BIDs [ or BIDs / UNDO OFFERs] are submitted in pairs

34. Новая система оптовой торговли НЕТА What happens if a Generator / Supplier is out of balance? Example from last February • Unexpected changes in Demand • Equipment Failure • Generator / Supplier has too much electricity on the system [too much generation / too little demand] • * charged for imbalance at System Sell Price • Generator / Supplier has too little electricity on the system [too little generation / too much demand] • * charged for imbalance at System Buy Price

35. Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? In last 6 months wholesale prices have risen and are now higher than at start of NETA

36. 2002 2001 2003 Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? From ELEXON Web Site: 3rd July 2003

37. The changing face of the Electricity Market in the UK • A brief review of the UK Electricity Industry prior to 1990. • Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г • The Electricity Markets in the 1990s after Privatisation • Рынки электроэнергии в 1990 г после приватизации • The New Electricity Trading Arrangements • Новая система оптовой торговли НЕТА • The Supply of Electricity since 1990 • Сбыт электроэнергии с 1990 • Brief Review of the Regulator/Customer Protection/Metering

38. The Supply of Electricity since 1990 Сбыт электроэнергии с 1990 Large Consumers (> 1 MW) Крупные потребители • Before privatisation: • Could only purchase from the Local\Regional Electricity Company (REC) supplier in their region • After privatisation • Consumers > 1MW could purchase from ANY REC not just their own regional Company (second tier RECs). • From 1994 Consumers > 100 kW were included in Deregulation

39. The Supply of Electricity since 1990 Сбыт электроэнергии с 1990 • Transition Arrangements to 1998 • Договоры о переходном периоде на период до 1998 Domestic Consumers: Бытовые потребители (население) • Domestic Consumers did not benefit from competition until September 1998. • Prices to Domestic Consumers were regulated according to the formula: • RPI - X + E + F • RPI is a measure of inflation • X was a factor set by Regulator - initially ~ 5% but later reduced. • E was an energy conservation factor whereby costs of such measures could • be passed on to the consumer • F was a levy designed to promote exploitation of Renewables

40. The Supply of Electricity since 1990 Сбыт электроэнергии с 1990 Domestic Consumers: Бытовые потребители (население) September 1998 - June 1999 • Regions of England and Wales were progressively Deregulated so that Domestic Consumers could purchase their electricity from any supplier. • Implementation of Deregulation in stages: allowed any initial problems encountered to be sorted out. • After Deregulation, the RPI - X + E + F formula no longer applied. • To allow new suppliers to gain a foothold, the existing suppliers could not reduce their prices in their own area for a further transition period of a few years.

41. Электрический пул: Supply Side Domestic Consumers: Бытовые потребители (население) Tariff Structure:Структура тарификации The unit charge to the consumer has three components. • The actual unit charge as determined by the Supplier • A distribution charge (payable to local REC as distributing company) which is same for all suppliers in a region • A meter reading charge. The domestic consumer does not see these different component parts on their bills.

42. Deregulation • Large Consumers (> 1 MW) • Крупные потребители NETA Privatisation Privatisation NETA Effects of Privatisation and Deregulation on Energy Prices • Deregulation in Domestic Market • 1996 - 1998 for Gas • 1998 - 1999 for Electricity Domestic Consumers: Бытовые потребители (население) [Восточной Англии] 1998: 7.48p (3.74 Roubles) per kWh 2003: 5.62p (2.81 Roubles) per kWh 2004: 6.10p (3.05 Roubles) per kWk Source: Energy Sector Indicators: Department of Trade and Industry

43. nPower acquires Yorkshire PowerGen acquires Eastern (TXU) EDF acquire SWEB Scottish and Southern acquire SWALEC nPower acquire Northern PowerGen acquire NORWEB Changes in Structure of Supplies Companies in last 4 years Electricité de France (EDF) acquire London and SEEBOARD Only in Scotland has their been no change in ownership

44. Distributed Network Ownership in 2004 Scottish & Southern Scottish Power Regional Supply Ownership United Utilities Mid American PowerGen Electricité de France Aquila Distributed Network Ownership Western Power Scottish & Southern Scottish Power nPower PowerGen Electricité de France

45. Электрический пул: Supply Side Impact on Suppliers of Renewables Obligation Certificates (ROCs) Воздействие Сертификатов обязательства по использованию возобновляемых источников Since April 1st 2002, all suppliers must provide a minimum percentage of electricity from renewable sources. • The percentage is set to increase each year to 10.4% by 2010. • Compliance is indicated by Renewable Obligation Certificates. Failure to meet this requirement incurs a fine at the “Buy-out” price - initial 3p per kWh (1.5 Roubles per kWh) and rising in line with inflation - currently 3.129p per kWh. • “But-out” fines are recycled to companies in proportion to ROCs they hold - thus trading is occuring in ROCs at a surcharge price as high as 4.8p per kWh (2.4 Roubles). • Domestic prices are set to rise slightly because of this Renewable Obligation.

46. The changing face of the Electricity Market in the UK • A brief review of the UK Electricity Industry prior to 1990. • Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г • The Electricity Markets in the 1990s after Privatisation • Рынки электроэнергии в 1990 г после приватизации • The New Electricity Trading Arrangements • Новая система оптовой торговли НЕТА • The Supply of Electricity since 1990 • Сбыт электроэнергии с 1990 • Brief Review of the Regulator/ Customer Protection/ Metering

47. History of Regulation 1986 British Gas privatised : OFGAS Regulator 1989 Electricity industry privatised: OFFER Regulator May 1998 Domestic gas market fully open to competition May 1999 Domestic electricity market fully open to competition June 1999OFGEM formed October 1999 Introduction of new gas trading arrangements to the wholesale gas markets 2000 Utilities Act: EnergyWatch established March 2001 NETA introduced for wholesale electricity April 2002: Renewables Obligation 2002 Domestic price controls lifted April 2005: BETTA introduced for whole of UK.

48. The Regulator • OFGEM controls the prices charged by National Grid (Transco) • and the Distribution Companies • These are natural monopolies. • Transmission and distribution make up around 25-30 per cent of the • average domestic bill. • BUT • OFGEM also has a duty to ensure the companies can finance • investment needed to rewire Britain. • Rewiring is necessary with increased use of Renewables.

49. Consumer Protection • Energywatch: set up by the Utilities Act (2000). • Funded by Department of Trade and Industry • Funding comes from the licence fee paid by all energy • companies • It looks after consumers interests and deals with complaints • Energywatchis accountable to the DTI. • Energywatchis separate from OFGEM. • Two organisations work closely together. • Relationship with OFGEM is set out in a Memorandum of • Understanding.

50. Consumer Protection • Energywatch: • Some key projects currently underway by Energywatch: • Dealing with Rogue Traders who try to get people to switch • suppliers • Dealing with late and inaccurate bills • In 2002/2003 Energywatch had • 45,546 account, billing and other complaints (up from 37,075)* • 34,027 transfer complaints (up from 30,743)* • 12,960 direct selling complaints (up from 6,991)*