Modifications Committee Mod_18_10: Intra-Day Trading 25 November 2010

1. Modifications CommitteeMod_18_10:Intra-Day Trading 25 November 2010

2. Intra-Day Trading Context - Intra-Day Trading Modification Summary of Intra-Day Trading High Level Design Central Market Systems : release schedule timelines Discussion and Vote

3. Why Intra-Day Trading? • The EU is moving towards greater integration of electricity market arrangements, particularly to facilitate greater trading across Europe. • EU Congestion Management Guidelines require re-allocation of unused Interconnector capacity on both D-1 and D. • Ireland Infringement Letter - June 2010 • Continuing infringement cases against Ireland for violating Electricity Regulations. • Key concerns are: 1) no intra-day congestion management mechanism at all interconnections 2) no common co-ordinated congestion management method • SEM Committee Decision (SEM-10_011) • RAs to develop a Modification to facilitate intra-day trading • RAs to set up a Working Group to discuss proposal and alternatives • RAs to bring a proposed Modification (agreed by the Modifications Committee) to the SEM Committee.

4. SEM Committee Decision (SEM-10_011) • Establish a Working Group on the issue having due regard to: • The advantages of aligning intra-day trading arrangements in the SEM with those on the IFA and BritNed. • The desire for intra-day trading to affect ex post SMP, to maximise the incentives for participants to submit intra-day bids. • The benefits and drawbacks of multiple gate closures and the key timings and interactions to consider (e.g. initial operations schedule, wind forecasts etc). • The degree to which the SEM design can accommodate multiple gate closures

5. SEM Committee Decision (SEM-10_011) • The compatibility of the Project Co-ordination Group (PCG) target model for continuous intra-day trading with the SEM design. • Interactions with explicit forward capacity auction proposals and market coupling proposals. • Interactions with dispatch in general and wind dispatch in particular. • The merits of UIOLI as against UIOSI. • Bring a proposed Trading and Settlement Code modification, which the Modifications Committee has recommended, to the SEM Committee by the end of the third quarter of 2010.

6. Some of Participants’ Concerns • Definition of “Intra-Day Trading” with respect to CMG Compliance • Gate Closures – closer to real time, number of Gate Closures • Opportunities for all Generators to re-bid in subsequent gates • UIOLI vs. UIOSI

7. Activities since SEM Committee decision • RAs raised a Modification (18_10) in March 2010, proposing the implementation of “intra-day trading” in the SEM. • The Modifications Committee established a Working Group, which has met on seven occasions, in addition to a number of conference calls. • Widespread involvement from across the industry • Agreement of working assumptions on all major design components • The key output is the High Level Design Summary, which documents the working assumptions agreed at the Working Group.

8. Summary of Working Groups • Working Group #1 • Introduced Intra-Day Trading, defined Terms of Reference and provided options questionnaire to Participants. • Working Group #2 • Discussion of questionnaireresults and concerns regarding a clear definition of Intra-Day Trading. • Working Group #3 • Three options proposed by Participants. Actions on RAs/EirGrid TSO to assess options compliance, and TSO/SEMO to undertake high level impact assessment. • Working Group #4 • Impact assessment presentation and agreement to proceed with one option (one additional GC on TD-1 & additional GC on TD), with exact timing to be agreed. • Working Group #5 • Working assumptions on various issues (Gate Closure timelines, Exchange Rate treatment, COD/TOD submission), discussion on superposition versus protection and action on Participants to provide feedback on their preference for UIOLI versus UIOSI. • Working Group #6 • Agreed working assumptions on a number of issues (Superposition versus protection, MSP Software Run Contingencies, Data Contingencies, WD1 Trading Window Options and Credit Cover for Interconnector Units). Outstanding actions on SEMO to consider contingencies for Active Capacity Holdings, consider Capacity Market exposure as part of Credit Cover proposals, plus to provide impact assessment on TSO Mitigation Options. • Working Group #7 • Agreed working assumption on the treatment of Capacity exposure in the Credit Cover calculations for Interconnector Units (extending the principles agreed at Working Group #6). Discussed the treatment of contingencies for Active Capacity Holdings. Discussed proposed TSO security options, concluding that these options should be treated separately from the remainder of the Intra-Day design. As such, the TSO security options should not form part of the High Level Design to be presented to the Modifications Committee.

9. Intra-Day Trading Context - Intra-Day Trading Modification Summary of Intra-Day Trading High Level Design Central Market Systems : release schedule timelines Discussion and Vote

10. Proposed SEM Intra-Day Trading Design: Three Gate Windows / Trading Windows OPTIMISATION TIME HORIZON Trading Day - 1 Trading Day EA1 Trading Window Ending Overlap Opt’n Period EA1 EA1 Interconnector Unit trades fixed Gate Window Opening (GWO) e.g. as per current Gate Window Closure (GWC) Ending Overlap Opt’n Period EA2 Trading Window EA2 EA1 and EA2 Interconnector Unit trades fixed GWO GWC WD1 WD1 Trading Window Ending Overlap Opt’n Period Start Overlap Opt’n Period GWO GWC GATE WINDOW 10:00 TD-29 to 09:30 TD-1 GATE WINDOW 09:30 TD-1 to 11:30 TD-1 GATE WINDOW 11:30 TD-1 to 08:00 TD

11. Key timingsfor Trading Day TD are: 09:30 RCUC WD GWC (TD) RCUC WD Schedule* (TD) 11:00 EA1 Schedule (TD-1) 13:00 RCUC DA GWC (TD-1) 16:00 RCUC DA Schedule (TD-1) 09:30 EA1 GWC (TD-1) 11:30 EA2 GWC (TD-1) 13:00 EA2 Schedule (TD-1) 08:00 WD1 GWC (TD) 09:30 WD1 Schedule (TD)

12. Proposed SEM Intra-Day Trading Design: Trading and Settlement • Enhanced trading opportunities, recognising the value of explicit capacity auctions: • Unused Interconnector capacity from EA1 Trading Window can be utilised in subsequent Trading Windows. • Superposition will allow the physical capacity of Interconnectors to be observed, whilst enabling trading in excess of the capacity in each direction (import, export). This provides opportunities to arbitrage and deliver price efficiencies. • Settlement will continue to be Ex-Post, based on Dispatch and Generator Unit performance against Dispatch. No changes are proposed to settlement payments or charges.

13. Summary of EA1, EA2 and WD1 MSP Software Runs Load/Wind Forecasts EA1 EA1 MSQs, SMPs Optimisation Time Horizon 06:00 – 11:30 Trading Window 06:00 – 05:30 EA1 COD EA1 TOD (Forecast Availability etc) EA1 Registration Data & Other TOD EA1 MIUNs EA1 VTOD set WD1 (TD-1) Initial Conditions Load/Wind Forecasts EA2 EA2 MSQs, SMPs Optimisation Time Horizon 06:00 – 11:30 Trading Window 06:00 – 05:30 EA2 COD EA2 TOD (Forecast Availability etc) EA1 Registration Data & Other TOD EA2 VTOD set EA1, EA2 MIUNs WD1 (TD-1) Initial Conditions Load/Wind Forecasts WD1 WD1 MSQs, SMPs Optimisation Time Horizon 06:00 – 11:30 Trading Window 18:00 – 05:30 EA2/WD1 COD WD1 TOD (Forecast Availability etc) EA1 Registration Data & Other TOD EA2 VTOD set WD1 (TD-1) Initial Conditions Starting Gate Window Data • For EA1, Default Data • For EA2, as Accepted at EA1 Gate Window Closure • For WD1, as Accepted at EA2 Gate Window Closure

14. Contingencies Summary of contingency rules • As Intra-Day timescales are compressed, contingency rules have been developed to allow timelines to be met where possible. • External Input Data: • Load Forecast / Wind Forecast / ATC – use latest data received • Active Capacity Holdings (EA1 only) – email and fax from IA (ACHS to be sent as early as possible to IA and from IA to MO) • MIUNs – MIUNs from previous run for the same period, else IUNs from previous run for the same period, else zero. • MSP Software Runs: • EA1 will not be cancelled. • EA2 will be cancelled if the EA1 MSP Software Run has not started by 30 minutes after the EA1 Gate Window Closure • EA2 will be cancelled run if the EA2 MSP Software Run has not started by 30 minutes after the EA2 Gate Window Closure • WD1 will be cancelled if the WD1 MSP Software Run has not started by 30 minutes after the WD1 Gate Window Closure

15. Proposed SEM Intra-Day Trading Design: More trade-reflective Credit Cover for Interconnector Units • Current credit cover arrangements for all Generator Units are based on historical trends. • Currently does not adequately address situations where there are shifts in Interconnector User trading (e.g. importing to exporting). This leaves the market exposed when there are trend shifts to exporting (i.e. monies owed to SEM). • With increased Interconnector capacity and superposition (trading in excess of physical Interconnector) capacity, the SEM could be seriously exposed by unlicensed Participants. • Proposed changes such that Interconnector Unit Credit Cover is based on traded and offered volumes/prices, removing the need for historical trend analysis. -500 +500 -500 +500 Interconnector capacity is expected to rise:

16. Intra-Day Design: Elements of Credit Exposure Calculation (Energy Market) Now 7 days 7 days Invoiced Settled Traded Offered Where: Invoiced Amounts invoiced and payment outstanding (netted) Settled Amounts calculated but not yet invoiced (netted) Amounts calculated based on traded values where not Settled (i.e. between D+1 and D+4), based on export MIUNs and PQ Pairs Accepted. Traded The maximum export exposure (in respect of Energy Charges) is implied by a set of Price Quantity Pairs submitted to a particular Gate Window (export component rejected after Gate Window Closure if insufficient Credit Cover in place). Offered

17. Intra-Day Design: Elements of Credit Exposure Calculation (Capacity Market) - 1 Note: As Capacity Payments/Charges are settled on a monthly basis, the length of the Invoiced, Settled and Traded periods will depend on the day on which the Credit Cover calculation is performed (this is the same as the current market design). Now Invoiced Settled Traded (Energy Settled) Traded (Energy Not Settled) Offered Where: Invoiced Amounts invoiced and payment outstanding (netted) Amounts calculated but not yet invoiced (netted) Settled Capacity amounts calculated based on net traded volumes where Capacity is not Settled (i.e. Initial Capacity Settlement is not completed) but the Initial Energy Settlement is completed, using the forecast Capacity Payments Generation Price, CPGP (netted). Traded (Energy Settled)

18. Intra-Day Design: Elements of Credit Exposure Calculation (Capacity Market) - 2 Note: As Capacity Payments/Charges are settled on a monthly basis, the length of the Invoiced, Settled and Traded periods will depend on the day on which the Credit Cover calculation is performed (this is the same currently). Now Invoiced Settled Traded (Energy Settled) Traded (Energy Not Settled) Offered Where: Amounts calculated based on export traded volumes where Capacityis not Settled (i.e. where Initial Capacity Settlement has not been completed) and where Initial Energy Settlement is not complete, based on the Quantities as part of a set of Price Quantity Pairs submitted to a particular Gate Windowand a forecast Capacity Payments Generation Price. Traded (Energy Not Settled) The maximum exposure (in respect of Capacity Charges) is as implied by the Forecast Capacity Payments Generation Price and the export Quantity as part of a set of Price Quantity Pairs submitted to a particular Gate Window (bids implying export would be rejected after Gate Window Closure if insufficient Credit Cover in place, however bids implying import would be retained). Offered

19. Intra-Day Design: Example Credit Cover Reporting 08:00 14:30 * 17:00 09:30 11:00 11:30 13:00 WD1 trading EA1 trading EA2 trading • Interim Credit Cover Report produced • Will utilise the Full Credit Cover report from the previous day. • Provides an update to available Credit Cover as a result of trading within the WD1 and EA1 Trading Windows. • Will not include SRAs, payments, settled amounts (included in the Full Credit Cover Report). • Full Credit Cover Report produced • Will calculate the Required Credit Cover based on: • Invoice Payments • Amounts Settled • AcceptedSettlement Reallocations • Amounts Traded * Delivery of a Full Credit Cover Report at 14:30 is dependent on automating various SEMO processes as part of the Detailed Design.

20. Proposed SEM Intra-Day Trading Design: Benefits • SEM Intra-Day Trading will deliver compliance and regulatory intent: • Implementation in line with SEM Committee Decision on Intra-Day Trading • Compliance with EU Congestion Management Guidelines • Opportunity for greater utilisation of infrastructure (Moyle and EWIC), closer to real time. • Greater competition through increased trading opportunities (including superposition), with reduced trading risks (more opportunities to alter trading positions). • Greater Generator Unit cost-reflective bidding (bringing market timelines closer to fuel purchase timelines).

21. Proposed SEM Intra-Day Trading Design: Approvals • If the Modifications Committee and SEM Committee endorse the approach taken and principles developed, SEMO will develop a detailed plan for presentation to the January 2011 meeting of the SEM Committee

22. Intra-Day Trading Context - Intra-Day Trading Modification Summary of Intra-Day Trading High Level Design Central Market Systems : release schedule timelines Discussion and Vote

25. Central Market Systems Release Schedule • The Release Cut-Off Date for the October 2011 scheduled release is: Friday 18th February 2011 • Currently submitted Modification Proposals that have a systems impact: • All approved Mods have been scheduled for implementation in April 2011. • Based on the Modifications meeting schedule, it appears that few Modification Proposals will be approved by the SEM Committee in advance of the release cut-off date (e.g. Mod_65_08).

26. Change Control • Before approving changes with systems impacts to be progressed in parallel with Intra-Day Trading, there should be careful consideration by the Modifications Committee of the options for implementation and associated impacts. • Option 1: Continue with scheduled October 2011 release • Introduces more complexity and risk • Impacts on proposed schedule and cost for Intra-Day Trading • Option 2: Include Approved Modifications in Intra-Day release • Would be subject to strict Change Control. • Would impact on the overall schedule, subject to: • Scale and impact of the change; • Vendor and SEMO resource constraints; • Infrastructure constraints; and • SEM Committee approval. • Option 3: Include in release after Intra-Day Trading release • Approved changes will be included in the next release, where capacity is available. • This is as per the current process.

27. Intra-Day Trading Context - Intra-Day Trading Modification Summary of Intra-Day Trading High Level Design Central Market Systems : release schedule timelines Discussion and Vote

28. EA1, EA2 and WD1 have dependencies Hence, run contingencies are required 09:30 RCUC WD GWC (TD) 11:00* RCUC WD Schedule (TD) 13:00 RCUC DA GWC (TD-1) 16:00 RCUC DA Schedule (TD-1) 11:30 EA2 GWC (TD-1) 13:00 EA2 Schedule (TD-1) 11:00 EA1 Schedule (TD-1) 08:00 WD1 GWC (TD) 09:30 WD1 Schedule (TD) 09:30 EA1 GWC (TD-1) GWC WD1 Schedule Publish GWO (EA2) GWC EA1 Schedule Publish GWO (TD-29) GWC EA2 Schedule Publish GWO DA-RCUC Schedule Publish GWC