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N. Keith Tovey, M.A. PhD, C.Eng MICE

Recent Changes in the Electricity Markets in the UK. Third International Conference. Operational Experience and Practice of European Electricity Markets. Moscow: 26th May 2004. Университета Восточной Англии. N. Keith Tovey, M.A. PhD, C.Eng MICE. Energy Science Director

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N. Keith Tovey, M.A. PhD, C.Eng MICE

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  1. Recent Changes in the Electricity Markets in the UK Third International Conference. Operational Experience and Practice of European Electricity Markets. Moscow: 26th May 2004 Университета Восточной Англии N. Keith Tovey, M.A. PhD, C.Eng MICE Energy Science Director Low Carbon Innovation Centre University of East Anglia, Norwich

  2. Abrief review of structure of the UK Electricity following privatisation in 1990. Recent Changes in the Electricity Markets in the UK • Changes during the 1990s • Deregulation • New Electricity trading Arrangements • Новая система оптовой торговли НЕТА • Changes in Structure in last 4 years • The Future

  3. Recent Changes in the Electricity Markets in the UK • Abrief review of structure of the UK Electricity following privatisation in 1990. • 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

  4. 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

  5. Structure of Electricity Supply in early 1990s 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.

  6. 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

  7. Changes in Fuel Use in Electricity Generation • Coal Generation • reduced by 80% by 2002 • rose by 5% in 2003 • Gas Generation • rose rapidly to 2002 • fell by 5% in 2003 Source: Digest of UK Energy Statistics: 2003

  8. 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: • 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)

  9. 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

  10. Recent Changes in the Electricity Markets in the UK • A brief review of structure of the UK Electricity following privatisation in 1990. • Changes during the 1990s • Deregulation • New Electricity trading Arrangements • Новая система оптовой торговли НЕТА • Changes in Structure in last 4 years • The Future

  11. Recent Changes in the Electricity Markets in the UK • Changes in Structure of Supply Companies • The Electricity Pool • Электрический пул • Deregulation • The Electricity Markets in the 1990s after Privatisation • Рынки электроэнергии в 1990 г после приватизации

  12. Scottish Nuclear * Scottish Hydro Consumers Scottish Power Electricité de France PowerGen Licensed Suppliers Consumers The Pool пул Independents BNFL (Magnox) RECs Industry Second Tier Consumers Nuclear Electric * Eastern ** Innogy Scotland England and Wales

  13. Электрический пул: A Review • Only Generators bid into POOL and thereby set price. • 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 subsidised those in South • Generators in South subsidised those in North

  14. 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

  15. Recent Changes in the Electricity Markets in the UK • A brief review of structure of the UK Electricity following privatisation in 1990. • Changes during the 1990s • Deregulation • New Electricity trading Arrangements • Новая система оптовой торговли НЕТА • Changes in Structure in last 4 years • The Future

  16. The Supply of Electricity since 1990Сбыт электроэнергии с 1990 • Before privatisation: Could only purchase from the Local\Regional Electricity Company (REC) supplier in their region • Large Consumers (> 1 MW) Крупные потребители • After privatisation Consumers > 1MW could purchase from ANY REC not just their own regional Company (second tier RECs). • 1994: Threshold reduced to 100 kW • 1998 - 1999 All domestic consumers included.

  17. 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) • 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 F was a levy designed to promote exploitation of Renewables

  18. Deregulation NETA Privatisation 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: 6.20p (3.1 Roubles) per kWh Source: Energy Sector Indicators: Department of Trade and Industry

  19. Recent Changes in the Electricity Markets in the UK • A brief review of structure of the UK Electricity following privatisation in 1990. • Changes during the 1990s • Deregulation • New Electricity trading Arrangements • Новая система оптовой торговли НЕТА • Changes in Structure in last 4 years • The Future

  20. Новая система оптовой торговли НЕТА • The basic principles [Основные принципы] • Both Generating and Demand Side Bidding Takes Place • Most Electricity (>90%) is traded outside NETA Balancing Mechanism on a futures market • NETA favours generators and suppliers who can guarantee specific levels of generation/supply of 1 hour in advance. • They are fined if they deviate from their contract position. • NETA favours generators and suppliers who can guarantee flexibility in output / demand at short notice via the Balancing Mechanism [Балансирующий механизм]

  21. Новая система оптовой торговли НЕТА • The basic principles [Основные принципы] • Generators and Suppliers are penalised if they deviate from their agreed level of generation / supply. • If a generator has TOO MUCH generation, or a supplier has TOO LITTLE demand, they are penalised at the System Sell Price. • If a generator has TOO LITTLE generation, or a supplier has TOO MUCH demand, they are penalised at the System Buy Price. • Usually, the SYSTEM SELL PRICE is less than the System Buy Price .

  22. Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? The System Sell Price and System Buy Price have converged with time

  23. Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? Apr01 Oct01 Jul01 Apr03 Oct03 Jul03 Apr02 Jan 02 Oct02 Jul02 Jan 02 In last 12 months wholesale prices have risen and are now higher than at start of NETA

  24. Recent Changes in the Electricity Markets in the UK • A brief review of structure of the UK Electricity following privatisation in 1990. • Changes during the 1990s • Deregulation • New Electricity trading Arrangements • Новая система оптовой торговли НЕТА • Changes in Structure in last 4 years • The Future

  25. 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

  26. 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

  27. Recent Changes in the Electricity Markets in the UK • A brief review of structure of the UK Electricity following privatisation in 1990. • Changes during the 1990s • Deregulation • New Electricity trading Arrangements • Новая система оптовой торговли НЕТА • Changes in Structure in last 4 years • The Future

  28. Future Changes in the UK Electricity Markets • The BETTA System - Spring 2005 • The British Electricity Transmission and Trading Arrangements - will bring Scotland into the NETA system. • Many issues relating to differences in distribution and transmission and use of the Interconnector still have to be finally resolved. • Renewables Obligation - 2002 - 2015 • is likely to see a rise in electricity prices • Carbon Emissions Trading (from 1st January 2004) • is also likely to see a rise in electricity prices - however, final allocations have still to be resolved. Electricity Supply Industry will be SERIOUSLY affected ~ 16% reduction over 3 years.

  29. Future Changes in the UK Electricity Markets • Renewables Obligation • Requires all suppliers to provide a minimum percentage of electricity from New Renewables. • In 2004 - 2005 the percentage will be 4.9%, but less than 3% is being achieved. • Suppliers are fined at 3.139 p per kWh (1.57 Roubles) per kWh for any shortfall. • This is introducing a new market in the trading of Renewable Obligation Certificates - issued as proof of generation.

  30. Notifies Regulator how much generated. Notifies OFGEM of compliance -i.e. ROCs or pays FINE ROC’s issued FINES recycled in proportion to ROCs held Sells Electricity with or without ROCs Buys ROCs from Trader Sells ROCs to Trader Renewable Obligation Certificates The Regulator OFGEM Renewable Generator SUPPLIERS Trader and Brokers

  31. Renewable Obligation Certificates • £1.50 per MWh Embedded benefits - less losses • £4.30 per MWh Climatic Change Levy • £12 - 18 per MWh Recycled fines • £3.139 per MWh Value of ROC • £20 - £22 per MWh Wholesale Electricity Price Less Neta Imbalance charges ~ £2 per MWh Value of Renewable Generation £56- £70 per MWh i.e. 2.5 to 3 times of normal price.

  32. Conclusions (1)Key Changes in Electricity Market in UK • April 1st 1990: Privatisation: Electricity POOL Established • Large Consumers benefit from Deregulation • 1994: Intermediate Consumers benefit from Deregulation • 1998 + All Consumers benefit from Deregulation • 27th March 2001: NETA replaced POOL • 1st April 2002: Renewable Obligation comes into force • 1st January 2005: Carbon Emission Trading • Spring 2005: NETA extended to Scotland as BETTA.

  33. Conclusions (2)Key Changes in Electricity Market in UK • Prices to consumers fell by 20% as a result of Deregulation. • Wholesale prices of Electricity fell by 40% between 1998 and 2002, but have risen sharply in last 12 months and are now at (or above ) pre NETA levels. • Most electricity >> 90% is traded outside Balancing Mechanism Trading • NETA favours Generators / Suppliers who can guarantee output / supply in advance or who can be flexible to make guaranteed adjustments during Balancing Mechanism Trading.

  34. Conclusions (3)Key Changes in Electricity Market in UK • All Regional Companies in England and Wales have changed hands at least once since Privatisation. Neither of companies in Scotland have changed. • In only 5 areas is the Regional Company still the Network Operator • Three-quarters of the Regional Companies in England and Wales now have parent companies in France or Germany • Renewable Obligation Certificates are trading 50% above face value and is starting to become important in the Electricity Market • Carbon Trading in the UK is requiring a 16% reduction in emissions from the Electricity Sector in the next 3 years.

  35. Recent Changes in the Electricity Markets in the UK • This presentation is available over Internet at • www2.env.uea.ac.uk/gmmc/neta/NETA.htm • For further information on the POOL and NETA see paper given at last years conference - The Changing Face of the Electricity markets in the UK • This is also available at the same WEB address

  36. Н.К.Тови М.А., д-р технических наук Факультет экологических исследований Университета Восточной Англии k.tovey@uea.ac.uk Energy Science Director Low Carbon Innovation Centre School of Environmental Sciences University of East Anglia Norwich NR4 7TJ

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