INTRA-DAY TRADING: Conference Call COD for Interconnector Units in WD1 Ending Overlap Optimisation Period (EOOP) 29 November 2011

2 Further to discussion at WG11, the objectives of this call are to: 1.Discuss options for Interconnector Unit COD in the Ending Overlap Optimisation for WD1 MSP Software Runs. 2.Agree a preferred option. Objectives of this Conference Call

3 Currently in Ex-Ante, COD for Interconnector Units in the EOOP is taken from the same Trading Period at the beginning of the Optimisation Time Horizon. For the WD1 Unit in the WD1 MSP Software Run, this approach does not work as there is no COD submitted for the same period. COD for Interconnector Units in the Ending Overlap Optimisation Period (EOOP) for WD1 Start Overlap Optn Period WD1 Trading Window Ending Overlap Optn Period No COD – outside Trading WindowAs Accepted during WD1 Gate Window ????? EA1/EA2 Trading Window Ending Overlap Optn Period As Accepted during EA1/EA2 Gate Window

4 For conventional Generator Units, settlement is based on: a)MSQs, determined by Ex-Post MSP Software Runs (not Ex-Ante Runs). b)DQs, derived from TSO dispatch instructions. c)MG, i.e. metered generation output. Ex-Ante vs. Ex-Post Implications Conventional Generator Units

5 For Interconnector Units, Ex-Post outcomes are dependent on the Ex-Ante schedules (for the Trading Window only, not the EOOP). MSQs, limited in Ex-Post MSP Software Runs by latest MIUNs. DQs, set equal to latest MIUNs. MG, set equal to latest MIUNs. TSOs take the total Interconnector schedule from the MSP Software into account, within the Trading Day only (not the EOOP). As a result, the objective should be to derive a bid-reflective interconnector schedule within the WD1 Trading Window. The WD1 EOOP should have minimum influence on the WD1 Trading Window. Impacts on Ex-Ante MSQs only drive Ex-Post outcomes for Interconnector Units. Ex-Ante vs. Ex-Post Implications Interconnector Units

6 The guiding principle in developing the preferred option has been to minimise the impact on the transfer schedule. In particular, the TSOs have considered the implications for the aggregate Interconnector schedule (the only output from the Ex-Ante schedules used in RCUC). The TSOs have considered options 1, 2, and 3 in the context of this guiding principle, in particular in terms of import/export scenarios. SEMO has included the preferred option in the systems design and in the drafting presented and considered by Participants. Reasons for the Current Preferred Option

7 Options previously presented: OPTION 1: COD=0 in EOOP. OPTION 2: COD=EA2 COD. OPTION 3: Persist COD from the last period (05:30) of WD1 Trading Window. Additional options subsequently suggested by Participants: OPTION 4: Use the COD for long term capacity holders from EA1. OPTION 5: Adjust COD from EA1 by the movement in daily gas prices. OPTION 6: Participants submit COD for EOOP. In the following slides, SEMO examines the new options suggested in Participant comments (i.e. options 4, 5, and 6) and on the original three options. Possible Options

8 This option does not account for any Participant bidding in EA2/WD1 who does not hold long term Interconnector capacity. The COD for EA1 may be different from the bidding strategy of traders within day. SEMO Views - Option 4: Use the COD from EA1 for long term capacity holders

9 Is Interconnector bidding always a function of gas prices?: Market price differences? Wind? Which reference gas price would be used? To be consistent, would this change also have to be made for EA1 and EA2? SEMO currently has no visibility of gas prices, plus the market systems have no facility to store or utilise this information. This option would be a significant change to the market systems and could not be implemented quickly. SEMO Views - Option 5: Adjust COD from EA1 by the movement in daily gas prices

10 SEMO Views - Option 6: Participants submit COD for EOOP If COD was submitted only for the EOOP (and not used for any Trading Window), Participants in respect of Interconnector Units would be able to influence trading outcomes (gaming opportunity?). This would be contrary to the current provisions of the Code as COD is only submitted for Trading Periods of the Trading Window To be consistent, would this change also have to be made for EA1 and EA2? This option represents a major change to the market systems and Participant interfaces. The changes could not be implemented quickly and are likely to be costly.

11 The implementation of this rule would always result in Interconnector flows ramping to zero at the end of the WD1 Trading Window. This treatment in the EOOP would always impact on the Interconnector schedule in the WD1 Trading Window. SEMO believes that this option is not desirable, as it introduces a systematic ramping to zero at the end of the WD1 Trading Window (in all scenarios). SEMO Views - Option 1: Set WD1 EOOP COD = 0 WD1 Trading Window Ending Overlap Optn Period MW WD1 Accepted CODMIUIC=0 MIUEC=0 0 Import Export Starting Overlap Optn Period Note: example assumes WD1 Unit is scheduled for import in WD1 during the WD1 Trading Window.

12 Changes in Interconnector bidding patterns are likely to occur between EA2 and WD1 Gate Windows. For example, bidding for significant export in WD1 may occur to counter-trade an EA2 import. In the example above, the schedule at the end of the WD1 Trading Window would be impacted by the COD used in the EOOP. EA2 COD does not always exist (e.g. Interconnector User may not have bid in EA2). SEMO believes that this option does not reflect the implications of any SEM/BETTA changes in price signals that emerge between EA1/EA2 and WD1. SEMO Views - Option 2: Set WD1 EOOP COD = EA2 COD MW 0 Import Export EA2 Accepted COD for corresponding Trading Periods WD1 Trading Window Ending Overlap Optn Period WD1 Accepted COD Starting Overlap Optn Period Note: example assumes WD1 Unit is scheduled for export in WD1 during the WD1 Trading Window and was economic for import in EA2 for the first part of the Trading Day.

13 This minimises any impact on the Interconnector schedule within the WD1 Trading Window from COD in the EOOP. This is desirable, as the only input to the Operations Schedule is the Ex-Ante Interconnector schedule. i.e. the sum of MIUNs for an Interconnector. SEMO believes that this option minimises impacts on the WD1 Trading Window trades. SEMO Views - Option 3: Persist WD1 COD for WD1 EOOP (export scenario) MW 0 Import Export Persist WD1 COD from 05:30 Trading Period WD1 Trading Window Ending Overlap Optn Period WD1 Accepted COD Starting Overlap Optn Period Notes: (1)Example assumes WD1 Unit is scheduled for export in WD1 during the WD1 Trading Window. (2)This is as per the current systems design.

14 This minimises any impact on the Interconnector schedule within the WD1 Trading Window from COD in the EOOP. This is desirable, as the only input to the Operations Schedule is the Ex-Ante Interconnector schedule. (i.e. the sum of MIUNs for an Interconnector). SEMO believes that this option minimises impacts on the WD1 Trading Window trades. MW 0 Import Export Persist WD1 COD from 05:30 Trading Period WD1 Trading Window Ending Overlap Optn Period WD1 Accepted COD Starting Overlap Optn Period SEMO Views - Option 3: Persist WD1 COD for WD1 EOOP (import scenario) Notes: (1)Example assumes WD1 Unit is scheduled for export in WD1 during the WD1 Trading Window. (2)This is as per the current systems design.

15 SEMO had included within the proposed design and drafting presented at WG11 the option that the TSOs have advised is likely to cause the minimum impact on the Operations Schedule/constraints. SEMO is conscious that none of the options presented is perfect. In the context of the guiding principle and to minimise errors due to potential price/trading opportunity changes between TD-1 and TD, SEMOs view is that Option 3 is the best choice. SEMO Views Preferred Approach