Creating a Single Electricity Market Across Borders: Pitfalls, Constraints, and Opportunities Paul K Gorecki Economic & Social Research Institute & Trinity College Dublin Energy Policy & Constitutional Change Scottish Constitutional Futures Forum 18 January 2013.

Structure of Presentation What is the SEM? What is the legal basis for the SEM? What is the SEM governance structure? SEM success or failure? Why has the SEM been a success? Constraints/challenges: asymmetric shocks and EU policy

What is the SEM? Northern Ireland and Ireland Wholesale electricity market Live 1 November 2007 Market rules in Trading and Settlement Code Mandatory pool (>10MW bid into pool) Bid price SRMC = fuel + carbon Generators in merit order (supply schedule) Demand = supply is SMP Price set ex post 4 days after dispatch

Wholesale Electricity Price Determination in SEM

What is the legal basis of the SEM? UK -Ireland MOU, “Single Electricity Market (SEM) Arrangements”, December Objective: “the creation of a single, competitive, sustainable and reliable” wholesale electricity market “The paramount importance of ensuring that the SEM is as competitive as possible … with regard to market power.” Irish & UK legislation Electricity Regulation (Amendment) (Single Electricity Market) Act 2007 The Electricity (Single Wholesale Market) (Northern Ireland) Order 2007

What is the SEM governance structure? SEM Committee Functions SEM Decision making body Governs operation of SEM (e.g. how to mitigate market power, complying with EU Target Model etc) Organisation Independent Composition: 3 members Commission for Energy Regulation; 3 members The Utility Regulator, 1 independent member.

SEM: Success or Failure? Objective: “the creation of a single, competitive, sustainable and reliable” wholesale market Mitigating market power: mandatory pool, bid price SRMC, price based on merit order. Dominant firm divested generation capacity. Facilitating Entry: regulatory credibility; market access; finding customers & pricing structure Ensuring adequate generation capacity: Capacity Payments Mechanism linked to availability. Result: General consensus that worked well.

Why has the SEM been a success? 1. Mutually beneficial to Ireland & NI Smaller reserve Pooling of expertise More efficient dispatch & improved availability incentives Greater competition 2. Sound Analysis/Well Researched “A Cost-Benefit Study of the Single Electricity Market”, NERA Consulting, November Cost of SEM, €256.4 million in 2006 prices

Why has the SEM been a success? 3. Credible Regulatory/Governance Regime Legislative underpinning Independent, transparent & accountable regulation Reduces regulatory risk = lower financing costs 4. Consistent with EU Energy Policy Second and Third Energy Packages Promoting internal market in electricity 5. All-Island Political Settlement Good Friday Agreement (1998) North-South Bodies under North South Ministerial Council St Andrews Agreement (2006)

Asymmetric Shocks and EU Policy Asymmetric shocks Affect Ireland or Northern Ireland only Smaller partner accommodate larger partner E.g. Carbon Floor price in UK EU Policy SEM and consistent with EU energy policy, but Target Model and SEM Central Dispatch vs. Self Dispatch Mandatory Pool vs. Voluntary Bilateral Contracts Limited intraday trading vs. continuous intraday trading

Legal Documents: References UK -Ireland MOU, “Single Electricity Market (SEM) Arrangements”, December documents.gov.uk/document/cm70/7002/7002.pdf documents.gov.uk/document/cm70/7002/7002.pdf Electricity Regulation (Amendment) (Single Electricity Market) Act The Electricity (Single Wholesale Market) (Northern Ireland) Order _en.pdf 13_en.pdf