Modifications Committee Mod_18_10: Intra-Day Trading 25 November 2010

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

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. Why Intra-Day Trading?

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 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 SEM Committee Decision (SEM-10_011)

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 Some of Participants’ Concerns

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. Activities since SEM Committee decision

Working Group #1 Introduced Intra-Day Trading, defined Terms of Reference and provided options questionnaire to Participants. Working Group #2 Discussion of questionnaire results 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. Summary of Working Groups

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

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

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

Enhanced trading opportunities, recognising the value of explicit capacity auctions: Proposed SEM Intra-Day Trading Design: Trading and Settlement 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. EA1EA2WD1 Interconnector Capacity Holders Other Interconnector Users (not Capacity Holders) Other Generator Units

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

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) – 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

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 Interconnector capacity is expected to rise: Total Demand6,407MW6,784MW Interconnector Export Capacity80MW1,000MW % of Total Installed Capacity1%15%

Intra-Day Design: Elements of Credit Exposure Calculation (Energy Market) InvoicedSettledTraded Now Amounts invoiced and payment outstanding (netted) Amounts calculated but not yet invoiced (netted) Offered Invoiced Settled Traded Offered Where: 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. 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). 7 days

Intra-Day Design: Elements of Credit Exposure Calculation (Capacity Market) - 1 InvoicedSettled Traded (Energy Settled) Now Amounts invoiced and payment outstanding (netted) Amounts calculated but not yet invoiced (netted) Offered Invoiced Settled Traded (Energy Settled) Where: 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). 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). Traded (Energy Not Settled)

Intra-Day Design: Elements of Credit Exposure Calculation (Capacity Market) - 2 InvoicedSettled Traded (Energy Settled) Now Offered Traded (Energy Not Settled) Offered Where: Amounts calculated based on export traded volumes where Capacity is 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 Window and a forecast Capacity Payments Generation Price. 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). 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). Traded (Energy Not Settled)

Intra-Day Design: Example Credit Cover Reporting 08:00 09:30 11:00 11:30 13:00 14:30 * 17:00 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 Accepted Settlement 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. WD1 trading EA1 trading EA2 trading

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).

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

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

Mod RefCurrent StatusDescription Mod_65_08Deferred – IA receivedGenerator Unit Short Term Test Status Mod_12_09Approved for April 2011Loss Adjustments in Constraints and Make Whole Payments Mod_34_09Approved for April 2011Global Settlement Mod_46_09Approved for April 2011Treatment of UIs in Pumped Storage Units when Pumping Mod_04_10DeferredAddition of Fuel Use Flag to Dispatch Instruction transaction Mod_18_10DeferredIntra-Day Trading Mod_37_10Deferred – no IA requestedConstraint Payment for Energy Limited Units Mod_39_10Approved for April 2011Change from 7_12 to enduring 4_91 NDLFeh calc Mod_40_10New – no IA requestedDifferentiation between Dwell Times and Dwell Trigger Points while ramping up and ramping down Mod_42_10New – no IA requestedChanges to the Single Ramp Up Rate and the Single Ramp Down Rate calculation Mod_43_10New – no IA RequestedVariable Price Taker Generation Units and Firm Access 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 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).

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.

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

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