All Island Single Electricity Market IWFA Update Laura Brien Commission for Energy Regulation 6th November 2014

Agenda I-SEM Context I-SEM Progress to Date Concerns Raised during HLD consultation The Aggregator of Last Resort Balance Responsibility of Wind in other EU Markets

EU Context Member States (UK and Ireland) have made a firm commitment to complete internal market Third Energy Package Establishment of ACER and ENTSOE as delivery bodies Single market is being developed through ACER Framework Guidelines and ENTSOE Network Codes European Commission take these through comitology process as binding Regulations EC Review of State Aid Guidelines Updated Guidelines which look specifically at generation adequacy measures published in 2014.

European Integration: Electricity Target Model 12h midday As soon as possible after midday on D-1 On D At H-1 capacity Monthly Day Ahead Market Physical capacity used implicitly Intraday market Balancing mechanism Y+3 Y+2 Annual (Y+1) Forward Market (Physical/Financial) time Auctions of long-term FTRs and/or PTRs with UIOSI via a single platform Flow-based or ATC-based pan-European price coupling Continuous trading through a common platform or implicit auctions Platform for exchanges between TSOs Products exchangeable on a secondary market

Market Development Context SOS Competition Environment

Specific Context of Wind in ISEM

I-SEM Progress SEM Committee published I-SEM HLD Decision on 19th September Compliance with Target Model Efficient use of interconnectors Incorporate lessons from the current SEM Retention of a CRM, but compliant with state aid guidelines Should aim to achieve a low cost efficient integration of renewables Reduce curtailment Incentivise the right back-up generation

Responses to HLD HLD Consultation raised a number of concerns from wind industry; Fundamental change from a ex-post pool to a ex-ante firm market Obligation of Wind to be Balance Responsible Risk associated with forecast errors Capabilities of merchant wind farms Treatment of Priority Dispatch status in ex-ante markets Impact on wind revenues Interaction with REFIT

Detailed Design Phase I-SEM Project Plan published on 10th October Energy Trading Arrangements (ETA) process has commenced Intensive input in next 12 months on the end to end workings of the market Aggregator of Last Resort 1st Consultation in December 2014 (Framework) 2nd Consultation in April 2014 (Operation) Final Decision in August 2015 in line with ETA decision Industry involvement is key

Balance Responsibility of Wind in other EU Markets The transition for wind to become balance responsible is not unique to Ireland A number of MSs have implemented transitory measures Denmark ‘BRP Club’ was opened for government supported (purchase obligation) wind that moved to market settlement arrangements The Danish TSO is the Balance Responsible Party on behalf of portfolio TSO sells the club’s portfolio into ex-ante markets, is balance responsible and settles the proceeds from these markets for participants BRP club is ‘passive’ which created incentive for wind generators to move to a commercial BRP or set up own BRP independently BRP Club is now closed to new members

Balance Responsibility of Wind in other EU Markets Spain Since introduction of forward markets in 1997, the Feed in Tariff for RES evolved to include incentives and obligations for participation in these markets Units above 10MW mandated to provide wind forecasts. If error greater than 20%, a penalty is incurred (10% of estimated total average system cost) In 2007, moved to Cap & Floor premium from the FiT. This was designed to be slightly more lucrative which encouraged generators to trade in all markets while exposing them to balancing costs Aggregators also facilitated in market to minimise balancing costs

The Aggregator of Last Resort Main Purpose of Aggregator of Last Resort (AOLR) Provide a backstop route to market for wind generation Minimise the risks associated with forecasting requirements in ex-ante market ETA will still allow commercial aggregators enter market Key Questions for December Consultation The AOLR entity AOLR Bidding & Settlement Cost Allocation & Incentives Participant Eligibility

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