1. GB Transmission and Market Operations Tom Ireland & Will Kirk-Wilson National Grid Presentation to EUD Seminar 5 September 2012

2. Agenda  A Brief Overview of National Grid  The GB Transmission / Market  Future Challenges – meeting the EU 2020 targets and 2050 ambition.  Third Energy Package – Overview  The European Target Model

3. A brief history Merged 2002 British Gas Corporation Demergers Privatisation (1986) Privatisation (1990)

4. An international electricity and gas company  … based in the UK and North Eastern US  One of the world’s largest investor-owned utilities  25,500 employees  62% US; 38% UK

5. An international electricity and gas company

6. GB Electricity Transmission

7. SHETL SPTL SONI GB Onshore and Offshore Transmission TOs National Grid SPTL SHETL R O W B G OFTOs Robin Rigg Ormonde Walney 1 Barrow Gunfleet Sands Interconnectors NGIL BritNed Moyle EWIC National Electricity System Operator (NETSO) – National Grid

8.  Development of key Industry codes:  Grid Code  Connection and Use of System Code  The SO-TO Code  Transmission Charging and billing  Operational planning of GB Transmission System (onshore and offshore)  System Development National Electricity Transmission System Operator

9. GB Electricity Market

10.  Through forward markets suppliers contract with generators to produce the right amount of energy  On the day generators decide which of their generating units run to meet their contractual obligations  Forwards and futures markets [>24h ahead]  Power exchanges [<24h] fine tune positions  National Grid administer Balancing Mechanism [<1hr ahead]  Supply companies forecast their electricity requirements per half hour.  Arrange contracts with generators per half-hour GenerationMarketsSuppliers The electricity market

11. Bilateral trading activities Meter readings Gate closure Real time 1 hour Bid / offer acceptances Balancing mechanism BM data ~1,500,000 items /day Bids/Offers Op Data FPNs ~600 Balancing actions/day Settlement CONTRACT VOLUMES BM actions The balancing mechanism

12. Future Challenges – meeting the EU 2020 targets and 2050 ambition

13. Current system operation  Demand is predictable, generation profile is known  Peak demand  peak generation  peak flows  worst case  Predictable demand and generation error (300MW)  steady reserves  Stable generation profile, national demand proportionally allocated to DNO interface sites  Typical North-South flow, standard high voltage profile, some substation splits to manage fault levels. Mainly thermal constraints but some voltage and stability

14. 14 Our EU Legal Obligations 20102020203020402050 2020 binding targets  37% reduction in CO 2  15% of energy from renewables  31% Electricity from renewables 2050 target  80% reduction in CO 2 2030 target  60% reduction in CO 2

15. 15 Our scenarios: Gone Green Under “Gone Green” renewable targets are achieved. A ‘bottom-up’ approach ** includes renewable generation capacity plus nuclear and CCS 20202030 Generation capacity (Transmission)101GW128GW Renewable generation capacity36GW64GW Low carbon generation capacity**48GW94GW Electric vehicles1.8m (4TWh)13.5m (40TWh) Key Summary:  New nuclear plant connects in 2019/20  13GW of new conventional CCGT plant  7GW of new gas plant with CCS connects  Additional wind generation  2020: 26GW (17GW offshore)  2030: 47GW (37GW offshore)

16. 16 The transmission delivery challenge France existing electricity network potential wind farm sites potential nuclear sites interconnectors France Netherlands Belgium Norway Ireland

17. Western HVDC  £1bn project  600KV  420km MI PPL cable  2.4 GW capability  Operational by 2016

18. Wind Cut-out 3 rd January 2012 2,500 MW of cut-out Large output change over 24 hours

19. 19 Generation Demand Variable generation Large generation Inflexible generation Active distribution networks Smart(er) grids & meters, energy storage Active demand Time of use tariffs Distributed generation Operational Challenges

20. Third Energy Package and the Network Codes

21. The Third Energy Package  The Third Energy Package aims to further enhance the open, integrated and competitive Energy market in the EU  Member States required to implement and transpose the legislation into national law (in the main part) by 3 March 2011.

22. Third Energy Package: Key Provisions  Transmission Network Unbundling  The formation of formal European Transmission System bodies, ENTSOE (and ENTSOG)  Ten Year Network Development Plans: The Third Package obliges both the ENTSOs to publish non-binding Community-wide ten-year electricity and gas network development plans  Creation of ACER  The development of legally binding European Network Codes across 12 different areas

23. Third Energy Package: Code Areas  network security and reliability rules;  network connection rules;  third party access rules;  data exchange and settlement rules;  interoperability rules;  operational procedures in an emergency;  energy efficiency  capacity allocation and congestion management rules;  ACER and the ENTSOs will be responsible for developing the European Network Codes, directed by the European Commission.  rules for trading related to provision of network access services and system balancing;  transparency rules;  balancing rules;  rules regarding harmonised tariff structures including Inter-TSO Compensation

24. Third Energy Package: Code Development ENTSOs TSOs NRAs ACER EC Stakeholders

25. Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. Introduction to European target model 5 th September 2012 William Kirk-Wilson

26. 26 Introduction  Overview of target model  Price formation  Impact of target model implementation  Next steps timetable

27. 27 Forwards Market Day ahead Market (Auctions) Intraday Market (Continuous Market) Physical Market  Create pan-European electricity market by removing barriers for cross border trading subject to network constraints  Target model agreed at member state level at Florence Forum Target model Balancing, Real Time Harmonised Gate Closure

28. 28 Forwards Market Day ahead Market (Auctions) Intraday Market (Continuous Market) Physical Market Target model - Balancing Balancing, Real Time  Takes market output which ignores most system constraints and turns it into something feasible.  In GB this is the system operator taking bids and offers.  Runs from real time to one hour before real time.

29. 29 Day ahead Market (Auctions) Day ahead Market (Auctions) Intraday Market (Continuous Market) 29 Forwards Market Physical Market Target model - Intraday Balancing, Real Time  Is an implicit continuous market Traders post their trade. Trades are visible/available for other traders to accept instantly. Capacity + energy sold together, capacity sales invisible to traders  Operates up to a maximum of 1 hour before real time (GB/FR = 1hour, Germany = 15 minutes)  Facilitates renewables as close to real time  Allows traders to fine tune their position Intraday Market (Continuous Market)

30. 30 Forwards Market Intraday Market (Continuous Market) 30 Physical Market Target model – Day Ahead Balancing, Real Time  Is an implicit auction market (ie capacity and energy) Traders post their trades to a power exchange (PX), but they are kept confidential. The PX collects all trades until gate closure, it then decides optimum market solution (ie which trades are accepted/rejected)  Gate closure is 12:00 CET D-1 Day ahead Market (Auctions)

31. 31 Forwards Market Day ahead Market (Auctions) Intraday Market (Continuous Market) 31 Physical Market Target model – Forwards Balancing, Real Time  Is an explicit auction market (only capacity)  Capacity is sold in auction format (similar to Ebay)  Bilateral energy sales  Currently GB interconnectors run explicit auctions for all timeframes, ie forwards, day ahead and intraday Forwards Market

32. 32 Price formation – Single market  Assuming no transmission network constraints (i.e. single electricity price) Market clearing price all accepted trades get this Accepted tradesRejected trades

33. 33 Price formation – Two independent markets  Two market zones, no interconnection  Cheaper generation in market B  Markets clear at A and B A’ B’

34. 34 Price formation – Two markets with interconnection  Two market zones, limited interconnection C  Markets now clear at A and B  Exporting market sees price rise and importing market sees price fall  Interconnector priced at difference between A and B B’ A’’ C C B’’

35. 35 Impact of Target Model Implementation  Potential for market splitting  Market pan European  Interconnector impact: No day ahead or intraday explicit auctions Redefines interconnector business model Flows known closer to real time => increased use of SO-SO trades  Extra data submissions from market parties at D-2  Minimal impact to market structure and processes

36. 36 Timetable  2013 day ahead and intraday submitted to comitology  2014 implementation….  Forwards and balancing lag CACM by 1 year.

37. 37 Any questions? Will Kirk-Wilson 01926 655424 (+44) 7554 225984 William.kirkwilson@nationalgrid.com Tom Ireland 01926 656152 (+44) 7766 698314 Thomas.ireland@nationalgrid.com