Single Energy Market
The All-Ireland single electricity market is the wholesale electricity market for the island of Ireland. It is regulated jointly by the Commission for Regulation of Utilities in the Republic of Ireland and the Utilities Regulator in Northern Ireland
The single energy market was the first of its kind and commenced on 1 November 2007. Decision-making is undertaken by the SEM committee which consists of the two regulators and an independent member and deputy. The committee is independent of the government departments concerned.
The operation of the single electricity market arrangements is governed by a memorandum of understanding between the United Kingdom and Ireland. They commit to the principles of the agreement in order to ensure to the fullest extent possible the effective efficient and competitive functioning of the SEM. Each jurisdiction committed to enacting the necessary legislation
The arrangements do not involve complete harmonisation of all regulatory functions. The harmonisation is to the extent necessary to operate the SEM within its objectives.
Each regulator and department agrees to cooperate and furnish all necessary information including scientific technical and policy information. This may be subject to considerations of confidentiality national security, freedom of information and data protection. Each must notify the other of any restriction on usage. It must use the information only in accordance with the restriction on usage applied by the other
The legislation provides for an SEM committee to take decisions in relation to the functioning of the SEM. Each SEM committee comprises of seven persons three from the staff of the respective commissioners and one independent member.
Objectives
The authorities intend that the arrangements promote the creation of a single competitive sustainable and reliable market in wholesale electricity on the island of Ireland within the framework of the EU wide internal market for electricity
The SEM is to
- be transparent, integrated and promote competition in the sale and purchase of wholesale electricity on an all-island basis, and thereby enhance prospects for investment in the electricity sector in Northern Ireland and Ireland;
- facilitate the participation of renewable energy generators in the market;
- take into account the operation of arrangements in relation to the environment;
- incorporate a harmonised approach to transmission connection policy and planning criteria for transmission networks and activities, and appropriate regulatory and contractual arrangements for the planning, development, operation and contractual access for connection to and use of the transmission systems in Northern Ireland and Ireland being undertaken on an appropriately co-ordinated all-island basis;
- provide for the monitoring and regulation of the behaviour of market participants and may include the imposition of bidding principles and bidding rules;
- incorporate a co-ordinated approach to address the issue of market power effectively in a transparent manner;
- include appropriate regulatory and contractual mechanisms to enable the arrangements to develop over time, in line with the aims of the SEM;
- promote, where possible, a harmonised approach on an all-island basis to the security of supply issues; and
- provide for a harmonised approach to the investigation of licence breaches including, where appropriate, provision for an on-site investigation.
Trading Arrangements
The respective legislation in each jurisdiction provides for the trading of wholesale electricity within the island of Ireland. It includes a framework for a trading and settlement code within a mandatory pool arrangement subject to exceptions, which is to be governed by a single law
A market operator function was established through which trading arrangements are administered. Acting as the SEM operator is subject to licence. The SEM operator is to provide an appropriate structure for the delivery of efficient functions for the marketing and administration of the day-to-day trading and settlement and clearing process under the trading and settlement code
in the interests of promoting competition, the SEM arrangements are to include an appropriately defined set of transmission system operator activities in each jurisdiction. Such activities of the SEM operator are to be carried out by one or more organisation that neither carries out the activity of generation or supply in the island of Ireland or has any affiliate for that purpose.
The SEM arrangement in Northern Ireland included the transfer of transmission system operator activities into a company into which conducts no electricity-related activities other than the transmission system operator and SEM operator.
2018 Integrated Market I
Tthe SEM is being replaced by the Integrated SEM which was scheduled to start in May 2018.
A key principle of the I-SEM market is the flexibility that it offers. This includes those who take part, the different ways in which these market participants can trade in the market over different time periods to meet their needs and the incentives in place.
The I-SEM introduces markets which allow participants to spread the risk of their financial commitments by making sure their contractual investments can be offset or spread – called hedging. This includes contracts between the generators and suppliers where there is a settlement price at the end of a period (called contracts for differences).
Financial Transmission rights are a type of a hedge for those who wish to protect themselves from price differences between the All-Island market and Great Britain. The differences will arise during times when the interconnection capacity between the All-Island Market and Great Britain is insufficient to harmonize the prices between the two markets.
The price for each one hour of the trading day is worked out from the bids of market participants
The trading before (or ex-ante markets) allows market participants to send bids in before the delivery of the power. A day ahead market (DAM) allows for early bids and can be made from 19 days out up a day before trading. An algorithm, called Euphemia (the acronym for Pan-European Hybrid Electricity Market Integration Algorithm), is used to set the market price and the best way of distributing the power available (including across interconnectors).
2018 Integrated Market II
The intra-day market (IDM) allows market participants to change their bids much closer to the time on which the power is delivered. The intra-day market runs right up to one hour before trading.
The balancing market ensures that energy supply equals energy demand. Unlike the other ex-ante markets, only generators bid in this market, suppliers take the price that is set. In this market, the Transmission System Operators (TSOs) decide how demand is met by calling on generators to deliver power as needed. These actions by the TSOs are necessary to balance the supply and demand to ensure that there is enough power to keep the lights on for homes and businesses.
The Capacity market replaces the Capacity Payments Mechanism from the SEM. It provides a way
of generators recovering the fixed costs of power stations. The new market will make sure there is enough capacity to reliably meet demand and that this capacity is purchased in a cheaper way than under SEM. Those who provide capacity will only be paid if their bid is successful at a capacity auction.
The overall costs of these capacity payments are spread among suppliers. Those generators that do not deliver capacity when needed (such as when there is a shortage of power to meet demand) are subject to financial penalty.
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