Although it may not be obvious to consumers, nor to a media that remains fixated on controversies concerning electricity pylons, Ireland has made considerable progress towards the creation of a single electricity market, or SEM, on the island.
Indeed, the island is the first area to achieve a degree of integration across a national border between two previously separate systems in areas utilising different currencies. However, a number of important regulatory decision remain outstanding, as well as the need to ensure that the required infrastructure is put in place.
The process is being managed by the Commission for Energy Regulation and the Northern Ireland Utility Regulator working through the SEM Committee. The CER, acting as a constituent part of the SEM Committee, is engaged in a consultation process ahead of its final decisions. Details of progress can be accessed here.
The EU Context
The background to this process is provided by the drive within the EU to create an internal electricity market.
EU legislation requires that EU Member States cooperate to devise mechanisms that promote cooperation between transmission system operators (TSOs) in various countries in order to integrate national markets towards the creation of a liberalised internal market for electricity in the EU.
The objective that is being prioritised in the process is described as price coupling, that is, the creation of a liberalised market zone with a single wholesale electricity price in that zone.
Under the proposed arrangements, this will be achieved across national borders, provided lack of interconnection capacity does not inhibit cross border flows of electricity.
The overall vision for a single European electricity market has come to be termed the Target Model. This comprises a policy framework and a set of operational details that would provide an integrated market and is being developed by the Commission along with networks of regulators and system operators.
The target is to have this in place by the end of 2014 although Ireland has negotiated a derogation that permits transitional arrangements towards full compliance in 2016.
The Target Model allows for considerable decision making in relation to market design at the national or regional level.
It foresees four timeframes with electricity market operations in each. These markets are a forward market, a day-ahead market (DAM), an intraday market (IDM) operating from 23.00 on the previous day to 23.00 on the current day, and a balancing market.
CER decisions are required in respect of the next stage of the process, primarily the operation of the wholesale markets and their integration into an overall structure. These decisions will have major implications for consumer prices, the level of investment that might be forthcoming from the private sector and the pace of growth of renewables.
Electricity Market Design Options
The extent of the changes will be determined in part by parametres that have been codified by the SEM Committee into four options for consideration by its High Level Design Review Group.
The four options for the design of the market have been stylised as
- Adapted Decentralised Market
- Mandatory ex-post Pool for Net Volumes
- Mandatory Decentralised Market
- Gross Pool – Net Settlement Market
While the operation of each model is complex and there are specific differences and characteristics of each, in a general sense the degree to which a free, decentralised market is envisaged decreases from top to bottom of this list.
In general, the extent to which participation becomes mandatory increases. The relative importance of the four market timeframes will also depend on which of the options is ultimately preferred.
In the longer term, these decisions are likely to have far greater consequences than controversies over the location of pylons.