Moving on from the initial introduction of the SEM of Ireland, there has been a vast amount of developments in generation. With now a more generation from renewable sources across the Island. The landscape of the electricity markets has undergone significant developments, this is partly due to the advantage and opportunities from the coupling of energy markets across Europe and shared ways of trading electricity. With the improved interconnection between member states and regions, this has led to markets utilising these new linkages. This has enabled the SEM to be replaced by the I-SEM which will start in 2018. The new all-island Integrated Single Electricity Market (I-SEM) comes into operation on 1st October 2018. There are key differences between the SEM and I-SEM market designs can be seen in the picture 1 below.
Picture 1 Key differences between the SEM and I-SEM (SEM, 2018)
The I-SEM market major attraction is the flexibility that it offers the participants different ways to trade in the market throughout different time periods to meet their requirements and benefit from the incentives in place. With the introduction of I-SEM it introduced markets which allowed participants to spread the risk of their financial commitments by ensuring their contractual investments could be offset or spread. This included the contracts between the generators and suppliers. In some instances, there could be interconnection capacity issues, in some circumstances a financial transmission rights will be included in contracts. This for those who wish to protect themselves from price differences due to when interconnection capacity between is insufficient to harmonize the prices between the markets.
With I-SEM trading, the participants can submit bids in before the delivery of the power. While the day ahead market (DAM) allows for early submitted bids, there is also capacity to accept submitted bids from 19 days out up to a day before trading. Interestingly the price of each one hour of the trading day is determined from the bids of market participants This is managed by an algorithm, called EUPHEMIA. The EUPHEMIA is utilised to set the market price and is also responsible for the best way of distributing the power available. There is also an intra-day market (IDM) which allows market participants to switch their bids closer to the time on which the power is delivered. The intra-day market is available up to one hour before trading.
Within ISEM the balancing market ensures that energy supply equals energy demand. In the balancing markets only generators can submit bids, which means that suppliers acquire the price that is fixed. Due to this the TSOs will decide how demand is met by calling on generators to deliver power as needed. These actions are necessary to balance the supply and demand to ensure that there is enough power where required. The Capacity market replaced the previous Capacity Payments Mechanism from the SEM. The aim of the capacity market is to provide a means of generators recovering the fixed costs of power stations. This market will stipulate that there is enough capacity to reliably meet demand and that this capacity is purchased in a cheaper way than under SEM. In this arrangement those whom provide capacity will only be paid if their bid is successful at a capacity auction. With the overall costs of these capacity payments to be disseminated among suppliers. A financial penalty could be imposed on generators that do not deliver capacity when required. It had been seen that “short run marginal cost bids with a capacity payment were shown to reduce wholesale prices significantly relative to average cost bidding or medium run cost bidding” (FitzGerald et al., 2005, p.73).
The impact of ISEM and the market restructuring has numerous potential outcome variables. The price of electricity is an obvious variable, as this was the major motive for market reform at the EU level to lower costs and improve the competitiveness of European industry. For ISEM cost-effective new investment is required to demonstrate suitability. From the literature reviewed capacity auctions work when regulated network tariffs are correctly set. The transmission pricing policy has adapted to the prerequisite to provide better signals for the decentralized smaller generating units that can connect on demand but need good price guidance to locate in the right place. It is evident that the competitive auctions have proven their worth in reducing costs and prices for both renewables and firm capacity. There is a need for, and acceptance of a credible and stable policies which encourage development and deployment which support collaboration and learnings between countries to continue cost reductions for some technologies. Thus far the regulatory journey is far from over. As fixed-price contracts for renewables had been effective in financing and technology reduction costs. This had nevertheless, created some undesired impacts on the wholesale market, and lack any enticement to site renewables efficiently regarding either place or generation timing, and hence the systems costs created. This will be inconsequential when the capacities are small; but it will be far more relevant over the next decade, with more renewables being rolled out. These additional renewable generators will progressively serve to generate power when it is least required. This may lead to a conflict with other contracted sources as declining costs will be increasingly offset by rising system costs. Similarly, the early glitches within the Capacity Mechanism have been addressed, although further improvements on demand side could be possible envisaged. With the small renewables feed-in-tariffs, along with the combination of the Capacity Mechanism and the benefits provided, this well may have caused a distortion which possibly unwittingly helped to launch a revolution in distributed energy resources. The equilibrium between the state and private sectors is being reassessed and zero and low-carbon generation may perhaps benefit from further changes and investment along with European and National Funding The early evidence suggests that EU Electricity Market Reform has been a major step forward, but a considerable journey remains ahead.
Renewable energy began to surge at a greater rate with the advent of feed-in-tariffs for the small sources and long-term contracts for the large participants. Electricity demand began to fall and by 2015 the carbon price support drove wind generation to become a viable option to coal or oil. Furthermore, with the Irish Government is phasing out peat and coal-fired generation, plus with the current carbon, gas and coal price trends, it is tightening the emissions standards. This focus is also influenced by the Kyoto Protocol and the United Nations Climate Change Conference (COP21) to reduce emissions and greenhouse gases and maintain global temperature. In the short-term, that leaves gas as the flexible dispatchable fuel to manage renewables intermittency. And over the next few years, changes to subsidy payments for Wind Power generation and the new EU energy target model could have significant impacts on the benefits and viability of wind generation in Europe.
The optimised scheduling and counter-trading of interconnectors will be vital to the delivery of wind power. In addition, there is uncertainty about how prices will be set in the I-SEM, yet untested, and once the new I-SEM market has bedded down auction prices may fall. Overall the SEM has been judged to working efficiently (O’Mahony and Denny,2013).