Getting to grips with I-SEM’s first week
The much-anticipated Integrated Single Electricity Market, or I-SEM as we all know it, went live on Monday, and market participants and operators alike have already been analysing the first few days’ events to see if any early conclusions can be gleaned. Operationally the launch of new systems was, by and large, a success. While there have been some of the expected teething problems in getting the new reporting flows up and running, the ‘lights will go out’ doomsday scenario has certainly not come to fruition. This is in no doubt due to the huge amount of preparation and investment in readiness carried out across the industry.
So the big question, then, in the new market is “what is the price?” And, less than one week on in I-SEM, we’ve no shortage of prices in play. The Day Ahead Auction is where the majority of volume is traded under the new structure, and provides the most comparable reference point to the previous SEM. Across the first few days the baseload price came out in a range typical of the market fundamentals, ranging from €70 MWh to €82 MWh.
After this auction, participants now have access to three Intra-day Auctions as well as a continuous Intra-day trading market, in which they can buy and sell energy as their forecast output changes. The Intra-day Auctions have seen some activity, though limited volumes have meant that the price has diverged by over €10 MWh from the Day Ahead Auction. The continuous market has unfortunately seen even lower liquidity, with very few trades of decent size going through. So, while the mechanisms are available for position management closer to real time, these new markets are yet to flourish.
Which brings us to the Balancing Mechanism (BM), definitely the talking point of I-SEM’s early days. The BM price has seen huge volatility, with 5 Minute prices already ranging from -€1,000 to €961, despite market conditions being far from extreme. This price is a function of the actions that the Transmission System Operator (TSO) has to take to balance the system, as participants (particularly wind generators) vary output from their Day Ahead forecast positions. The market has been on a steep learning curve, trying to come to grips with the complex calculations that form the price, the logic of the actions taken, and whether the price reflects short term system fundamentals.
What are the effects on market participants so far? Well, for generators able to achieve the output they sold at Day Ahead stage, the revenues are much the same as would have been seen last week in SEM. However, for those with unpredictable output the volatility of the BM price presents a significant new challenge. And that same volatility presents opportunities to thermal plant that can respond to the TSO’s requirements for flexibility. This volatility certainly underlines the need for an expert 24/7 trading desk such as SSE’s.
All this after just a few gentle autumn days... there will be more twists and turns ahead!