I-SEM – Getting Ready?

Changes are taking place within the electricity wholesale market on the island of Ireland

The ISEM programme is being governed and managed by the Utility Regulatory Authorities (RAs) in Dublin and Belfast in conjunction with Eirgrid. ISEM aims to align the operation and mechanisms of the wholesale energy market on the Island of Ireland with that of the rest of Europe.

The current SEM wholesale market arrangement is now well embedded with new retail and generation participants joining every year. Changing course to work with new ISEM arrangements is the most significant and disruptive challenge for participants in the Irish Energy Market in a decade.

The project schedule and deliverables are regularly published by the RAs and a range of essential liaison groups have been established for participants. Work continues on the specifics of some key components of the new design and approach but has been clear for some time that there will be significant impacts on commercial operations and models requiring participants to adapt and change.  

 

Some of the key changes and impacts for participants include:

 

  • The need to operate across multiple competitive markets i.e. Forward Market, Day Ahead Market, Intra Day Market, Balancing Market, and a revised Capacity Renumeration Mechanism;
  • Outcomes for participants will not be based on participation in one market as per SEM but on the overall impact of activities in all the markets above;
  • Participants will be able to trade over a much wider set of timeframes than under SEM to adjust portfolio positions as frequently as needed;
  • Price formation will be less predictable leading to greater uncertainty than under the rules based SEM;
  • The complexity of multiple market mechanisms will require a new focus and depth for forecasting capabilities and market study and analysis;
  • Generators will not automatically qualify for capacity payments but will have to participate in the auction and bid for same;
  • New complex market mechanisms are likely to increase the complexity of settlement and related financial activities;
  • With increased trading complexity and frequency, robust risk management and monitoring capabilities will be required;
  • New forms of exposure e.g. to imbalance pricing, bring new risks to be worked through and mitigated;

 

The precise impact of ISEM is very specific to each participant but for most, new ways of working, disciplines, processes and systems are likely to be required to meet the challenge.

 

Many larger participants are engaged in projects to address the impact of ISEM but identifying the starting point for unravelling and identifying business changes and new requirements to operate in ISEM is not easy but needs attention and management by each participant.

 Establishing a project internally to facilitate a business impact study, identify resultant actions, priorities and costs must be the first step. This must include input from a range of internal disciplines and likely augmented with external assistance for specific expertise in ISEM, process, operations and systems assessment and overall facilitation.

 Looking forward, the most significant milestone in the ISEM program plan is the commencement of Market Readiness Trials in June 2017. By this stage, all participants should be well advanced with the introduction of new systems, skills and processes.

 This date is currently a hard stop and provides a clear focal point to work back from and commence addressing the practicalities of ISEM.

 

In the coming weeks we will be writing a series of articles on preparing for and adapting to ISEM going forward. These will include:

 A: Planning for Business and Market Readiness

B: ICT Challenges and Issues

C: Energy Trading Challenges in ISEM