Utility Week

Utility Week 22nd November 2013

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Interview stymieing growth in longertime of writing, 44). Before, it could take years "We provide a price that is Europe-wide is "Look at hedge portfolios – term liquidity. just to sign up to three bilateral agreements truly reflective of supply they are getting shorter and shorter because as a result of the GTMA structure" Sarti says. in "We see a lot of European companies lookand demand – a true price." of huge uncertaintythe market development. Twenty years ago power industry was ing to invest in new low carbon generation, hedging three-to-five years ahead. such as wind. The auction gives them an easy "Reshuffling of regulation, policies, capacity markets mechanism to get access to wholesale prices. Otherwise and so on – the willingness to trade long term has dried it's a bit convoluted and costly when you have to sign up up, from all participants." He says the same issues are to multiple bilateral arrangements." holding up investment. With market coupling and growth in exchange tradSarti describes a "paradox" in the industry: "Generaing, Britain's electricity market is close to making two tors are saying we can't put prices out that far [2-3 years] major changes in culture and operation. And a third because they don't know what the curve looks like. And shift – greater interconnection with the rest of Europe – the supplier wants to have surety on price further out, so is underway. Meanwhile, the UK government is pushing the two are mismatched." through its own changes. The Electricity Market Review Meanwhile, Ofgem is proposing to intervene to is seeking to bring on investment in low-carbon energy address this low-liquidity equilibrium through a licence infrastructure and replace redundant plant to avoid a condition. It will include obligations on the big six to looming gap in generation capacity. trade in the near term markets and a market maker, buy"As a country [coupling and greater interconnection] ing and selling products and taking a premium for prowill help plug the [generation] gap. We will be able to tap viding liquidity. into the rest of Europe's flexibility around generation," Government and regulatory interventions and energy says Sarti. company obfuscation are stealing the headlines in He sees, too, specific operational contributions from the soap opera that UK energy has become. But within greater flexibility. "In times when renewable plant comes reach, it seems, are market solutions that go a long way offline, thermal generation comes on and you need flexito addressing root problems – poor transparency, illiquid bility to manage the period between thermal ramping up trading and the need for flexible plant. Further growth in and wind coming off. Market coupling and greater utiliexchange dealing, marginalised opaque over-the-counter sation of spare interconnector capacity will help facilideals and greater market coupling and interconnection tate that more efficiently." are paving the way. Lundin says the possibility of a tight capacity marThey underpin the European Union target model for gin in the UK means "the first thing do is make sure the the single market in energy by next year. And there is transmission capacity is efficiently managed to make it support from industry: chiefs from ten of Europe's largest easier to import and export." He says efficient transmispower firms (none British) this autumn penned a letter sion management is an implicit element of auctions. to Brussels warning that EU energy policy was becoming "What we can do here is make the trading on the cable regional not European. Oettinger described it as "entirely as efficient as possible." justified". So, is greater interconnection and market coupling So, could this be a European union that delivers what the silver bullet against intermittency problems? Lundin British consumers need? is not comfortable with the metaphor: "It is a step in the Trevor Loveday is a freelance journalist right direction. If there is to be a silver bullet, it's combining different power systems: flexibility in the Nordic region's hydro capacity with the UK. If there is a silver bullet, that is it." Crossing the line The prospect of connection to the array of generation Cross-border traded power flows in the North West Europe (NWE) region technologies in the rest of Europe has called into queswere slated for a November 2013 start but that was shifted only this week to tion the UK's planned capacity market, which is intended 4 February 2014, subject to confirmation. to spur investment in generation to counter renewable The overall objective is a day-ahead market coupling in the NWE region intermittency and make sure meet peak demand is met. based on a program – Euphemia – devised in collaboration by six European European energy commissioner Gunther Oettinger exchanges, APX-ENDEX, Belpex, EPEX Spot, GME, Nord Pool Spot and recently questioned the sense of separate EU member OMIE. It is needed to implement by 2014 the European Day-Ahead Target states pursuing their own capacity market arrangements. Model based on implicit auctions. The NWE regions (Central WE, NordicHe claimed they were jeopardising the single European Baltic and GB) will use Euphemia for price coupling within NWE. market ambition in energy. France and Germany, as well The 17 partners of this project are power exchanges: APX-Endex/ as the UK, are pondering introducing capacity markets. Belpex, EPEX SPOT and Nord Pool Spot; and transmission system opera"The most efficient way of working an auction is an tors: 50Hertz, Amprion, Creos, Elia, Energinet, Fingrid, National Grid, RTE, energy-only market with no capacity market," says LunStatnett, Svenska Kraftnät, Tennet (Netherlands), Tennet (Germany) and din. "A lot depends on the [capacity market] decisions TransnetBW. in Germany and France – if they will interact or be contradictory," he adds. "Long term, I think Europe hasn't Virtual hub found a solution – or the UK. I have some concerns about Nord Pool Spot has the contract to develop and operate a virtual hub to this." address issues arising from there being two power exchanges operating Meanwhile there is some indication that exchange it the UK: N2EX and APX-ENDEX. It will pool liquidity between more than trading in the UK has increased liquidity at least in the one exchange and multiple interconnectors. And it will provide a common near term, according to Ofgem. Long-term liquidity reference price for electricity across all participating exchanges while GB is retains a poor rating, but Sarti questions whether that's coupled to the NWE region. The virtual hub will go live at the same time as true: "Ofgem thinks it's still an issue but some people NWE market coupling. say it's as good as it's going to get at the moment." Lundin says regulatory and policy uncertainty 10 | 22nd - 28th November 2013 | UTILITY WEEK

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