Utility Week

UTILITY WEEK | 26TH JANUARY - 1ST FEBRUARY 2018 | 7 Policy & Regulation What the Integrated Single Electricity Market will mean The project for 2018 is no less than transforming the electricity market on the island of Ireland. Chief executive's view Jenny Pyper, Utility Regulator A t the start of a new year the Utility Regulator is very conscious that there are big opportunities for the energy sector in both North- ern Ireland and the Republic of Ireland. Electricity markets are changing. Innovation, invest- ment and new technologies are bringing forward a more efficient and flexible generation mix. Mar- kets are continuing to respond to changes in consumer behaviour with the need to evolve never more evident. On the island of Ireland these changes are clear. The new cross- border Integrated Single Electric- ity Market (ISEM) will replace the current Single Electricity Market (SEM) in May 2018. It will deliver both the competition and efficiency the market needs. It will also transform the existing wholesale market with a new level of operational effectiveness and efficiency for the benefit of consumers. The ISEM will provide market participants with greater flexibil- ity. This will allow them to take advantage of increased trading options, hedging opportunities and trading across interconnec- tors – connecting markets and allowing greater access to the lowest prices. A new mecha- nism for capacity payments also allows generators to recover their fixed costs by bidding into competitive capacity auctions. The first competitive ISEM capacity auction took place in December 2017 and the provi- sional auction results are encour- aging. Sufficient capacity has been secured to keep the lights on while a significant consumer saving of around €200 million per annum, compared to the existing SEM capacity mecha- nism, has been realised. Aside from energy pay- ments for trading and provid- ing capacity, there is also the potential for market participants to secure revenue from the DS3 programme. This initiative is aimed at enhancing how the grid accommodates renewable generation. It opens the door to market participants securing revenue by providing innovative system services. These services will ensure consumers get the most value from all available generation, making sure they do not pay for generation that can- not be used effectively. For investors (both current and potential), the ISEM pro- vides a more transparent basis for making investment deci- sions. Through more competitive trading, the ISEM will provide clearer investment signals, help- ing them to make commercial decisions to enter the market, increase investment or reduce investment. Consumers will also see the benefit of the new market in two main ways. First, better use will be made of all types of genera- tion available on the system with a move away from inefficient and inflexible large generating plants. The competitive capacity auction process will ensure suffi- cient generation capacity will be available to keep the lights on. And having had the first auction we can see this being realised already. A second north-south elec- tricity interconnector would further enhance these benefits to both security of supply and the benefits delivered by the ISEM. We hope to see progress in the delivery of this vital piece of the energy jigsaw as soon as possible. Second, consumers continue to tell us about their very real concerns around the potential for rising electricity prices. At the heart of ISEM is the central tenet that a more competitive market will place downward pressure on costs and prices. Despite the positive oppor- tunities and progress already made, there are significant chal- lenges ahead. The absence of political leadership in the North- ern Ireland government risks delays in progressing strategic policy discussion. Brexit uncer- tainties are very real for both market participants and regula- tors in Northern Ireland, as part of the UK, and the Republic of Ireland, which will remain an EU member state. ISEM, however, remains a strong imperative, with the pros- pect of delivering a modern, efficient market and keeping the lights on at a competitive price. At the start of a new year, at a time of change, the potential to deliver clear and tangible ben- efits for consumers has never been greater. Jenny Pyper, will speak at the Utility Week Ireland Power conference on 24 April in Dublin. For more information: www.ireland-power.net

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