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Utility Regulator chief executive Jenny Pyper talks about the new cross border Integrated Single Electricity Market, and how it will transform the energy market on the island of Ireland.
At the start of a new year the Utility Regulator is very conscious that there are big opportunities for the energy sector in both Northern Ireland and the Republic of Ireland. Electricity markets are changing. Innovation, investment and new technologies are bringing forward a more efficient and flexible generation mix. Markets 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 Electricity Market (ISEM) will replace the current Single Electricity Market (SEM) in May 2018. It will deliver both the competition and efficiency that the market needs. It will also transform the existing wholesale market to a new level of operational effectiveness and efficiency for the benefit of consumers.
The ISEM will provide market participants with greater flexibility. This will allow them to take advantage of increased trading options, hedging opportunities and trading across interconnectors – connecting markets and allowing greater access to the lowest prices. A new mechanism 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 provisional auction results are encouraging. Sufficient capacity has been secured to keep the lights on whilst a significant consumer saving of around €200m per annum, compared to the existing SEM capacity mechanism, has been realised.
Aside from energy payments for trading and providing 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 that consumers get the most value from all available generation, making sure they do not pay for generation that cannot be used effectively.
For investors (both current and potential), the ISEM provides a more transparent basis for making investment decisions. Through more competitive trading, the ISEM will provider clearer investment signals, helping 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. Firstly, better use will be made of all types of generation available on the system with a move away from inefficient and inflexible large generating plants. The competitive capacity auction process will ensure sufficient 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 electricity 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.
Secondly, 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 opportunities and progress already made, there are significant challenges ahead. The absence of political leadership in the Northern Ireland government risks delays in progressing strategic policy discussion. Brexit uncertainties are very real for both market participants and regulators 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 prospect 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 benefits for consumers has never been greater.
Jenny Pyper will be speaking at Utility Week’s Ireland Power conference in Dublin on 24 April.
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