Whilst most official Brexit-related activity has been quiet for a while now – perhaps everybody is watching the spectacle of the Conservative Party leadership contest – a few things have been published in the last 24 hours:

1. The Irish Government published its updated Brexit Contingency Action Plan. Section 25 of the document deals with energy. Not much is too new, but we did notice:

• A statement about interconnectors stopping flowing entirely, a thought that has never really been seriously entertained in public (to our knowledge): “emergency plans are in place to minimise supply disruption in Ireland in the event that the gas and electricity interconnectors cease flowing, although such a scenario is not anticipated”;
• The linking of the proposed Celtic Interconnector – lest we didn’t realise already – to Brexit, and the beginning of the heavy sell on that basis;
• As noted in a previous blog post the Omnibus Act seems to have been phrased heavily around altering licences in order to possibly relieve licence holders of their obligations to implement SEM, and instead prioritise any EU law obligations. The revised contingency plan has the following to say:

“Cognisant of Ireland’s ongoing obligationsas an EU Member State, discussions on the technical, operational and legal aspects of the SEM are ongoing between DCCAE and the Northern Ireland and the UK authorities, and between the relevant regulators and system operators.”

…it is unclear what this really means.

2. Secondly the Utility Regulator last night published its Call for Evidence relating to the governance of SONI. The Utility Regulator is pondering whether to require that SONI has an independent board, more independent directors, proper arm’s-length cost allocation, charging and SLAs with EirGrid, and so on.

There are signs of tension:

“while within a single system there may be limited scope to benefit any one set of stakeholders at the expense of any other, any more than is the case through general government policy, in the case of Eirgrid’s acquisition of SONI the state represents only some of the stakeholders that can be affected by TSO decisions and actions. In such circumstances, it would be understandable if group policies and the design of practices were influenced by the priorities in the one jurisdiction more than the priorities in the other.”

“In particular, as the energy transition gathers momentum, Eirgrid ownership of SONI, and in turn ownership of Eirgrid by the Irish government, could arguably have the potential to frustrate government policy in NI in the absence of robust independence arrangements.”

…clearly something to watch.

The post A Couple of Brexit Snippets appeared first on ElectroRoute.

This is the third part of our series A History of the Liberalised Electricity Industry in 25 Freebies. Our object this time is a drinks coaster resembling a cross section of the East-West Interconnector (EWIC), and bearing the logo of ABB, the contractor that built the cable. It is believed to date from 2011, prior to commercial operations commencing on that cable, and would probably have been given out at a pre-launch event at Croke Park.

We are used to seeing undersea electricity interconnectors popping up with some regularity nowadays, with NEMO Link the latest to be commissioned in Ireland or Britain, and IFA 2, ElecLink and North Sea Link in construction at the time of writing; but at the dawn of the liberalised electricity there were far fewer interconnectors.

There was a 2GW cable under the English Channel between Sellindge in Kent and Calais dating from the 1980s, some onshore connectivity between Scotland and England that was deemed to be interconnection, some similar connections between Northern Ireland and the Republic (Tandragee-Louth and a couple of smaller links), and that was it. Oh, and there was technically another very old 160MW cable from southern England to France dating from the 1960s.

Remember this was before the Moyle Interconnector appeared in 2001-2002. The island of Ireland stood alone and unintegrated out on the Atlantic fringe. In this era of relentless expansion of networks, and relentless integration we forget how recently Ireland was still entirely unconnected. That narrative of exponential growth in network effects has been challenged somewhat with Brexit, but generally still holds.

ABB has been heavily involved with interconnection over the years (e.g. to connect North Island and South Island in New Zealand in the 1960s), and the “HVDC Light” technology referred to on the coaster is an evolution of that earlier HVDC technology. The sponsor of the EWIC project was Eirgrid Interconnector Limited, a subsidiary of semi-state entity EirGrid.

EirGrid plc was hived-off from ESB under unbundling legislation between 2001 and 2006. It was to be the independent system operator, estranged from the network assets and unsullied by considerations of kit and who owned it. But physical toys are awfully tempting, and before long EirGrid was desperate for assets that it could stroke.

This drift back into its old ways was only really possible with an interconnector, and lo and behold the EWIC project was born: 186km of undersea cable between Rush in County Dublin and Prestatyn, North Wales capable of transmitting 500MW. As the CER said at the time: “The Government and the Commission are convinced that the interconnector will bring long-term net benefits to the Irish consumer, particularly in terms of enhancing security of electricity supply, developing competition and enabling the integration of Ireland into a wider regional electricity market.”

After much consenting effort and two years of onshore works the first cable was unreeled into its trench in early 2012, and by Q3 2012 it was ready to commission. Capacity was sold to an eager market from June 2012 onwards; all seemed well; and then the bombshell news: there was reportedly a problem with the cable causing electrical interference with telephone lines and broadband signals in North Dublin. Worse still those pre-existing telephone cables seemed to have priority and couldn’t be ignored…

Back to the drawing board. Capacity auctions were cancelled, and already purchased capacity languished, unusable, and EirGrid Interconnector Limited swiftly had to get the contractor – ABB – back to install additional equipment to rectify the problem.

By May 2013 all was fixed and flows recommenced. So now the pan-Ireland Single Electricity Market could participate properly in pan-European market coupling? Sort of. The SEM rules at the time were fundamentally quite out-of-sync with the “target model” being pushed in Europe, and intraday trading was still impossible. The latter was rectified in 2012 with SEM 2.0 which delivered something that could loosely be described as intraday trading, but better alignment didn’t occur for a further eight years and took the form of I-SEM. ABB, incidentally, was very embedded in all of those projects too, but on a systems and software side.

We can expect far more interconnection. Interconnection usually makes sense, but more importantly it is in vogue at the political level: the European Commission’s TEN-E strategy envisages a “Northern Seas Offshore Grid” consisting of seventeen Projects of Common Interest that can be funded under the Connecting Europe Facility. Interconnection is at the core of the project to create a common European electricity market where a supplier in Florence can buy from a generator in Cork without the two ever realising, with no middle men, through the power of the all-conquering Euphemia algorithm.

That algorithm is now king, like the “electronic brains” that Isaac Asimov imagined in the 1950s that would centrally plan whole economies. We have ceded decision making to it, with its comfortingly anthropomorphic name, rather than risk messy human trader decisions and the invisible hand. Hopefully it treats us benignly. It is of course still at the mercy of the data that we feed it.

Philosophising aside, where are the people that gave out this coaster today?

Well ABB is still in the business of interconnectors, supplying the some of the projects mentioned above: IFA2 and North Sea Link, as well as some that weren’t mentioned. Some of the technology developed for interconnection has been applied to the massive expansion of offshore wind over the last fifteen years too.

EirGrid is also back for more with the far more ambitious Celtic Interconnector being heavily promoted at present.

Back to Part 1 and Part 2

The post A History of the Liberalised Electricity Industry in 25 Freebies Part 3: A Coaster Resembling the Cross Section of the East-West Interconnector (circa 2011) appeared first on ElectroRoute.

Friday 7 June witnessed a major pan-European power market event when Multi Regional Coupling, or MRC, decoupled for the first time.

MRC, which is managed by exchanges EPEX SPOT and NordPool, is a project for pan-European Day-Ahead Coupling which currently covers 19 countries and represents over 85% of Europe’s electricity consumption. Since its introduction five years ago, MRC (formerly NWE), had operated successfully using the EUPHEMIA algorithm to schedule cross-border flows.

Under MRC, market players do not actually receive allocations of cross-border capacity themselves, but instead bid for energy on their local exchange. These exchanges then use the available cross-border transmission capacity to minimise the price difference between its local area and those adjacent to it. This theoretically maximises Europe-wide social welfare.

At 10:39 local time on 7 June, EPEX SPOT experienced a technical issue with its ETS auction system: a corrupt order was somehow entered by a market participant, locking the system up. After restarting the system, the same corrupt order was again unintentionally introduced. This led to several further crashes and delayed the whole EPEX SPOT order book submission beyond the crucial 11:40 deadline. In line with Price Coupling of Regions procedure, EPEX SPOT declared partial market decoupling at 11:49, but because of the pan-European reach of EPEX SPOT it almost felt like total decoupling. The following markets were decoupled from MRC;

• France to: Belgium, Germany and Spain;
• Germany to: Austria, Denmark, France, the Netherlands and Sweden;
• Great Britain to: Belgium, France, SEM and the Netherlands;
• Great Britain’s two hubs;
• Italy to: Austria and France;
• The Netherlands to Belgium, Germany, Great Britain and Norway
• Slovenia to Austria
• Spain to France
• Sweden to Germany

At this point interconnector operators were supposed to make capacity available explicitly to participants through hastily prepared auctions. IFA (GB-FR) did this in the day-ahead market, Britned (GB-NL) made it available intraday, but EWIC and Moyle have lacked this capability since I-SEM go-live in October last year and did not.

EPEX SPOT deployed a fix to ensure the local auctions could be run, but this led to a subsequent issue with the calculation and publication of erroneous market results on the EPEX SPOT website which were cancelled and recalculated. The erroneous market results caused swings in prices:

• Belgian Day-Ahead prices went negative (see Graph 1.); and
• The GB auction split into two difference clearing prices, one on NordPool and one on EPEX which were wildly different (Graph 2).

Graph 1: Belgium Day-Ahead Market Power Prices

In the Single Electricity Market fall-back processes kicked in. The local Day-Ahead Market was employed, but as Ireland was decoupled from the GB auction the capacity available on the East West interconnector and the Moyle interconnector was not used by the EUPHEMIA algorithm. This capacity later appeared in the intraday auctions.

We are told that the Joint Steering Committee is looking into these events.

Graph 2: GB Auction Price Splitting

The post Making Market History: Multi Regional Coupling Decouples appeared first on ElectroRoute.

This is the second part of our series A History of the Liberalised Electricity Industry in 25 Freebies. Our object this time is a branded Rubik’s Cube, complete with 53 instances of the “U” logo of Utilisoft.

In part one of this series we discussed the twelve original Regional Electricity Companies (RECs) of 1990 in Great Britain, and their effective monopoly on the supply of power to end consumers. Today we fast forward to an era when electricity supply was no longer the preserve of the anointed few, and had become democratised.

But before that let’s consider the freebie itself. The Rubik’s Cube was named after its inventor, Hungarian professor Erno Rubik. It was first demonstrated in the mid-1970s, but not commercialised in Western Europe and the USA until 1980 whereupon it immediately became a craze – the Fidget Spinner of its day (more on that in a future blog). The BBC estimated in 2014 that 350 million cubes were sold around the world, making Rubik a rather wealthy man.

Our particular cube, it is thought, dates from much later – 2016 perhaps. The company that gave it out is Utilisoft, which still exists (and indeed appears to be thriving).

Utilisoft does a number of things as a company, but the aspect we will concentrate on today is its services to suppliers of electricity, particularly small ones and new entrants. Arguably it and its peers have been responsible for a historic shift in perceptions about who should be a supplier (clue: lots more people than previously suspected), and what it takes to be a supplier. The “democratisation” of the electricity supply business in Great Britain wrought by Utilisoft, ENSEK, Utiliteam and Dyball Associates, to pick a few, may have far reaching consequences.

But first things first: let’s go back ten years before 2016 and consider what Utilisoft was up to at that point. Back in 2006 one of its flagship products was software to allow a market participant to send, receive and compose what were called “flows” – i.e. industry messages – in the standard industry formats. This writer wasn’t a user of that software, but remembers a colleague relying on it to inform the market operator about electricity trades that had been conducted.

Now the interface was fairly rudimentary, but the product was functional and having something performing that role was absolutely essential because the not-so-dirty-secret of the electricity industry is that it runs on data, with tens of thousands of messages flying backwards and forwards every day to effect schedules, trades, meter reads and so on. Importantly, no matter how rudimentary the interface was at the time, it was 10,000% friendlier than the underlying message formats; and not speaking the language of flows and knowing which flow is needed in response to a particular other flow meant not being allowed to participate at all.

In the wider industry for years Ofgem had been wringing its hands about barriers to entry to the supply market, and had tinkered with obligations on larger companies to trade with new entrants and allow them to “hedge”. One thing it hadn’t really altered was the sheer complexity of business process and systems requirements – this was still a stumbling block for the vast majority of those pondering the market from outside.

Enter the companies like Utilisoft with products that combined an off-the-shelf pre-licenced supply company, market entry consultancy and thereafter dealing with the markets as an ongoing service, including all of those flows and business process maps. Utilisoft’s offering is called “Supplier in a Box”; Utiliteam has something called the “Universal Supplier Solution”; and others (e.g. ENSEK or Dyball) have similar. With those innovations, electricity supply was now accessible to the common man.

This had a curious pull effect: suddenly every one of those common men (and his dog) wanted his own supply business; even local government wanted in on the act. The number of suppliers registered in the market mushroomed. For example the number of nominally different entities operating in the Eastern region in Supplier Volume Allocation stood at 41 in April 2012, but 187 by April 2019.

This was astonishing amounts of competition. It was also for Ofgem a lesson in being careful what you wish for. Not every entity that was now operating in the market was truly capable of managing the risks of the wholesale markets, or providing good customer service (interestingly being able to bill the customer, traditionally a problem for small suppliers (see Independent Energy in 2000 for instance) was less of an issue with the third party service providers now present.

During 2018 there was a cascade of supplier failures, and “Supplier of Last Resort” exercises where Ofgem had to parcel up customers and allocate them to another, healthier, supplier. The list of SoLR casualties during 2018 included: Future Energy Utilities, IRESA, Gen4U, Usio Energy Supply, Extra Energy Supply, Spark Energy Supply and OneSelect. During 2019 we have so far seen the customers of Economy Energy and Our Power Energy Supply given to others.

Interestingly four of those companies were originally from the Utilisoft stable: Our Power Energy Supply, OneSelect, Extra Energy Supply and Future Energy Utilities.

Did Ofgem welcome this orgy of Schumpeterian creative destruction as part of a healthy competitive landscape? Not fully: the failure rate was making the national press, so a consultation on tightening up the rules appeared. Business plans would now be vetted, and the process of licencing generally tightened-up.

Utilisoft itself has apparently taken this recent tumult in its stride, with soaring profits and no mention of bad debts in its annual report for the year ending 31 December 2018. The name of the game is the increasing amounts of data that are going to be flying around the industry once we all have smart meters, half hourly settlement and faster switching between suppliers. On that basis, presumably, Utilisoft was acquired by Accel-KKR in 2017 (for £100m according to the Financial Times).

Does this saga in some small way prefigure a future when there are even more “suppliers” and we are all micro-trading our domestic electricity imbalances with Mrs Jones across the road in number seventeen using distributed blockchain ledgers – or is it just a craze akin to the Rubik’s phenomenon? Time will tell.

Back to Part 1

Forward to Part 3

The post A History of the Liberalised Electricity Industry in 25 Freebies Part 2: A Utilisoft Rubik’s Cube (circa 2016) appeared first on ElectroRoute.

I came across an artefact last week that made me pause. It was only two inches high, made from plastic and filled with liquid circa 1994, and almost certainly intended to be emptied on the train home and thrown away. Somehow it and its contents had persisted against all the odds into the era of blogs, fake news and Love Island. Here it is:

You are looking at a miniature bottle of Scottish Whisky emblazoned with the logo of SWEB: the South Western Electricity Board. Given out during corporate entertainment at the 1994 Pilkington Cup Final, it has sat undrunk ever since.

For those of you raised in the era of Premiership rugby union, the Pilkington Cup was an English club competition between 1988 and 1997. The date inscribed on the label of May 1994 was in that prelapsarian era before matches moved from terrestrial television to Sky Sports – later that same year incidentally – and certainly prior to the league turning professional in 1996.

Somehow the little bottle spoke to me. It didn’t say “drink me”: God knows what the water of life trapped in a very small plastic phial would taste like after twenty-five years; but it did speak to me about the way the electricity industry has changed over the last twenty-five years… maybe more even than rugby has changed.

In 2010 the then Director of the British Museum, Neil MacGregor, fronted a BBC Radio 4 series called “A History of the World in 100 Objects”. Each weekday for fifteen minutes an object in the collection of the British Museum was the focus of attention, forming the jumping-off point for a discussion of world history and culture. The Lewis Chessmen, the Rosetta Stone and a <sharia compliant Visa credit card were a few examples.

Never one to pass up a bandwagon, Fintan O’Toole of the Irish Times later did a similar exercise for the National Museum of Ireland in “A history of Ireland in 100 objects”. The Ardagh Chalice and the Tara brooch likewise had their day in the sun.

Okay I agree that this small plastic bottle and its ilk are hardly the Oxus Chariot or the Broighter Ship, but you can see where this is going… we now intend to give you A history of the liberalised electricity industry in 25 freebies…

Part 1. A small bottle of whisky given out by SWEB at the 1994 Pilkington Cup Final

1994, what a long time ago. Andy Robinson was a mere player for Bath in that final, not a (former) international coach. In our industry, in Great Britain, the privatisation of 1990 had created twelve Regional Electricity Companies (RECs) in England and Wales, owning both the local distribution networks and supplying all but the largest customers in their patch.

The restructuring of the electricity industry in Great Britain had been along the following lines: the Central Electricity Generating Board (CEGB), owner of the vast majority of power generation assets, was split into National Power PLC, PowerGen plc and Nuclear Electric plc. National Grid Company inherited the transmission network in England and Wales and interconnectors, and the twelve area boards were privatised as RECs with shares offered to the public in December 1990.

South Western Electricity plc, whose area covered (according to the 1990 prospectus) 14,400 square kilometres extending from Bristol to Land’s End at the tip of Cornwall and the Isles of Scilly, was one of those area boards. It is worth sharing the charmingly optimistic first sentence in its annual accounts of 1990: “This is the first Annual Report and Accounts of South Western Electricity plc as it sets out as a public company in a new world, a world of opportunity.”

That was the spirit of the times. So how did it turn out?

Well until 1994 each REC was largely shielded from supplier competition in its own area, but then the 1MW threshold for new entrants dropped to 100kW supplies. Admittedly anybody smaller was still tied to their REC, and full competition wouldn’t arrive until the end of the decade, but nevertheless switching to an out-of-area provider was “a thing” by Spring 1994, and each REC had to respond. Should they be competing out of their own area? Should they be merging?

As it happened SWEB’s lease of life as an independent was drawing to a close. Over the summer of 1995 the Southern Company, based in Georgia, made an offer to purchase SWEB, which was eventually accepted. This was one of a wave of US acquisitions – a wave that subsequently retreated only to be replaced by the next wave emanating from the large utilities of Continental Europe (more of that in a future post).

Here are some other examples of takeover activity from US entities during 1995 and 1996:

• Central and South Western acquired Seeboard;
• GPU and Cinergy acquired Midlands Electricity;
• Dominion Resources acquired East Midlands Electricity; and
• CalEnergy acquired Northern Electric.

At the same time Manweb, the old Merseyside and North Wales Electricity Board, was being pursued by Scottish Power, and Eastern Electricity was target for Hanson. By the end of 1996 only two RECs – Yorkshire Electricity and Southern Electric – were not either in new hands or facing takeover offers.

But that wasn’t the end of the story for SWEB. The following year Southern sold a 25% stake in SWEB to Pennsylvania Power and Light (based in Allentown of Billy Joel fame), and PPL took a further 26% interest in 1998. The wires business was spun out as Western Power Distribution (WPD) in 1998.

In 1999 the energy supply business was sold to London Electricity, which itself had been owned by Entergy, another US company, but was now owned by EDF. Southern Company then created its Mirant Unit, which sold the remaining 49% of SWEB – now focussed on the wires as WPD – to PPL. So PPL remains the parent company of part of the old SWEB, and EDF the parent of the other half.

Well what is the significance of this bottle? Maybe it is emblematic of that fleeting moment where the world was in flux: on the cusp of something – that “world of opportunity” – but the players weren’t sure what exactly. The model of the industry that we are more used to, with unbundling of transmission and distribution, and large vertically-integrated generation and supply, which all seems so natural and predestined, wasn’t as clear from their vantage point. Perhaps the forces of history never are clear.

Incidentally that afternoon Bath beat Leicester 21-9 with tries from Tony Swift and Mike Catt. According to The Independent it was a “filthy afternoon” which “was admitted by all to have been a disappointment”, albeit it did have a world record attendance for a club fixture.

Forward to Part 2

The post A History of the Liberalised Electricity Industry in 25 Freebies Part 1: SWEB, 1994 appeared first on ElectroRoute.

Overview

Annual submissions for the Public Service Obligation (PSO) Levy to the CRU are due by 1 May 2019. As industry focus begins to move away from the Renewable Energy Feed-In-Tariff (REFIT) and into the new Renewable Energy Support Scheme (RESS), we use this Insight blog as an opportunity to refresh our memories and look at how the mechanics of the current REFIT support scheme operates.

Since 2006, renewable generation in Ireland has been supported by the REFIT tariff. REFIT was designed to provide certainty to renewable generators by providing them with a minimum price for each unit of electricity exported to the grid over a 15-year period. The scheme is funded by the PSO Levy which is collected by suppliers through electricity customers’ bills.

Ex-Ante Calculation

On an annual basis, the Commission for Regulation of Utilities (CRU) calculates its estimate of the cost of the REFIT scheme and the value of REFIT payments for each eligible generator. In July 2018, the CRU published the PSO Levy decision paper for 2018/2019¹. The table below shows some key figures arising out of that report including the total renewables supported by REFIT for the current PSO year, the benchmark market price for the period as estimated by the CRU, and the charges levied on energy users to fund the PSO pot (€209.19m).

To qualify for REFIT, a Generator must be in receipt of a Letter of Offer from the CRU and must have entered into a 15-year Power Purchase Agreement (PPA) with a licensed supplier with certain criteria.  The supplier is the party that receives the REFIT payments.  The REFIT/PSO year runs from 1^stOctober to 30^th September each year and each year the REFIT reference prices for the support scheme change to reflect inflation. The latest published prices can be found here.

Taking a large-scale wind generator exporting over 5MW; the refit reference price for the project for the PSO year 2018/2019 is €70.349/MWh. As detailed below, the project will ultimately earn a top up amount equal to the difference between the actual market revenues for the power generated and the REFIT reference price for REFIT 1 projects, and the total of REFIT reference price plus the €9.90/MWh for REFIT 2 projects, from the PSO pot.

Ex-Post Reconciliation

The Ex-Ante calculation of the amounts due to a REFIT recipient are made in advance of the actual year.  Inevitably the amount that should have been paid will differ as forecasted market volumes will differ from actual market volumes and actual market prices will different from the benchmark price assumed by the CRU. 

As a result, an Ex-Post Reconciliation occurs to identify the “R-Factor” amount – any excess or shortfall that occurred when actuals are compared to estimates.  This R-Factor is settled in the subsequent PSO year.

In order to calculate the R Factor, after the end of the PSO year, each REFIT recipient is required to submit the actual outturn for the year to the CRU along with an auditor’s certificate verifying the annual outturn figures. 

As a caveat to the above, the CRU have yet to confirm the treatment of the R factor in I-SEM. We don’t expect any majors changes however until a decision paper is published it is worth keeping in mind that the R-factor calculation may change. We expect the CRU to consult on a revised version of CER/08/236 which will define the treatment of the R-Factor and constraint payments amongst others. We anticipate a decision on this later in the year.

Below is a useful visual representation of the timelines involved in REFIT for the forthcoming PSO year 2019-2020, which shows that the R-Factor payments attributable for the PSO year 2019-2020 will be made in the PSO year 2021-2022, in effect two years later.

If you would like to discuss the implications of REFIT and the PSO submission process, please get in touch with our Client Services team at clientservices@electroroute.com.

The post Overview of REFIT appeared first on ElectroRoute.