Last night the House of Commons once more rejected the proposed Brexit Withdrawal Agreement, even with accompanying Legal Opinions, Joint Declarations and Unilateral Declarations. Later on today the UK parliament will vote on whether “No Deal” Brexit should be positively embraced, a prospect which seems destined to fall similarly short of a majority. “No Deal” doesn’t need to be positively embraced, however, to occur. All that needs to happen is a lack of a positive parliamentary-majority-galvanising alternative.

The attitude within the electricity industry on the island of Ireland to “No Deal” has largely been that it doesn’t bear thinking about, but from the position we are in this morning that is obviously not sustainable for much longer (but let’s wait for a few more votes, hey…).

In this post we will examine what we know about the Single Electricity Market in a “No Deal” scenario.

Governments, regulators and system operators have generally been tight-lipped on that topic, but the first public material has begun to appear, particularly after the SEM Committee Senior Stakeholder Forum on 18 February. The regulators have posted slides and notes as follows:

CRU, 5 March:

• Group Notice to Industry on Disorderly Brexit
• CRU19022; Notice to Industry on Disorderly Brexit
• CRU19023; Eirgrid presentation Brexit Senior Stakeholder Forum

Utility Regulator, 11 March:

• Electricity and Gas trading arrangements in the event of a ‘no deal’ Brexit
• Brexit Update

The coordinated wording used by the regulators states that, “In the event of a ‘no deal’ Brexit, [the Day Ahead Market] will almost certainly be less efficient than today as Great Britain will no longer be part of the pan-EU market and the SEM will become an isolated market.”

Rodney Doyle’s presentation, provided by the regulators above, similarly explains: “The market will continue as it is today but the day ahead market will no longer be a cross border market.”

And whilst the first quote only talks about GB/SEM borders, the second covers the border within SEM.

Why is this? Well the European Commission considers the Internal Energy Market to be part of the Single Market, which should not be available on a sectoral basis. In recent months one continental TSO did raise the possibility of continuing to couple with GB, only to be told by the Commission that it was out of the question.

The Commission published a notice to stakeholders in April 2018 which contained the following statement:

“United Kingdom based operators will cease to participate in […] single day-ahead and intraday coupling. United Kingdom based NEMOs will become third country operators and will no longer be entitled to carry out market coupling services in the EU.”

The basis for the Commission’s statement that market coupling would no longer be available to the UK has never really been elaborated on – much of coupling is after all based on contractual arrangements between Transmission System Operators, interconnector operators, power exchanges, and so on, rather than EU legislation. Indeed much of the coupling pre-dates the regulations cited by the Commission, but this is perhaps academic because the UK has never challenged the interpretation.

Indeed in Great Britain there has been wholesale rewriting of the retained EU legislation to remove references to the codes, guidelines and regulations that govern the IEM. On the English Channel borders the interconnector operators are preparing for “No Deal” contingencies with new interconnector rules stripped of EU references.

Interestingly this is NOT the case (for the most part) in relation to Northern Ireland. References to EU law haven’t been totally removed, and SONI for instance appears to have EU-derived obligations that mirror its current ones. Similarly the definition of the Single Electricity Market in the NI legislation still points to Regulation (EC) 714/2009.

BEIS (who is driving this area in the absence of NI political functioning) has stated that this is “due to a practical need for the definitions of the SEM in Ireland’s and Northern Ireland’s legislation to continue to align”. Claire Perry similarly commented that, “In a no-deal scenario, EU regulations will oblige EirGrid, Ireland’s system operator, to endeavour to conclude a co-operation agreement with SONI because of the unique shared nature of the single electricity market. For Northern Ireland only, we are therefore retaining a similar requirement for SONI to ensure co-operation with EirGrid south of the border.”

Perry went on to say that whilst the legislation introduced in recent weeks would not provide insurance against all the risks that we would run in a no-deal exit that would “undermine the legal basis of the single electricity market”, they would “facilitate the necessary steps to ensure that such a situation is not prolonged.”

Are we comforted?

Finally, the talk of SEM being booted out of the market-coupling “Euphemia” algorithm on “Exit Day” perhaps isn’t strictly true. It would be very difficult to remove Great Britain and SEM from Euphemia at 23:00 on 29 March, so it is likely that GB and SEM “Available Transfer Capacities” will instead be set to zero until a future release is tested. Of course that will have a very similar effect…

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  REMIT is the Regulation (EU) 1227/2011 on wholesale energy market integrity and transparency which introduces a sector specific (power and gas) monitoring framework to detect and prevent market abuse and insider dealing. The Agency for the Cooperation of Energy Regulators (ACER), in cooperation with the National Regulatory Authorities (NRAs), has been charged with the task of monitoring the Markets. To date, REMIT has seen the registration of more than 7,000 Market Participants (MPs), the recognition of 68 Organised Market Places (OMPs), the approval of 65 Registered Reporting Mechanisms (RRMs), the reporting of more than 1 million data records and the publication of more than 600 pages of guidance. All this with the second phase yet to come into effect in just few weeks, on the 7th of April. REMIT reporting can be broken down into three data requirements: Transaction Data, Fundamental Data and Inside Information. The party responsible for ensuring reporting is fulfilled correctly and in a timely manner (deadline is the following working day for most of the contracts) depends on the type of data. The first phase of REMIT transaction reporting put the onus on the OMPs since it required the reporting of transactions concluded on such. The second phase of REMIT focuses on transactions concluded outside an OMP and Market Participants and TSOs are the protagonists this time. For power Transportation Contracts, primary explicit capacity allocation contracts and resales will be reported by the TSO. Transfers of contracts won’t be reported by the TSO and Market Participants will be required to find a way to ensure this data reaches the Agency. Some interconnectors’ operators haven’t required any action from the Market Participants, while others have requested a Data Reporting Agreement to be signed. EFETnet was the clear winner in Phase 1 since it managed to get all the brokers aligned to forward their trade data to them and offered the service to Market Participants for free; and it looks like for Phase 2 EFETnet has taken the lead again. Last week, EFETnet made two significant announcements. Firstly, it announced the launch of ‘eRR External Agent’ functionality, which will allow Market Participants to report on behalf of a third party free of charge. That is something unexpected but more than welcome since it will bring greater flexibility to the market in order to fulfil REMIT reporting obligations. It is a reality that the Agency has struggled to cope with the volume of applications submitted to become a RRM (out of 900 applications submitted, less than 70 have been approved). The Agency recently announced its plans to prioritise Third Party RRMs, TSOs, SSOs and LSOs, but not individual self-reporting Market Participants (MPs). This ‘eRR External Agent’ functionality will be of special benefit to small players for which executing the reporting obligation themselves would impose an uneconomical burden; potentially when executing bilateral trades outside an OMP, one counterparty could delegate the reporting on the other. Secondly, EFETnet achieved full ACER certification for the reporting of transactions under REMIT Phase 2, which will allow them to cover all aspect of reporting by trading organisations and storage operators. Not many RRMs have achieved this. REMIT phase 2 is looming now but there are still some unknowns, especially around Tables 3 (secondary market resale and transfer of long term transmission rights in electricity) and 4 (secondary capacity allocations for gas). We recommend Market Participants to monitor the REMIT website closely. For further information please refer to the 11th Public Workshop on REMIT Implementation (http://www.acer.europa.eu/Events/11th-Public-Workshop-on-REMIT-implementation/Documents/Presentations.pdf)

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