The First Week of I-SEM: Day Two
The First Week of I-SEM: Day Two
Since Part One in this series we have witnessed the first full day of electricity delivered under the I-SEM system. I suppose it felt like any other day to most people, but to the cognoscenti this was a seminal (I-SEMinal?) moment: the final step in our transition to the brave new world of the European target model. Now a humble wind generator in Listowel can transact with an international investment bank in London (or a small utility in Ljubljana or a power trader in Lithuania for that matter), and they won’t even realise it is happening due to the market coupling taking place over multiple borders. We mentioned yesterday that it was a brave decision to start a new market on a Monday. The Monday chosen was even more special than just any old Monday, it was the Monday where the splitting of the Austria/Germany bidding zone was taking place too. That switch in price coupling’s largest market was a complicating alteration to the Europe-wide “Euphemia” algorithm but given that the I-SEM’s complex bids are markedly more challenging to cope with than the simple bids used elsewhere, there was a danger that doing both at the same time was going to “break” Europe. In reality we didn’t. And we didn’t break it on day two either, thus proving the Cassandras wrong. So, what have we learned between hour 12 and hour 36 of the new market? In all honesty it is too early to say, but that has never stopped us from pontificating in the past. We have certainly seen a full day of the balancing market now, where the engineers in the System Operator’s (SO) control rooms are facing the challenge of trying to balance the system economically in real time (their fine tuning directly affects the imbalance prices). We have also seen the first intraday 3 (“IDA 3”) auction and had an opportunity to watch how volumes in each are developing. Prices overall are responding to the factors that we would expect, namely gas prices, wind output and general availability. Baseload traded down from €82.24/MWh to €69.94/MWh between 1 October and 2 October, but it is the details that are fascinating. Emerging lessons from day one (admittedly based on a less than vast dataset):
- Choose your market carefully: It pays to pick where and when you trade. Prices varied on average by €12.17/MWh between day-ahead and the “Intraday 1” auction, and €2.12/MWh and €10.70/MWh between that point and the next two intraday auctions, respectively.
- Avoid a spilling strategy: Notwithstanding the point above, do trade somewhere and don’t blindly spill. Spilling would not have been an optimal strategy yesterday, yielding a full €35/MWh less than selling in any of the auctions on a baseload basis. Albeit going short in parts of the day would have been punished too – particularly in the morning. Using a very crude wind weighting based on forecasts the result of spilling is more than €50/MWh worse for wind.
- Imbalance market = Volatility: Don’t rely on imbalance prices if you are looking for stability. One feature definitely emerging is a gyrating balancing market plumbing depths one minute only to rise majestically the next. One in six of the settlement periods on 1 October were more than €50/MWh different to the previous period, and the range is truly quite impressive compared with other markets across Europe. But perhaps this is just how a small island market stuffed with renewables will be?
- Negative prices: But most of all, prices can be negative. Imbalance prices, that is, and nine half hours breached the magic zero level (see this blog for more on negative prices). The SO control room is instructing generators to turn down that are signalling by their prices that they really want to stay on. Pity the poor generator who didn’t sell the first few hours of the new market and was clobbered with a -€137.57/MWh bill almost immediately; then the sting in the tail was a further -€226.93/MWh at the end. That would likely wipe out income for the day.
As Chairman Mao said, a revolution is not a dinner party…