Isra-Mart srl: All-Ireland electricity market trials new contracts in bid to boost liquidity

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A new trading platform for the all-Ireland energy market will see new contracts traded in a bid to increase liquidity.

Republic of Ireland incumbent ESB is looking at increasing electricity trading on the all-Ireland single electricity market (SEM) through the introduction of new trading products on broker Tullett Prebon's screens from 6 July, although the date may be pushed back.

Small 1MW monthly Baseload contracts and Mid-Merit 2 contracts (which run from 07:00-19:00) will be offered once a week for about two hours. The trial will be reviewed in September by the National Electricity Association of Ireland (NEAI) to assess its success.

"We would like a liquid market," said ESB's Eugene McAuley, who is involved with designing the trial, "but we haven't been able to entice a lot except incumbent players".

The all-Ireland market

The SEM is unique in northwest Europe in that it operates a pool generation system. Tullett Prebon facilitated the first auction of Non-Directed Contracts (NDCs) on the all-Ireland market in mid-2009 (see EDEM 11 May 2009) and has continued since. NDCs are a form of Contracts for Difference (CfD) used by Ireland's SEM participants to hedge risk against its pool-based system.

As counterparties are unable to trade forward on the SEM, Directed Contracts (DC) and NDCs are offered during a predefined period for the following tariff year.

The new trial will be on Tullett Prebon screens, but that could change, according to McAuley, because there is not yet a contract in place.

The trial

Tullett Prebon has been closely involved with developing the trial over the past 18 months. It was originally set to start in early June, but was postponed because June's rounds of NDC auctions took priority.

"Ultimately, we'd want to see bilateral trading like in the UK and European markets," said Tullett Prebon's Richard Hilton.

The trials are open to anyone and are not limited to SEM participants. To trade with ESB, parties need to sign up to an NDC master agreement.

Other parties looking to trade with each other will have to put bilateral contracts in place. Six or seven counterparties have signed up to the trial already, according to McAuley.

For the immediate future, contracts will be limited to months. "It's a bit of a chicken-and-egg situation," said McAuley about introducing Day-ahead contracts. "We can only go day-ahead if players want it." However, the market first needs more participants.

Market coupling

The East-West Interconnector link to Britain is seen as one possible tool that might aid the development of a spot market in Ireland. The link is set to open in the third quarter of 2012 (see EDEM 8 February 2011).

Another possibility is market coupling. On Thursday, the All-Island Project, a joint initiative between the Irish Republic's and Norther Ireland's respective regulators, released a report detailing six options for the island market to adjust to market coupling requirements.

The EU has an ambitious target to implement a common price coupling of electricity spot prices across member states by 2014. The target model foresees the formation of a Day-ahead trading framework, along with an implicit continuous intra-day solution across the EU.

The Pöyry Energy Consulting report put forward six options for the all-Ireland market.

Option B is its preferred choice. This would open a voluntary day-ahead market.

"Day-ahead volumes are made firm through the use of a compensation payment made to keep market participants whole with respect to volume risks," the report said.

McAuley had yet to read the report, but said that market coupling might be something the all-Ireland market could take advantage of to introduce shorter-term contracts.