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The evolution of a market

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The evolution of a market

• The Electricity Pool• NETA• BETTA• EMR

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The Electricity Pool

• Government-sponsored initiative - privatisation

• Mandatory pool – Pooling & Settlement Agreement

• Pool pricing and capacity price• Contracts for difference• NFFO• E&W only – separate arrangements for

Scotland and NI

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From Pool to NETA

• RETA process• POOL successes• Security of supply• New investment• Retail supply competition

• Pool failures• High prices• Gaming• Inflexible governance

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NETA

• Bi-lateral contracts• OTC trading• Power exchanges

• Balancing• Balancing & Settlement Code• Bids and offers• Imbalance charges

• Renewable Obligation

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BETTA

• Extension of NETA to Scotland• Operation and development of GB Grid• NGC’s role• Scottish TOs

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Need for (further) Electricity Market Reform?

• Twin challenges of climate change and energy security• Decarbonising the ESI• Diversifying energy supply

• Incentivising investment• Step change in investment required• Inadequate incentives under NETA

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Key Features

Contracts for Difference

• Replacement for the Renewable Obligation

• “Price Certainty”

• Role of the Counterparty

The Capacity Mechanism

• Insurance Policy

• Contract Auction

• A more integrated European Market

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New Limitations & Enhanced MonitoringEmissions Performance Standard

• Annual Limit• “Grandfathering”• Dash for gas?

The Office of Nuclear Regulation• An independent body• Five areas of

responsibility

New Institutional Framework• Administration and

delivery of EMR• Role of National Grid• Role of Ofgem

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Conclusions

• Continual need for market intervention• Importance of price signals/incentives• Regulatory risk