N. Keith Tovey, M.A. PhD, C.Eng MICE University of East Anglia Norwich 22nd April 2003 The changing face of the Electricity Market in the UK Изменяющееся лицо рынка электроэнергии в Британии Университета Восточной Англии

The changing face of the Electricity Market in the UK A brief review of the UK Electricity Industry prior to Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г The Electricity Markets in the 1990s after Privatisation Рынки электроэнергии в 1990 г после приватизации The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС

A brief review of the UK Electricity Industry prior to Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г The changing face of the Electricity Market in the UK Electricity Generation and Supply differences in approach between England / Wales and Scotland. Генерация и сбыт - раличия между регионами Fuels used for generation Топливо, используемой для генерации

The Generation and Distribution of Electricity have always been different in Scotland compared to England and Wales Scotland Scotland: Two vertically integrated companies supplying discrete areas England and Wales England and Wales: One Generating Company (CEGB) and 12 Regional Electricity Suppliers. [CEGB did NOT supply electricity to consumers] EdF Electricité de France 2000 MW

Generating Capacity Surplus/Deficit on February 12th 18:00 +ve: generating capacity exceeding demand -ve: demand exceeding generating capacity Most Generating Capacity is in the North - most demand is in South MW Interconnector to Scotland Interconnector to France

Immediately prior to Privatisation Mid 1990s At start of New Electricity Trading Arrangments

Изменяющееся лицо рынка электроэнергии в Британии Demand has risen by 50% since 1970 Large rise in output from CCGT since 1993 Nuclear output increased steadily but is set to decline Coal [Oil] generation has fallen rapidly since Privatisation

Decision on how electricity was to be generated was done on a generating set basis: Generating Sets to run were selected on Merit Order. Based on Marginal Costs (i.e. the fuel costs) Some generating sets were run OUT of MERIT ORDER where system constraints were an issue. Generators sold electricity to Regional Electricity Boards. Electricity Boards sold to consumers in their Area only. Prices to consumers varied between regions Electricity Generation - pre 1990

Most Generating Capacity in North Most coal-fired stations in North Most Oil-fired stations in South Nuclear stations - distributed around coast Most Hydro stations are in Scotland Изменяющееся лицо рынка электроэнергии в Британии Significant power flows North > South

Central Electricity Generating Board 12 Regional Electricity Companies Coal Fired Power Stations Oil Fired Power stations Gas Turbine Stations Hydro Stations Nuclear Stations Transmission National Power PowerGen Nuclear Electric National Grid Company 12 Regional Electricity Companies Privatisation of Electricity Supply Industry 1990

Typical UK Electricity Demand in Winter 2003

Typical UK Electricity Demand in Summer st August 2002

The changing face of the Electricity Market in the UK A brief review of the UK Electricity Industry prior to Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г The Electricity Markets in the 1990s after Privatisation Рынки электроэнергии в 1990 г после приватизации The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС

The Electricity Markets in the 1990s after Privatisation Рынки электроэнергии в 1990 г после приватизации The changing face of the Electricity Market in the UK The bidding process - Pool Input and Pool Output Процесс подачи заявок в системе пула The Electricity Pool Электрический пул

The Pool operated by National Grid Company Электрический пул Simplified Diagram of the Electricity Pool England and Wales Generators (> 100 MW) bid into Pool to Supply Electricity Suppliers purchase electricity from the Pool Consumers

Only the Generators (>100 MW) bid into the POOL to supply electricity e.g. National Power (now Innogy), PowerGen etc. The National Grid Company published projected demands for the following day and invited bids. The Generators supplied bids for each generating set in each station for each half-hour period of the following day. The NGC sorted bids to determine which generating sets would be used for each particular period, and which ones would have capacity made available. The Operation of The Electricity Pool:

Eastern **IndustryIndependents Electricité de France InnogyNuclear Electric *BNFL (Magnox)PowerGenLicensed Suppliers RECsConsumers Second Tier Consumers The Pool пул Scottish Nuclear * ConsumersScottish Hydro Scottish Power Scotland England and Wales

Bid from company B £19.31 per MWh Bid from company A £19.20 per MWh Bid from company D £19.40 per MWh Bid from company E £19.50 per MWh Bid from company C £19.32 per MWh Range of bids from companies in range £18 - £19 per MWh Range of bids from companies in range £15 - £18 per MWh Range of bids from companies in range

All Companies who were successful are paid the SMP for all units generated irrespective of what their bid was. The bids were for the single half-hour period and fresh bids were required for all half hour periods. It was possible for companies to bid £0 and this would guaranteed that they generated and paid SMP. –However, if all Companies did the same they would have to generate electricity for nothing. In addition to the SMP, there was also a capacity charge relating to the generating capacity which was requested to be available. The Operation of The Electricity Pool

Capacity Charge paid to all Generators who had been requested to have capacity available. -based on formula: LOLP * (VOLL - SMP) Loss of Load Probability The Operation of The Electricity Pool VOLL: was set by the Regulator at around £2400 per MWH LOLP: normally a very low figure but could become significant if there was a shortfall in generating capacity Capacity Charge: signal to ensure sufficient capacity was available. Pool Input Price (PIP) = SMP + LOLP * (VOLL - SMP) Value of Lost Load

System Constraints: Some Power Stations constrained ON to ensure security of supply even when their bid was more expensive. Some Power Stations constrained OFF even when their bid was cheaper (-excess of capacity in one region). Constrained Stations paid their Bid Price POOL Output Price: (POP) = PIP + Uplift Uplift represented the additional charges incurred to National Grid Company because of System Constraints Suppliers purchased Electricity at POP Электрический пул

Электрический пул: Supply Side Regional Electricity Companies (RECs) Before privatisation: Sole supplier in their region After privatisation Consumers > 1MW could purchase from ANY REC not just their own regional Company. From 1994 Consumers > 100 kW were included in Deregulation From September 1998 All consumers could select their supplier. Prices to consumer have fallen. e.g. Domestic Consumer in East Anglia [Восточной Англии] 7.48p per kWh before now ~ 5.62p per kWh

Электрический пул: A Review Need for strong Regulatory Body to ensure prices were not fixed. Evidence suggested price manipulation took place in early years. Regulator required major generators to dispose of some stations. The lack of Demand Side Bidding was a weakness Charges for Transmission Losses were averaged over whole Network. Customers in North subsidise those in South Generators in South subsidise those in North Issue not resolved

A brief review of the UK Electricity Industry prior to Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г The Electricity Markets in the 1990s after Privatisation Рынки электроэнергии в 1990 г после приватизации The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС The changing face of the Electricity Market in the UK

The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА The changing face of the Electricity Market in the UK The basic principles Основные принципы Gate Closure and Final Physical Notification Закрытие периода и окончательная физическая нотификация The Balancing Mechanism Балансирующий механизм

The basic principles [ Основные принципы] Новая система оптовой торговли НЕТА How does it differ from the Pool? Both Generating and Demand Side Bidding Takes Place Most Electricity (>90%) is traded outside NETA Balancing Mechanism NETA favours generators and suppliers who can guarantee specific levels of generation/supply in advance. NETA favours generators and suppliers who can guarantee flexibility in output / demand at short notice.

The basic principles [ Основные принципы] Новая система оптовой торговли НЕТА How does it differ from the Pool? - continued Generators and Suppliers are penalised if they deviate from their agreed level of generation / supply. System security is maintained via the Balancing Mechanism [Балансирующий механизм] Renewable Generators e.g. Wind and small CHP (~10 MW) can be adversely affected.

The basic principles [ Основные принципы] Generation and Supply focuses on Новая система оптовой торговли НЕТА Balancing Mechanism [Балансирующий механизм] (BM) Units Generating BM Units may be a single generating set or a collection of small generating sets. Demand BM Units may be a single large demand consumer or a collection of small consumers. Trading can take place between Generating and Demand BM Units Only the volume traded ( not price) has to be notified.

The New Electricity Trading Arrangements Each Generating or Demand BM Unit notifies System Operator of the projected Volume of Electricity to be Traded for each half hour period by 11:00 on preceding day. Initial Physical Notification (IPN) System Operator checks sufficient capacity is available. Initially 3.5 hours before REAL Time - later reduced to 1 hour. Final agreed Volumes to be traded noted before Gate Closure. Final Physical Notification (FPN) окончательная физическая нотификация Gate Closure and Final Physical Notification Закрытие периода и окончательная физическая нотификация GATE CLOSURE : Закрытие периода

The Balancing Mechanism Балансирующий механизм Day Before Current Day IPNFPN Gate Closure Real Time 30 mins 3.5 hours 1 hour Operation of Balancing Mechanism Summary Changes to contract position cannot be made after Gate Closure The Balancing Mechanism is operated after Gate Closure to provide System Security

The Balancing Mechanism Балансирующий механизм The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА To allow system to remain stable Too little electricity on the system – Generators can OFFER to INCREASE output – Suppliers can OFFER to REDUCE consumption Time FPN OFFER Time FPN OFFER If OFFER is agreed then Generators / Suppliers are PAID for any electricity increased / reduced under the OFFER.

The Balancing Mechanism Балансирующий механизм The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА Too much electricity on the system – Generators can BID to REDUCE output – Suppliers can BID to INCREASE consumption If BID is agreed then Generators / Suppliers PAY for any reduction in generation / increase in demand under the BID. Time FPN OFFER Bid FPN OFFER Bid Time

The Balancing Mechanism Балансирующий механизм Generators / Suppliers may submit OFFERs or BIDs which differ for different levels of deviation from the Final Physical Notification MW: £30 per MWh MW: £50 per MWh National Grid Company normally accepts OFFERS / BIDS which are cheapest unless System Constraints prevent this MW: £20 per MWh FPN окончательная физическая нотификация Example of Differential Offers from a Generator

The Balancing Mechanism Балансирующий механизм What happens if System Operator has got it wrong? OFFERs / BIDs cannot be cancelled UNDO BID removes an OFFER and is usually less than the OFFER UNDO OFFER removes a BID and is usually more than the BID OFFERs / UNDO BIDs [ or BIDs / UNDO OFFERs] are submitted in pairs OFFER / UNDO BID: Pair +2 OFFER / UNDO BID: Pair +1BID / UNDO OFFER: Pair -1BID / UNDO OFFER: Pair -2 FPN

Новая система оптовой торговли НЕТА What happens if a Generator / Supplier is out of balance? Unexpected changes in Demand Equipment Failure Generator / Supplier has too much electricity on the system [too much generation / too little demand] * charged for imbalance at System Sell Price Generator / Supplier has too little electricity on the system [too little generation / too much demand] * charged for imbalance at System Buy Price Example from last month

Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? From OFGEM: Review of First Year of NETA Wholesale prices of electricity are now 40% lower than they were 5 years ago.

Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? Average Prices From OFGEM: Review of First Year of NETA April June August October December February £/MWh Baseload Peak

Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? Average Sell and BuyPrices From OFGEM: Review of First Year of NETA

Новая система оптовой торговли НЕТА How well has it performed since starting on 27th March 2001? Average OFFER and BID Prices for different Generators From OFGEM: Review of First Year of NETA

Impacts of Pool and NETA on one Coal Fired Power Station Fiddlers Ferry 2000 MW Coal Fired Station built MW Auxiliary Gas Turbines [ now only 55 MW of AGT] Coal Stock AGT Boiler House Turbine Hall

Impacts of Pool and NETA on one Coal Fired Power Station Coal: Used to come from Lancashire and Yorkshire High Sulpher Content but: Coal is cheaper from Poland and Russia and South Africa Low Sulphur Content Electro-Static Precipitators dont work Inject sulphur into exhaust gases. Labour Force Approximately 650 in 1989 Now approximately 250 for same output

The changing face of the Electricity Market in the UK A brief review of the UK Electricity Industry prior to Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г The Electricity Markets in the 1990s after Privatisation Рынки электроэнергии в 1990 г после приватизации The New Electricity Trading Arrangements Новая система оптовой торговли НЕТА Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС

Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС Most CHP Schemes in UK are small average size for those under 10 MW is 650 kW

Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС Small CHP Generators Often do not have resources to compete in Trading Rely on Suppliers who are not so keen to take electricity as their Imbalance position might be affected Since % reduction in output from small CHP Generators after NETA At same time have seen prices for fuel for generators increase by around 14% The few Trading in NETA saw reduction of 17% in income

Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС Wind Generation has been affected - cannot predict wind so cannot guarantee output cannot trade in Balancing Mechanism. In 2002 the Renewables Obligation will assist Wind but there was one year before this was introduced Consolidation of groups of small CHP units together has been shown to reduce risk of NETA trading. However, only marginally improvements are possible from consolidation of several Wind Farms.

Some Implications for Renewable Generation and Combined Heat and Power. Последствия для генерации на возобновляемых источниках и для ГРЭС Generator Boiler Condenser CHP units using Pass Out Turbines should be suited to NETA because of flexibility In UK there are very few schemes like this ~10 MW District Heating

Conclusions (1) Key Changes in Electricity Market in UK April 1st 1990: Privatisation: Electricity POOL Established Large Consumers benefit from Deregulation 1994: Intermediate Consumers benefit from Deregulation All Consumers benefit from Deregulation 27th March 2001: NETA replaced POOL 1st April 2002: Renewable Obligation comes into force The POOL and NETA were not used in Scotland The Future BETTA (British Electricity Transmission and Trading Arrangements). It is planned to extend NETA to include Scotland in October 2004

Conclusions (2) Key Changes in Electricity Market in UK Prices to consumers have fallen as a result of Deregulation (up to 20% in some cases) Wholesale prices of Electricity have fallen by 40% over last 4 years, and 20% since introduction of NETA Prices to consumers have changed little since introduction of NETA - to early to see full effect as prices by Suppliers only tend to change once a year or so. Most electricity >> 90% is traded outside Balancing Mechanism Trading NETA favours Generators / Suppliers who can guarantee output / supply in advance NETA favours Generators / Suppliers who can be flexible to make adjustments during Balancing Mechanism Trading.

The changing face of the Electricity Market in the UK Изменяющееся лицо рынка электроэнергии в Британии Some Useful WEB Sites : Up to date information of NETA Market : The UK Regulator : Documents and Modifications to NETA : The System Operator www2.env.uea.ac.uk/gmmc/energy/enpoint.htm the Energy Web Page at UEA giving links to many Energy Web Sites in UK and overseas. This presentation is available over Internet at www2.env.uea.ac.uk/gmmc/energy/env2e02/NETA.ppt

N. Keith Tovey, M.A. PhD, C.Eng MICE Н.К.Тови М.А., д-р технических наук Факультет экологических исследований Университета Восточной Англии School of Environmental Sciences University of East Anglia Norwich NR4 7TJ

N. Keith Tovey, M.A. PhD, C.Eng MICE Energy Sciences Director Low Carbon Innovation Centre University of East Anglia Norwich NR4 7TJ Cred Will be aiming to reduce Carbon Dioxide Emissions by 60% by 2025 Will be launched on 21st May 2003

School of Environmental Sciences: University of East Anglia 60 Faculty 50 Support Staff 120 Research Workers 120 PhD Students 80 MSc Students 380 Undergraduates Climate Change Oceanography Geology Economics Sedimentology Geological Hazards Politics Hydrology Energy Resources Risk A 5* Research Department 4 International Research Centres