Energy Update: Intermediaries in the I-SEM – Business as Usual?
20 April 2017
The Irish energy regulators are currently engaged in the redesign of the all-island wholesale electricity market to meet the requirements of the European target model for electricity market integration. Current market participants will be reassured by the latest regulatory decision, which suggests a “minimal disruption” approach to common trading structures that are currently used in the Irish wholesale electricity market.
An Intermediate Solution
The Irish wholesale electricity market (the Single Electricity Market, or “SEM”) is a gross mandatory pool market. Market participants are required to sell their entire output into the pool and have no scope to sell any output through alternative arrangements, such as through power purchase agreements.
However, the Irish REFIT support schemes for renewable energy – the design of which predates the wholesale electricity market – act by “topping up” the revenues received under power purchase agreements.
These two conflicting structures – gross mandatory pool, and power purchase agreements – are reconciled through the use of “intermediaries”. A REFIT-supported wind farm is permitted to sell its output to an intermediary under a power purchase agreement, so long as the intermediary then sells its output into the SEM.
I-SEM: All Change?
The Irish energy regulators are currently redesigning the SEM to meet the requirements of the European target model for electricity market integration. Most notably, this will be done by introducing day-ahead, intraday and balancing markets that better allow for the integration of the Irish generation fleet into the wider European power system. The redesigned market will be known as I-SEM (as in "Integrated SEM").
Preparing for the introduction of the I-SEM already presents a significant challenge for Irish wind farm stakeholders, primarily due to the need to establish strategies for participation in the new day-ahead, intraday and balancing markets.
Under these circumstances, any I-SEM design feature that allows the continuation of current SEM arrangements and business practices will be welcomed by market participants, as well as their investors and lenders.
The good news for Irish wind farm stakeholders is that pursuant to a decision of the regulators, published on Thursday 13 April, any intermediaries who are currently approved to participate in the SEM are also approved to participate in I-SEM. In addition, new wind farms will be permitted to establish intermediary arrangements under I-SEM on similar terms to those that currently apply under SEM.
Existing intermediaries will be required to take steps to transfer the registration of their generators from SEM into I-SEM. However, this is a small price to pay for the convenience of maintaining the intermediary arrangements that underpin the Irish renewable generation fleet.
Irish renewable generators, both existing and proposed, will welcome the decision of the regulators to maintain the intermediary arrangements in I-SEM. Wind farms will instead be free to focus, in collaboration with their power purchase agreement counterparties and lenders, on designing the day-ahead, intraday and balancing market trading strategies that will be necessary under I-SEM.
For more information, please contact a member of our Energy, Utilities & Projects team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.