N. Keith Tovey, M.A. PhD, C.Eng MICE

N. Keith Tovey, M.A. PhD, C.Eng MICEUniversity of East Anglia

Norwich

17th February 2003

The changing face of the Electricity Market in the UKИзменяющееся 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 1990.

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 1990.

Краткий обзор состояния британской электроэнергетики перед приватизацией в 1990 г


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 France2000 MW

+1643

+7525

-4709

-1963

+418

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

MWInterconnector

to Scotland

Interconnector to France

Fuel Input for Electricity Generation

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1970 1975 1980 1985 1990 1995 2000

Year

(Pe

taJo

ule

s)

Total Coal OilGas Nuclear HydroOther/Renewables

2001

37.6%

1.7%31.8%

24.6%

0.4%

3.9%

Coal

Oil

Gas

Nuclear

Hydro

Other/Renewables

1995

47.0%

5.4%

17.2%

27.5%

0.5%

2.3%Coal

Oil

Gas

Nuclear

Hydro

Other/Renewables

Immediately prior to Privatisation

Mid 1990sAt start of New Electricity

Trading Arrangments

1990

65.3%

11.0%

0.7%

0.6%

1.1%

21.3%

Coal

Oil

Gas

Nuclear

Hydro

Other/Renewables

Изменяющееся лицо рынка электроэнергии в Британии

0

50

100

150

200

250

300

350

400

1970 1975 1980 1985 1990 1995 2000

Year

TW

h

Coal & Oil CCGTNuclear RenewablesTotal

• 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


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

0

10

20

30

40

50

60

0 24 48 72 96 120 144 168Hours

GW

4th - 10th January 2003

11th - 17th January 2003

Saturday Sunday Monday Tuesday Wednesday Thursday Friday

30

35

40

45

50

55

0 4 8 12 16 20 24

Hour

GW

January 8th

January 15th

Typical UK Electricity Demand in Winter

2003

0

5

10

15

20

25

30

35

40

0 24 48 72 96 120 144 168Hours

GW

27th July - 2nd August 2002

Saturday Sunday Monday Tuesday Wednesday Thursday Friday

15

20

25

30

35

40

0 4 8 12 16 20 24Hours

GW

Typical UK Electricity Demand in Summer

2002

1st August 2002


A brief review of the UK Electricity Industry prior to 1990. 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 bidding process - Pool Input and Pool Output

Процесс подачи заявок в системе пула

The Electricity Pool

Электрический пул

The

Pooloperated by

National Grid

Company


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: 1990 - 2001

Eastern **

Industry

Independents

Electricité de France

Innogy

Nuclear Electric *

BNFL (Magnox)

PowerGen Licensed Suppliers

RECs

Consumers

Second Tier

Consumers

The

Pool

пул

Scottish Nuclear * Consumers

Scottish 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 MWhBid 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 <£15 per MWh

10000 MW

10000 MW

10000 MW

1250 MW1250 MW

1250 MW1250 MW1250 MW

32500 MW

System Marginal

Price

= £19.31

SMP

Companies up to and

including B successful

• 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: 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 1998 - now ~ 6p 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


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 New Electricity Trading Arrangements

Новая система оптовой торговли НЕТА


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]


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.



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.


Generation and Supply focuses on


• 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.


• 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

IPN FPN

Gate Closure

Real

Time

30

mins3.5 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




• 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

FPNOFFER

Time

FPNOFFER

• If OFFER is agreed then Generators / Suppliers are PAID for any electricity increased / reduced under the OFFER.




• 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

FPNOFFER

Bid

FPNOFFER

Bid

Time


Generators / Suppliers may submit OFFERs or BIDs which differ for different levels of deviation from the Final Physical Notification

25 - 50 MW: £30 per MWh 50 - 100 MW: £50 per MWh

National Grid Company normally accepts OFFERS / BIDS which are cheapest unless System Constraints prevent this.

0 - 25 MW: £20 per MWhFPN окончательная физическая нотификация

Example of Differential Offers from a Generator


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 +1

BID / UNDO OFFER: Pair -1

BID / UNDO OFFER: Pair -2

FPN

Новая система оптовой торговли НЕТАWhat 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

0

10

20

30

40

50

60

0 3 6 9 12 15 18 21 24 3 6 9 12

Time (hours)

Pri

ce £

/MW

h

System Sell Price

System Buy Price

Friday 14th February 2003 15th February 2003

Example from 2 days ago

Новая система оптовой торговли НЕТАHow 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.


Average Prices


April June August October December February

28

26

24

22

20

18

16

14

£/M

Wh

Baseload Peak

2001 2002


Average Sell and BuyPrices



Average OFFER and BID Prices for different Generators




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





0

200

400

600

800

1000

1200

1400

< 1 1 - 10 10 - 100 >100

Size (MW)

Num

ber

Most CHP Schemes in UK are small

average size for those under 10 MW is 650 kW



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 2000

• 61% 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



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.



GeneratorBoiler

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

• 1998 + 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.



Some Useful WEB Sites

•www.bmreports.com/ : Up to date information of NETA Market

•www.ofgem.gov.uk/ : The UK Regulator

•www.elexon.co.uk/ : Documents and Modifications to NETA

•www.nationalgrid.com/uk/ : 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 will be available over Internet atwww2.env.uea.ac.uk/gmmc/energy/env2e02/NETA.ppt

N. Keith Tovey, M.A. PhD, C.Eng MICE

[email protected]

Н.К.Тови М.А., д-р технических наук

Факультет экологических исследований Университета Восточной Англии

School of Environmental SciencesUniversity of East Anglia

Norwich NR4 7TJ

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