The Electricity Market in the UK

Transcription

1 The Electricity Market in the UK Dr Gareth Harrison Institute for Energy Systems University of Edinburgh

2 The United Kingdom Complex administrative structure devolution Electrical market also complex!

3 The National Grid 400 and 275 kv supergrid DC connections to France and Northern Ireland Mostly thermal generation Distribution at 132, 66, 33 and 11 kv Domestic 230 V

4 Pre-privatisation (pre-1990) England and Wales Central Electricity Generating Board (CEGB) 400 kv & 275 kv transmission network 80% coal generation 15% nuclear 12 Area Boards (regional distribution) Scotland North of Scotland Hydro Board (Hydro Electric) South of Scotland Electricity Board (SSEB) Both had generation, transmission and supply

5 Privatisation (1990) Thatcher Government privatisation programme Public monopolies were bad Competition good price reductions Destroy the Trade Unions Money from sales to fund tax cuts Unbundling CEGB split into generation and transmission

6 Privatisation (1990) Transmission National Grid Company Generation: Competition National Power (50%) + PowerGen (30%) + Nuclear Electric (20%) Supply: competition for large consumers Scotland retained its vertically integrated utilities

7 Area boards became Regional Electricity Companies (RECs) Distribution after privatisation Regional monopolies Distribution (wires) and supply (retail): 1998 distribution separated from supply competition in supply Distribution Network Operators (DNOs)

8 The Pool: Day-ahead spot market Least cost scheduling Plant characteristics Competitive bids Bid Price ( /MWh) Generator Bid Willan s Line Output (MW)

9 The Pool: Day-ahead spot market Least cost scheduling Plant characteristics Competitive bids All generators paid System Marginal Price Market Price ( /MWh) P 3 P 1 P 2 Forecast demand Aggregate supply Capacity payments D 2 D 1 D 3 Irrespective of output Demand (MW) Uplift

10 The Pool: All this applied to England and Wales only Scottish generation paid shadow price Market Price ( /MWh) P 3 P 1 Forecast demand Aggregate supply P 2 D 2 D 1 D 3 Demand (MW)

11 The lights stayed on Facilitated competition in generation and supply Vastly increased efficiency Demise of coal from 113k to 13k workers and dash for gas Corporate activity Changes in ownership of nearly all distribution companies Enforced fragmentation of generating companies Vertical re-integration initially blocked, then allowed Many owned by foreign companies

12 Foreign ownership Spanish? German American French

13 Problems with the Pool

14 Pool prices did not reflect market fundamentals

15 New Electricity Trading Arrangements (NETA) Centralised price setting was identified as the main culprit Companies gaming by restricting capacity In the new market: No centralised scheduling or price setting: bilateral contracts (like any other market) Balancing Mechanism run by NGC (only about 5% of energy)

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17 SBP System Buy Price (if you are short ) SSP System Sell Price (if you are long )

18 Dual settlement prices Difference between SBP and SSP forces players into bilateral contracts SBP can be much higher and volatile SSP less volatile and closer to PX prices but may be negative Most companies prefer to be long

19 Source: R. Green NETA effect: 40% drop in wholesale prices

20 However Industrial and commercial customer prices fell by 17% Domestic prices fell by only 8%: Households reluctant to switch A lot of plant was mothballed British Energy nearly went bankrupt

21 Why did the prices drop? Removed capacity payment 27% of price drop Spare capacity 12% NETA supporters: the rest down to NETA effect

22 Price-setting generation

23 Why did the prices drop? Removed capacity payment 27% of price drop Spare capacity 12% NETA supporters: the rest down to NETA effect NETA critics: the rest mostly reduced concentration of generation, nothing to do with NETA

24 Generation adequacy The Pool: capacity payment Depends on the capacity margin Everyone gets it whether or not generating Provides revenues for peaking stations NETA abandoned capacity payment Prices dropped, mothballing Capacity margin dropped from 27% to 17% Forward price curve identifies future shortages

25 Do we need capacity payments?

26 The cost of NETA 1 billion! Many argue that the same effects could have been gained by reforming the Pool at a fraction of cost

27 Conclusions UK electricity has seen great changes in last 17 years Many countries followed the Pool, NETA is unique Advocates hail a great success Critics say the same could have been achieved by modifying Pool rules Could it be adopted in other countries?

28 It gets BETTA NETA extended to Scotland from April 2005 BETTA (British Electricity Trading and Transmission Arrangements) HV grid managed by NGC Causing all sorts of problems with generation Connections and transmission charges