SEM experience to date and the impacts for the future Sean McGoldrick, General Manager SEMO

SEM experience to date and the impacts for the future Sean McGoldrick, General Manager SEMO

SEM Overview

Mandatory Pool All energy sold into and bought from the pool Typically 48 Trading Periods (30 mins) per Trading Day Separate physical energy trades are not permitted

Timeframes Operating Time Frame (TSOs) Bids 10:00 D-1 Gate closure Market Time Frame (SEMO) Indicative Running Schedule 16:00 D-1 Indicative Market Schedule 12:00 D-1 Dispatch Meter Real Time Data Uninstructed Imbalances Constraint Payments Ex-Post Unconstrained Schedule (EPUS) Energy 16.00 D+1, Payments 17.00 D+4

SEMO TSO Meter MP Electricity Market High Level Overview D-2 D-1 D D+1 D+4 Weekly Submit Bid Offers Follow Control Instructions Review Position Financially Settle Position Provide available Meter Data Provide final Meter Data Publish Forecasts Run System Real Time Produce Indicative Schedule and Price Indicative Collect Schedules, Real Time Prices and Settlement Data Initial Daily Schedules, Prices and Settlement Invoice Weekly Position

Participants in the SEM 45 Participants have registered in SEM 31 Participants have registered Generator Units 10 Participants have registered Interconnector Units Registered Capacity in the Market: 9856 MW Predictable Price Maker: Variable Price Maker: Predictable Price Taker: 8567 MW None 346 MW (All Peat) Variable Price Taker: 157 MW (All wind) Autonomous: 786 MW 781 MW wind 5 MW of biomass landfill gas generation

Some Participants Airtricity Energy Supply NI Ltd + SU Mountain Lodge Airtricity Ltd + SU Moyle Energy Holdings IU Arklow Energy Ltd Muinngnaminine Windfarms Ltd Aughinish Alumina Ltd + SU NIE Power Procurement Business Ballywater Wind Farms NIE Supply SU Bord Gais Eireann SU Premier Power Ltd Bordnamona Energy Ltd Quinn Energy Supply Ltd SU CHP Supply Ltd SU Quinn Windfarms Ltd Coolkeeragh ESB Ltd Saorgus Energy Ltd ESB Customer Supply + SU Sorne Wind Ltd ESB Independent Energy NI + SU SSE (Ireland) Limited IU ESB Independent Energy ROI SU Synergen Power ESB Power Generation + SU Tursillagh 2 Windfarms Ltd First Electric Ltd Tynagh Energy Limited Hibernian Wind Power Ltd Vayu Ltd SU Highland Wind Energy Huntstown Power Company Ltd Interconnector Administrator SONI Mantlin Ltd N/A Viridian Energy Limited Viridian Energy Supply Ltd Viridian Power Limited Waterpower Engineering Ltd SU + SU SU

50 51 52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Market Share Trend Generators 700000 600000 500000 400000 300000 200000 100000 0-100000 2007 2008 Airtricity Energy Supply NI Ltd Generation Airtricity Ltd Generation Arklow Energy Ltd Aughinish Alumina Ltd Ballywater Windfarms Ltd Bord Gais Interconnector Coolkeeragh ESB Ltd. Generator Edenderry Power Ltd. ESB AER ESB Independent Energy NI Interconnector ESB PGEN First Electric Ltd Hibernian Wind Power Ltd Huntstown Power Company Ltd Knockawarriga Windfarms Limited Mantlin Limited Mountain Lodge Limited Muingnaminnane Windfarm Limited NIE Energy (PPB) NIE Energy (Supply) Generation Premier Power Limited Snugborough Windfarm RoI Limited Sorne Wind Limited SSE (Ireland) Ltd. Synergen Tursillagh 2 Ltd Tursillagh Windfarms Ltd Tynagh Energy Limited

45 46 47 48 49 50 51 52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Market Share Trend Suppliers 350000 300000 250000 200000 150000 100000 50000 Airtricity Energy Supply NI Limited Airtricity Ltd Supply Aughinish Alumina Ltd Bord Gais NI Bord Gais ROI CHP Supply Ltd. Dan Twomey Waterpower Engineering Ltd. ESB CUSTOMER SUPPLY _PES ESB Customer Supply ASU ESB Independent Energy NI Supply ESB Independent Energy ROI Supply ESB PGEN Supply NIE Energy (Supply) Quinn Supply Limited Quinn Windfarm Limited Viridian Energy Limited Viridian Energy Supply Ltd 0 2007 2008

SEM Financial

Cashflow Generator Unit in SEM Energy Payments: - Paid System Marginal Price (SMP) for energy scheduled by the market in each half hour - Settled on a weekly basis Capacity payments: - Paid for available capacity in each half hour - Settled on a monthly basis Other payments - Constraint payments (+/-) If TSO dispatch differs from market schedule - Uninstructed imbalances (+/-) If metered generation doesn t correspond to dispatched output - Make Whole Payments (+) If costs incurred are not recovered through other market payments - All settled on a weekly basis Other charges - Currency Charges (Weekly & Monthly) - Market Operator charges (Weekly variable, Monthly fixed) - Unsecured Bad Debt charges - Generator Under test charges

Cashflow Supplier Unit in SEM Energy Charges: - Pay System Marginal Price (SMP) for energy consumed (MWh) in each half hour - Settled on a weekly basis Capacity Charges: - Charge based on consumption of energy (MWh) in each half hour - Used to pay Generator Units for capacity - Settled on a monthly basis Other charges: - Imperfections charges: Charge per MWh of energy consumed - Currency Charges - Market Operator charges

/MWh System Marginal Price by Trading Period January 2008 to August 2008 System M arginal Price by Trading Period 01 Jan 2008 to 31st Aug 2008 600 500 400 300 200 100 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Trading Period Mean + 1σ Mean - 1σ Max SMP Mean SMP Min SMP Tightly Banded!

Financial Summary SEMO will process Energy Payments of approximately 4/ 3 Billion annually A further 600/ 461 Million in Capacity Payments annually The market remains fully collateralised It holds collateral, in the form of Letters of Credit and Cash deposits, from supply companies of approximately 320/ 246 Million It prices the market and processes payments in two currencies (Euro and Sterling) To date SEMO has processed over 800/ 615 Million in payments - 800 Million in, 800 Million out, with 1 day turnaround between SEMO s annual operating cost, including depreciation, is 25/ 19.2 Million

SEM IT

IT Systems The SEMO IT systems provide a modern, open, e-business, n-tier platform architecture to provide maximum scalability, availability, resilience, performance, reliability and stability to enable mission critical operations for the SEM The key components of the solution are: - Market Interface System provides the interfaces for information exchange with the SEM systems i.e. interaction with Market Participants, Meter Data Providers, and System Operators - Market Applications System that provides the scheduling and pricing mechanisms - Market Settlement System that provides the meter data management, settlement, and billing and invoicing functions - Finance System that provides financial processing capabilities including credit management and electronic funds transfer

IT Systems The SEMO corporate and market systems consist of approximately 120 servers across two sites (Belfast & Dublin). There are also a large number of applications, backup devices, storage devices, communications equipment and other peripheral equipment. The systems are fully redundant across two separate locations connected by 2 high speed dedicated links. The systems can be run entirely at either location or a mix of both locations. The main systems were delivered by 3 independent vendors with in excess of 30 smaller vendors supplying hardware, software and other systems.

IT Capabilities

SEMO Website

SEM Future

Development potential Financial Market - Physical trading remains the same - Players CFDs outside pool - Currently, there are Directed Contracts and Non-Directed Contracts - Greater liquidity required SEM lightly interconnected to BETTA Moyle HVDC 500MW Import 80MW Export technically capable of 500MW export Future interconnectors planned - Regulated: EirGrid 2012 - Merchant: Imera 2011 - Both aim to be commissioned by 2012 Explicit Auctions - Moyle and EirGrid short and medium term - Imera long term

Expansion/Integration: Options A. Unified Pan-European solution: employing a centrally legislated and harmonised approach. Significant change from the present approaches. B. Horizontal Integration: Market regions progressively merge, developing and sharing more efficient coupling mechanisms and leading to fewer, larger market regions. C. Dome Coupling: where a central entity or function is created to determine efficient flows between the coupled market regions (that each utilise their own mechanisms to resolve inter-regional flows and market prices). 7 Regions - France, UK, Ireland - SEM has linked NI and ROI - Integration with UK and France?

SEM/BETTA Comparison SEM Gross Mandatory Pool -For energy; capacity payments mechanism -Anticipated development of CFDs, etc. Gate Closure: Day ahead Central Dispatch Merit Order Explicit Capacity Payment Mechanism Ex-Post System Marginal Price (for every half hour) Bilateral Market BETTA -With central balancing mechanism and settlement for imbalances Gate Closure: One hour ahead Self-Dispatch No Capacity Payment Mechanism Separate System Buy Price (paid by participants who are short ) and System Sell Price (paid by those who are long ) for each half hour

SEM/BETTA Comparison cont. SEM No central notification of bilateral contracts Dual currencies - / Currency exchange costs socialised Settlement and Invoicing -Weekly billing periods -Payment due 10 days after invoice -Capacity settled on monthly basis Credit Policy: aims for full collateral cover of known and forecast liabilities BETTA Bilateral volume contracts for each half hour notified up to 1 hour ahead Single currency - Settlement and Invoicing -Each settlement day -Payment due 29 days after invoice Credit Policy: aims for full collateral cover of known and assessed liabilities

SEM SEM Committee (Regulatory Authorities and two independent members) Rules in published code (TSC) Market Operator (SEMO) -Joint venture between two system operators Change Process -Defined in TSC; final authority on modification proposals lies with the Regulatory Authorities SEMO uses agents to develop systems, but operates them itself SEM/BETTA Comparison cont. GOVERNANCE OPERATIONAL BETTA Independent Panel: key role in decision making and proposals to regulator Rules in published code (BSC); overseen by Independent Panel Market Operator (ELEXON) -Independent subsidiary of system operator -Managed by Independent Board Change Process -Defined in BSC; final authority on modification proposals lies with regulator ELEXON makes use of agents that develop and operate systems

Future of SEM Greater Coupling with BETTA - Facilitates larger/faster penetration of renewable energy in both markets Integration and creation of an All Islands/Regional Market Return to a Bilateral Market? - Market share of incumbents reduced - Less transparent - Greater Competition in retail and wholesale markets? - Both Generation and Supply arms in energy companies Extension of Gross Mandatory Pool? - Significantly increased collateral requirement

Summary

SEM Experience to Date The market has been launched on time and within budget The Market has operated successfully in its first 11 months A number of major software releases have been successfully put into production without interfering with the market schedule 13 new participants have joined the SEM since market launch Market Development continues (Over 150 Modifications considered since market launch, single design authority, redesigned website, market system development plan in place)

Further Details Thank You Questions Welcome For further details on the Single Electricity Market please see: www.sem-o.com