|Client||CER, Ireland & NIAUR, Northern Ireland|
|Service(s)||Policy & Economics, Regulation & Competition, Review & Evaluation|
CEPA was retained by CER and UR to assess the expected level of market power and to develop an appropriate market power mitigation strategy for the Integrated Single Electricity Market (I-SEM), the new market design that will be implemented in the island of Ireland (all-island market) in 2017. The overall objective of the project was to develop an appropriate regulatory and market power mitigation strategy that:
- mitigates the incentive and ability of any market participant to exercise market power in the I-SEM physical and financial wholesale energy markets;
- enables efficient and transparent price formation in I-SEM’s physical and financial markets;
- promotes competition in I-SEM’s physical and financial markets, including appropriate generation entry/exit;
- assesses the implications of any market power measures for liquidity in the physical short-term and forward financial trading in I-SEM;
- ensures consistency and alignment with other I-SEM policy decisions, including I-SEM’s Energy Trading Arrangements, Capacity Remuneration Mechanism workstream, Financial Transmission Rights and policies to promote forward and spot market liquidity; and
- is consistent with other segments in the electricity cost chain, specifically the all-island “DS3” programme and jurisdictional retails markets, including any market power mitigation measures that are developed in these areas.
The main tasks performed by CEPA included:
- Review of Market Power Metrics: identifying how market power is typically assessed and measured in wholesale electricity markets, in the Irish market and other jurisdictions
- Definition of Relevant Market(s) for I-SEM: identifying relevant geographic market(s) and trading periods, and their interaction and operation, including the development of a definition of local market power.
- Review of Market Power Mitigation Measures: Identifying “lessons learned” from the current SEM and other relevant jurisdictions in relation to the effectiveness of ex-ante and ex-post market power mitigation, including mitigation of local market power, and market power in forward (financial) contracts markets. This task was performed with a view to learning of the appropriateness of the current market mitigation measures in SEM and other jurisdictions and the extent to which they could apply to I-SEM.
- Level of Market Power in I-SEM: Using the Plexos electricity market model, we assessed the expected level of market power level in relevant trading periods/markets in I-SEM wholesale physical and financial markets over the coming decade according to the proposed metrics. For this, we considered likely future generation, interconnection, demand levels and demand-side participations. Our qualitative analysis also considered interactions with other emerging I-SEM design elements, such as the Energy Trading Arrangements, Forwards and Liquidity and the Capacity Remuneration workstreams, as well as DS3.
- Market Power Mitigation Strategy: In light of the above considerations, we identified the high-level ex-ante and/or ex-post regulatory market power mitigation measures for I-SEM physical and financial wholesale markets.