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

N. Keith Tovey, M.A. PhD, C.Eng MICEEnergy Science Director

Low Carbon Innovation CentreUniversity of East Anglia, Norwich

Third International Conference. Operational Experience and Practice of European

Electricity Markets.

Moscow: 26th May 2004

Recent Changes in the Electricity Markets in the UK

Университета Восточной

Англии

Recent Changes in the Electricity Markets in the UK A brief review of structure of the UK Electricity following

privatisation in 1990.

New Electricity trading Arrangements Новая система оптовой торговли НЕТА

Changes during the 1990s

Deregulation

Changes in Structure in last 4 years

The Future

A brief review of structure of the UK Electricity following privatisation in 1990.

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 has always been different in Scotland compared to England and Wales

(Шотландия всегда отличалась от Англии и Уэльса производством и распределением э/э )

Scotland Шотландия

Scotland (Шотландия):

Two vertically integrated companies supplying discrete

areas

England and Wales

Англия и Уэльс

England and Wales (Англия и Уэльс):

One Generating Company (CEGB) and 12 Regional

Electricity Suppliers

(Одна генерирующая компания (CEGB) и 12

региональных поставщиков).

[CEGB did NOT supply electricity to consumers]

EdFElectricité de France

2000 MW

Scottish Hydro

Scottish Power

Northern

Yorkshire

Eastern

London

East Midlands

SEEBOARDSWEB Southern

NORWEB

MANWEB

Midlands

SWALEC

Scotland

Шотландия

England & Wales

Англия

и Уэльс

Structure of Electricity Supply in early 1990s

Scotland

Vertical Integration

• two companies

England and Wales

12 Regional Supply Companies

also Distributed Network Operators.

+1643

+7525

-4709

-1963

+418

Generating Capacity Surplus/Deficit

Избыток/дефицит объема производства

on February 12th 18:00

(февраль 12, 18:00)

+ve: generating capacity exceeding demand

(производство превышает потребление)

-ve: demand exceeding generating capacity (потребление превышает производство)

Most Generating Capacity is in the North - most demand is in South

Наибольший объем производства на Севере - потребления на Юге

MWInterconnector to Scotland

Interconnector to France

• Coal Generation• reduced by 80% by

2002

• rose by 5% in 2003

Changes in Fuel Use in Electricity Generation

Source: Digest of UK Energy Statistics: 2003

• Gas Generation• rose rapidly to 2002

• fell by 5% in 2003

• Decision on how electricity was to be generated was done on a generating set basis (Производство э/э осуществлялось согласно следующим принципам:

• Sets to run were selected on Merit Order Based on Marginal Costs (Основано на маргинальных ценах) (i.e. the fuel costs - цены на нефть)

Some generating sets were run OUT of MERIT ORDER where system constraints were an issue.

• Generators sold electricity to Regional Electricity Boards

(Производители продавали э/э региональным министерствам э/э)

• Electricity Boards sold to consumers in their Area only (Региональные министерства продавли э/э потребителям только своей

области)

• Prices to consumers varied between regions (Цены для потребителей варьировались по регионам)

Electricity Generation - pre 1990Производство э/э - до 1990

Central Electricity Generating BoardЦентральное

12 Regional Electricity Companies 12 Региональных э/э компаний

•Coal (Угольные) Fired Power Stations

•Oil (Нефтяные) Fired Power stations

•Gas Turbine (Газовы турбины) Stations

• Hydro Stations (ГЭС)

•Nuclear Stations (Атомные)

•Transmission (Трансмиссия)

National PowerНациональная

энергетика

PowerGen

Nuclear Electric

National Grid Company Национальная сетевая компания

12 Regional Electricity Companies (12 Региональных э/э компаний)

Privatisation of Electricity Supply Industry 1990 Приватизация в области энергетики в 1990





Deregulation


The Future

The Electricity Markets in the 1990s after Privatisation

Рынки электроэнергии в 1990 г после приватизации


Changes in Structure of Supply Companies

The Electricity Pool

Электрический пул

Deregulation

Eastern **

Industry

Independents

Electricité de France

Innogy

Nuclear Electric *

BNFL (Magnox)

PowerGen

RECs

Licensed Suppliers

Consumers

Second Tier

Consumers

The

Pool

пул

Scottish Nuclear * Consumers

Scottish Hydro

Scottish Power Scotland

England and Wales

Электрический пул: A Review

Only Generators bid into POOL and thereby set price.

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 subsidised those in South

•Generators in South subsidised those in North

Changes in Regional Electricity Companies in the 1990s

• Mergers Scottish Hydro & Southern

become Scottish & Southern

• Take-over Scottish Power takes over MANWEB

• Vertical Integration• nPower acquire Midlands

• PowerGen acquire East Midlands

• United Utilities formed– in NORWEB area

PowerGen

nPower

United Utilities

Scottish & Southern

Scottish & Southern

Scottish

Power

Scottish

Power

1990

c. 1998





Deregulation


The Future

The Supply of Electricity since 1990Сбыт электроэнергии с 1990

• Large Consumers (> 1 MW) Крупные потребители

• After privatisation

Consumers > 1MW could purchase from ANY REC not just their own regional Company (second tier RECs).

• Before privatisation:

Could only purchase from the Local\Regional Electricity Company (REC) supplier in their region

• 1994: Threshold reduced to 100 kW

• 1998 - 1999 All domestic consumers included.

Domestic Consumers: Бытовые потребители (население)

The Supply of Electricity since 1990Сбыт электроэнергии с 1990

Prices to Domestic Consumers were regulated according to the formula:

RPI - X + E + F

Transition Arrangements to 1998Договоры о переходном периоде на период до 1998

RPI is a measure of inflation

X was a factor set by Regulator - initially ~ 5% but later reduced.

E was an energy conservation factor

F was a levy designed to promote exploitation of Renewables

Domestic Fuel Prices in Real Terms

0

20

40

60

80

100

120

140

1970 1980 1990 2000 2010

Inde

x (1

990

- 100

)

Electricity

Gas Privatisation

Deregulation

NETA

Effects of Privatisation and Deregulation on Energy Prices

Deregulation in Domestic Market

•1996 - 1998 for Gas

•1998 - 1999 for Electricity

Domestic Consumers: Бытовые потребители (население) [Восточной Англии]

1998: 7.48p (3.74 Roubles) per kWh >>>> 2003: 5.62p (2.81 Roubles) per kWh

2004: 6.20p (3.1 Roubles) per kWh

Source: Energy Sector Indicators: Department of Trade and Industry





Deregulation


The Future

The basic principles [Основные принципы]

Новая система оптовой торговли НЕТА

• Both Generating and Demand Side Bidding Takes Place

• Most Electricity (>90%) is traded outside NETA Balancing Mechanism on a futures market

NETA favours generators and suppliers who can guarantee specific levels of generation/supply of 1 hour in advance.

They are fined if they deviate from their contract position.

NETA favours generators and suppliers who can guarantee flexibility in output / demand at short notice via the Balancing Mechanism [Балансирующий механизм]

The basic principles [Основные принципы]

Новая система оптовой торговли НЕТА

• Generators and Suppliers are penalised if they deviate from their agreed level of generation / supply.

• If a generator has TOO MUCH generation, or a supplier has TOO LITTLE demand, they are penalised at the System Sell Price.

• If a generator has TOO LITTLE generation, or a supplier has TOO MUCH demand, they are penalised at the System Buy Price.

• Usually, the SYSTEM SELL PRICE is less than the System Buy Price .

Новая система оптовой торговли НЕТАHow well has it performed since starting on 27th March 2001?

The System Sell Price and System Buy Price have converged with time

Новая система оптовой торговли НЕТАHow well has it performed since starting on 27th March 2001?

10

15

20

25

30

35£

per

MW

h

base load

peak

Apr 01 Jul 01 Oct 01 Jan 02 Apr 02 Jul 02 Oct 02 Jan 02 Apr 03 Jul 03 Oct 03

In last 12 months wholesale prices have risen and are now higher than at start of NETA





Deregulation


The Future

Changes in Structure of Supplies Companies in last 4 years

Electricité de France (EDF) acquire London and SEEBOARD

Only in Scotland has their been no change in ownership

PowerGen acquires Eastern (TXU)

EDF acquire SWEB

nPower acquires Yorkshire

Scottish and Southern acquire SWALEC

nPower acquire Northern

PowerGen acquire NORWEB

Distributed Network

Ownership

Regional Supply

Ownership

Scottish & SouthernScottish Power

United Utilities

Mid American

PowerGen


Aquila

Western Power

Scottish & SouthernScottish Power

nPowerPowerGen


Distributed Network Ownership in 2004





Deregulation


The Future

Future Changes in the UK Electricity Markets

• The BETTA System - Spring 2005– The British Electricity Transmission and Trading Arrangements -

will bring Scotland into the NETA system.

– Many issues relating to differences in distribution and transmission and use of the Interconnector still have to be finally resolved.

• Renewables Obligation - 2002 - 2015– is likely to see a rise in electricity prices

• Carbon Emissions Trading (from 1st January 2004)– is also likely to see a rise in electricity prices - however, final

allocations have still to be resolved. Electricity Supply Industry will be SERIOUSLY affected ~ 16% reduction over 3 years.

• Renewables Obligation– Requires all suppliers to provide a minimum percentage of electricity

from New Renewables.

– In 2004 - 2005 the percentage will be 4.9%, but less than 3% is being achieved.

– Suppliers are fined at 3.139 p per kWh (1.57 Roubles) per kWh for any shortfall.

– This is introducing a new market in the trading of Renewable Obligation Certificates - issued as proof of generation.

Future Changes in the UK Electricity Markets

Renewable Obligation Certificates

The Regulator

OFGEM

SUPPLIERS

Trader and Brokers

Renewable Generator

Notifies Regulator how much generated.

ROC’s issued

Sells ROCs to Trader

Sells Electricity with or without ROCs

Notifies OFGEM of compliance -i.e. ROCs or pays FINE

Buys ROCs from Trader

FINES recycled in proportion to ROCs held

• £12 - 18 per MWh Recycled fines

Renewable Obligation Certificates

• £1.50 per MWh Embedded benefits - less losses

• £4.30 per MWh Climatic Change Levy

• £3.139 per MWh Value of ROC

• £20 - £22 per MWh Wholesale Electricity Price

Less Neta Imbalance charges ~ £2 per MWh

Value of Renewable Generation £56- £70 per MWh i.e. 2.5 to 3 times of normal price.

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

• 1st January 2005: Carbon Emission Trading

• Spring 2005: NETA extended to Scotland as BETTA.


• Prices to consumers fell by 20% as a result of Deregulation.

• Wholesale prices of Electricity fell by 40% between 1998 and 2002, but have risen sharply in last 12 months and are now at (or above ) pre NETA levels.

• Most electricity >> 90% is traded outside Balancing Mechanism Trading

• NETA favours Generators / Suppliers who can guarantee output / supply in advance or who can be flexible to make guaranteed adjustments during Balancing Mechanism Trading.


• All Regional Companies in England and Wales have changed hands at least once since Privatisation. Neither of companies in Scotland have changed.

• In only 5 areas is the Regional Company still the Network Operator

• Three-quarters of the Regional Companies in England and Wales now have parent companies in France or Germany

• Renewable Obligation Certificates are trading 50% above face value and is starting to become important in the Electricity Market

• Carbon Trading in the UK is requiring a 16% reduction in emissions from the Electricity Sector in the next 3 years.

• This presentation is available over Internet at

• www2.env.uea.ac.uk/gmmc/neta/NETA.htm


• For further information on the POOL and NETA see paper given at last years conference -

The Changing Face of the Electricity markets in the UK

• This is also available at the same WEB address

[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

Energy Science Director

Low Carbon Innovation Centre

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

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