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Overview of Make Whole Payments Modifications Committee Meeting 59 12 February 2015.

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1 Overview of Make Whole Payments Modifications Committee Meeting 59 12 February 2015

2 Definition of Make Whole Payments (MWP); Why do MWP occur?; MWP through the years; Sample cases of Interconnector (IC) Users; SEMO’s comments on the four proposed Modifications; Further considerations. Content

3 4.139 The purpose of Make Whole Payments is to make up any difference between the total Energy Payments to a Generator Unit in a Billing Period, and the Schedule Production Cost within that Billing Period (where the difference is arithmetically positive calculated over the Billing Period)… This is to guarantee recovery of all submitted costs (Incremental Cost, No Load costs, Start Up costs); SEM is designed to normally recover costs through Energy Payments, due to Uplift; The intent of the T&SC was for MWPs to be occasional and only limited to exceptional circumstances; MWPs – what are they?

4 Is the Unit’s revenue (SMP*MSQ) * sufficient to cover the Production Cost (MSQ*MOP+NLC+SUC) * of the unit in each TP? YES = MWP will be a negative value NO = MWP will be a positive value MWPs paid on the total at the end of the Energy Market Billing Period (week) only if the total aggregation is positive for each unit; Equivalent of Generator Units are IC Users (PT_XXXXX) not IC Gate Units (PT_XXXXX_EA/EA2/WD1). *TPD applied as appropriate MWPs – what are they? cont.

5 Over recovery Under recovery

6 MWPs – what are they? cont. If at the end of the week the unit is over recovering, no MWPs applies; If at the end of the week the unit is under recovering, MWPs applies for the under recovered amount.

7 The main reasons behind MWPs are: Costs are determined on a Trading Day basis while MWPs are calculated on a Settlement Day basis; if unit is scheduled at the end of a Billing Period MWPs could occur; Recovery of SUC is spread over the Optimization Horizon – schedule might change when TD+1 is run leading to under-recovery; Re-price runs changing the schedule of a unit recovering costs over two Trading Days; SMP is zero or negative for a number of periods; Technical characteristics when baseload are not marginal; MWPs – Why?

8 When negative schedules are exposed to Uplift; Uplift represent a benefit for Generators with positive schedules; however it is a cost for those with prominent negative schedules; This could happen for units pumping or exporting*; Pumping is limited in capacity and will generally balance out with generation across the Billing Period; IC Users can export an unlimited amount due to superpositioning exposing them to Uplift; This exposure has always been a feature of the SEM; IC Gate Units created to respond to the design challenges of scheduling firm amounts. *DSU not affected as their schedule is set as positive; MWPs – Why? cont.

9 MWPs through the years – Standard Units

10 MWPs through the years – IC Units IDT

11 Interconnector Flow* through the years IDT MWP *Interconnector Users only – no SO-SO trades

12 Imp/Exp 2013/2014 – MSQs IC123

13 Imp/Exp 2013/2014 – Net MSQs IC123

14 Paid MWPs by Gate – IC123

15 Imp/Exp 2013/2014 – MSQ for IC102

16 Imp/Exp 2013/2014 – Net MSQs IC102

17 Paid MWPs by Gate – IC102

18 All MWPs calculated by Gate – IC102

19 All MWPs by Gate – IC102

20 Imp/Exp by TP 20130715 – MSQs IC102

21 Imp/Exp by TP – MSQs IC102

22 Pumped Storage – MSQs 2013/2014

23 Pumped Storage – MWP 2013/2014

24 Mod_09_14: ‘Amendment to Make Whole Payments for Interconnector Units’: Remove ability to isolate losses/gains between Gates for MWP; Eliminates unintended consequences of IDT; Traders exposure still mitigated for their net position; Exports are not impacted and still viable; MWPs could still happen for cross Interconnector trading; Mod_10_14 ‘Remove Make Whole Payments for Interconnector Units’: Traders exposure not mitigated in the Market; This is the only Mod that eliminates both risks on MWPs due to cross trading between Gates and/or between Interconnectors; Exports are not incentivised but are not impaired either; Radical solution to the observed issue; Comments on the four Modifications

25 Mod_11_14 ‘Pay-As-Bid / Paid-As-Bid for Interconnector Units’: Inconsistent with current Energy Balancing mechanism; SEMO does not consider this as a viable option for this Market; Mod_12_14 ‘Amendment to Make Whole Mechanism to remove Settlement Periods of simultaneous import and export flows’: Partially remove ability to isolate losses/gains between Gates for MWP; Inadequate balancing of MWP for IC Users where: Trading exposure unmitigated if large exports happens at times of small imports; MWP overstated if over recovery, due to large imports, is negated by small exports; MWP could still happen via cross Interconnector trading; Principles of IDT compromised; Exports could either increase or decrease substantially; Comments on the four Modifications – Cont.

26 SEMO wishes to propose the following points for further discussion: Curtailment affected by net Interconnector flow; individual Gates or individual Users trades are irrelevant; Curtailment or Constraints in each jurisdiction might be badly affected if cross trading between Interconnectors will push large imports on one Interconnector while large export on the other; Principles of Cross Border Trades and price signals for exports have been in place since the start of the SEM; should they change now? Dispatch down of wind efficiently managed notwithstanding ‘increased wind factor, increased Imports, 300MW new installed wind capacity and stable demand’*; * Eirgrid ‘Annual Wind Constraint and Curtailment Report 2013’ – dispatch down 3.2% in 2013 vs 2.1% in 2012 Further Considerations

27 Exports effects on SMP; Consumer interests impacted by current behaviours; Exposure to Uplift when Exporting, is common to units with comparable behaviour: Pumped Storage and Suppliers; Interconnector Users not subject to BCoP and to date have been able to represent their exposure adequately; Discrimination? APTG, VPTG and PPTG don’t receive MWP; The nature of costs to be recovered; EA prices currently over-estimated due to large Imports countertraded by Exports at the EA2; To calculate exposure, EA prices good estimate of EP2 SMP in many TPs as per following graphs: Further Considerations – cont.

28 SMP comparison: EA vs EP2

29 Questions

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