1. NATIONAL GRID Market Evolution in Ireland APEX 2004 Annual Conference Ann Scully Manager, Market Operations ESB National Grid

2. NATIONAL GRID Irish Power System  Developed as an island system –Irish system has a peak demand of 4415MW in 2003  AC Interconnector link with Northern Ireland –Northern Ireland system has a peak demand of approx 1620MW  Transmission system incl 400, 220 & 110kV networks, approx 5,800kM of line  Main load centre is on the east coast - Population density is low particularly on west and north west coast.  Many areas served only by 110kV  Investment of €2.6bn in transmission and distribution networks over five years

3. NATIONAL GRID Electricity Production since 1990 Taken from Generation Adequacy Report 2004-2010, www.eirgrid.com

4. NATIONAL GRID Market Development Policy Direction - Department of Public Enterprise CER’s “Final Proposals” (CER/00/02) Statutory Instrument No. 49 of 2000 Directive 96/92/EC of EU Electricity Regulation Act, 1999 1996 1999 2000 Wholesale market opening 19 th February 2000

5. NATIONAL GRID Current Market Design  Bilateral contract market with imbalance prices –Top-up – regulated ex-ante price –Spill – ex-post market price  Constraints –Day-ahead self-nomination process –Payments by TSO for re-dispatch  Capacity –Availability payment –Capacity related spill payment  Renewables –Green/Brown Mixing –Monthly Tracking- margin of error of 5%  Virtual Independent Power Producer (VIPP)  Interconnector –Long-term auction rights

6. NATIONAL GRID Current Market Structure ESB - PES Distribution ESB - PG Transmission Regulated top- up and spill market Congestion Managemen t Bilateral Contracts 95% Bilateral Trade 5% Imbalances IPPs

7. NATIONAL GRID New Participants 2000- 28% of market open 2002- 40% of market open 2004- 56% of market open Full retail opening on 19 th February 2005

8. NATIONAL GRID Price Setting for Apr-June 2004 99% of time spill price is set by single player

9. NATIONAL GRID Increases in Wind Capacity

10. NATIONAL GRID Developments since 2000  Market Rules changes  Response to rises in Peak Demand –Winter Peak Demand Reduction Scheme (WPDRS) – 80MW  Interconnector –Superpositioning on North-South Interconnector –Proposed East-West Interconnector (2 x 500MW)  Electricity Prices –Increase of 40% to end user in the last 4 years  Forecasted Capacity Shortage for 2005 onwards –Peaking plant bought by ESB –Competition for new generation led by regulator (150MW, 382MW)

11. NATIONAL GRID Market Review 2003  Highlighted issues –Dominance (>90% in generation, 60% supply, monopoly in transmission and distribution) –Lack of liquidity and transparency in price –Spill price 99% of time set by dominant player –Constraints payments  New Market Design proposed by regulator – ‘MAE’ –Locational Marginal Pricing with Financial Transmission Rights –No capacity payments –Re-bidding up to real-time –Self commitment

12. NATIONAL GRID MAE – Under Review  June 2004 - Decision to review MAE ESBNG response to CER questionnaire - How would a Gross Pool design work in Republic? –Simple, single price, gross pool –Unconstrained unit commitment –Minimal change to existing systems –Does not increase barriers to all-island market  August 2004 – All-Island Context –Policy statement by Ministers in Northern Ireland and Republic –Memorandum of Agreement signed by Regulators –Agreement to harmonise the trading arrangements

13. NATIONAL GRID All-Island Energy Market  Joint consultation process on All Island Framework  ESBNG response: –Development programme should: – Include feasible timetable with key interim goals – Contain a workable and efficient project implementation structure  Key priorities: –Harmonise trading arrangements –Connection policy & transmission tariffs An all-island market should provide for a competitive, sustainable and reliable markets in electricity and natural gas on the Island of Ireland at minimum cost necessary. All-Island Energy Development Framework, 21 June 2004

14. NATIONAL GRID Summary  Market has operated –Structural issue remains  Electricity price increases –De-regulation has yet to deliver lower prices to end user  All-Island Energy Market –New context –Harmonise RoI and NI trading arrangements –Project implementation structure is crucial

15. NATIONAL GRID New Capacity since 2000

16. NATIONAL GRID Market Opening in 2004

17. NATIONAL GRID Market Opening in 2004 Level of Market Opening increased from 40% to 56% on 19 th February 2004