SEM one year on – analysing market volatility since go-live

cornwall, Ireland

SEM one year on: The beginning of October marked the first anniversary of the new Irish and Northern Irish Single Electricity Market (SEM).  Already there is a marked change from its predecessor with the day-ahead electricity market in the SEM seeing significant volatility during its first year. In fact, findings from Cornwall Insight Ireland show that the volatility in the day-ahead market is much higher than its predecessor and other markets.

The focus upon the day-ahead market stems from the fact that since the go-live back in October 2018 the market has accounted for over 90% of ex-ante trades’ to-date. The remaining volumes being spread across the intra-day markets.

The below graph presents System Marginal Price (SMP) in the old SEM for 2018 and the day-ahead price for 2019. By analysing and comparing the monthly standard deviation, Cornwall Insight Ireland shows that year-on-year volatility in the market has risen. A low standard deviation represents that prices are close to the average, indicating low volatility, while a high standard deviation means higher volatility.

 

SEM one year on - analysing market volatility since go-live

SEM one year on – analysing market volatility since go-live

Joe Camish Analyst at Cornwall Insight Ireland said:

“Just one year since the launch of the SEM, some volatility is to be expected given the market is still in its infancy and the growing penetration of wind on the generation mix. However, the standard deviation averaged €5.2/MWh higher post-new SEM go-live, with the volatility most notable over the winter period.

“When compared against other markets, the SEM day-ahead market has predominantly averaged higher in terms of market volatility since its inception. For example, the differential between Ireland and GB has averaged €7.3/MWh higher over the whole year, as GB saw a standard deviation of €4.1/MWh on average over the timeframe. Overall, the SEM out turned €5.2/MWh higher on average against a combination of other tracked markets (GB, Netherlands and France).

“Such a trend, however, is to be expected for a new market, in comparison to GB, which has been trading under the BETTA framework since 2005 – this framework saw for the first time, a fully competitive British-wide market for trading electricity. That’s not to mention the much more extensive fleet of baseload units and a smaller proportion and therefore penetration of intermittent generation compared to the SEM.

“This level of unpredictability creates its challenges, particularly for smaller companies which are less able to access credit and collateral. However, those that can flexibly change their supply of electricity can profit from the higher volatility by altering their output based on the signals.”

https://www.cornwall-insight.ie/

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