SEM

What is the SEM?

The electricity industry operates a single wholesale market across the island of Ireland which is known as the Single Electricity Market or SEM. The SEM is jointly regulated by the UR and the Commission for Energy Regulation (CER) in the Republic of Ireland.

The SEM went live from 01 November 2007 and is designed to offer the least cost source of electricity generation whilst maximising long term reliability and sustainability.

All electricity across the island is bought and sold through a single pool, which has increased competition, efficiency and security of supply. The operation of this single wholesale market requires the physical connection of the Northern Ireland grid to that in the Republic.

How is the SEM regulated?

The operation of this market is facilitated by the Single Electricity Market Operator (SEMO). SEMO is a contractual joint venture between the two system operators - SONI in NI and EirGrid Plc, their counterparts in the Republic of Ireland. SEMO facilitates market trading, co-ordinating financial dealing and ‘owning’ the rule-book.

The Utility Regulator and CER, regulate the SEM through a SEM Committee, (for more information visit – https://www.semcommittee.com) on which both regulators are represented along with an independent member. The Committee monitors the operation of the market and takes action to avoid any abuse of market power.

 How do Electricity Markets operate?

  • Electricity is a unique commodity which cannot be stored in large amounts. 
  • Supply and demand for electricity must be matched, or balanced, at all times.
  • Suppliers, generators, traders and customers operate in the competitive wholesale electricity market.

Trading occurs bilaterally (in most European markets) or on exchanges and contracts for electricity can be struck over periods from the on-the-day trading markets to those spanning several years ahead. (source: ofgem https://www.ofgem.gov.uk/electricity/wholesale-market/gb-electricity-wholesale-market)

Electricity can also be imported via the use of interconnectors between countries such as Moyle Interconnector (NI and Scotland) and East/West(Republic of Ireland and Great Britain).

How does the SEM operate?

The design of the SEM includes two main components - energy and capacity. 

Energy – The SEM is made up of an all-island wholesale pool market known as the spot market which is centralised and also obligatory.  Electricity is traded by generators and suppliers via this market.

Generators bid into this market pool for each half hour of the following day and based on these costs the SEMO will determine an SMP (System Marginal Price) for each half-hour trading.  The efficient generators are run to meet the demand whilst those who are more expensive are deemed “out of merit” and are not run or paid SMP, thus leading to lower costs for customers.

All generators who contribute to demand are paid SMP.  Suppliers can also sell electricity directly to the consumer and can purchase electricity from this pool at this SMP.

This model in which the significant generators and suppliers are obliged to participate is mandatory and which differs from most other European markets allows for greater transparency in market outcomes and pricing.

These market rules and the resulting transparency ensure that both jurisdictions on the island of Ireland reap the benefit of efficient generation and downward pressure on consumer pricing and in addition ensures security of supply along with environmental benefits.

Capacity – The SEM Committee also sets a Capacity Payment for generators operating in the SEM, which if they are available, goes towards their fixed costs.  In addition suppliers also pay towards these payments and any other system charges. This payment only partially covers the fixed costs due to its calculation method which is based on the relatively low fixed costs of a peaking plant.  The resulting savings are as a rule passed to consumers. 

Single Electricity Market Operation

The current SEM is operated by SONI/Eirgrid which are the transmission system operators in Northern Ireland and Ireland and also act as Market Operators as the Single Electricity Market Operator (SEMO) and has the following objectives:

–to facilitate the efficient, economic and coordinated operation, administration and development of the Single Electricity Market in a financially secure manner;

–to facilitate the participation of electricity undertakings engaged in the generation, supply or sale of electricity in the trading arrangements under the Single Electricity Market;

–to promote competition in the single electricity wholesale market on the island of Ireland;

–to provide transparency in the operation of the Single Electricity Market;

–to ensure no undue discrimination between persons who are parties to the Code; and

–to promote the short-term and long-term interests of consumers of electricity on the island of Ireland with respect to price, quality, reliability, and security of supply of electricity.   

SEMO has provided an overview of the market and how it operates on its web site, which explains how the it works to achieve the objectives above.  Further information on this and the work of SEMO can be found here:

http://www.sem-o.com/Publications/General/SEMO%20Market%20Overview.pdf

General Information on Energy

Further information on Energy in Northern Ireland can be found in a comprehensive guide entitled “Energy in Northern Ireland 2016” which is produced by DETI (now known as DfE) and which can be accessed here:

https://www.economy-ni.gov.uk/publications/energy-northern-ireland-2016