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SEM Industry Forum ESB PG: CfD Implementation Overview April 16, 2008 Power Generation Agenda Introduction Justin Johnston Directed Contracts Overview Eric Slattery Directed Contracts Process Hina Patel Non-directed Contracts Overview Justin Johnston PSO Implementation Timeline Justin Johnston Power Generation Overall Timeline for CfD Trading in SEM Based on the timeline for the Directed Contracts process, ESB PG has illustrated below the timeline for the NDC and PSO auctions. Apr April 14th: DC Contract Quantities and Pricing Formula Publication May Jun Jul April 28th Initial Supp May 23rd NDC Auctions Directed Contracts 2008 May 29th NDC Auctions PSO Auctions June 19th June 23rd PSO Auctions July 1st Power Generation Agenda Introduction Justin Johnston Directed Contracts Overview Eric Slattery Directed Contracts Process Hina Patel Non-directed Contracts Overview Justin Johnston PSO Implementation Timeline Justin Johnston Power Generation Directed Contracts (DC): Timeline and Product Offerings Directed Contracts Timeline: DC Market Dry Run: April 23rd Subscription Window: April 28th – May 15th Supplemental Subscription Window: May 19th – 23rd DC Products for 2008/9: 1. Baseload: for trading periods at the contract quantity arising in all hours 2. Mid-Merit (0700 – 2300): for trading periods at the contract quantity during the hours beginning at 0700 and ending at 2300 on business days and for trading periods on days that are not business days at 80% of the contract quantity 3. Peak (1700 – 2100): for trading periods arising during the hours beginning at 1700 and ending at 2100 on all days during October, November, December, January, February, and March at the contract quantity Power Generation Changes to DC Process for 2008/9 (1) Condensed subscription window From 6 weeks in 2007 to a total of 4 weeks in 2008 3 weeks of initial window and 1 week of supplemental window No trading on May 5th due to bank holiday New product definitions: Mid-merit: 0700 – 2300 for all business days and 80% of contract quantity on weekends and bank holidays in Northern Ireland or Ireland Peak: 1700 – 2100 for all days in Q4 2008 and Q1 2009 Product elections are now for quarterly volumes, not annual Master Agreement Changes Adjust monthly invoicing date to 7th business day of month Adjust payment cycle for the additional 2 business days and move to 12th business day of month Adjust credit margining requirements to be 13th business day of each month; requires alignment of 2007 margining rules to revised 2008 process Clarification of SEM resettlement event triggered by completion of monthly resettlement process Power Generation Changes to DC Process for 2008/9 (2) Daily maximum subscription election amount now 15 MW or 15% of the supplier’s eligibility Daily elections can be up to 10 different percentages – based on pairing of product and quarter elected Suppliers can choose not to elect for a particular quarter and product No phone transactions, fax only Greater complexity in 2008 process due to quarterly volume elections by product Greater consistency to NDC process requiring fax and email communications Fax form transactions only via DC Daily Subscription Form, no phone elections accepted Secondary electronic form (email) requested of the faxed election form to assist in legibility First valid fax will be utilised Power Generation DC Credit Requirements for ESB PG Upfront Credit Cover Requirements (unchanged) 15% upfront requirement based on Suppliers chosen volume Volume Credit is valued at the “baseline” price throughout the window baseline prices to be published today (April 16th) Ongoing Credit Cover Requirements Calculation performed on 13th business day Separate credit cover required for 2008 contracts ESTSEM Credit Baseline Prices (as of April 15th closing prices): Baseload Mid-Merit Peak Q4 2008 €88.57/MWh €99.91/MWh €148.86/MWh Q1 2009 €92.42/MWh €104.17/MWh €147.71/MWh Q2 2009 €79.18/MWh €88.28/MWh n/a Q3 2009 €80.12/MWh €90.69/MWh n/a Power Generation Execution of Directed Contract Documentation Eligible Suppliers – Requirements for ESB PG: Any eligible supplier wishing to enter into Directed Contracts during the Subscription Window must have provided the following documentation to ESB PG: 1. Executed the 2008/9 Master Contract for Differences Agreement. (The executed agreement must be in the form published by the Regulatory Authorities in advance of the Subscription Window); 2. Posted the appropriate credit cover; 3. Executed ESB’s Trading Mandate; 4. Provided PG with a list of their authorised traders and contact details. This entire suite of documentation must be received by ESB PG at a minimum of 2 business days prior to commencement of any trading activity between the supplier and ESB PG for either the Subscription Window or the Supplemental Subscription Window. Supplemental Subscription Window Eligibility: Open to those Suppliers who have taken 100% of their eligibility in all products and quarters, or, new entrants who were licensed in the period to mid-May and are not affiliated with any existing market participant. May 16th: ESB PG will notify those Suppliers who are eligible to participate in the Supplemental Window Power Generation Agenda Introduction Justin Johnston Directed Contracts Overview Eric Slattery Directed Contracts Process Hina Patel Non-directed Contracts Overview Justin Johnston PSO Implementation Timeline Justin Johnston Power Generation DC Implementation Info: Subscription Window (Initial) Daily DC Process: Elections between 8:30am to 11:00am Daily DC Subscription Form must be completed in full (Part 1 and Part 2) and sent via fax at +353 (0)1 702-1164 Electronic submission of DC Subscription Form requested to assist in legibility ([email protected]) Subscription Window to run daily between April 28 th – May 15th (business days) Note: May 5th is a bank holiday and no DC trading will occur General Submission Rules: 1. Daily quantity subscriptions must be expressed as whole number percentages 2. Minimum subscription will be 1% of the eligibility for that product and quarter 3. Maximum subscription will be 15 MW or 15% of the eligibility for that product and quarter, whichever is greater 4. Suppliers may choose not to elect for a particular product or quarter. 5. Daily subscriptions are subject to the credit requirements set out in Section 8 of the ESB PG Subscription Rules document Power Generation DC Daily Subscription Form 1 Fax Number: +353(0)1 702-1164 Daily DC Supplier Subscription Form Directed Contracts 2008/9 DC Email Address: [email protected] Part 1: Supplier Information General Information 2 This submission form must be submitted to PG before the close of daily Subscription Window and in accordance with the DC Subscription Rules. Each Eligible Supplier must complete: (a) the information required in Table 1 of Part 1 and all of Part 2, and (b) submit the fully completed subscription form via fax, as executed by an authorised representative of the Eligible Supplier. Table 1: Identity of Supplier (to be completed by Eligible Supplier) Part 2: 2008/9 Directed Contracts Subscription Form Supplier Name: Trading Date: Q4 2008 Participant Entity Name: Q1 2009 Q2 2009 Q3 2009 Address: Baseload Telephone: Mid-Merit (0700-2300) Facsimile: Email address: Peak (1700-2100) Authorised Representative: Note: For the avoidance of doubt in legibility, please complete this form electronically and provide ESB PG with the printed fax form completed. Note: The products above are as defined in the 2008/9 Master Contract for Differences Agreement. IMPORTANT NOTICE: This Subscription Form is issued by ESB Power Generation in accordance with the DC Subscription Rules. Only an Eligible Supplier may submit an election in this DC Subscription Window. By submitting a bid in this DC Subscription Window, the Eligible Supplier shall be deemed to have unconditionally accepted: (a) the terms and conditions of the Subscription Rules; and (b) that successful bids will be transacted under the 2008/9 Master Contract for Differences Agreement between ESB PG and the Supplier, including the Schedules to that Agreement. Please return this template via FAX to 01 7021164 between 8:30am to 11:00am today. ** PLEASE DO NOT ALTER FORMAT ** Additional Info: An email of this form can be sent to ESB PG at [email protected]. Power Generation Supplier Signature: Date: Name of Signatory: Date: DC Rejection / Scaling-back Notification FAX MESSAGE Key Causes for Rejection or Scaling-back of Daily Elections: Illegible fax form received Insufficient credit cover posted Incorrect format submission of daily election Note: if daily volume is exceeded, or there is insufficient credit cover for daily elections, ESB PG will pro rata the elections according to the DC Subscription Rules document. To: <Supplier Name> Attention: <Individual’s Name> From: ESB Power Generation Date: <Today’s Date> Pages: 1 Directed Contracts Elected Subscription Rejection Notification Trade Date: ____________________________ Product(s): ____________________________ Quarter(s): ____________________________ Condition: Rejected Daily Volume Election Reason: ___ ___ ___ ___ Daily volume eligibility exceeded Insufficient credit cover Incorrect submission of daily election percentage Other:_____________________ ESB Power Generation Power Trading & Strategy ______________________ ESB Signature Power Generation Key Reports to be Provided to RAs and Industry RA and Industry Report: ESB PG will provide a report to the industry and the RAs of the total volume of product subscribed to daily for each quarter (by close of each business day in subscription windows). This report (Daily DC Total Volumes Report) will contain total cumulative MW quantity (by product and quarter) of DC volumes subscribed to, up to and including that date. RA Only Reports: 1. ESB PG will provide to the RAs a report of the volumes transacted by each supplier, by product for each quarter. 2. This report (Daily Detailed Supplier DC Trade Status Report) will be sent to the RAs by 2:00pm on each business day. 3. ESB PG will provide to the RAs the calculation of the ESTSEM prices per product and quarter by 2:00pm on each business day. Power Generation High Level DC Process 2008/9: Trade Date (D and D+1) Supplier (Buyer) Setup 8:30 am Version 2.0 11:00 am 2:00 pm 5:00 pm Baseload DC Election Determine DC Elections for Trade Date (D+1) Mid-Merit DC Election Daily DC Supplier Subscription Form Trade Date (D+1) Notification of Rejected DC Trades (D+1) Supplier DC Confirm (D) Peak DC Election End (D+1) Given prior to April 28th Regulators Fax or Email ESTSEM Prices for Trade Date (D) Supplier DC Entitlements Daily Detailed Supplier DC Trade Status Report (D) Fax Form (prevailing and binding) Email (secondary verification only) Notify Supplier of Rejected DC Trades (D+1) Receive Supplier DC Subscriptions (D+1) Calculated Supplier Daily DC Volume Eligibilities Daily DC Total Volumes Report by Product/Qtr (D+1) Reconcile Daily Supplier Election to Daily Max Volumes and Credit Margin Process Accepted DC Trades (D+1) PG Internal File ESB Power Generation (Seller) FAX Email to RAs (PDF) Email to RAs and Eligible Suppliers (PDF) (1) Create the Daily Detailed Supplier DC Trade Status Report (vols for each Supplier by Product/ Qtr to RA’s) for Trade Date (D) (2) Create the ESTSEM Strike Price Document to send to RAs (PDF) for validation Create Report of the Total Volume of DCs Transacted by Product and Quarter Market Fuel & FX Prices For Trade Date (D) Calculate Strike Price for Trade Date (D) per Product per Quarter Create Trade Confirm for Trade Date (D) Power Generation DC Trade Confirms for Trade Date (D) Regression Formula Info for DC Strike Price Calculation Correction to Subscription Rules: Section 5.1.3 Gasoil of the Subscription Rules should state that 0.1% Gasoil CIF cargoes in NWE will be used for quarterly price calculations Removal of Coal quarterly prices from regression formula calculation Regression Formula: 1. Natural Gas – use the settle price (pence Sterling/therm) for the Quarterly Intercontinental Exchange (ICE) Natural Gas Futures as reported in European Spot Gas Markets published by Heren Energy 2. Gasoil – use the mid point quarterly price (USD/metric tonne) for 0.1% gasoil CIF cargoes in NWE 3. Low Sulfur Fuel Oil – use the mid point quarterly price (USD/metric tonne) for 1% free on board fuel oil in NWE as reported by Platts Forward Curve Oil 4. Carbon – use the daily weighted average closing price (in Euro/tonne) as reported by the London Energy Brokers Association (LEBA) 5. Foreign Exchange – use the daily spot Dollar-Euro foreign exchange rate and the daily spot Sterling-Euro foreign exchange rate as quoted by the European Central Bank Power Generation Agenda Introduction Justin Johnston Directed Contracts Overview Eric Slattery Directed Contracts Process Hina Patel Non-directed Contracts Overview Justin Johnston PSO Implementation Timeline Justin Johnston Power Generation Non-Directed Contracts (NDC): General Info NDC Auctions Schedule: May 27th: Market Dry Run 6 NDC Auctions (2 business days between each): 1. May 29th (Thursday) 4. June 11th (Wednesday) 2. June 3rd (Tuesday) 5. June 16th (Monday) 3. June 6th (Friday) 6. June 19th (Thursday) No re-signing of executed NDC Master Agreement is required However, specific NDC schedules will be revised to reflect amendments to credit cover and product definitions. EB PG will issue an amendment letter for execution in order to align the 2007 and 2008 contract schedules in addition to publication of the relevant NDC schedules. Revised documentation to be published early May Revised NDC Auction Rules to be published early May Power Generation Non-Directed Contracts (NDC): General Info NDC Products for 2008/9: 1. Baseload: for trading periods at the contract quantity arising in all hours 2. Mid-Merit (0700 – 2300): for trading periods at the contract quantity during the hours beginning at 0700 and ending at 2300 on business days and for trading periods on days that are not business days at 80% of the contract quantity 3. Mid-Merit 2 (0700 – 1900): for trading periods at the contract quantity during the hours beginning at 0700 and ending at 1900 on all weekdays (i.e., Monday – Friday) 4. Peak (1700 – 2100): for trading periods arising during the hours beginning at 1700 and ending at 2100 on all days during October, November, December, January, February, and March at the contract quantity Power Generation NDC Process Clarifications Credit Cover 5% upfront requirement following 2007 NDC consultation Increased to 15% requirement after completion of NDC Auction period Credit baseline prices to be published 2 weeks in advance of NDC Auction (May 29th) Publication of indicative volumes by May 19th Product offerings will be both quarterly and annual strips Invitation to Bid document to be published 5 days in advance of each NDC auction Indicative volumes per by product Indicative reserve prices Clearing prices and overall volumes will be published to all Eligible Auction Participants (as per the NDC Auction Rules document) Daily NDC bidding process timeline 9:30am – PG to publish Auction Notice 12:30pm – Close of NDC auction 4:00pm – PG communicates clearing prices and volumes Power Generation Agenda Introduction Justin Johnston Directed Contracts Overview Eric Slattery Directed Contracts Process Hina Patel Non-directed Contracts Overview Justin Johnston PSO Implementation Timeline Justin Johnston Power Generation PSO Auctions: General Info PSO Auctions Schedule: 3 PSO Auctions: June 23rd (Monday) June 26th (Thursday) July 1st ( Tuesday) PSO Volume – 600 MW of quarterly baseload product PSO Price – to be determined by RAs PSO Documentation: Revised PSO Master Agreement to be issued by June 10th Revised PSO Auction Rules to be issued by June 10th Power Generation