secure and promote stakeholder workshop 2 · sources: dukes, icis energy, epex spot, n2ex, ice •...
TRANSCRIPT
Secure and Promote stakeholder workshop
2nd May, 2017
2
Outline of the session
9.30 am Introduction – Cathryn Scott
9.35/40 am Opening presentation – Yasmin Valji
9.55 am Speakers – Paul Dawson (RWE), James Lythgoe (Bristol Energy)
10.15 am Comments/discussion from the floor
10.25 am Break out discussion
11.00 am Feedback/open questions and comments
12.00 pm Summary of the session and next steps
3
Churn
Sources: Dukes, ICIS Energy, Epex Spot, N2EX, ICE
• Churn in the GB power market has generally been higher year on year since the start of the policy.
• Clear correlation between market volatility and churn – Q4 2016 churn exceeded 6, not seen since early 2002.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0
20
40
60
80
100
120
140
160
180
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
De
c-1
4
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
De
c-1
5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
De
c-1
6
Ch
urnTW
h
Traded Volume (left axis) Generated Volume (left axis) Churn (right axis) Churn (Last Year) (right axis)
Monthly churn
4
Bid-offer Spreads
Sources: Dukes, ICIS Energy, Epex Spot, N2EX, ICE
• Bid-offer spreads at market close narrowed, following a downward trend since S&P, then a bottoming out – but conflicting anecdotal evidence.
• Spreads have increased in the final quarter of 2016, in some cases over product-specificmandated spreads under S&P.
Bid-offer spread, selected S&P products
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
Baseload M+1 Baseload S+1 Baseload S+4 Peakload M+1 Peakload S+1
S&P comes into effect
5
OTC trades by half hour
Source: Ofgem
• Trading volumes have risen overall, in Q4 2016 volumes were concentrated into the windows• Volumes traded between the two windows not substantially different, drop-off before the
morning window and after the afternoon close• Mixed opinions on the impact of the windows on opportunities to trade
OTC forward power trades
0
20
40
60
80
100
120
Tota
l Vo
lum
e (
TWh
)
Q1-2014 Average Q2-Q4 2014 Average Q1-Q4 2015 Q4-2016
6
Volumes traded by market makers
• Market making volumes – seasonal and strongly correlated with OTC trading• Increasing trend since 2016 and a significant rise in volumes traded by market makers in the last months
of Q4 2016.• Market making trading remains focused in baseload products (S+1, S+2) but the ratio of peak to
baseload products is following an upward trend.
Source: Ofgem
Market making volumes traded
0%
10%
20%
30%
40%
50%
60%
70%
0
10
20
30
40
50
60
70
80
90
% o
f OTC
trade
s
TWh
S&P Licensees % of OTC trades
7
Volumes traded under SMA
• SMA trade volumes are following an increasing trend, but are unpredictable and based on concentrated volumes in certain trades
• Trading under SMA remains focused on baseload products (S+1, S+2) but peakload volumes are also following an upward trend. Strong growth in Q4 2016.
• Significant growth in eligible suppliers – 22 at present
Source: Ofgem
0
20
40
60
80
100
120
0
100
200
300
400
500
600
700
800
900
Nu
mb
er o
f Trade
s
GW
h
S&P Licensees Number of Trades
SMA volumes
8
Secure and Promote Licence
ConditionFor objective 1 (availability of products
to support hedging):
Secure fair trading terms for small suppliers
through Supplier Market Access rules
For objective 2 (robust reference prices along
the curve):
Promote improvements in forward liquidity through
a market-making obligation
For objective 3 (an effective near-term
market):
Reporting requirements to facilitate monitoring of
day-ahead auctions
Reminder: Structure of the intervention
9
Questions for discussion
Supplier Market Access
Specifically –• Which element of the SMA rules should be reviewed as a priority? • Which element of the SMA rules has worked well or not? • Have you noticed any unintended consequences?
More generally –
• What features of the rules have been more or less helpful to improve the access of small suppliers to the market?
• What features have been costly or difficult for licensees? • Are there any factors currently limiting success under SMA? • What features of the rules could change to either improve the access of small suppliers
without imposing further costs on generators, or to improve access but with a neutral effect on generators?
10
Questions for discussion
Market making
Specifically –• Which part of the market making condition should be reviewed as a priority?• Which element of market making has worked well or not?• Any unintended consequences?
More generally –
• Have you experienced, or seen evidence of, an improvement in liquidity in curve/longer dated products?
• Do you consider that there are now more robust reference prices for the mandated products? Has this changed price robustness at other times of the day?
• What features of the market making could change to either improve near curve and liquidity further out, including price robustness, without imposing further burden/costs on licensees, or to have a neutral effect on them while improving liquidity? Please give detail and your thoughts on pros/cons.
11
Questions for discussion
• After three years, where would you have expected the market to be in terms of liquidity (churn, volumes, spreads) if Secure and Promote hadn’t been implemented?
• What do you see as the main factors that have impacted liquidity either positively or negatively over the period?
• Going forward, what do you consider will be the main factors influencing liquidity, or risks to liquidity?
• Are there any monitoring indicators you would suggest focusing on?
12
• Consultation letter - July 2017
• Annual report - summer 2017
S&P – next steps
13
Key points of contact –
• Liquidity team inbox• [email protected]
• Tom Corcut – Head of Market Intelligence and outlook• [email protected]
• Yasmin Valji – Senior Economist, Wholesale Markets• [email protected]
Ofgem’s liquidity team – key contacts