Those of you in the UK water power industry of the opinion that there are far too many rules and regulations imposed on the energy industry already, probably didn’t welcome the news that on 27 March 2001 the New Electricity Trading Arrangements (NETA) came into force. In the energy sector, however, as in any industry, competition is key, and according to the UK Government these arrangements are necessary to ensure continued success and improved services to the end customer.
The introduction of NETA, which has been in development for over three years, is designed to bring more competition into the market for wholesale electricity in England and Wales – a market with a turnover of more than US$9.9B annually.
The NETA programme is led jointly by the Office of Gas and Electricity Markets (Ofgem) and the Department of Trade and Industry (DTI), and involves central service providers including the National Grid, Logica and Elexon, together with more than 100 market participants.
The new arrangements are aimed at reforming the electricity wholesale market to make it more like other commodity markets, and signal some of the most fundamental and far reaching changes to the electricity market since privatisation in 1990.
The arrangements are based on bilateral trading and consist of four markets, which are:
• Forwards/futures markets operating up to a year or more ahead, developed as required by market participants.
• A balancing mechanism where the system operator accepts bids to balance the system and resolve transmission constraints.
• A power exchange enabling fine tuning of contract positions, in the period from around 24 hours ahead through to gate closure at the start of the balancing mechanism.
• An imbalance settlement process to reflect the differences between contract positions and metered volumes of output, and to recover other costs to be borne by market participants.
The rules governing the new arrangements will be set out in a Balancing and Settlement Code, which acts as the replacement for the Pooling and Settlement agreement. This was necessary because research carried out in 1998 on behalf of Ofgem indicated that the pool arrangements – which provided a mechanism for setting a single wholesale price and dispatching generating plant to meet demand – were of serious concern. It was suggested that bids in the pool were not reflective of costs, and the movements in pool prices did not match reduction in generating costs.
Principles of NETA
One of the basic principles of NETA is that those wishing to buy and sell electricity should be able to enter into freely negotiated contracts to do so. Under the trading arrangements, it is expected that bulk electricity will be traded on one or more exchanges and through a variety of bilateral and multilateral contracts. Those buying and selling electricity on exchanges and through bilateral and multilateral contracts are likely to include not only generators and suppliers but non-physical traders as well.
The role of the NETA programme is not to dictate how energy will be bought and sold on these exchanges or in bilateral contracts. Instead, it is to provide mechanisms for near real-time clearing and settlement of the imbalances between contractual and physical positions of those buying, selling, producing and consuming electrical energy, suggests Ofgem.
In practice, traders of electricity may buy more or less energy than they have sold; generators may physically generate more than they have sold; and the customers of suppliers may consume more or less energy than their supplier has purchased on their behalf. According to Ofgem, the central NETA systems are designed to measure these surpluses and deficits and to determine the prices at which they are to be settled in order to send out invoices and payments for them.
NETA currently only applies in England and Wales but Scotland will be included when the British Electricity and Trading Arrangements (BETTA) take effect in April 2002. In the meantime, transitional arrangements are in place that bring the two systems closer together.
‘Neta will fundamentally transform the way electricity is traded,’ says Ofgem chief executive Callum McCarthy. ‘Since privatisation, generating costs have come down by between 25 and 40% but this has not been reflected in prices. NETA is part – a critical part – of the process which is already creating more open competition and putting downward pressure on prices.’
But just how do companies involved in hydro power increase profitability under the arrangements? One company that has succeeded is British Nuclear Fuels (BNFL). Although not a name normally associated with water power, the nuclear specialist does in fact operate a hydroelectric plant.
Located at Maentwrog in Wales, the 30MW hydroelectric plant works in co-operation with BNFL’s seven Magnox nuclear power stations to meet around 6% of the England and Wales electricity market.
The Maentwrog plant is the only hydroelectric plant operated by BNFL. It has, however, proved particularly successful for the company, clocking up record generating output for the period 2000/01. With a little help from the UK weather, the plant pumped out 83GWh during the calendar year 2000, while over the financial period to end March 2001, it beat the previous year-end best of 73GWh by 2GWh
The plant, which operates with two 15MW Francis turbines, acts as a normal station for BNFL, selling electricity to the company’s energy management centre in Berkeley, UK. It is also used to provide electricity if BNFL loses power from one of it’s nuclear plants.
‘It could be said we use it as a back-up,’ explains Gron Howells, station manager at Maentwrog. ‘We save a great deal of money this way because, if the company loses a plant, then we can act as a replacement. That means we don’t have to buy any electricity in to cover contracts, which in turn means we are in a position to make a real contribution to BNFL’s profitability under the New Electricity Trading Arrangements.’
Another way in which the plant contributes to NETA is through the control system. Supplied by UK-based ICIS Technology (Industrial Control & Information Systems) – a specialist in the design, development and installation of commercial process systems with expertise in the electricity industry – the Maentwrog remote control and monitoring SCADA system is allowing BNFL to operate the plant remotely from an off-site location. The flexibility provided by the control system means BNFL can start generating whenever the price of electricity is high enough to trade in the new deregulated energy market, even when the plant is unmanned.
The ICIS system consists of a local computer which has a serial interface to a standard alarm system. This computer also interfaces, via Solartron integrated measurement pods (IMPs), to the turbine control panel allowing the turbines to be loaded and deloaded, either manually or automatically, locally or from a remote PC.
The local computer directly dials a pager and the remote computer to download plant information and alert staff to alarm conditions. This enables the remote computer to log into the local computer to set loading schedules or monitor the plant. The remote operator can then modify the start/stop schedule and manually override it in case of emergency, with login to security controlled by dial-back modems. The system was connected to USData’s FactoryLink using the public switched telephone network to communicate between the two locations.
‘Basically what this means,’ explains Howell, ‘is if, for example, my energy management centre sold electricity between 8-10pm, then I can set up the system to automatically start at 8pm and shut down at 10pm from any location.
‘If something then went wrong with the plant, the alarms would trigger my computer and pager so I would be able to sort the problem out,’ he adds.
ICIS has recently installed an enhanced version of the system on a more user-friendly Microsoft NT platform. Some aspects of the system’s capability have also been extended, including a link to measure the water level of the hillside lake at Maentwrog and online plant data that mimic design drawings.
‘The real benefit of our system is it allows generators to monitor and operate several gensets from one central location,’ says Dave Carlin, ICIS Technology director. ‘This is important when one considers the remoteness of many hydro plants.’
With such systems available, profitability under NETA looks to be a possibility. However, according to the Confederation of Renewable Energy Associations, the design of NETA may discriminate against small generators of electricity – a point which has been taken into consideration by Ofgem.
In May 2001, Ofgem announced that it is developing a questionnaire that will be sent to small generators. The results of this will form the basis for a publication called The Review of the Initial Impact of NETA on Smaller Generators. In addition, Ofgem plans to undertake individual discussions with a small representative sample of generators, in a move which it believes offers a real opportunity for the small generator community to make its views known.
How far this is true remains to be seen and it is only when the arrangements become established in industry that the results will become apparent.