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Capacity Market simulation workshop GB Capacity Market The UK Government is proposing introducing a Capacity Market in Great Britain in order to promote security of electricity supply. The first capacity auctions for delivery in 2018/19 are scheduled for the latter part of 2014. The move away from an energy only market represents a radical change in the market arrangements, and there is considerable interest in how the Capacity Market will work and what the forward price of capacity will be.


Objectives of the workshop

Overview

The principal objective of the workshop is to support the development of your company’s Capacity Market strategy and gain first-hand experience of participating in capacity auctions.

The session will be structured around a one or two day workshop, or tailored to meet your company’s needs. Participants will be broken into teams with each team being given the portfolio of a GB generating company. The objective for each team is to maximise the margins on its generation portfolio, focusing on a particular delivery year. They will need to decide on their asset strategies, develop their bidding strategies, participate in the capacity auctions, plan their outages and trade amongst themselves to minimise non-delivery risk. The teams will be able to analyse the outcomes and assess how they have done relative to their competitors. There will be the opportunity to re-run the process so that lessons learned can be put into practice.

In particular, the workshops will seek to:

• Inform the development bidding

strategies for different asset portfolios

• Provide first-hand experience of •

descending clock auctions

Demonstrate price formation in the capacity auctions

• Explore the issues surrounding managing the risks of plant outages

• Further the understanding of how

different strategies can affect earnings.

The workshops would be held at either your offices or at Baringa’s offices in Central London. 2 Capacity Market simulation workshop

The auctions and market simulation will include all the latest Capacity Market design features such as price taker/price markets, demand curves, varying lengths of capacity agreement, penalty regime and arrangements for secondary trading. The workshops would be held at either your offices or at Baringa’s offices in Central London, or run remotely through a web-based interface. All discussions and materials created will be treated as highly confidential and retained by the client.


Workshop leaders The workshops will be led by experts from Baringa Partners who have worked extensively advising Government, National Grid and participants on EMR and the details of the Capacity Market. Baringa would be supported by auction specialists who would also supply the auction platform software.

Capacity Auction Auction bid (ÂŁ/kw)

Demand curve

Auction price cap

Auction clearing bid

Minimum

Target

Maximum

Capacity Auction timeline Capacity auction confirmation

Main auction for capacity delivery in 2018-19

2013 Auction rules published

2014

2015

Auction for DSR and storage

2016

Auction for DSR and storage

2017

Supply curve

Capacity (GW)

Delivery of main auction capacity in 2018-19

2018

2019

First year ahead auction

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Inputs

Workshop overview • Player

portfolio

•  •  • 

C osts (new) entry/refurb) Revenue expectations

• Volume

requirement

• CONE emand • Dcurve

Workshop stages • Adjusted

• Minimum

• Attrition

ligible • Ecapacity

volume requirement

De-rating factors

Outputs

A

B

C

maintenance requirements for physical trading

D

Auction preparation

4 yr ahead auction

1 yr ahead auction

Outage, planning and trading

greement • Alengths to

uccessful • Sbids uction • Aclearing

uccessful • Sbids uction • Aclearing

aintenance • Mschedule hysical and • Pfinancial

apply for

• Exit prices for price takers

prices

idding • Bstrategy for

price makers

4 Capacity Market simulation workshop

prices

trades

Following an introduction to the issues and presentation of background materials, the workshop will involve the following stages:

• Available capacity

emand •  DCommodity • prices • CMU events

E

F

Market simulation

Outcome analysis

holesale • Wmarket

arnings • Eanalysis by

• Non-delivery

• Lessons

revenues

penalties

• Pay-outs

on financial trades

player

learned

Stage A: Teams will be provided with the details of a portfolio of a GB generator. They will receive information on capacities, de-rating factors, operating costs and the costs of plant refurbishments and new build. They will also be provided information on expected electricity prices in the delivery year. Participants will need to decide on their investment strategies, what length capacity agreement they wish to apply for each unit, whether each unit will be a price maker or price taker and their bidding strategies.


Timings Stage B: A descending clock auction will be run with a 4 year lead time using an on-line auction software platform. Participants will enter the exit prices for their price taking units and then actively bid their price making units, deciding in each auction round whether to withdraw the capacity as the price descends. Once the auction is complete clearing prices and awarded capacity agreements will be known. Stage C: This stage will represent the year-ahead auction for the delivery year.

By this stage some new build and refurbishments may be delayed. The yearahead auction will represent the opportunity to bid any remaining available capacity and introduce demand side response. Stage D: For each unit, participants will be given a minimum duration of planned outage for maintenance. They will need to decide how to schedule these periods in order to minimise the risk of CM penalties. They will also have the opportunity to trade with other teams to hedge these risks.

Stage E: In this stage the market would be simulated for the delivery year using PLEXOS, and including the possibility of CM events occurring. For each team’s portfolio, profitability would be assessed, taking into account wholesale market and Capacity Market earnings, any non-delivery penalties and profit and losses on trades. Stage F: At this stage, the teams will have the opportunity to analyse their results and those of their competitors, and to discuss their strategies and lessons learned.

The standard session will be run over two days: Day 1: S  tages A-D, with E run overnight Day 2: Stage F, followed by a re-run of Stages A-D based on lessons learned Follow-up: The results from the second run (Stage E) will be circulated, and companies have the option of organising their own meetings to discuss the outcomes A one day option covering Stages A, B, C only is also available.

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For more information please contact: energy_advisory@baringa.com +44 (0)203 327 4220

About Baringa Baringa Partners LLP is an award-winning management consultancy that specialises in the energy, financial services and utilities markets in the UK and continental Europe. It partners with organisations when they are developing and delivering key elements of their business strategy, as well as working extensively with government and regulators to provide policy and advisory services. Baringa works with its clients either to implement new or optimise existing business capabilities that relate to their people, processes and technology. Baringa is recognised both in the UK and internationally for its unique culture, which has been acknowledged by a number of awards and accolades and continues to reaffirm Baringa’s status as a leading people-centred organisation.

Baringa Partners LLP, 3rd Floor, Dominican Court, 17 Hatfields, London SE1 8DJ T +44 (0)203 327 4220 F +44 (0)203 327 4221 E energy_advisory@baringa.com W www.baringa.com Š Copyright Baringa Partners LLP 2013. All rights reserved. This document is subject to contract and contains confidential and proprietary information.

Baringa Capacity market workshop  

Capacity Market simulation workshop

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