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Ireland's OTC electricity market sees large premium to UK on first day

17 Oct 2011 18:53:00 | edem

Ireland's newly launched over-the-counter (OTC) electricity market saw a total of 235MW dealt in 44 clips on 12 October, with an average premium to equivalent contracts on the neighbouring UK OTC market of €10.51/MWh at the close of the session.

Initially, six monthly contracts can be dealt on the platform, with trade taking place on broker Tullett Prebon's screens over monthly sessions. The next live market is due to take place 7 November.

The six delivery periods can be dealt in Baseload or Peaks, as well as Mid-Merit, which runs from 07:00-23:00 hours Ireland time, and Mid-Merit 2, which runs from 07:00-19:00.

Following the first session, the closing mid-point for the front-month Baseload contract reported to ICIS Heren was €73.175/MWh (see table).

The contract was the most liquid product on the platform alongside November '11 Mid-Merit 2, with each clearing 50MW.

This put front-month Baseload at an €11.02/MWh premium to the equivalent contract on the connected UK OTC power market on Wednesday, applying forward November exchange rates from 12 October.

The December '11 Baseload contract closed at a €13.18/MWh premium to the equivalent UK contract close on Wednesday, while January '12 Baseload closed €9.98/MWh above the UK and February '12 Baseload €7.86/MWh higher.

The existing, all-Ireland single electricity market (SEM) operates a pool generation system. Power is sold through monthly auctions of non-directed contracts (NDCs). NDCs are a form of contracts for difference (CfD) used by Ireland's SEM participants to hedge risk against its pool-based system. Tullet Prebon is listing CfDs on its new screens.

Liquidity push

Irish incumbent generator ESB, which participated in the first day, said only that "from an ESB perspective, the event was highly successful". The company declined to comment any further.

One source involved with the launch, who requested not to be named, said those concerned were hoping to see more liquidity on day one, but added that organisers were hopeful of encouraging more activity in future sessions.

The Irish market is linked to the UK by the 500MW Moyle interconnector between Northern Ireland and Scotland.

A second 500MW cable, the East-West interconnector between Ireland and Wales, is due to begin commercial operations in July 2012.

Utilities such as E.ON and RWE already operate on the Moyle interconnector. The hope is to attract both those companies and others such as investment banks to the OTC market (see EDEM 30 September 2011).

The price differential between the two markets, combined with the impending increase in interconnector capacity, will create clear opportunities for geographical arbitrage. JS

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