Presentation - Energy Trading in The SAPP - 06.2009

Energy Trading in the SAPP
www.sapp.co.zw
By
Dr. Lawrence Musaba
SAPP Coordination Centre
JULY 2009
1 SOUTHERN AFRICAN POWER POOL

CONTENTS
1. TRADING ARRANGEMENTS
2. BILATERAL TRADING
3. SHORT-TERM ENERGY MARKET
4. COMPETITIVE MARKET
5. CONCLUSION

1. TRADING ARRANGEMENTS
1.1 Rationale for Power Trading
Some countries in the SAPP have excess

Generation Capacity, others have deficit:
The result is energy flow between member

countries in form of energy trading.
Northern network is predominantly hydro and

Southern network thermal:
Good generation mix that mitigates drought

Members share in the resulting benefit.
1.2 Power Trading Platforms
PREVIOUSLY
PREVIOUSLY FUTURE
FUTURE
Bilateral
Bilateralcontracts
contracts Bilateral
Bilateralcontracts
contracts
Day-Ahead
Day-AheadMarket
Market(DAM)
(DAM)––From
From2007
2007
Ancillary
AncillaryServices
ServicesMarket
Market––From
From2007
2007
Balancing
BalancingMechanism
Mechanism––From
From2008
2008
CURRENT
CURRENT
Bilateral
Bilateralcontracts
contracts
Short-Term
Short-TermEnergy
EnergyMarket
Market(STEM)
(STEM)--2001
2001
Post
PostSTEM
STEM(Balancing
(BalancingMarket)
Market)--2002
2002

Co-operative Competitive
BILATERAL CONTRACTS
Takes up 90-95% of energy trade: 15 - 20 TWh
Peak, off-peak and standard times.
STEM
The short-term energy market (STEM) was introduced
in April 2001
Precursor to full competition
Caters for 5-10% of energy trade: 0.8 – 4.3 TWh
Daily and hourly contracts
Off-peak periods
Competitive Market Development

Development of competitive market in the form of a
Day-ahead Market (DAM) started in 2003.
The SAPP has also developed an Ancillary Services
Market and a Balancing Mechanism.
2. BILATERAL TRADING
The bulk of cross border trading in electricity is governed by fixed

co-operative bilateral contracts.
Generally cover a period from 1-5 five years, could be longer.
The agreements provide for assurance of security of supply but

are not flexible to accommodate varying demand profiles and
prices.
The pricing of electricity depends on the consumption period;

Peak, Standard and off-peak.
Essential for financing of new generation & transmission projects.
Price: Negotiated between willing buyer & seller.

Price range: 0.85 – 3.00+ USc/kWh
BILATERAL CONTRACTS
Can be firm on non-firm contracts
Non-firm contracts:
Are interruptible with notice
If notice given, no penalties
Generally less than 75% reliable.
Firm contracts:
Most have attached reliability premium
Penalties for non-delivery applies.

Pricing of Bilateral contracts
The parties agree to both capacity and energy
charges.
The prices are negotiated by both parties.
Wheelers are notified and are a party to the
agreement.
Billing
Direct billing from seller to buyer.
Billing is on schedules and not on actual.
Metering and settlement

Actual meter readings done on monthly basis.
Inadvertent energy management follows.
2005
2004
Year
2003
2002
- 5,000 10,000 15,000 20,000
Energy Traded in GWh
Bilateral trading has been increasing year by year.
Demand in the SAPP is rising by 3% annually.
Small reduction in 2004 – rehabilitation projects

SAPP Bilateral Agreements - 2003
ZESCO -ESKOM 80
280 Energy (GWh)
SNEL-ESKOM 700 Capacity (MW)
100
SNEL -ZESA 770
110
Eskom-ZESA 793
150
HCB-ZESA 3,375
400
HCB-ESKOM 2,500
1,370
Eskom-LEC 230
100
Eskom-EDM 950
5,875
Eskom-Nampower 918
200
Eskom-BPC 1,390
210
Eskom-SEB 796
96
0 1,000 2,000 3,000 4,000 5,000 6,000

Negotiated Utility Contracts HCB supply (hydro) – 1770 MW
ESKOM supply (thermal) – 1706 MW

Bilateral Contracts - 2005
ZESCO -ESKOM 80
280 Energy (GWh)
SNEL-ESKOM 700 Capacity (MW)
100
SNEL -ZESA 770
110
Eskom-ZESA 793
150
HCB-ZESA 1,800
250
HCB-ESKOM 2,500
1,370
Eskom-LEC 230
100
Eskom-EDM 950
5,875
Eskom-Nampower 1,045
200
Eskom-BPC 1,606
210
Eskom-SEB 868
96
0 1,000 2,000 3,000 4,000 5,000 6,000
HCB supply (hydro) - 1770 MW, ESKOM supply (thermal) -1706 MW

2008 Bilateral Contracts in SAPP
HCB-EdM 270
Eskom -MOZAL 950
EdM-SEC 40
EdM-NamPower 40
EdM-BPC 45
ZESA-NamPower 40
SNEL-Eskom 150
SNEL-ZESA 100
HCB-Eskom 1370
HCB-ZESA 250
Eskom-LEC 100
Eskom-EdM 120
Eskom-NamPower 200
Eskom-BPC 210
Eskom-SEC 96
0 200 400 600 800 1000 1200 1400

Capacity [MW]

3. THE SHORT-TERM ENERGY MARKET
Documentation
The SAPP documents that govern the STEM are:

Legal Agreement
STEM Book of Rules:
Trading Rules
Financial Rules
Participation
Participation is open to all Operating Members

and IPPs.
Participants are levied 1% administration fee.
STEM Design Principles
i. Transmission rights – Bilateral contracts have first

priority of transmission over STEM contracts.
ii. Security requirements - Participants lodge sufficient

security before trading commences.
iii. Settlement - Accounting on daily basis with monthly

billing for all transactions in USD or ZAR.
iv. Allocation method - Allocation based on available

transmission capability and fair competitive bidding.
v. Type of contracts: Daily and hourly firm contracts.

STEM Trading Timeline
At 08:30 HRS, a day before trading

SAPP-CC publishes USD to ZAR exchange rate.
Any time before 09:30 HRS, a day before trading
Participants submit offers & bids to SAPP-CC.
The market close.
SAPP-CC matches offers & bids for any future trading day;
SAPP-CC publishes the results to all Participants.
After 12:00 HRS, a day before trading
Members negotiate for Post-STEM bilateral trade
Financial settlement follows.
Pricing of STEM Contracts
Participants send bids and offers to the SAPP-CC.
SAPP-CC matches bids and offers.
The prices are set based on matching sellers price.
STEM contracts
Billing
The SAPP-CC bills participants on a daily basis.
Billing is on schedules and not on actual.
Metering and settlement

Financial settlement on daily basis.
Penalties indicated where applicable.
Inadvertent EM is part of overall settlement.
Financial Settlement
SAPP-CC
e
ad
In
ow
Tr
st
Fl
ru
of
ct
Co
g
n
io
r
io
ne
ns
fir
at
fE
irm
to
o
at
nf
Tr
n
io
e
io
Co
ic
an
n
at
vo
of
sf
irm
In
er
Re
nf
ce
Co
ip
t
Buyers: Payment into Clearing Account Clearing
Participants
Sellers: Receipt from Clearing Account
Bank

STEM TRADING: Supply & Demand
Supply Demand
4,500
4,000
3,500
Energy in GWh
3,000
2,500
2,000
1,500
1,000
500
-
2001 2002 2003 2004 2005
Year

STEM TRADING: Energy Traded & Cost
Energy Traded [GWh] Monetary Value [US$x1000]
4,000 0.50
Usc/kWh 0.74
3,500 Usc/kWh
0.39
Usc/kWh 1.08
3,000
Usc/kWh
2,500
2,000
1,500
1,000 0.41
Usc/kWh
500
-
2001 2002 2003 2004 2005

STEM Current setbacks
Sellers control the price in each and every hour.
Allocation of offers and bids not competitive.
Insufficient generation capacity to enable

competitive trading.
The desire for the SAPP is to move towards a

competitive market and to develop and apply trading
rules that suit a competitive environment.

There has been no energy trading on the
short-term energy market (STEM) from June
2007 due to:
Lack of power supply in the market
Constrained transmission paths.
Bilateral trading has however continued.

4. THE SAPP COMPETITIVE MARKET
4.1 Goals and Methodology
GOALS of the SAPP DAM design:

Establish an efficient and competitive marketplace
Ensure that consumers benefit from the market
METHODOLOGY:
Development of consistent market mechanisms.
Efficient price signals for the procurement and
transmission of electricity.
Assurance of fair and open access to the
transmission system.
Optimization of generation & transmission capacity.

4.2 DAM Features
Market for secure, effective and non-

discriminatory trade of electricity:
Trading to be concluded daily for delivery next day
Forward bidding up to 10 days
Participants submit bids (purchase) & (sale) offers
Closed market – only market operator and participant
know the details of the bid / offer
Provides a neutral reference price

Price discovery
Could provide reference for bilateral contracts

Supports an auction-trading model
All sales & demand bids are aggregated at a fixed time
The balance price is valid for all trades
Tool for managing grid congestion

System price (no grid congestion)
Area prices (if transmission capacity is exceeded)

4.3 DAM Price Setting Mechanism
Free Market Bidding
Allows free trade in energy

120
In theory
Price ( $/MWh)
100
Many small players 80

60
Not Storable commodity 40
No barriers to new entrants 20
0
1 2 3 4 5 6 7 8 9 10 11
In Practice: Dominant player Volume , MW
Tried to some extent in the USA
Bidding (Used in UK)
Bids dispatched using lowest bid to match demand

Pay all bidder at most expensive bid accepted (marginal bid)
Marginal bid price should be close to SRMC
In theory: Profit maximizing bidders should bid close to SRMC
In practise: Gaming
Tends to exclude demand side sources of energy

4.3 DAM Design Principles
1. Market type
Auction type market
Participants bid into market for all 24 hrs of
next/future day.
2. Bidding
Participants submit both purchase & sale bids.
Types of bids: Single hour and Block bids.
3. Bid areas
Multiple bid areas with configurable transmission
capacities between areas.

4. Price calculation
At defined time, market closes & Market Clearing
Price (MCP) calculated.
MCP is price where supply equals demand without
taking transmission constraints into consideration.
5. Congestion Management
Calculated contract flow between bid areas
computed & compared with available transmission
capacity for spot trade.
In case of congestion, market splitting performed,
and local area prices calculated.
6. Auction results
Participants receive area prices with associated
volume. Multiple currencies.
4.4 DAM Trading Timeline
08:30 HRS
Usage of the bilateral contracts registered by participants.
Calculation of available transmission capacity performed.
Opening of the market for delivery day X.
09:30 HRS Market is closed for delivery day X.
10:00 HRS Price calculation
12:00 HRS Distribution of prices and schedules
12:30 HRS Participants receive price information & schedules.
13:00 HRS Deadline for complaints
14:00 HRS A report about the contracted volume per Balance
Responsible Party is sent to System Operators.
24.00 HRS Delivery start for Day-ahead contracts for hour 1
5. CONCLUSION
SAPP believes that the creation of a competitive market would:
Help to optimise the use of regional resources
Assist in determining the correct electricity price in the pool
Send signals for investments and real time utilization of

existing assets; transmission, generation and consumption.
Enable the demand side to respond to the supply side price

signals.
Designing a market is not simply a matter of copy and paste

exercise, but hands on experience is necessary to know
possible solutions of practical problems.

THANK YOU

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Energy Trading in the SAPP

1 SOUTHERN AFRICAN POWER POOL

3. SHORT-TERM ENERGY MARKET

2 SOUTHERN AFRICAN POWER POOL

Some countries in the SAPP have excess

The result is energy flow between member

Northern network is predominantly hydro and

Good generation mix that mitigates drought

4 SOUTHERN AFRICAN POWER POOL

Competitive Market Development

The bulk of cross border trading in electricity is governed by fixed

Generally cover a period from 1-5 five years, could be longer.

The agreements provide for assurance of security of supply but

The pricing of electricity depends on the consumption period;

Essential for financing of new generation & transmission projects.

Price: Negotiated between willing buyer & seller.

8 SOUTHERN AFRICAN POWER POOL

Metering and settlement

- 5,000 10,000 15,000 20,000

Energy Traded in GWh

Bilateral trading has been increasing year by year.

Demand in the SAPP is rising by 3% annually.

Small reduction in 2004 – rehabilitation projects

10 SOUTHERN AFRICAN POWER POOL

0 1,000 2,000 3,000 4,000 5,000 6,000

11 SOUTHERN AFRICAN POWER POOL

0 1,000 2,000 3,000 4,000 5,000 6,000

HCB supply (hydro) - 1770 MW, ESKOM supply (thermal) -1706 MW

0 200 400 600 800 1000 1200 1400

13 SOUTHERN AFRICAN POWER POOL

The SAPP documents that govern the STEM are:

Participation is open to all Operating Members

i. Transmission rights – Bilateral contracts have first

ii. Security requirements - Participants lodge sufficient

iii. Settlement - Accounting on daily basis with monthly

iv. Allocation method - Allocation based on available

v. Type of contracts: Daily and hourly firm contracts.

15 SOUTHERN AFRICAN POWER POOL

At 08:30 HRS, a day before trading

Metering and settlement

18 SOUTHERN AFRICAN POWER POOL

19 SOUTHERN AFRICAN POWER POOL

20 SOUTHERN AFRICAN POWER POOL

Sellers control the price in each and every hour.

Allocation of offers and bids not competitive.

Insufficient generation capacity to enable

The desire for the SAPP is to move towards a

21 SOUTHERN AFRICAN POWER POOL

Bilateral trading has however continued.

22 SOUTHERN AFRICAN POWER POOL

GOALS of the SAPP DAM design:

23 SOUTHERN AFRICAN POWER POOL

Market for secure, effective and non-

Provides a neutral reference price

24 SOUTHERN AFRICAN POWER POOL

Tool for managing grid congestion

25 SOUTHERN AFRICAN POWER POOL

Allows free trade in energy

Many small players 80

Bids dispatched using lowest bid to match demand

26 SOUTHERN AFRICAN POWER POOL

27 SOUTHERN AFRICAN POWER POOL

SAPP believes that the creation of a competitive market would: