How Prices are calculated
Day Ahead
Arrangements for trading on a given day start at 10.00 am on the Day Ahead (i.e. the day before trading). By which time
Generators submit an offer file to the Grid Operator (the Day Ahead file) for each half hour of the following day. These
offer files contain for each Generating Unit generator offer data, which includes the level of output available and a number
of price parameters. In addition, any operating constraints are identified, such as minimum generation levels and the rate at
which a Genset can increase or decrease output.
The Grid Operator produces a forecast of demand (plus any reserve required) for each half hour of the following day and then schedules the Generators' bids to meet this demand. The demand is estimated by taking into account weather forecasts and knowledge of past demand usage patterns, for example popular television programmes or exceptionally cold weather can heavily impact demand.
A computer system called GOAL (Generator Ordering and Loading) aims to produce the lowest cost generation schedule for a Schedule Day. This is called the Unconstrained Schedule on the Transmission System; (unconstrained because it does not take into account system constraints).
The Merit Order is established through this competitive process for each half hour, ranking each Genset by its price of electricity. The price of the most expensive Genset scheduled to meet Forecast Demand is known as the System Marginal Price (SMP). An additional component called the Capacity Payment is then calculated, which then together form the Pool Purchase Price (PPP). This is calculated the day before the day of trading and in the main it is the price Generators receive for their generation.
On the Day
The Electricity Pool produces forecast prices at the Day ahead stage. On the day of trade circumstances may change. Generators may re-decline
their availability and errors in the Demand Forecast need to be accommodated. The Grid Operator is responsible for Supply and Demand
Generation to meet demand on a minute by minute basis. It will use the Unconstrained Schedule again for operational purposes. However,
constraints on the Transmission System are included and this is called the constrained Schedule.
The Settlement Process
Settlement is the mechanism by which the payments for the trading of electricity between Pool Members are calculated. This includes processing
metering information to determine how much a Generator has generated, how much a Supplier's customers have consumed and is used to
calculate the element of the Pool Prices. The prices and volumes establish the amounts to be paid to Generators and to be paid by
Suppliers. The price paid by the Suppliers is the Pool Selling Price (PSP).