Electricity Price Structure

Estimating the System Sell Price (SSP), System Buy Price (SBP) and Market Index Price (MIP).

The elexon website was used to collect data regarding actual electricity Market Index Price (MIP), System Buy Price (SBP) and System Sell Price (SSP) data for the year 2008. This provided a list of data for a complete year: generating the MIP, SSP and SBP in half hourly increments, throughout the year.

This data takes account of the varying price according to seasonal variation, time of week; e.g. weekday or weekend; and the time of day; e.g. peak periods frequently observed between 4pm and 8pm. However, this potentially results in 17520 different prices, taking into consideration one pricing structuring means, e.g. market index price alone.

Therefore, the numerous variations in pricing had to be converted into a more practical form, that was suitable for applying to the economics in Microsoft Excel.

Simplifications & Estimations

The following simplifications and estimates were made regarding pricing.

For system buy price (SBP) and system sell price (SSP):

· To account for seasonal variation, prices for January to March, April to June, July to September and October to December have been calculated. Then the average price during each three month time period, in half hourly blocks was calculated.

· To transform the pricing into hourly prices, the average of every 2 half hour periods was calculated, which ensured the pricing structure could easily be applied to the HOMER modelling outputs, which were in hourly increments.

For the market index price (MIP):

· A similar method to SBP and SSP was utilised, with the only difference being that because the original data was presented in a different format, it was more difficult to calculate an average price utilising all the pricing data.

· Therefore, the first complete week in each month (beginning on Monday) was used to calculate the average price per month.

Limitations of Pricing Data

The following limitations apply to the electricity pricing structure:

· The price estimations that have been calculated only account for every second rate because HOMER only permits and generates hourly data, despite the national grid operating in half hourly increments.

· The pricing system provided by ELEXON can only provide the average price for all forms of electricity, not wind alone.

· During 2008, there were very large fluctuations in the price of the raw materials required for conventional electricity generation; including the price of oil; which may have produced a volatile price pattern that might not be representative of what you would consider to be a ‘typical year’.

· The rates do not consider the variation in price from weekday to weekend, purely an average of the monthly time period. In practice, the prices would differ according to the time of the week.

· Not all of the pricing data was used to calculate MIP because of the datas format and for this reason, the pricing for MIP may not be as accurate as the SSP and SBP.

· Income from the sale of ROC’s has not been considered in the electricity pricing structure and an adjustment will have to be made to the economics at a later date to take account of this.

System Sell Price (SSP):

Market Index Price (MIP):

System Buy Price (SBP):