As the SEM market moves towards its Swan Song we consider the implications of risk in the new markets we are joining. Although most of us are familiar with the concepts of credit risk and protecting oneself from the failure of others to pay us, I-SEM introduces a level of complexity which may not be as familiar to Irish and Northern Irish market participants. The Day-Ahead and Intraday trading activity is done on a centrally cleared exchange called EPEX Spot, whereby the counterparty on the other side of the deal is unknown to the participants.
Centrally cleared exchanges set up a series of financial arrangements to protect participants from defaults by other members, and EPEX Spot manages this arrangement through the European Commodities Clearing (ECC) house. The recent €114mn hole created in a fund to protect the stability of European electricity markets emphasises the importance of this component of the markets.
In this week’s blog, we discuss some of these credit arrangements and how they apply to I-SEM market participants.