Seasonal forwards considered temporarily the most appropriate indexes for baseload reference price in the UK FIT CfD
- Category: Capacity Markets
The reference price for baseload generation under the UK FIT CfD contracts scheme (implementation thereof is intended in summer 2014 already) will initially be calculated from the two reference prices each year; one set every six months, however, the concrete set of indices and their weightings are yet to be confirmed, thus financial assessments are still not viable.
Moreover, the longer term intention is to move in that regard to year-ahead forward prices and the unknown mechanics of this transition adds to the investors' risks.
Capacity market's MiFID/EMIR treatment
- Category: Capacity Markets
UK capacity market in the light of EC State aid requirements
- Category: Capacity Markets
The intended UK capacity market, the major milestones thereof have been recently revealed, appears to reflect the key points of the European Commission' recent consultation on State aid criteria to be applied to capacity mechanisms.
Energy capacity markets
- Category: Capacity Markets
The auction will result in Capacity Providers ("CP") taking on Capacity Obligations ("CO") and receiving up-front payments to reimburse them for the energy market's 'missing money' component. The CO is a promise to deliver energy and/or demand reduction in periods of system stress. A system stress period ('Stress Period') is defined as a Settlement Period where voltage reduction or controlled load shedding occurs anywhere on the system for 15 continuous minutes or longer; excluding faults or deficiencies on the transmission or distribution systems.
The System Operator (SO) will issue a Capacity Market Warning ("CMW") which will serve as a 4 hour notice to CPs to make good on their CO. Should a CP fail to perform in the first settlement period after the elapse of the notice they will be required to pay a penalty on their deficit based on the VoLL minus the prevailing System Buy Price (as that term is defined in the Balancing and Settlement Code).
This penalty exposure will be subject to a portfolio-wide cap based on the product of a multiple of CONE and the de-rated capacity of the portfolio.
CPs who increase their delivery output at times of system stress, relative to their status immediately prior to the CMW, will be eligible for a payment at the penalty rate from the moment the CMW has been issued, providing at all times that the CPs are in compliance with the Grid Code and any obligations arising from the Balancing and Settlement Code and other relevant requirements. CPs who decrease their output, relative to their pre-warning status, will be penalised. This method of calculation will last until the first settlement period after the elapse of the warning.
• The capacity market will be technology neutral and all existing and new forms of capacity will be eligible to participate, except for capacity supported by Contracts for Difference, small scale Feed in Tariffs or the Renewables Obligation, and interconnected capacity.
• Demand side response (DSR) capacity will be eligible, and will be supported by transitional arrangements to develop the capability of the sector.
• Government has amended the Energy Bill so that projects that deliver permanent reductions in electricity demand (EDR) could also participate in the capacity market.
• Eligible capacity providers will offer capacity in a pre-qualification process run by the system operator.
• Pre-qualified capacity will enter competitive central pay as clear auctions also run by the system operator. There will be an initial auction four years ahead of delivery, and a further year-ahead auction
c. Secondary market:
• Between auction and delivery and in the delivery year, participants will be able to hedge their position through secondary trading.
• Capacity providers will receive payment for capacity in the delivery year.
• In return, they will be obliged to deliver energy in periods of system stress and will be financially penalised (following the publication of a capacity market warning) if they do not deliver in stress periods.
• The costs of capacity agreements will be met by suppliers based on their market share.
• Payments will flow from suppliers, via a settlement body, to providers of capacity.
• Where penalties are applied to capacity providers, the funds will flow from them, via the settlement body, to suppliers.
• The upfront costs of capacity are expected to be offset by reductions in the wholesale electricity price.
The System Operator will undertake several roles including providing advice on the level of capacity to auction, administering the auction and issuing capacity agreements.
A panel of technical experts will provide independent scrutiny of the system operator's advice on the level of capacity to auction. Ofgem will be responsible for governance of technical capacity market rules after the first auction has taken place and will continue to regulate the system operator and enforce the rules and competition law within the capacity market.
Settlement agent for the UK capacity market
The intention to designate Elexon Ltd. as the capacity market settlement agent has been also announced. Elexon will be responsible for:
- The collection and administration of market and participant data relevant to the capacity market
- Calculating and administering payments due to capacity market participants,
- Calculating and administering charges due from capacity market participants,
- Calculating and administering penalties due from capacity market participants,
- Invoicing, collection and payment of the sums owing or due,
- Calculating and enforcing credit requirements where they are due,
- Administration of the governance of the capacity market,
- Collection and administration of bid bonds.
Capacity obligations may be physically traded at any time from a year ahead of the delivery year provided sufficient notice is given to the system operator. The system operator's consent to these trades must be obtained and this will require an assessment by the system operator of the receiving party's eligibility and pre-qualification.
• Plant that was unsuccessful in the capacity market auction; and
• New plant that had commissioned early
• Capacity that had not participated in the auction or opted out but that has subsequently been verified by the system operator as providing eligible physical capacity (for instance new demand side services (DSR) or a de-mothballed plant).
The above-mentioned DECC Capacity Market Strawman brings once more crucial remark when it comes to trading environment of the new capacity market, i.e. that the capacity instruments will most likely not be a financial instrument for the purposes of the Markets in Financial Instruments Directive (2004/39/EC)("MiFID"). Accordingly such instruments would also not be within scope of European Market Infrastructure Regulation (EMIR). UK government also believes that the intended capacity instruments will not fall under the proposed MiFID II new definitions of the multilateral trading facility and the organised trading facility.
Capacity markets vs. Internal Electricity Market – will State aid weapon be used?
- Category: Capacity Markets
Capacity mechanisms attempt to ensure that electricity undertakings (often suppliers) assume the responsibility to provide or pay for generation capacity which they would not otherwise do, or at least not to the same extent, considering only their own commercial interests. According to the European Commission’s stance it is possible that such a mechanism constitutes a public service obligation and involve State aid. The above notwithstanding, UK prepares for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, if needed.
Do not miss the NC RfG notification deadlines!
- Category: Network Codes
Considering the lapsing deadlines set by the Commission Regulation (EU) 2016/631 of 14 April 2016 establishing a network code on requirements for grid connection of generators (NC RfG) it may be useful, particularly for energy market participants carrying out significant investments in or the refurbishments of the generation fleet, to take account of some NC RfG notification requirements that may occur important.
Central Dispatch Electricity System - only as a derogation
- Category: Network Codes
Is there still a room for Central Dispatch Model is the EU Internal Electricity System?
In the recent Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing, the European overseer of electricity markets - the Agency for the Cooperation of Energy Regulators (ACER) - departs from its earlier stance expressed in the Framework Guidelines on Balancing (which acknowledged the parallel existence of central dispatch and self-dispatch arrangements of European electricity markets when drafting the Network Code on Electricity Balancing) and nominates the Self-Dispatching Model to be "the primary dispatching model to be applied by TSOs for determining generation and consumption schedules".
Consequently, Central Dispatch has been allowed for Transmission System Operators only as an exemption, provided the relevant authorities' approval has been granted.
Electricity Balancing Network Code transitional arrangements - existing agreements affected
- Category: Network Codes
While negotiating any agreements with electricity transmission system operators it is necessary to take account of provisions of the draft ENTSO-E Network Code on Electricity Balancing.
It is only non-binding draft now - some may say. Never mind...
Firmness - financial hedge between bidding zones or capacity product
- Category: Network Codes
Who will pay for market spread?
ENTSO-E proposes the key rules for harmonised imbalance calculation and pricing
- Category: Network Codes
In order to give adequate incentives for Balance Responsible Parties (BRPs), the draft Code Balancing Code asserts that BRP aggravating imbalances shall not be priced less (for shortage) respectively more (for surplus) than the weighted average price for Frequency Restoration Reserve (FRR) and Replacement Reserve (RR) in the relevant area, in order to reflect the local imbalance situation.
Secondary trading platform for long term transmission rights - a new business opportunity
- Category: Network Codes
Network Code on Forward Capacity Allocation - ENTSO-E final proposal of 1 October 2013 made important business choices with respect to the role of transmission system operators in the secondary trading.
 Business resume on transmission rights - ENTSO-E final proposal of 1 October 201 | [Business Resume on transmission rights - ENTSO-E final proposal for Network Code on Forward Capacity Allocation of 1 October 2013] | 28 kB |
Bidding zones review - new regulatory risk?
- Category: Network Codes
Do the review of existing bidding zones increase the electricity generators' costs and risks?
Technology-neutral approach adopted in the NC RfG
- Category: Network Codes
The issue whether the generator is synchronously connected to the grid will be among the main criteria for differentiation of the legal status of power producers in the Internal Electricity Market.
Therefore specific requirements for non-synchronously connected Power Generating Modules (so-called Power Park Modules) are introduced.
Importance of the Network Code Requirements for Generators for the low-carbon investment strategies
- Category: Network Codes
The Draft Network Code Requirements for Grid Connection Applicable to all Generators (NC RfG) being the first EU action on addressing how generators should be equipped in the Internal Electricity Market contains 53 requirements of which 44 are of mandatory nature.
It is a regulatory issue whether the costs of meeting these requirements should be allocated to ancillary services and collected via grid tariffs or internalised in market prices for electricity.
Internal Electricity Market - balancing arrangements at the crossroads
- Category: Network Codes
The future shape of the European balancing market is not an obvious choice, since the surveys highlighted the great diversity of arrangements throughout Europe in that regard.
Although the balancing can be perceived as a technical only market, its design in many respects will influence on economic decisions in many connected areas.
Majority dictatorship among energy regulators
- Category: Energy market
I'm quite surprised by the remark of Alberto Pototschnig, the ACER’s Director, made in the foreword to Consolidated Annual Activity Report for Year 2018 of the Agency for the Cooperation of Energy Regulators (14 June 2019, p. 18).
I have never expected such words from the head of the European Agency.
What exactly was said, then? Here you have a citation:
“With the growing number of complex and contentious decisions taken by the Agency, the number of appeals has also increased. The need to defend its decisions in front of the Board of Appeal or the General Court, or to defend the rulings of the Board of Appeal in front of the General Court, put additional strain on the Agency’s resources, especially considering that the appellants typically use law firms to litigate their cases, while the Agency cannot afford such support. However, it is undisputable that the possibility of judicial or quasi-judicial review of regulatory decision is an essential part of modern and proper regulation. The issue is rather again one of resources on the Agency’s side. However, what I find regrettable is that some of these appeals have been lodged by national regulatory authorities which had participated in forming the Agency’s decision. In fact, all the decisions appealed so far were adopted following a favourable opinion of the Board of Regulators, which is based on a large (two-third) majority of its members, who represent national regulators. Therefore, while the legal right of all those affected, including national regulatory authorities, to appeal an Agency’s decision is, again, undisputable, the very governance of the Agency, with the key role of national regulatory authorities in the decision-making process, might suggest that national regulatory authorities should accept the democratic deliberation process in the Board of Regulators, even when they dissent from it, and do not seek to overturn the Agency’s decision, to which the Board of Regulators has contributed, by resorting to the judicial review”.
To make a long story short: I strongly disagree with you Mr Pototschnig in this part of your statement:
“national regulatory authorities should accept the democratic deliberation process in the Board of Regulators, even when they dissent from it, and do not seek to overturn the Agency’s decision, to which the Board of Regulators has contributed, by resorting to the judicial review”.
Why? Because decisions not only need to be made by a majority of votes cast, it would be much better if they were also reasonable and just and if they are the ACER should not be afraid of the judicial review.
And, further, since the minority should not be bullied by others.
Is there any further need to deliberate this issue? I do not think so.
Major reform of the European energy market approaches at a fast pace
- Category: Energy market
Although in April the focus is on the GDPR, the Electricity Directive also deserves some attention.
Commissioner Arias Cañete saved electric cars
- Category: Energy market
Charge point operators supplying electric vehicles with a charging service are final customers and do not require registration as Distribution System Operators (DSOs).