Evaluation of Proposals for New Rules for Energy Storage Gaelectric Energy Storage T&SC Modification Working Group 23 rd October 2012

Our Objectives Long-term: a method for registering storage technologies in the SEM that allows them to recover their short-run costs and compete equitably within the market schedule Today: – Shortlisting possible mechanisms, all requiring evolution of the SEM T&SC – Evaluating them against the TOR criteria – Ideally identifying one for initial review by ABB

Review of Last Workshop Reviewed existing options within the context of the SEM HLD: Recovery of short run costs, and a design that insofar as possible Minimises cost of constraints Minimises cost of production in dispatch Allows for transparent BCOP compliance Market revenues independent of SO dispatch From the last workshop, other high-level points were noteworthy Minimisation impact on market systems; unnecessary proliferation of rules Storage in T&SC should be more than separable fuel production and a generator Several options could challenge the principles of central commitment Should not discriminate relative to existing pumped storage rules Agreed that existing structures needed change, to proceed with the development of further options

The Options “Full Price Making Storage” – an evolution of existing pumped storage rules with submitted prices and constraint payments “Availability Feasible Storage Unit” – akin to a stand-alone interconnector unit only in that it locks down availabilities using changing half-hourly commercial offers throughout EA1, EA2 and WD1 for inclusion in ex post runs as Predictable Price Maker (settlement rules would be different) “Linked Energy Limited Generator” – operation of a Predictable Price Taker Negative Generator informs Energy Limit of separate Generator possible throughout the day

The Criteria Offering & Scheduling – Commercial Offer data – Technical Offer Data – Other data provision & sharing Energy Settlement Calculation of Eligible Availability Calculation of Capacity Payments – When in generation mode – When in pumping mode Calculation of Constraint Payments and Charges Calculation of Uninstructed Imbalance Payments and Charges Credit & Settlement Inclusion in the MSP software and uplift Treatment of Energy Storage Units when under test

Assumptions about All Three Options All revenues are not dependent on system operator dispatch, or nominated offer from storage operator If we discuss an energy limit, it is a market-based energy limit In the Indicative and Initial Pricing: – Price Making Storage: Energy Target at end of Optimisation Time Horizon – Availability Feasible Storage Unit: Energy based on the flows arising from MSQ scheduling – Linked Energy Limited Generator: Energy based on the flows arising from MSQ scheduling of the two different units

More Detail: Full Price Making Storage “Full Price Making Storage” As pumped storage, but – Price quantity pairs submitted for the trading day, across the full range of pumping and generation, including no load Consideration of start-up – Storage scheduling also takes into account cost to generate – Dispatch signals sent to market, constraint payments, make whole payments, uninstructed imbalances, etc. – Consideration of offer price for capacity payment Capacity payment otherwise handled equivalently, which is energy limited availability to generate, less demand MSQ (see next slide)

Capacity Payment for Storage We propose that for any option considered, that this eligible availability calculation (or its financial equivalent) is utilised Availability Time (one Trading Day) Gen Pump MSQ Eligible Generator Availability Eligible Availability (earns CPM)

More Detail: Availability Feasible Storage Unit “Availability Feasible Storage Unit” – Shares some characteristics with individual Interconnector Unit, but sufficiently different not to take the IU as starting point Traded by – Price quantity pairs (negative for storage) submitted half-hourly, no load, and with technical offer data Note that start-up costs again may be an undue complication here – Adjusted by participant for EA1, EA2, WD under BCOP to secure storage and generation availability Secured storage becomes demand availability in Schedule (see later for eligible availabilty) Secured generation becomes generator availability in Schedule (see later for eligible availabilty) Will need to limit secured availability with some proxy for energy limit (see next slide) – Market schedules availabilities as per normal – Submitted meter data, dispatch quantities, with constraint payments, make whole payments – Capacity payments against technical availabilities, and not secured availability, subject to energy limit As per pumped storage

More Detail: Why Secure Availability? Why secure availability at all? – Mechanism to ensure the plants energy limits are obeyed – Otherwise, plant could be scheduled to generate all day long “Availability Feasible Storage Unit” energy limit can be obeyed as: – an adjustment to the secured availability outputs of EA1, EA2 and WD – within the MSP scheduler itself This moves this option towards “Full Price Maker Storage” anyway, rendering the need to secure availability moot Offers would move with anticipation of demand pricing Participant would be managing the availability of the machine throughout the day based on accuracy of those offers, may be overly restrictive

More Detail: Linked Energy Limited Generator “Linked Energy Limited Generator” Traded by – Nominated quantity of negative Predictable Price Taker Generator Unit sets storage throughout the day. Still subject to central dispatch as opposed to autonomous unit, but overall yielding a lower risk of having revenues dependent on system operator dispatch Constraint payments for negative Predictable Price Taker Generator Unit – Energy limit of energy limited generator unit must be consistent with submitted profile in offer and limitations of storage Energy limit updated if System Operator moves schedule of Predictable Price Taker Generator Unit Would need BCOP understanding on adjustment of COD from EA1 through WD – Capacity payments for energy limited generator as per normal Predictable Price Taker generator unit would pay for scheduled MSQ – Metered generation, dispatch quantities, submitted separately

Evaluate Scheduling Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator Scheduled storage By MSP software in all runs Availability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility By nominated quantity No participant controlParticipant influence on availability High participant influence on schedule Scheduled generation By MSP software in all runs Availability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility By MSP software in all runs, but our nomination becomes MSQ for demand, informing market energy limit No participant controlParticipant influence on availability Participant control on Energy Limit only

Evaluate EA and Capacity Payment Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator Storage eligible availability As for pumped storageBased on schedule MSQ Generation eligible availability As for pumped storageBased on technical availability, limited by ex- post energy limit Note: market based energy limit

Evaluate COD and TOD Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator COD As for pumped storage, with addition with PQ pairs, no load, start up Positive and negative PQ pairs, no load Nominated quantity for Negative Predictable Price Taker and COD if dispatched off schedule Standard Energy Limited Generator with Limit referenced to Nominated Quantities Easy BCOP, start up needs consideration More difficult BCOP, start up needs consideration More difficult BCOP TOD As for pumped storageRepresentative of the generator capabilities

Evaluate Constraint Payments and Charges Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator Constraint payment As per normal As per normal, noting negative Generator Treatment of start up costs needs consideration, depending on COD Imperfections Charges Not relevant

Evaluate Uninstructed Imbalances and Charges Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator Uninstructed imbalances As per Predictable Price Taker Generator rules As per normal Care required around offer price for demand Separate for each unit Imperfections Charges Not relevant

Evaluate Pricing and Uplift Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator Pricing Need review of MSP capabilities As per Predictable Price Maker Generator Unit Separate for each unit Uplift As per normalAs per normal, if start up can be defined As per normal But dependent on the structure of the offer Treatment of start up costs

Evaluate Credit Cover, Settlement, Under Test Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator Credit Cover As per pumped storageAs per Interconnector Unit Credit cover managed with settlement reallocations Separate for each unit, not proposed to amalgamate Settlement No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated Under Test As per pumped storageAs per interconnector unit As per individual units

Combined Evaluation (Gaelectric Initial View) Full Price Maker Storage Availability Feasible Storage Unit Linked Energy Limited Generator Competition& Implementation Scheduled storage By MSP software in all runsAvailability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility By nominated quantity Scheduled generation By MSP software in all runsAvailability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility By MSP software in all runs, but our nomination becomes MSQ for demand, informing market energy limit Storage E. availability As for pumped storageBased on schedule MSQ Generation E. availability As for pumped storageBased on technical availability, limited by ex-post energy limit (TBD) Implementation COD As for pumped storage, with addition with PQ pairs, no load, start up Positive and negative PQ pairs, no load, examination of start up costs Nominated quantity for Negative Predictable Price Taker and COD if dispatched off schedule Standard Energy Limited Generator with Limit referenced to Nominated Quantities TOD As for pumped storageRepresentative of the generator capabilities, without energy limit Representative of the generator capabilities, Constraint payment As per normal As per normal, noting negative Generator Uninstructed imbalances As per Predictable Price Taker Generator rules As per normal Pricing Need review of MSP capabilitiesAs per Predictable Price Maker Generator Unit As per Predictable Price Maker Generator Unit and Uplift As per normalAs per normal, if start up can be definedAs per normal Credit Cover As per pumped storageAs per Interconnector UnitCredit cover managed with settlement reallocations Settlement No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated Under Test As per pumped storageAs per interconnector unitAs per individual units

The Availability Feasible Storage Unit and the Linked Energy Limited Generator both allow the Participant to have a degree of influence over the MSQ or Availability feeding into the MSQ software The Linked Energy Limited Generator is likely the simplest implementation The Full Price Maker Storage option has the largest uncertainty around the pricing, but otherwise fits best with the SEM High Level Design The Availability Feasible Storage Unit is also a relatively complex implementation, but best fits with potential future market design Combined Evaluation (Gaelectric Initial View)

Gaelectric proposes to support development of full Price Maker Storage Proposal Forward to ABB for Effort to Assess costings and timelines Gaelectric Proposal

What is the absolutely simplest scenario whereby storage with material SRMC can recover its costs? Costs are SMP for storing Costs are material SRMC for running Let the market run, with storage efficiency > 1, equal to the energy-in, energy-out capability of the machine Storage submits an offer (start up, no-load, PQ pairs) What algebraic mechanism can be used to ensure storage covers its costs and earns appropriate inframarginal rent? If the MSP Software Says No

Any storage which produces more energy than it consumes due to the addition of a further fuel, will always be scheduled in the market The Constraint Payment Storage MSQ Time (one Trading Day) SMP = €20/MWh Gen Pump 1MWh 1.3 MWh Revenue = -€20 + €36 = €16; Market will schedule plant with flat SMP

As the MSP software assumes the SRMC is zero, more IR will be earned than if we can explicitly include it in the schedule Take the three scenarios that can occur in a Trading Period Dispatched but not in schedule Dispatched and in schedule Not dispatched but in schedule If the MSP Software Says No

As per all plant, it should recover its SRMC for periods where dispatch was greater than MSQ Pays nothing for demand Receives generation price Dispatched, but not in Schedule

As per all plant, it should earn the SMP and recover its costs Pays SMP for storage Receives SMP for generation Complication 1: Not guaranteed to recover its SRMC So you either: Work out if it did over all periods of simultaneous DQ and MSQ in the Trading Day, and top-up as necessary (an altered make-whole mechanism) Make a SRMC payment to the generator for it to recover its costs no matter what the recovery of its SRMC (probably too generous) Dispatched, and in Schedule

Given: “As the MSP software assumes the SRMC is zero, more IR will be earned than if we can explicitly include it in the schedule” It seems reasonable to look at periods of simultaneous DQ and MSQ over a trading day, and work with the limited make whole mechanism where SRMC have not been recovered. Make Whole or Paid Costs no Matter What

As per all plant, it should pay back its offer Complication 2: When paying back the offer, there is no guarantee that inframarginal rent earned will cover the SRMC, as it was not included in the scheduler’s consideration So you may have to limit the returned payment during the period where there was greater MSQ than dispatch, to recover costs. Not dispatched, and in Schedule

Split the settlement of the plant into periods in the day where: There is dispatch greater than MSQ – pay the offer to the plant There is market schedule greater than dispatch – pay back the offer, subject to sufficient SMP being earned during that period There is matched market schedule and dispatch across the trading day For matched quantities, determine if a make whole payment, calculated over the Trading Day is necessary What‘s the Proposal Then?