Electricity Balancing Framework Guidelines ACER Workshop Ljubljana, 24 October 2011

ACER Regulation (EC) No 713/2009 establishes an Agency for the Cooperation of Energy Regulators (ACER) A community body with legal personality Purpose: “[…] to assist the regulatory authorities […] in exercising at Community level the regulatory tasks [...] and to coordinate their actions” Fully operational since March 2011

ENTSO-E Regulation (EC) No 714/2009 establishes the European Network of Transmission System Operators for Electricity (ENTSO-E) “All transmission system operators shall cooperate at Community level through the ENTSO for Electricity, in order to promote the completion and functioning of the internal market in electricity and cross-border trade and to ensure the optimal management, coordinated operation and sound technical evolution of the European electricity transmission network.” (Article 4)

Framework Guideline The Commission shall request ACER to develop a non-binding framework guideline Framework guideline to set out clear and objective principles for the development of network codes Each framework guideline shall contribute to non-discrimination effective competition efficient functioning of the market After the Commission’s request, ACER has 6 months to prepare the framework guideline. The EC may extend that period upon a reasoned request from ACER.

Network codes The Commission shall request the ENTSO-E to submit a network code (which is in line with the relevant framework guideline) to ACER within12 months The network codes shall be developed for cross-border network issues and market integration issues, and shall be without prejudice to the Member States’ right to establish national network codes which do not affect cross-border trade The network codes are made legally binding through the comitology process

Basic timeline COMITOLOGY 6 Months 12 Months 3 Months Agency prepares Framework Guidelines ENTSO prepares network codes Agency reviews network codes EC requests Agency to submit framework guidelines EC requests ENTSO to submit network code ENTSO submits network code to Agency Agency submits network code to EC when satisfied, recommending approval via Comitology EC defines priorities for network codes

Process description Framework Guidelines (FG) − ACER Invitation from the Commission to draft FG Public consultation Adoption of the FG / Submission to the Commission (6 months) Network Codes (NC) − ENTSO-E Commission request ENTSO-E prepare the NC in line with the FG (12 months) ACER reasoned opinion on NC (3 months)

State of play ACER deliverables on FG (2011 Work Programme) Electricity Grid Connection (finished) Capacity Allocation and Congestion Management (finished) System Operation (on-going) Balancing (to be delivered in mid 2012)

Areas for network codes Network security and reliability rules Network connection rules Third-party access rules Data exchange and settlement rules Interoperability rules Operational procedures in emergency Capacity allocation and congestion management rules Rules for trading Transparency rules Balancing rules Rules regarding harmonised transmission tariff structures, ITC Energy efficiency regarding electricity networks Grid connection

Project timeline April 2011: launch of the balancing framework guideline project – setting up ACER drafting team (NRAs) July / August 2011: publication of an open letter and creation of the expert group 24 October 2011: public workshop to get feedback from stakeholders December / January 2012: finalisation of the draft IIA and FG and approval procedures within ACER February – March 2012: public consultation on draft IIA and FG June 2012: final IA and FG and approval procedures within ACER

Process Sept 2011 - January 2012 February 2012 - June 2012 Identification of problems Expert Group Identification of objectives Identification / assessment of policy options Sept 2011 - January 2012 Workshop to get a first feedback from stakeholders Selection of options Draft Framework Guideline February 2012 - June 2012 Public consultation Finalisation of the FG

Role of the Ad-Hoc Expert Group The Impact Assessment procedure envisages the possibility to use ad hoc expert groups The goal of the group is to provide expert support to ACER on developing input for Framework Guidelines Experts are invited ad personam, not representing companies, but providing their expertise The expert group operates in accordance with the Chatham House rules, but also takes into account the need for a high level of transparency (minutes in a summary form to be publicly available)

Academics / consultants Ad-Hoc Expert Group Industry Javier Alonso Perez Christopher Proudfoot Nigel T.Hawkins Susane Dornick William Chan (consumer side) TSOs José Ignacio de la Fuente Yves Harmand Emeline Spire Lasse Sundahl Academics / consultants Goran Strbac Gerard Doorman Rudi Hakvoort Christian Hewicker

Rationale for the drafting of the FG Very few XB exchanges currently in place A significant amount of remaining capacities Highly concentrated markets More potential to exercise market power Increased and increasing share of intermittent RES (wind) Increasing integration of DA and ID markets Low participation of demand response Aim of the FG Provide an adequate framework to foster an effective balancing markets’ integration

Your opinion on these objectives? Policy objectives Guarantee / enhance short-term operational security Does the proposed option make short-term operational security lower, equal or higher than it currently is? Does the proposed option improve market signals for investments and security of supply? Competition and economic efficiency Does the proposed option improve competition? Are the overall balancing costs reduced? To take into account potential side-effects on the market, the overall social welfare should be considered. Integration of variable generation Does the proposed option facilitate integration of variable generation and encourage renewable BRPs to be in balance? Does the proposed option limit or increase entry barriers for variable generation? Your opinion on these objectives?

Evaluation criteria Key criteria: Effectiveness (achieve the objectives) Time of implementation (pragmatically feasible, when?) Efficiency (least cost and highest benefit) Coherency (trade-offs across the economic, social and environmental domain) Sustainability (adaptability in case of major external changes) Criteria Option 1 Option 2 Effectiveness Security of supply   Competition and economic Renewables Time of implementation Efficiency Coherency Sustainability

Scope: topics and options 1. No EU action No requirement to enable cross-border exchanges between control areas 2. No exchanges of reserves No transmission capacity reservation and no exchange of reserves Balancing reserves 3. Intermediate step Harmonisation of minimum-required balancing variables allowing X-border exchanges of balancing energy (GCT, technical characteristics, etc.) 4. Full integration Common provision of automatic reserves 1. No EU action 2. TSO-BSP model Balancing energy 3. TSO-TSO without CMO model 4. TSO-TSO with CMO 1. No requirements Balancing responsibility & imbalance settlement 2. Minimum harmonisation 3. High harmonisation

Input to the discussion It is widely considered that one of the main challenges of introducing an EU-wide cross border balancing mechanism is the wide variety of existing arrangements adopted at national level. Shall the Balancing FG define a common target model, as it is done for CACM? Are interim solutions acceptable, allowing for a step-by-step approach? Should the Balancing FG describe the roles and responsibilities of BRPs? What level of harmonization is required to allow for an efficient exchange of balancing resources to be introduced?

Input to the discussion Existing balancing rules often assume that only generation sources can provide balancing energy and capacity. Demand response is essential to achieve higher energy efficiency. How to achieve higher participation of demand response in electricity balancing? The target model should enable participation of demand in the balancing market on equal grounds. The minimum standards for participating in the balancing market should not hamper participation of demand response. 

Balancing energy – Target model Should the FG define the EU target model? What should be the final target model? 1. TSO-TSO model without Common Merit Order list Implementation deadline? 2. TSO-TSO model with Common Merit Order list Transitional arrangements (TSO-TSO w/o CMO)? How to ensure cross-regional harmonization?

Market & Settlement Should the FG define the EU target model for how the TSO “sell” balancing energy? How should the final target model look like: No requirements? Minimum harmonisation? High / full harmonisation?

Balancing energy – harmonization issues Transitional Target Model Final Target Model Gate-closure times Essential vs desired? Market time-unit (1h vs. 15min) Imbalance pricing and settlement Balance responsibility Merging balancing and redispatching markets Mandatory participation Netting of Area Control Error (ACE)

Input to the discussion In the case of cross border exchange of reserves, transmission capacity may need to be reserved. Recent ENTSO-E’s position paper advises to leave the possibility to reserve interconnection capacity open in case an increase of social welfare is demonstrated. Should the FG foresee the possibility to reserve interconnection capacity (subtracting it from day ahead or intraday allocations)? Is it feasible to produce reliable cost/benefit analysis to demonstrate the gain of social welfare? With balancing being linked to system security, how will TSOs guarantee that these reserved transmission capacities will be fully firm?  

Input to the discussion There are currently different products are used to balance the system, some systems rely mainly on secondary regulation (automatically activated reserve), while others mainly on tertiary (manually activated reserves). Should the scope of this FG cover exchanges of balancing energy only or reserves (e.g. primary, secondary, tertiary) as well?

Balancing reserve – harmonization issues Transitional Target Model Final Target Model Possibility for reservation of XB capacities Essential vs desired? Reserve products (within FG SO) Common reserve dimensioning and requirements Common procurement Procurement time-frames Others?

Input to the discussion Reserve capacity is procured by European TSOs in many different ways: on the basis of long term contracts (up to 3 years) or a few hours before real time on the basis of bids and offers submitted by the BSPs. Are the different procurement timeframes constituting an obstacle for the integration process? Can they distort the market operation once the resources are exchanged cross border?

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