1. TSC Modifications Panel Meeting
Contingent Capital
TSC Modifications Panel Meeting
Jan 2017
Confidential
For discussion only

2. Key Objectives Review of questions from December meeting
Proposed changes
Vote
Option 1
Option 2
Option 3
Confidential
For discussion only

3. Why is contingent capital needed?
Accumulated Charges-Payment
Contingent Capital
Market Payments
Market Charges

4. Purpose of modification
Recognise that contingent capital will be required for smooth running of the market
Place obligation on Market Operator to seek credit facility
Clarify sources of funding for such an arrangement (level of funding to be determined as part of normal revenue control process)
RA approval required to change amount of contingent capital
Publication of any changes to all participants
Funds Available
Surplus of Charges over Payments for the billing period
Surplus of Charges over Payments as accrued from previous billing periods
Contingent Capital remaining
Define the Charges and Payments to which the Contingent Capital can apply
Remedial measures if Contingent Capital is likely to be exhausted
Right to suspend and accrue payments if Contingent Capital is exhausted
Confidential
For discussion only

5. Socialisation fund?
F The Market Operator shall determine the Socialisation Balance (CBSOCd) for a Settlement Day, d, through applying any adjustments necessary to the Initial Socialisation Balance calculated in accordance with paragraph F , including:
(a) adding the amount of any Termination Charge recovered under section J.7.1 of the Capacity Market Code (and, in the event of a failure by a Participant to pay a Termination Charge invoiced under that section, any amount recovered by the System Operators as a result of a call or demand on the Participant’s Performance Security under that section) and paid to the Market Operator; and
(b) to the extent the Market Operator considers appropriate, adding any accumulated over-recovery by the Market Operator in respect of another charge under this Code that is calculated by reference to a parameter or price set by the Regulatory Authorities on the basis of expected costs.

6. Factors to be considered
Extent to which contingent capital is already drawn
e.g. if DBC running above or below budget
Ability to fill the hole in the hedge
Scarcity event – price exposure is 2,500€/MWh
500€/MWhr strike price
3,000 €/MWhr scarcity price
400 MW unit un-available for 8 hours = 8m€

7. Running Order – prescriptive?
Imperfections charge
Contingent Capital Requirement
Reduce payments
Market rules, bidding code of practice
Suspend and accrue
only after Contingent Capital is exhausted

8. Transparency DBC is the main driver of contingent capital draw down
TSO’s monitor DBC continuously
Standing agenda item for fortnightly meeting with RA’s
Can include trend alert
Decision required to send out Market Message
High frequency public reports
Illustrate impact of individual participant's bidding behaviour
Short term fluctuations may be misleading
Early warning to the RA’s may trigger notification to industry

9. Forecasting Accuracy Difficult to forecast – wide error bars
Tariff setting on the worst case scenario?
Tariff’s are subject to regulatory approval
Contingent capital ~ insurance
Insurance has a cap
Tariff
Contingent Capital
TSC
Tariff
Contingent Capital
TSC

10. End

11. Change in key assumptions – SEM v I-SEM
Category
Change in I-SEM
Impact
Capacity
Capacity auction process in I-SEM compared to a “pot” set at the beginning of a year in SEM
Capacity is self funded (pass through) on a monthly basis in SEM compared to a Tariff mechanism in I-SEM
Monthly payments ≠ receipts in I-SEM
Seasonal impact in Year 1 as Go Live is May-18 which is coming into the trough summer months. Payments made on a straight line basis but receipts recovered on a demand profile basis. Likely to result in a cumulative deficit build up during the summer months which should unwind during the winter months. This is a Year 1 funding risk only as the tariff year normally starts in Oct which is coming into peak winter months.
Constraints & Residual Error (REVLF)
Change in market rules
Not required to bid on SRMC basis
Participant will be paid the higher of bid price or market price for Constraints
REVLF moving from pass through to tariff mechanism in I-SEM
Market Interconnector Ramp rate ≠ Physical
Expected increase in volatility in imbalance price due to change in bidding rules
Market risk
Intrinsic risk associated with the introduction of a new market
Extremely difficult to quantify. Risks include:
Market behaviour
Design risk Remedy period
Confidential
For discussion only

12. Estimate of how much is needed