REPORTS RELATING TO THE BALANCING REGIME

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1 REPORTS RELATING TO THE BALANCING REGIME Version June 2011

2 CONTENTS CHAPTER 0: Aim of the report... 3 CHAPTER 1: Incentive component report... 4 Version June 2011

3 CHAPTER 0: AIM AND STATUS OF THE REPORT Where the balancing regime is described in the Network Code, a number of articles refer to reports that must be published by GTS on its website. The reports to be published by GTS in this context will be published on GTS's website in this document Reports relating to the balancing regime. The status changes of the document will be set out in the table below. Date of publication Version Change Incentive component report Version June 2011

4 CHAPTER 1: INCENTIVE COMPONENT REPORT Introduction Pursuant to article of the Transportvoorwaarden Gas LNB (Network Code), the imbalance price is determined by raising or lowering the marginal bid price by the amount of the incentive component where the system balance signal shows a shortfall or surplus. The current value of the incentive component is published by GTS on its website. At the time the balancing regime as detailed in the Transportvoorwaarden Gas LNB came into force the incentive component was 0/MWh. A change in the value of the incentive component is published by GTS on its website the day prior to the date this change becomes effective. The incentive component will come into effect if the limit(s) of the indicator(s) published by GTS on its website is (are) exceeded. Pursuant to article b of the Transportvoorwaarden Gas LNB, GTS will provide a report giving a justified choice for (a) change in indicator(s) and the related limits that will lead to use of the incentive component. On the basis of the report below, GTS can implement the incentive component on 1 August Analysis The incentive component increases the commercial drive for keeping the system in balance. The aim is to maintain the quality of balance at the level it was prior to the introduction of the new balancing regime. When choosing the indicators, on the basis of which the incentive component can be changed, it is important that there is a causal relation between indicator and commercial drivers. Aim of the incentive component is to encourage parties to make their own contribution towards keeping the network in balance instead of relying on the centrally organised bid price ladder (BPL). Other causes such as technical defects must be excluded as far as possible as reasons for activating or raising the incentive component. At the moment there is limited insight into both the supply on and use of the BPL. That's why in the Network Code the procedure is laid down on the basis of which the indicator and the criterion for its implementation are specified and not the indicator itself. The Network Code sets out that GTS shall publish a report on its website with the choice of indicator and the criterion for its implementation. This report must be published one month (from 1 April 2013 onwards 3 months) prior to the first hour at which the new indicators will be applied. This report contains a number of alternatives for achieving the aim of the incentive component, as well as an analysis of the advantages and disadvantages of the alternatives and a conclusion regarding the choice of indicator and the criterion that leads to a change in the incentive component. The analysis below is made for the initial indicators and implementation criterion. Alternatives The overarching goal in electricity was maintaining the quality of balance in the previous regime. The indicators for changing the incentive component are based on the level of random exchanges of power with other countries. The electricity sector chose as a first indicator the frequency at which a certain level of power exchange is exceeded and as a second indicator the amount of energy exchanged within a certain period. Version June 2011

5 Under the previous balancing regime in gas no indicator exists for the level and frequency of maintaining balance. A far more suitable indicator is the frequency and magnitude of emergency measures. However, over the last few years, emergency measures have not been applied at system level. A potential 'emergency measures' indicator limit for changing the incentive component could be found in the number of times that a call for an emergency measure occurs in a specified period. It is also not possible to directly determine the second indicator used by the electricity sector, the volume that is used for maintaining the balance in a specific period. Instead a derived indicator would have to be used such as the volume outside the tolerance limits or daily margins, charged to shippers in a specific period. The criterion for changing the incentive component would then be how much this volume has been exceeded in a given period. Instead of indicators from the electricity sector an independent indicator for gas can be developed. An important consideration in such a development is that balancing actions should be initiated by acknowledged programme responsible parties (PRPs) themselves within the buffer limits of the network. Purpose of the BPL is to take care of residual balancing by the TSO, in other words: GTS's balancing activities caused by the fact that the PRPs actions are not sufficient to keep the network in balance. The duration of the BPL qualifies as an indicator. This indicator gives the relationship between the use of the BPL and the capacity of gas offered on the BPL. Here the duration is defined as the quotient of volume traded on one day and the minimum quantity of available capacity on the BPL in any hour, where the capacity is equivalent to the total of the volume available in that hour. Assessment of the alternative indicators The 'frequency of emergency measures' indicator is objectifiable and unambiguous. The disadvantage of the indicator is that it is difficult to establish in advance whether the criterion of the indicator is exceeded as a result of commercial drivers or whether other causes play a part. It is possible that, after gaining experience with the new balancing regime, we will be able to make such a distinction so that this disadvantage is no longer a valid argument. The second disadvantage is that emergency measures will result in a lower price for gas (weighted average of the BPL prices instead of the marginal price). This means that there is already a commercial incentive for avoiding emergency measures. Choosing the 'emergency measure' as an indicator would then give rise to a double commercial incentive. Hence this indicator was disqualified, at least for the start of the balancing regime. The 'volume required for maintaining balance ' indicator is objectifiable and unambiguous. However, the criterion on which the indicator would be based has little to do with the circumstances of the new balancing regime. The second disadvantage is that exceeding a certain volume can be precisely the sign of a well functioning BPL. Volume for maintaining balance is in isolation not a reason for raising the prices of the commodity on the BPL by the amount of the incentive component. Hence the decision was taken also to abandon this indicator. The 'duration' indicator is objectifiable and unambiguous. The 'duration' indicator combines indicators for volume and capacity. A high value for 'duration' means that too much volume is being used in relation to the available capacity. This means that the market is using the BPL too much instead of her own means. The 'duration' of the BPL has been chosen as an indicator for the incentive component. Assessment of the frequency The aim of the incentive component is to give a commercial drive if the BPL is not functioning sufficiently well. A certain degree of predictability is desirable for market parties so that they can anticipate future circumstances. Due to the seasonal nature of the gas industry, a longer period than a week does not make much sense because the incentive is then given under circumstances that were not the reason for giving the incentive. Based on the above we have come to the conclusion that a period of one week is the best choice. Version June 2011

6 Assessment of 'duration' criterion The small consumers' market is a significant cause of short-term imbalance. The profile of the small consumers' market is characterised by a duration of approximately 8 hours for production. That means that the volume above the daily average level can be delivered in 8 hours by the peak hourly capacity (peak level minus daily average level). That's why, in order to provide an incentive to take care of delivery of the profile outside the BPL, a duration of between 0 and 8 hours is desirable for the criterion. A period of 4 hours has been chosen initially, as being the value between these two extremes, as a limit above which the incentive component should be implemented. Conclusion Like electricity, the frequency of emergency measures and the volume that is traded via the BPL can be used as indicators of the quality of the system. The disadvantages associated with both these indicators however are too great. That's why the duration of the BPL has been chosen as the indicator for the start of the new balancing regime. This indicator will stimulate balancing by market parties prior to the BPL process. The criterion for implementing the incentive component will be: when a duration of 4 hours is exceeded with a frequency of once or more per week. Operational implementation One incentive component In practice a distinction can be made between the part of the BPL that resolves a short position and the part that resolves a long position. The same distinction could be introduced for the incentive component. However article a of the Transportvoorwaarden Gas LNB only recognises one incentive component. Therefore the choice has been made to increase the incentive component if either a duration of four hours for the short position is exceeded or a duration of 4 hours for the long position is exceeded. In the calculation of the duration all available means on the BPL are used irrespective of the reaction time between request for delivery and first gas flow. Changes in the incentive component In accordance with article of the Transportvoorwaarden Gas LNB every Wednesday an increase or a decrease of the change in value of the incentive component will be published on the website of GTS. In addition the operation contact as known to GTS will receive an with this change in value of the incentive component. The actual value of the incentive component is also shown in GasPort and through BtoB. Transparancy The data, capacities and daily volumes used, to determine the durations for the short and long positions of the incentive component will be available on the GTS website for a rolling three month period. Network Code references The conditions of the incentive component are laid down in the articles , a en b en of the Transportvoorwaarden Gas LNB. Version June 2011

CREDIT LIMITS METHODOLOGY

CREDIT LIMITS METHODOLOGY PREPARED BY: Electricity Metering & Settlements DOCUMENT NO: N/A VERSION NO: 10 PREPARED FOR: National Electricity Market FINAL Disclaimer (a) Purpose This document has been prepared