Marcel Cailliau, GDF Suez (Electrabel)

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1 International workshop on Exchange of balancing services - Market design and modeling Date: 28 October 2010, Schiphol NECESSARY STEPS TO ACHIEVE INTEGRATION OF BALANCING MARKETS, CASE STUDY BELGIUM/NETHERLANDS Marcel Cailliau, GDF Suez (Electrabel) Based on Eurelectric and FEBEG work 1

2 OVERVIEW Eurelectric view Implementation Belgium/Netherlands (FEBEG) 2

3 PRINCIPLES OF INTEGRATING RESERVE AND BALANCING MARKETS As proposed by Eurelectric (available on under position papers, market) TSO to TSO integration (reduces complexity for market players compared with a TSO-XB Balancing Supplier model) No Cross border capacity reserved for Reserves and Balancing Market to optimise in a first step TSO improve in the balancing phase in a second step If Cross border capacity available in a certain direction: TSOs share Reserve Capacity : reduce of system costs TSOs net Energy Imbalances : reduce of energy needs and balancing risks TSOs combine balancing merit orders : market integration leading to reduced balancing risks 3

4 TSO SHARE RESERVE CAPACITY Market A largest unit: 500 MW Market B largest unit: 1000 MW Market C largest unit: 1500 MW Without sharing: 3000 MW contracted Market A largest unit: 500 MW Market B largest unit: 1000 MW Market C largest unit: 1500 MW With sharing : 1500 MW contracted Market A largest unit: 500 MW Market B largest unit: 1000 MW Market C largest unit: 1500 MW If congested between A and B: 2000 MW contracted 4

5 TSO NET ENERGY IMBALANCE Market A: 100 MWh short Market B: 30 MWh long Without netting: Total imbalance needs 130 MWh Market A: 100 MWh short Market B: 30 MWh long With netting: TSO A sells 30 MW to TSO B Total Imbalance needs 70 MWh 5

6 TSO COMBINE MERIT ORDERS Market A: 80 MW short Market B: 100 MW short Market C 60 MW short /MW marginal price Case of no congestion: 1 price in 3 areas A C B A B C B B A B marginal price Case of congestion: 1 price in 3 areas TSO A TSO C TSO B

7 KEY FEATURES Market parties responsible for own balance s bear the price risk of balancing TSO is only central counterpart and doesn t influence price setting nor positions of s TSO cannot be responsible for any imbalance position TSO responsible for system security TSO only needs a technical hedge: capacity reserves TSO is only interested in the technical specification of reserves the amount of reserves should be based on transparent and regulated technical rules the price of reserves is a system risk covered by the use of system tariff and should not be of concern to the TSO 7

8 FOUR STEP APPROACH During Intraday up to hour H-1 During hour H Day Ahead Gate Closure H-1 TSO TSO Settlement TSO contracts Reserves Day Ahead & Intraday Market Balancing Market Details step 1-3 in annex = Market Participants 8

9 SETTLEMENT OVERVIEW Step 4 System Long Short B Long BRP receives BAL BRP receives BAL R P Short BRP pays BAL BRP pays BAL BAL : Marginal Market Price for downward regulation BAL : Marginal Market Price for upward regulation BRP = Balancing Responsible Party

10 OVERVIEW Eurelectric view Implementation Belgium/Netherlands (FEBEG) 10

11 CURRENT BELGIAN SECUNDARY RESERVE PROCUREMENT Ministrial Decision ( ) imposes conditions for R2: Supplier dependent (for capacity and when to supply, thus discriminatory) Tariffs not covering the costs; Methodology is not transparent and leads to regulatory insecurity and frustration for the market participants: methodology for awarding R2 is not market based and therefore does not lead to the lowest cost nor to the lowest environmental impact for the society no level playing field with countries where a market based mechanism for delivery of R2 exists (for example NL, GE,...) Methodology discourages new investments in flexible units by new entrants as well as existing generators (vicious circle) 11

12 PROPOSAL TO IROVE (FEBEG) Stepwise approach Step A: how to improve first the existing situation in Belgium Step B: Merge the balancing market NL+BE 12

13 STEP A: RESERVE PROCUREMENT INCREASE NUMBER OF PARTICIPANTS BY REDUCING COMMITMENT PERIOD AND VOLUME REQUIREMENTS Long term (year ahead) capacity commitment: yearly public tender (1/2 of the needs) monthly product, differentiated in peak, off-peak and weekend delivery capacity price: price as bid energy bid to be determined day ahead/intraday Mid term (month ahead) capacity commitment: monthly public tender (1/2 of the needs) monthly product, differentiated in peak, off-peak and weekend delivery capacity price: price as bid energy bid to be determined day ahead/intraday Short term (day ahead/intraday): energy bid obligatory activation bids of contracted capacity commitments + additional voluntary bids quarter hourly products: continuous platform between TSO and potential R2 providers bids: one is free to set the price for ones energy bids (including the obligatory activation bids) initial bids after Belpex results (until 2.45 p.m.) bids are firm: change possible until h-1 energy price: marginal pricing Split up between up and down regulation Reduce minimum bidding lots 13

14 Attracting more players by shortening the commitment periods Complement of offers on a daily basis from players A, B, F and H with hourly commitments ( obligatory ) 50% of the needs 50% of the needs E D C B A G F H J I M L K C B A D Monthly upfront commitments from players A to M, via tendering Yearly upfront commitments from players A, B, C D on monthly basis, via tendering month 14

15 STEP A: IMBALANCE SETTLEMENT EVALUATION CURRENT SETTLEMENT RULES Illustration pricing issues NL (marginal pricing): imbalance price versus D-1 APX shows reasonable spreads BE (weighted average price with Belpex caps and floors): imbalance long price versus D-1 Belpex shows a bigger spread compared to short price NL Imbalance Prices (yearly average) 77,04 70,14 67,83 41,22 43,03 41,81 38,2 39,18 38, APX short long BE Imbalance prices (yearly average) 78,04 70,62 48,74 44,25 41,7 43,29 39,35 22,08 19, Belpex short long 15

16 STEP A: IMBALANCE SETTLEMENT THE CURRENT BE SYSTEM CREATES PENALTIES EVEN WHEN ONE HELPS THE SYSTEM 16

17 STEP B: INTEGRATION BELGIUM / NETHERLANDS In the day ahead, during 80 % of the time, there is no congestion between Belgium and the Netherlands (experience since TLC) Pilot NL-B as a first step within CWE balancing and R2 integration based on the Eurelectric proposal Goal: TSO-TSO-model with common merit order Harmonisation design and definitions: bidding rules, gate closures, settlement rules,... Option: gradual impiementation via cross border R3 17

electricity TSOs Source: BNE (Bundesverband

18 Is further integration possible? N-1 = 600 MW N-1 = 1000 MW N-1 = 1000 MW N-1 = 1500 MW 18 GERMANY : Regulator imposes cooperation in balancing among the 4 electricity TSOs Source: BNE (Bundesverband Neuer Energieanbieter), BNA (Bundesnetzagentur), 05/03/2010 & 16/03/2010 (FVV)

20 ANNEX Detailed description of the 4 step approach 20

21 STEP 1: CONTRACTING OF RESERVES Day Ahead, before Day-Ahead market Obligation for Market Participants to offer all prequalified capacity TSO buys only Reserve Capacity Costs to be socialised in UoS tariff Responsibilities and Risk TSO responsible for contracting right amount TSO doesn t bear the price risk, only the technical risk TSO 21

22 DAILY CAPACITY BIDDING day ahead gate closure day ahead cycle: one day reserve capacity market day ahead reserve capacity auction

23 STEP 2: DAY AHEAD/INTRADAY MARKET D-1 up to H-1 Market parties balance their portfolios Market parties keep contracted reserve capacity available for Balancing Energy Market Market parties make their bids for Balancing Energy Market available before H-1 No involvement of TSO 23

24 STEP 3: BALANCING MARKET point where market parties are not able to trade amongst each other real time time TSO market parties continuously optimise their portfolio by trade TSO takes over balancing TSO has to balance by interacting with single market participants

25 BALANCING MARKET FEATURES H-1 up to H TSO is single counterpart for close to real time trade TSO aggregates bids in balancing market merit order TSO selects required energy based on balancing market merit order TSO provides real time transparency system status balancing merit order balancing price TSO 25

ERI-CWE workshop on XB intra-day trade. 20 January Ruud Otter. Organisation des Entreprises d Electricité Du Luxembourg

Market Parties Platform view on XB intra-day trade ERI-CWE workshop on XB intra-day trade 20 January 2009 Ruud Otter 1 Entreprises d Electricité Du Observations In summer 2006 TSOs, regulators and market