Consultation response to ENTSO-E’s proposal to further specify and harmonise imbalance settlement

Nordenergi welcomes ENTSO-E’s proposal and gives the following responses. Point 1-7 are formal questions.

  1. Please add here your feedback on Articles 1 and 2 'Subject Matter and Scope' and 'Definitions and interpretation'

We lack the definition for imbalance area and how it interrelates with the definition for bidding zone? We consider that with respect imbalance settlement these should be the same.

  1. Please add here your feedback on Article 3 'The calculation of imbalance adjustment'

We support the proposed imbalance adjustments in Article 3 (1-3) and believe that they will contribute to the creation of a level playing field for market participants across Europe.

We do, however, regret that no steps are taken to partly of fully harmonize the imbalance adjustment finalization time. The finalization time currently varies significantly between TSOs. This results in a competitive distortion as long finalization times delay imbalance settlement cash flows from to and from Balance Responsible Parties (hereafter “BRPs”) and thereby impact their financial situation. The reporting of the imbalance adjustment to the concerned BRP should be subject to a clear, harmonized deadline. The current wording of ‘without delay’ is too vague.

  1. Please add here your feedback on Article 4 'The calculation of a position, an imbalance and an allocated volume'

We fully support the harmonization towards a single position model as prescribed by Article 4(1) and in accordance with Commission Regulation Establishing a Guideline on Electricity Balancing (hereafter “EBGL”). The two-position model, as currently applied by some TSOs, distorts imbalance incentives between consumption and generation. It also generates an undue revenue for TSOs that is frequently used for cross-subsidization of other balancing costs. 

However, we don’t agree with Article 4(1)(b), which implies that the deadline for TSOs to calculate one position per BRP is the implementation of the 15-minute Imbalance Settlement Period (ISP), at the latest in 2025. No such link between the single position per BRP and the 15-minute ISP is mentioned in the EBGL. Therefore, such an explicit link and therefore general derogation of the requirement to go to the calculation of a single position per BRP to 2025 should not be proposed by this ISH proposal. The implementation of the single position should be at the time of the implementation of this ISH proposal – i.e. 18 months after its approval by NRAs. If TSOs see valid reasons that such implementation is not feasible, an individual derogation can still be requested. We agree with the principle of a single position for a BRP, since the self-dispatch model relies on BRPs’ role to balance the overall injections and withdrawals of their portfolio.

As for Article 4(3) we repeat that the reporting of the imbalance to the concerned BRP should be subject to a clear, harmonized deadline. The current wording of ‘without delay’ is too vague and the reference to the national terms and conditions means that BRPs in different countries may be informed at widely diverging moments.

  1. Please add here your feedback on Article 5 'Main components used for the calculation of the imbalance price for all imbalances'

To ensure a level playing field between market parties, we are in favor of harmonized imbalance prices across Europe. In the uncongested case, whether the marginal bid for determining the balancing energy price is set by a local or a foreign BSP shouldn’t matter (as the overall welfare is increased), the imbalance price should be based on this XB price.

We remind TSOs that EBGL Article 52(2)(b) requires this proposal to further specify and harmonize the main components used for the calculation of the imbalance price. The weak provisions of the proposed Article 5 do not fulfill the spirit and letter of this EBGL requirement. We consider that in target only the realized energy prices of activated Standard Products, mFRR and aFRR – once implemented – should be considered as main components.

In 5(1) it is not clear whether there would be also ´minor components´ and how they would affect the calculation of imbalance prices? We consider that would the TSOs consider applying, in addition to main components, also minor components, they should be listed in this proposal. Further, we consider that whether a TSO would apply minor components, it should be subject to regional approval by the NRAs. For example, as Specific Products should be exceptional and transitory, they should only be considered as minor components of the imbalance settlement price. The same applies for RR. Where a TSO applies minor components, these components shall not affect imbalance prices in other bidding zones (unless the use of those is harmonized regionally).

Article 5(2) is too open. We understand that there may occur situations, where a TSO have been forced to activate for example disturbance reserves to cope up with imbalances in the system and hence the prices of aFRR and mFRR may not reflect the true value of balancing actions. Instead of opening for general additional components, we propose the TSOs to give more precise prescription how the imbalances would be priced in this kind of a situation.

According to Article 5(3), TSOs should calculate the imbalance price based on volumes re-quested by the TSO and fulfilled by standard or specific products, or by the integrated scheduling process. We strongly oppose to using only volumes requested by the TSO for local balancing as:

  • The local imbalance area is part of a larger integrated balancing market.
  • The locally requested volume is only a subset of all requested volumes in the integrated balancing market
  • The balancing energy prices should be identical across uncongested balancing market.
  • The imbalance prices and balancing prices should both reflect the real-time value of energy in the uncongested area (i.e. they should converge) in order to provide the correct incentives for BSP and BRPs to support the system balance as outlined in the whereas of the current proposal.
  • Calculating the imbalance price based on locally requested volumes only, will result in significant divergence between balancing prices and imbalance prices within a single, integrated balancing market.

As a result, by using only locally requested volumes when calculating the imbalance price, TSOs will weaken the price signal and thus reduce the incentives for market participants to support system frequency. It will also distort incentives by remunerating market participants differently for the same product, depending on whether it is provided in the balancing market or as an imbalance. This is not in line with the fundamental principles of the balancing market design in Europe.

We strongly believe that the imbalance price should be calculated based on the activated volumes of energy within the uncongested area. This resulting price should be a cross-border marginal price. This will ensure that imbalances prices correspond to the real-time value of energy in the system and that prices are consistent across markets.

Where a TSO would apply for minor components (activation of RR, etc.) that cause higher imbalance prices, the effect of these should be left local.

The proposal doesn’t give any guidance how the price of imbalances should be calculated when both aFRR and mFRR resources have been activated for an ISP. We proposed that it will be clarified in this methodology that if both aFRR and mFRR have been activated, the imbalance price should be calculated as the (volume) weighted average of the two. This means that in case of one directional activation, the TSO is financially neutral (receives the same amount as it spends).

  1. Please add here your feedback on Article 6 'Definition of the value of avoided activation of balancing energy from frequency restoration reserves or replacement reserves'

In general, we support the definitions proposed in Article 6.

However, it needs to be clarified that the calculation of avoided activation concerns the whole uncongested area and only in situation where there’s congestion, it will be calculated per imbalance area. Otherwise we move away from a European market and thus reduce the incentives for market participants to support system frequency.

  1. Please add here your feedback on Article 7 'The use of single pricing'

We support the implementation of single pricing in accordance with the EBGL. However, we don’t agree with the proposed link with the deadline for implementation of single pricing to the deadline for implementation of the 15 minutes imbalance settlement period (“ISP”) as set out in Article 7(1). This linkage creates an unfortunate interdependence and is non-compliant with the EBGL as the deadlines for implementation of single pricing and the 15 minutes ISP are non-identical and inconsistent. In particular:

  • According to EBGL Article 52(2)(c) and 52(4), the use of single pricing shall be implemented no longer that 18 months after all NRAs approval of this proposal.
  • According to EBGL Article 53(1) the implementation of the 15 minutes ISP shall be implemented no longer than 3 years after entry into force of the EBGL,

If TSOs see valid reasons that such implementation is not feasible, an individual derogation can still be requested.

  1. Please add here your feedback on Article 8.1.a 'Definition of conditions and method-ology for applying dual pricing'

We do not agree that TSOs may be exempted from single pricing by fulfilling just one of the five criteria listed in Article 8(1). Single pricing is a core element of imbalance settlement harmonization and, consequently, dual pricing should only be accepted in very exceptional circumstances. Each of the five listed criteria constitute – in themselves – a normal situation in many European markets and should not be deemed sufficient for an exemption from single pricing.

We urge TSOs to impose stricter requirements for exemptions in the final proposal, for instance by requiring that at least two of the five criteria should occur at the same time. In general, in the event that both positive and negative balancing energy from frequency restoration reserves have been activated during the same imbalance settlement period, the price should be determined based on the dominant direction.

  1. Please add here your feedback on Article 8.1.b 'Definition of conditions and method-ology for applying dual pricing'

We do not agree that this criterion in itself is sufficient to allow an exemption from the application of single pricing. Please see our answer to question 14 for details.

  1. Please add here your feedback on Article 8.1.c 'Definition of conditions and method-ology for applying dual pricing'

We do not agree that this criterion in itself is sufficient to allow an exemption from the application of single pricing. Please see our answer to question 14 for details.

  1. Please add here your feedback on Article 8.1.d 'Definition of conditions and method-ology for applying dual pricing'

We do not agree that this criterion, in itself, is sufficient to allow an exemption from the application of single pricing. Please see our answer to question 14 for details.

  1. Please add here your feedback on Article 8.1.e 'Definition of conditions and method-ology for applying dual pricing'

We do not agree that this criterion in itself is sufficient to allow an exemption from the application of single pricing. Please see our answer to question 14 for details.

  1. Please add here all general comments on the proposal

We support that European electricity markets are converging towards a single position, single price imbalance settlement framework. This is a crucial step towards the creation of a level playing field for all market participants in an integrated European power system. Harmonized settlement of imbalances is important because of the price signal it provides to BRPs. A fair, objective, transparent and non-discriminatory imbalance settlement mechanism should build on the principles that all injections and withdrawals from the system are covered by a BRP, that BRPs are financially responsible for all of the resulting imbalances and that imbalance prices reflect the real-time value of energy. This will incentivize market participants to support the system balance and help integrate larger amounts of variable renewable energy.

We are therefore disappointed to find that European TSOs have not developed a harmonization proposal. The proposal is insufficient in terms of the depth and width of harmonization, in particular on imbalance pricing, and is in several instances not fully compliant with the requirements set forth in articles 52-55 of the EBGL. When fully implemented, the proposal will still allow room for numerous incompatible imbalance settlement approaches across Europe, thus hampering an efficient integration of variable renewable energy and distorting the level playing field for market participants.

We lack articles prescribing the transparency of imbalance prices. There proposal should include that the value of imbalances is published in real time, at least indicative values. Only this way the TSOs can motivate BRPs to react on the imbalances and help the system and system security. Otherwise they are left in dark and to pay what TSOs have decided to activate needlessly.

 

Nordenergi is the joint collaboration between the Nordic associations for electricity producers, suppliers and distributors.

Contact: Petteri Haveri (petteri.haveri@energia.fi, +358 50 5711554), Martin Schrøder (MSC@danskenergi.dk)

 

 

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