Bord Gáis Energy s Response to the Commission for Regulation of Utilities Proposed Decision on an Enduring Connection Policy Stage 1 (ECP-1)

Transcription

1 Bord Gáis Energy s Response to the Commission for Regulation of Utilities Proposed Decision on an Enduring Connection Policy Stage 1 (ECP-1) 15th December 2017

2 At a principled level, the proposals set out in the Commission for Regulation of Utilities ( the CRU ) Proposed Decision on an Enduring Connection Policy (ECP-1) are a large step in the right direction for the Irish electricity market. It moves away from the connection application queue, it looks to real indicators of commercial viability of projects receiving connection offers and it aims to create regular (although not ongoing) access to grid for viable projects. In the longer term we would like to build on these interim objectives and provide further certainty for investors in terms of the price for and certainty of accessibility to the electricity network. Bord Gáis Energy (BGE) has some comments and suggestions on the proposals, which aim at further facilitating these goals and ensuring that the Enduring Connection Policy collaborates with the various markets that are being created on the island of Ireland to deliver the necessary investments to meet Ireland s renewable and security of supply ambitions. These are discussed in further detail below but at a high level our suggestions focus on identifying viable projects which should receive connection offers and moving away from an environment whereby the connection offer process is a market in and of itself independent of the commercial reality facing its participants. We will comment below on the DS3 Proposed Ruleset separate from the remainder of the Proposed Decision. 1. Comments on the ECP-1 Proposed Decision and Proposed Ruleset We are all very much aware that access to the electricity network ( the grid ) is a costly and scarce resource, however it is an essential input for effective electricity markets and to support investments in response to market signals. A connection policy or connection process should operate in tandem with the electricity markets and not as a silo market creating barriers for investors. It should therefore create a balance between; regularity of access while also ensuring cost effective grid development; equality of access while also ensuring only viable projects are given grid capacity, and timing of actual grid development works to align with the connection dates and contract deadlines of commercial contracts. In short, this can largely be boiled down to a balance between investor certainty and system capabilities. The proposals in ECP-1, in BGE s view, are a significant step in creating this interactive relationship and balance between the electricity markets and the monopoly grid. The move towards DS3 prioritisation, requiring evidence of planning permission and providing only non-firm access are reasonable proxies for market signals in this short term, interim process. They should ensure that speculative projects cannot access and hoard capacity. Combined with the new longstop dates, the proposals also provide that only projects, who can reasonably progress in the immediate future, will accept connection offers. Recognising that the aim of this Proposed Decision is to provide for a short term process to allow for connection offers to be issued in 2018, BGE is concerned that in Section 6 of the Proposed Decision that there is a suggestion that the opening date for new applications for the next batch beyond the 2018 batch will only commence once the final offer of the 2018 batch has been accepted. This in our view prejudges the approach to the

3 next batch and indicates that we will be reverting to a queued system again once the 2018 batch is complete. It would also be a retrograde step given the progress that we are aiming to make with ECP-1 and creates significant uncertainty for participants who are not in a position to proceed or who are not successful in the 2018 batch. If participants are to have confidence in and to support the progression of the 2018 batch, we must have clarity and certainty of: 1) what is to follow, and we strongly suggest that the CRU signals that we will not be reverting to a queued system approach, and 2) when the next opening for grid connections will be processed. To help progress towards the next batch, BGE would suggest that ECP-1 connection offers should be turned around by recipients in an expedient manner. Parties should only be given 50 days from the date from which they receive their own connection offer to either accept it or reject it. The current process under Gate 3, whereby parties have 50 days after the receipt of the last connection offer would cause undue delays and is not necessary in our view given the reduced level of interaction between offers. A expedient process will facilitate maximizing the MWs available on the system by allowing for re-issuing of offers within ECP-1 if a project rejects its connection offer, without unduly delaying completing the process and moving onto the next batch of offers. Beyond the 2018 batch, BGE believes that connection offers should be directly linked to the DS3, Capacity Remuneration Market (CRM) and Renewable Support (RESS) auctions (or tenders as the case may be). These auctions are being designed by the Regulators and Policy Decision Makers to ensure that signals are sent to investors for the right type and timing of investments to meet Ireland s renewable and security of supply requirements. Developers currently planning investments in line with the future expected auctions need to have certainty of actual grid access (firmness and price) and timing of grid development in order to compete effectively in these auctions. Making a commitment to link grid access to auction outcomes, whenever they may arise, will provide this certainty to market participants and remove a significant development risk 1. We set out in more detail in our comments to the DS3 Proposed Prioritisation Ruleset how this may be practically accommodated within the auction process. The proposed decisions to suspend any further processing or applications for the relocation of capacity and to suspend issuing and processing any further offers are sensible in terms of optimizing resources and again ensuring that grid applications are not hoarded and/or traded on a secondary market. Again, in the longer-term, if there is an express link between the market auction outcomes and the grid connection policy, BGE believes that there will be no appetite for a secondary market as parties will be guaranteed access to the grid in line with their commercial contracts. With respect to the suggested shortening of the Longstop Dates, BGE does not have an issue with the timelines as long as the enforcement process recognizes the obstacles and risks that developers face in obtaining planning consents and the actual build out of the grid to 1 To be clear, there is a significant risk for developers entering and auction and putting a bond in place without clarity of its connection method, cost and timelines. Linking the connection process with auction outcomes would reduce this risk, ensure market outcomes are achievable, avoid the need to rerun auctions due to delivery failures of projects and overall reduce transaction costs in the market.

4 accommodate their projects. BGE therefore suggests that the enforcement of the shortened longstop dates are sufficiently flexible to allow for related 3 rd party delays and do not liquidate or punish projects that are delayed as a result of these uncontrollable and unpredictable risks. Finally, with respect to the proposal to offer all connection offers on a non-firm basis, BGE would suggest that if firm grid is available at a node, parties receiving connection offers at that node should be given firm offers accordingly. Firmness of a grid offer is an important consideration for projects and can be a differentiator between otherwise viable developments As the we aim to introduce and develop a qualitative approach to allocating grid, we believe that where there is firm grid available, it should be allocated accordingly as part of this process. 2. Comments on the DS3 Proposed Prioritisation Ruleset BGE does not question the TSOs expertise in deciding what system services are of most importance to the system in the near term. We have no issue with the suggested prioritisation of the Fast Frequency Response (FFR) and Primary Operating Reserve (POR) services in this tranche of connection offers. However, we do believe that the prioritisation of issuing connection offers to the providers of these services should be integrated into the tender process for high availability units scheduled to begin towards the end of Q Rather than a separate administrative process as detailed in the ruleset appended to this Proposed Decision, BGE would instead suggest that the connection offer process should be part of the tender process. Specifically, BGE proposes the following approach: Step 1: The TSOs announce and provide detail on the tender process for 6 year fixed contracts for high availability units; Step 2: Parties prequalify for this tender process in line with the TSOs specific requirements as outlined in Step 1; Step 3: Successful pre-qualification is deemed a defacto connection application and the TSOs must review and provide a provisional and estimated grid connection method and cost respectively; Step 4: Parties enter the tender process with an estimated grid cost and compete for the available contracts accordingly; Step 5: All parties successful in the tender and who sign fixed contracts are issued with final connection offers 3. 2 The high level details of which were outlined in an EirGrid Consultation Paper: Consultation_final.pdf published for comments on the 26 th September 2017 and for which we are expecting a detailed further Consultation from the CRU in January 2018 as per the recent SEM Committee Decision Paper on Contracts for Regulated Arrangements (SEM ). 3 Recognising the uncertainty relating to planning permission for both projects and the grid, we suggest that bonds secured on the back of contracts from this tender process are not forfeited due to project failures or delays as a result of planning and issues with the planning process.

5 In BGE s view, the provision of the high availability tender in 2018 and the proposed 2018 batch within ECP-1 provide a great opportunity to link the grid connection process to the over-riding ancillary service market. In practical terms, BGE would be concerned that having a separate tender process to the prioritisation ruleset could risk a decoupling of the two, with either parties with a connection offer not getting a market contract to deliver the same services, or parties with a market contract to deliver the services not getting a connection offer. From a commercial perspective, there is a significant risk for parties entering the high availability tender without knowledge of both the cost of and the timelines for their connection. We therefore see it as essential to the success and deliverability of the DS3 high availability tender in 2018 that it is linked to the connection offer process being suggested. Again, if these processes are not aligned, BGE believes that the bonding process for the tender will have to recognise the uncontrollable risk facing participants relating to grid connections and de-risk the bonds under the contracts accordingly. Related to this, we would like to highlight that for parties entering into a tender next March, it will be important that they are given sufficient advanced notice of their bonding requirements so that they can navigate their own internal governance processes in a timely manner to participate in the March tender. On that basis, we would ask that the Regulatory Authorities include details of the bonding requirements for the High Availability Tender as part of the January 2018 Consultation that is currently expected Summary and Conclusions BGE is fully supportive of the CRU s initiative to progress connection offers to the Irish grid in a manner which optimises the existing grid and which uses existing processes to provide a qualified approach to allocating grid to the most viable and valuable (from a system services perspective) projects. Although BGE is supportive of the proposals for ECP-1 we believe there are two critical elements that would significantly improve the process and the long-term outcome for interested parties: 1. Certainty must be given to the market as to how and when the next available batch of connection offers will be issued. That is not to say that there needs to be a strict process agreed, however references in Section 6 to a queued process opening up once the last connection offer for the 2018 batch is processed gives no certainty to a market that has seen similar batches rumble on for over 6 years given disputes to connection offers. BGE would instead suggest that a strict link between market outcomes, such as DS3, CRM and/or RESS auctions, should be made to give certainty to investors that if the market signals their investment, they will receive a grid connection. In that environment, the timing of the next batch will be irrelevant. 2. BGE believes that the DS3 High Availability Tender scheduled for 2018 should be used as a means of allocating connection offers as opposed to the DS3 Proposed Prioritisation 4 As outlined in the SEM Committee Decision SEM

6 Ruleset appended to this Proposed Decision. This will ensure that those in receipt of 6 year fixed contracts under the high availability tender are guaranteed access to the grid for their projects and those in receipt of connection offers are those projects best placed to deliver commercially valued services to the grid.