Swedenergy on Thema's report 'Capacity adequacy in the Nordic Electricity märket'

Transcription

1 SVENSK ENERGI - SWEDENERGY - AB Marknad/Märkets Magnus Thorstensson , magnus.thorstensson@svenskenergi.se YTTRANDE 1 (5) Datum NR 041/2015 Elmarknadsgruppen Nordiska ministerrådet Att: Joakim Cejie ioakim,ce1ie@reqerinaskansliet.se Filip Ehrle Elveling filip.elvelinq@nordicenerqy.org Swedenergy on Thema's report 'Capacity adequacy in the Nordic Electricity märket' Swedenergy welcomes the opportunity to comment on the report. As a whole, the report constitutes a thorough exposition of crucial elements significant to assess capacity adequacy in the Nordic electricity märket and in general we agree with the findings and recommendations. Initially we g i ve some general views, followed by comments on the recommendations in chapter six, ending with some minor specific annotations. General comments Regarding priorities, we do not see any immediate need to undertake any quick measures in the Nordic märket at the moment. However, the electricity märket is characterized by long lead times, and therefore it is of vital importance to p repa re for feature measures already today. Several interesting measures are proposed, but at the same time it is important to acknowledge the complexity of the electricity märket and the suggestions should therefore be ca ref u Hy scrutinized by a b road expertise. One path could be for the Nordic Council of Ministers to invite Nordic stakeholders to a series of workshops on different topics. Swedenergy have two general concerns. Firstly our opinion is that in lack of a specific definition of a desired level of generation adequacy or security of supply, it is impossible to analyze and propose measures to achieve generation adequacy, or rather supply adequacy. Hence, the first measure is to decide on a desired level. This should of course be harmonized across the Nord Pool Spot märket exchange area. We share Thema's, and Ofgem's, opinion that a definition should be based on a probabilistic approach. However, the foundation must be involuntary curtailment in the delivery period and not to avoid curtailment in the day-ahead märket. The latter would reduce the incentives for demand response. Then the TSOs should be given the task to maintain the desired target supply adequacy level. In case they find that the target is not fulfilled they should have the mandate to procure a strategic reserve. The reserve should be used Svensk Energi - Swedenergy - AB Stockholm Tel Besöksadress Olof Palmes gata 31 F a > Org.nr Säte Stockholm kontaktaoss svenskenergi.se

2 SVENSK ENERGI - SWEDENERGY - AB 2 (5) as a last resort measure and used first after all commercial alternatives been exploited and to avoid involuntary load shedding due to lack of power. We believe that a common Nordic solution would be more efficient and the necessary volumes to procure probably lower than with separate national solutions. Secondly, the directives to the Nordic TSOs must be harmonized. Today the instructions to Svenska kraftnät are to apply a North-European perspective, while Statnett is confined to Norwegian interests. This is detrimental not only to investments in transmission capacity, but could also have implications for the capacity allocation to the day-ahead märket. Reta i I Prices Swedenergy strongly supports the view of the importance that all märket actors should meet correct price signals at all times in all märkets. This is fundamental to an efficient use of resources, give signals to investments and in order to give the right incentives for flexibility in strained situations, not the least to develop demand response. In every märket, an efficient outcome depends on whether the participants trust the märket or not. Therefore it is important that decision makers and authorities adopt the responsibility to stånd up for the märket also when prices are volatile and high. Currently, mainstream politics are rather focused on promising lower prices for consumers at all times, an approach which undermines the confidence in the märket. Swedenergy must stress the importance of minimal regulation regarding the development of conträets in the märket. The efficient functioning of a märket is based on customer demand and therefore design of contracts in the electricity märket should not be regulated in any way. As Thema shows, fixed price is no barrier to demand response. This is true irrespective of fixed components in the contracts. Swedenergy also would like to stress that taxes and levies constitutes a major part of the total costs for non-industrial customers; a wedge that diminishes the direct coupling to the wholesale price of electricity and by that also the correct incentives for demand response. It should also be noted that demand response is dependent on the total cost for electricity for the consumer; hence also distribution tariffs must be taken into account but is only briefly mentioned in the report. Wholesale Prices Swedenergy supports the recommendation on the need to review the pricing of Elspot activation of the peak load reserve. The reserve should only be allowed to be activated at the price cap in the wholesale märket. The possibilities of further Nordic harmonization on peak load reserves, including a common Nordic procurement, should be investigated. Swedenergy supports the view that bidding zones should be aligned according to struetural bottlenecks and not limited to administrative boundaries such as national borders. In this we would like to stress the importance to märket

3 SVENSK ENERGI - SWEDENERGY - AB 3 (5) actors of foresight, i.e. that bidding zone borders are stable and any alterations are announced well in advance of implementation. Swedenergy recognizes that flow based capacity allocation in theory could be an improvement to the current märket design, however, at the moment we see limited benefit in the Nordic märket as the transmission g rid is mainly a radial network. Nevertheless, we are very interested in obtaining information from the current study that is undertaken by the Nordic TSOs. A switch to flow-based capacity allocation would add more complexity to an already very complex märket and a reduction in transparency. Also it would be more difficult for märket actors to predict available transmission capacities. Therefore, flow-based allocation should only be introduced after TSOs can demonstrate substantial ben ef its to the märket with a high level of transparency in calculation methods and assumptions behind the algorithm. Swedenergy agrees that a necessary condition for efficient flow-based allocation is a correct delimitation of bidding zones, i.e. adapted to structural bottlenecks. We are concerned that an implementation of the flow-based method could be used to justify or conceal the common current practice of moving internal g rid congestions to national borders. We support the conclusion that TSOs should be fully transparent in the way they calculate and determine ATC values. In this context Swedenergy would like to highlight the ongoing practice of TSOs curtailment of cross-border capacity, which is not mentioned in the report. Besides being an apparent breach of current regulation to move internal bottlenecks to national borders, it reduces consumer welfare and the efficient use of common resources. The availability of cross-border capacity is fundamental especially in peak-load situation; situations where Thema establishes the dependencies of imports. With an increasing share of intermittent power production, Swedenergy can foresee the need to review the time resolution of the märket. However we regard it as a natural first step to move towards shorter settlement periods, then shorter products on the intraday märket and then the spot märket as a final step. In order to avoid costly transition costs, the change should be divided into several stages. The transitional costs should be subject to a thorough socioeconomic analysis that should guide the speed of implementation. Intraday, balancing and ancillary services The availability of information is crucial for making märket decisions, especially regarding prices. Today, information on day-ahead and intra-day trade is published in a timely manner, whereas this is not the case regarding the balancing märket where a shortened time lag would be preferred in order to give the right signals for sought after flexibility. Swedenergy agrees with the recommendation to review the pricing of imbalance settlement, as it currently treats consumption and production differently. The pricing of imbalances is in the centre of the märket since it in practice constitutes rea I time pricing of electricity; hence signals the need for flexibility.

4 SVENSK ENERGI - SWEDENERGY - AB 4 (5) In this context, the re should also be a discussion on the current requirement for balance responsible parties to be in balance before the hour, which could render the total costs of balancing to be higher than necessary. Also, the timing of gate closure should be discussed, where the effect on Elbas after the change in Norway indicates the importance. It is also reasonable in the development towards a shorter time resolution. Regarding aggregators, Swedenergy supports the recommendation that all participants must be included in a balance responsibility agreement. On ancillary services we fully agree with the conclusion that TSOs and regulators should assess the requirements and remuneration for ancillary services in order to assess the scope for improved efficiency and costrecovery. Provision of ancillary services is usually part of g rid requirements for power stations, and the services expected to be delivered to the TSO free of charge. Such general requirements carry the risk of suboptimal investments, as they can apply to all generators, and therefore lead to more investments in equipment to provide various types of ancillary services than actually needed by the TSO. Going forward, one needs to recognise ancillary services as actual products which satisfy a need of the TSO. Market-based remuneration is a clear need which must be addressed in the future. Further, it is important to note that TSOs increasingly build their own facilities for production of ancillary services. This is not necessarily the socio-economic optimal Solutions as these services can also be contracted from commercial märket players. There is a clear need to look into this subject. Whereas Swedenergy supports integration of reserve märkets and harmonization of products, we are more sceptical regarding the possibility of reserv!ng transmission capacity for balancing resources. Maximum capacity should be allocated to the märket in chronological order, unless otherwise is socio-economically analyzed and discussed broadly among all participants. In this the possibilities of counter trade should be considered. On demand response, we see a potential from industry in practice, however the potential from other categories yet seem more theoretical. Hitherto, studies on demand response tend to be very general and seldom present costs and benefits for the individual customer. Renewable support schemes Swedenergy supports the opinion that current supports schemes have adverse märket effects and should be adjusted to be phased out after Other regulatory aspects Swedenergy fully agrees with the need to harmonize g rid tariffs in order to create a level playing field, not only in the Nordic märket but within Europé. It should also be noted that the development in Sweden is moving in the other direction with a continuous rise in the G component, this on Svenska kraftnäfs own initiative.

5 SVENSK ENERGI - SWEDENERGY - AB 5 (5) We also agree that relevant authorities should consider the incentive effects of the tax system when it comes to impacts on economically efficient generation investments Specific comments p 13: Energy back-up - in the Nordic märket, also hydro power could face prolonged periods of low generation. p 16: Examples of barriers are lack of balance responsibility, priority dispatch and untimely gate closure. p.20: Imbalance costs are based on the deviation from binding plans and not from spot märket commitments. In the Swedish Balance Responsibility Agreement the re are no price restrictions regarding the bids to tertiary reserves, besides a bid cap on /MWh. It is unclear what is meant by hourly auction for tertiary reserves. p 25: Years with large inflow may also stress the Nordic system as this lowers the profitability of thermal production. p 38: It is fully probable that the majority of fossil based power generation in Sweden is phased out in 2030, however its share of the total generation today is only 3 percent. p 45: The minimum to participate in the reserve märket in SE4 is 5 MW. p 47: A Swedish DSO must inställ hourly metering without extra cost, if requested by the customer and that the customer has a contract which is based on less than monthly prices with a supplier. Managing Di rector

6