Design options of TERRE Project (Trans European Replacement Reserves Exchange) Executive Summary 15 th of June 2016
Executive Summary TERRE (Trans European Replacement Reserve Exchange) is the pilot project validated by ENTSO-E for cross-border Replacement Reserve (RR) exchanges. This Executive Summary, as part of the Approval Package submitted to NRAs for the formal support, aims at presenting TERRE project high level design choices. TERRE Product TERRE project members defined a Cross Border product that will be optimized by the common platform. This product is a 15 min scheduled block with a full activation time of 30 min which will be scheduled by the TSOs in their control systems. Block energy will then be settled between TSOs. TSOs have designed 5 different bid formats that will be permitted in the platform: Divisible Offers, Block Offers, Exclusive Offers, Multi-part Offers and Linking Offers. TERRE also allows TSOs to define some of the offers submitted by stakeholders as Unshared Offers or Restricted Offers, respecting the limit volume (less than the volume of Balancing Capacity for RR procured by the TSO less the volume of balancing Energy Bids for Specific RR products). These offers will then not be made available to the market. The ability of TSOs to restrict or unshared bids is permitted according to the Guideline on Electricity Balancing (GL EB). TSOs applying central dispatching model shall use the Integrated Scheduling Process (ISP) bids for the purpose of the exchange of balancing services or sharing of reserves. TSOs applying a central dispatching model shall convert ISP bids into standard products exchanged within the coordinated balancing area taking into account operational security. TERRE Imbalance Need The definition of the Imbalance Need in TERRE relies on concepts of volume, price, emergence time and delivery period. TSOs will define a volume of required energy at least 45 min before real time to cover their needs. TERRE project members considered 2 price/volume parameters: Inelastic Volume ( at all price need ) and Elastic Volume ( priced need ). The elasticity helps the TSOs to deal with uncertainties when defining its imbalance volume. Balancing CMO and Algorithm TERRE project members designed an Algorithmic optimization based on the following principle: Optimization of Social Welfare (surplus of connecting TSOs, minus BSPs production costs) which is the main objective. Use of Elastic Imbalance Need which provides better flexibility to TSOs
Use of One Single CMO (Common Merit Order) instead of two (one for positive Imbalance Need Bids/upward offers and one for negative Imbalance Need Bids/downward offers) that would not ensure efficiency Use of One-stage Clearing process avoiding a pre-netting of Imbalance Needs that could lead to lower Social Welfare Harmonization of local rules related to negative prices Furthermore, in order to increase the Social Welfare, TERRE project members chose to allow Counter-Activations (simultaneous activation of an upward and a downward offer) both Internally and Cross-Border. Finally, it has to be highlighted that specific cases can lead to activations for operational constraints such as HVDC losses, I/C controllability on HVDC, or handling of Unforeseeably Accepted and Rejected offers. TERRE project proposed a method for treatment of these specific cases which are described in detail in the whole consultation document. Settlement Following GL EB recommendations, TERRE project proposes to apply pay-as-cleared (Marginal Price) for the settlement of XB Balancing schedules derived from TERRE. This marginal price is based on the prices of the activated balancing offers from BSPs and, if relevant, on the prices of the satisfied TSO Need (in case TSO Imbalance need has a price). TERRE project has studied different options for definition of the marginal price in different study cases. The current proposed settlement design criteria has considered similarities and experience with other existing projects on Cross Border exchange. The product settlement will be the Cross Border energy product exchanged between TSOs, which excludes the energy associated with the increasing and decreasing power ramps. A set of non-congested bidding zones have the same price, but a price difference can occur in the event of a congested border. This price difference creates a congestion rent that should be distributed. TERRE project members chose to be consistent with the methodologies applied in other timeframes regarding this distribution (such as in MRC for the Day Ahead). Cost Benefit Analysis In order to assess the potential benefit of TERRE project, a Cost Benefit Analysis methodology has been defined. The simulation was calculated using the tool developed during the design phase under the scope of the Balancing & CMO activities. The modelled benefits showed approximately 150.6 million per year and the costs for TSOs to create and maintain the TERRE platform (considered as one-off costs) would be in the range of 25-30million. The key challenge of this analysis was the differences currently existing between the balancing markets and as a result several assumptions have been made (as described in detail in the whole consultation document).
In order to calculate the benefits, it was decided to compare two similar situations: the historical situation simulated using 2013 data set, applying marginal pricing in all market areas and setting ATC to zero, in comparison with the TERRE situation simulated as the historical situation with historical ATC values. Naturally, as these simulations are subject to changes in market conditions at the time of TERRE go live, TERRE project members proposed a qualitative assessment of these changes considering: the change in bidding behavior, the change in Imbalance Volumes, and the changes in Available Transmission Capacity for Balancing that can occur. Timings TERRE is a gate-managed system. Each phase of the process is conducted between the opening and the closure of the corresponding gate. All TSO processes will be taken until H- 30min (H corresponds to the beginning of real time). After the TSO TERRE processes are concluded, from H-30min to H, each TSO will activate its national units. After the Intraday Gate Closing Time (H-60min) and before the TSO Energy Bid Submission Gate Closure Time (H-45min) is the RR Balancing Energy Gate Closure Time applicable to BSPs. The exact timing of this gate (noted H-X) is still under discussion and will be harmonized under the scope of the implementation of the GL EB. The different process phases are as follows: Pre-Tendering Phase: BSP data submission and update (between H-60min and H- X) Tendering Phase: TSO data calculations and submission (between H-X and H- 45min) Clearing Phase: Algorithm computation (between H-45min and H-35min) Result communication and verification (between H-35min and H-30min) Activation period (between H-30min and H) Delivery period (between H and H+1h) The different Cross Border Scheduling Steps that will be admissible by the platform will be 1h, 30min or 15min. In order to cope with market differences as well as improve the exchange of energy between borders, TERRE project proposed to start with a common 60min Cross Border Scheduling Step. TSOs are investigating the reduction of this value to 30min or 15min. Terre process design relies on an Intraday Market Gate Closure Time of 1 hour before delivery (GCT = H-60) 1. In the scope of the implementation of the GL CACM, in April and May 2016, ENTSO-E launched a public consultation on the GCT of XB ID market (closed last 18 th May). As a result of the consultation, the general answer from Stakeholders (e.g. EFET, Eurelectric, etc) was 1 60 min with a possible tolerance to be defined according to IT constraints
a request to move the XB ID GCT as close as possible to the delivery time (potentially until 30 min before delivery). The shadow opinion from NRAs on the GCT of XBID is expected the second week of July 2016, but the official date for approving the GCT (according to CACM GL) will be end 2016. In this sense, TERRE project TSOs would like to underline that maintaining a 60 minutes intraday GCT is critical for the performance of the already time constrained foreseen process (reception of RR balancing offers, estimation of RR needs, and activation and exchange of an RR product with 30 min of Full Activation Time). Should the ID GCT be moved closer to real time (e.g. 30 min before delivery), there would be no more time for the TERRE process and as a consequence no RR exchange possible. In light of the next steps (RFP, implementation, etc), the TERRE TSOs alert NRAs on the criticity of this topic and would appreciate the NRAs guidance on this issue. Available Transmission Capacity The Cross Border capacity is an input to the algorithmic optimization. All AC links Available Transfer Capacity (ATC) after the Intra Day market will be used. For the specific case of DC interconnectors (which can be controlled, but with a pre-defined maximum ramp rate), it has been decided to define TERRE results as physically firm and that the cost of imbalance (resulting of the control of the link) will be supported by the interconnector owner(s). Governance TERRE is a cooperation of several European TSOs. For the implementation phase, mutual rights and obligations of the TERRE Members will be laid down in a Cooperation agreement signed by all TERRE Members. It is foreseen that TERRE TSOs, with the support of NRAs will involve Stakeholders in the development of the different project stages both at National and Regional levels. Transparency TSOs are responsible for the transparency of data submitted and issued by TERRE in respect of Regulation on Transparency (543/2013), Article 17.1. Harmonization Issues TERRE project members propose the following harmonization elements to take priority: Pricing rules harmonization (pay as bid, pay as cleared, removing Caps/Floors) Intraday Markets including Market Time Resolution (MTR) and Gate Closure Time (GCT) Project Implementation Plan The TERRE project implementation plan is expected to cover 2016, 2017 and part of 2018 for an entry into force window expected at the end of Q2, 2018, in line with the RR CoBA implementation requirements of the current draft GL EB.
Currently, the project is divided in 4 main types of activities: Legal: Management of Cooperation Agreements between TSOs (both in implementation and operational phases) and the management of the Parallel Run phase, which is the pre-requisite for the entry into force Approval: Management of NRA s and stakeholder s information and approval through the consultation(s) and approval(s) processes Design: Management of the design of the TERRE solution through Provider(s) selection (Request for Proposal management) and Functional Specifications redaction Implementation: Management of Terre Solution System development and Testing activities Possible evolutions It is foreseen that the TERRE platform should have the ability to perform other process in the future such as: Additional TERRE process: Reduction of Market Time Unit or intra-day Gate Closure Time: The evolution of the European electricity market could lead to a reduction of the Market Time Resolution or the intra-day Gate Closure Time. If this happened, the project would need to be adapted to new circumstances; for example, possible introduction of additional clearings. Additional balancing products and processes: The centralized IT platform will be implemented with enough flexibility to handle different processes and products (e.g. scheduled balancing products, mfrr process). In light of the future implementation of other CoBAs in Europe, the TERRE TSOs would like to offer the experience gained in the design and implementation of TERRE project. In this sense, the design and implementation features of TERRE (algorithm, IT systems, governance, etc) could be used in the construction of platform for the exchange of scheduled mfrr process/product. This would make more efficient the investment in the centralized optimization platform (which is not negligible) and could serve as a basis or starting point for the future European platform for balancing products.