The power market design column – Calling for cross-border capacity

Last year, I explained in my 2nd article in this series of articles on power market design that interconnectors have historically always been built for both economy as well as for security. I aimed to bust the myth that in the past interconnectors were built just for security of supply.

I also mentioned that over the last years, the capacities on interconnectors available for cross-border trading have been reducing and that both ACER as well as the EU Commission did express their concerns. ACER did so in its Market Monitoring Report and the EU Commission made legislative proposals as part of the Clean Energy Package, to solve the situation.

Let’s see how things have developed since then ….

ACER keeps on pushing

Two weeks ago, ACER’s director Alberto Pototschnig, raised the issue again in an interview with Montel. Pototschnig’s mandate is coming to an end this year and it is clear that before leaving ACER he would like to see some concrete steps resulting in increasing capacities for cross-border trading. He underlined that new legislation would not be needed as the third energy package (which is in place since 2007!) already provides clear guidance. At the same time he concludes that actual improvements are not expected soon and he believes that a paradigm shift is needed so that there is no discrimination between energy exchanges within bidding zones and cross-border exchanges.

National regulators are losing patience

National regulators have to use existing legislation to impose improvements. The third package was the basis for the EU Network Codes. The CACM Code is one of them and entered into force in 2015. Following that Code, the TSOs did submit proposals for Capacity Calculation Methods (CCM) to the regulators last year for each of the different Capacity Calculation Regions. The largest region is the so called Core Region, covering 13 countries from Romania to the Netherlands. But the regulators of the Core region did not approve the proposed CCM, instead they decided to request amendments. It is a clear that the regulators are not happy at all as can be easily concluded from the following quotes from the regulators’ report:

·       the proposal delivered by Core TSOs does not contain descriptions of sub-methodologies

·       Core NRAs[1] then urge to add sufficient descriptions of all sub-methodologies in the amended proposal

·       Besides the missing sub-methodologies, the current version of the proposal lacks the level of details needed to approve the day-ahead capacity calculation methodology.

·       Core TSOs shall not leave undefined and unjustified thresholds or values in the methodology

·       Core NRAs are not in a position to approve a proposal which is incomplete, leaves wide room for interpretations and is far from being enforceable

·       Core NRAs deeply regret that the Core TSOs did not follow the recommendations issued in the shadow opinion for most parts of the proposal.

It is impossible to describe all issues in this article. But one of the main topics is the methodology to select critical network elements and contingencies. By labelling network elements as a critical network element (CNE), a possible congestion on such elements will be managed in the flow-based capacity allocation. These network elements do not have to be interconnectors but can also be internal lines. In other words, the flow-based capacity calculation allows TSOs to manage congestions on internal lines by limiting cross-border trade, and when doing so they ignore the possibility to apply other congestion management methods, in particular redispatch. So far the TSOs did not provide a proper justification for such practice, but now regulators are requiring them to do so.

At the Prospero conference on Grid Integration & Ancillary services in Amsterdam last week, Ulrik M?ller of the Danish TSO explained how the TSOs plan to provide such justification. He introduced two tests that TSOs would have to do whenever they want to label internal lines as critical network elements: an operational security test and an economic efficiency test. In short, the first test should clarify whether sufficient resources for redispatch are available and the second test should be used to check whether redispatch is more efficient than managing the congestion by limiting cross-border trade. So far so good, but the devil may be in the details. He explained that TSOs will only consider resources that are available after the day-ahead market. This seems logical, but currently TSOs are managing many congestions by concluding redispatch arrangements well before the day-ahead stage, so through so-called preventive redispatch. This makes a lot of sense, as it would be inefficient and risky to just rely on curative redispatch, especially for congestions that are structural. If resources for curative redispatch will not be considered in the aforementioned tests then it is likely that the tests will (wrongly) conclude that redispatch is inefficient and by consequence cross-border trade would still be unduly restricted.

This example shows that the show will go on as it is unlikely that TSOs will suddenly be able to meet all requests of the regulators.

The EU Commission is getting desperate

Whereas ACER remains hopeful and regulators are getting impatient, the EU Commission is getting desperate. Klaus Dieter Borchardt, Director of DG Energy, recently said that the underuse of cross-border transmission capacity in electricity is a scandal!

This outcry can be explained as the relevant proposals in the Clean Energy Package, in particular Article 14.7 of the proposal for a Regulation on the internal market for electricity, have been amended both by the Council of Ministers as well as by the EU Parliament. In the original proposal, the Commission tried to turn the discussion upside down. TSOs would have to allocate all - so 100% - of the interconnection capacity to cross-border trade while allowing for a derogation of that rule if TSOs can prove that restrictions are needed or more efficient. Instead of regulators having to prove that calculated capacity levels are too low, TSOs would have to prove that capacity levels would be too high without restrictions. It seemed to be a great idea. However, the idea was misunderstood. Ministries wrongly assumed that such proposals would cause massive amounts of redispatch and the German Ministry probably assumed that such extreme approach would unavoidably result in a splitting of the German bidding zone. A new target was introduced: at least 75% capacity should be made available for cross-border trade. However, the application of one predefined number to all European borders makes no sense. And more importantly, 75% sounds nice, but 75% of what? The trialogue between Commission, Council and Parliament has started and we will soon learn the final result. 

But not only DG Energy is active, also DG Competition entered the scene. In addition to drafting new sector specific legislation, the EU Commission now also plays the card of competition law. DG Competition started a case against the German TSO TenneT. The preliminary view is that TenneT would abuse its dominant position on the market for transmission. DG Competition claims that TenneT restricts the capacity at the Danish-German border too strongly and thus would discriminate between Danish and German grid users. TenneT has proposed some self-commitments. In a nutshell TenneT commits to make at least 1300 MW available in both directions at that border for a period of nine years. I don’t want to dive into the details, but it is remarkable that DG Competition took this step now, while the CACM process that should result in legally binding capacity calculation methods, has not yet been concluded. At the same time it is remarkable that only the Danish-German border is covered, as ACER has shown that many borders should be tackled.

Conclusion

We may only hope that our policy makers in the trialogue process but also in the competition case on the Danish-German border, took note of the words of Alberto Pototschnig. New legislation is not necessary. Referring to the process as defined in the CACM Network Code would suffice and should result in capacity calculation methods that do maximise possibilities for cross-border trade within security limits. The topic is complex and the process is extremely slow. But imposing new legislation that adds complexity and confusion will only makes things worse.

This is my 13th column on power market design issues. The earlier columns covered the following topics: electric time and unintended exchanges, EU Network Codes, price formation and zero marginal cost generation, simplicity in the Clean Energy Package,  smart grids, storage, auto-generation, balancing, VoLL, demand side response, interconnectors and the Economist on market design.

Disclaimer: The views as expressed in this column do not necessarily reflect the views of Statkraft

Paul Giesbertz

[email protected]

[1] NRA stands for National Regulatory Authority