The power market design column – Lost electricity

What is the relation between the Balkan region and the illegal cultivation of hemp plants? With this question, I am not suggesting that the production of drugs is taking place in the Balkan region. As everybody knows, it is a popular activity in my own country, the Netherlands. No, the relation is disappearing electricity. It is estimated that almost 1 TWh of electricity is illegally tapped in the Netherlands every year to grow hemp plants. And since mid January 113 GWh electricity is missing which is apparently originating from the Balkan region. Two different cases of disappearing electricity. In one case it is stealing from the system in the 2nd case it is leaning on the system. But how do the involved DSOs and TSOs react?

Stealing from the DSO

The Dutch have a policy of toleration regarding soft drugs but it is against the law to grow hemp plants. Despite this, there are an estimated 10,000 to 30,000 hemp farms in the country, a large proportion of which are located in homes. The Dutch Safety Board recently concluded that these illegal practices cause safety risks because of house fires. One recommendation of the Board is that DSOs should actively search for such illegal taps and act against those residents. The amount of electricity being stolen in the Netherlands is huge. 1 TWh in a year corresponds to the consumption of a city like Rotterdam or almost 1% of the total consumption in the Netherlands!

Still the Dutch DSOs responded cautiously. They mention that their staff is not trained to deal with criminals and therefore require support from police. They also underline that every year more than 4000 illegal hemp farms are dismantled. DSOs will try to recover the costs of energy theft on these thieves. However, the costs of the stolen electricity for the DSOs are based on the wholesale price of electricity. The economic value, so the amount that would have been paid by a normal consumer, is approximately three times higher. So, even if the thieves are caught and even if they pay the damage, they still pay much less than a normal consumer would pay. Therefore Liander, one the Dutch DSOs, argues for a uniform fair kWh price for energy theft, limiting the economic damage for the consumer and allowing more costs to be recovered from criminals.

However for me as a grid user most of the damage comes from the stolen electricity from hemp farms that are not dismantled. DSOs can still add the amount of lost electricity to the grid losses and pass the associated costs to the grid users. This is managed by yard-stick regulation, which means that a DSO is rewarded or penalised if its administrative losses are lower, respectively higher, than the average. So, one wonders whether the incentives are strong enough. Would the DSOs be more active if they could not pass on the costs of electricity theft?

Leaning on the TSOs

On 6 March ENTSO-E explained that our clocks that use the grid frequency are about 6 minutes behind because the average frequency since mid-January has been 49.996 Hertz instead of 50 Hertz. This is caused by 113 GWh of missing electricity in the Balkan region.

Two days later, ENTSO-E reported that the deviations have ceased and that it will now develop a plan for returning the missing energy to the system. ENTSO-E, also mentions that it is trying to identify a sustainable long term solution in close interaction with the European Commission that will avoid that this happens again.

This response was surprising for me. Rules for time control and compensation of inadvertent or unintended energy in a synchronous system are as old as the synchronous system and the UCPTE was established back in 1951. The old UCPTE rules were transferred and updated in the Operational Handbook of ENTSO-E. The rules for time control are described in Section P1-D. The rules stipulate that the time difference is monitored continuously and should be within  ±30 second in normal conditions. A range of ±60 seconds is tolerated under exceptional conditions. The rules also explain that a time difference is corrected by adapting the target frequency. So, if the electric time is lagging behind than the target frequency is increased with 10 mHz to 50.01 Hz. Section P2-C of the Operational Handbook contains the rules how unintended energy should be compensated. There is no financial settlement but the energy is compensated in kind according to seven tariff periods.

It seems clear that these rules were not fully applied over the last weeks as otherwise the time difference would not have slipped to 6 minutes. This case is obviously special and highly political and probably that is why the existing rules were not applied. Anyhow, I am not so interested in the political dimensions of this case. I am more interested to see what we can learn from this case for the power market design debate.

The question then is to see how these topics are covered in the EU Network Codes. The topic of time control is covered by article 181 of the System Operation Guideline[1] and of compensation of unintended energy is dealt with in article 51 of the Electricity Balancing Guideline[2].

However, in both cases these articles do not contain precise rules. Article 181 is extremely meagre. It simply rules that “Where applicable, all TSOs of a synchronous area shall define in the synchronous area operational agreement the methodology to correct the electrical time deviation”. This means that existing and precise rules on time control of the Operational Handbook will be replaced - or maybe are already replaced - by this very general article.

Article 51 on unintended exchange of energy is somewhat more specific. It rules that all TSOs need to propose a method by June 2019 and that a price must be set for the settlement of unintended energy. This means that the current approach of compensation in kind will be replaced by a financial settlement. This move towards financial settlement makes a lot of sense. Compensation in kind, albeit according to seven different tariff periods, is outdated. Article 51 mentions that the price for unintended energy shall reflect the prices for balancing energy. But this still needs to be elaborated. Is it the price in the system that caused the deviation that needs to be taken, or the prices of the other systems that balanced the deviation? The settlement of unintended energy should form a logical whole with the settlement of imbalances towards market participants. Therefore it must be considered to set the price for unintended energy at the imbalance price (this is the price charged for imbalances to Balance Responsible Parties). The prices for balancing energy (which are the prices paid to providers of balancing services to TSOs) that are mentioned in Article 51 seem less relevant. Again it is also about incentives. The price for unintended energy should give the correct incentive for TSOs to balance the system and should not give an incentive to deliberately lean on the neighbours.

Conclusion

Both cases of lost electricity, either by stealing or by leaning, show how important it is to price electricity correctly; not only as a signal to market participants so that the market provides efficient outcomes, but also towards DSOs and TSOs.

This is my 12th column on power market design issues. The earlier columns covered the following topics: 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] COMMISSION REGULATION (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation

[2] COMMISSION REGULATION (EU) 2017/2195 of 23 November 2017establishing a guideline on electricity balancing