Stab och samordning Christina Simón D-nr: Svk 2015/1612 Ert d-nr: dnr M2015/2810/Ee

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1 SvK1000, v3.3, Stab och samordning Christina Simón D-nr: Svk 2015/1612 Ert d-nr: dnr M2015/2810/Ee Svenska kraftnäts synpunkter på EU-kommissionens meddelande om ny marknadsdesign Generellt Svenska kraftnät instämmer i att de angivna områdena i Kommissionens meddelande är centrala för en utveckling mot en gemensam elmarknad i Europa men ser generellt inget behov av ytterligare och överlappande lagstiftning. Svenska kraftnät vill understryka betydelsen av det omfattande samarbete som redan pågår mellan ENTSO-E, ACER, Nationella tillsynsmyndigheter (NRA), systemansvariga transmissionsnätägare (TSO:er) och elbörser för att nå målet om en gemensam europeisk elmarknad med fokus på konsumentens nytta. Allt enligt det tredje elmarknadspaketet och nätkoderna. Ytterligare lagstiftning riskerar snarare att fördröja måluppfyllandet. Ett långsiktigt och stabilt regelverk är angeläget om marknaden ska kunna utvecklas och anpassas på marknadsmässiga grunder. Dagens regulatoriska osäkerhet med nationella initiativ och framväxt av vitt skilda kapacitetsmekanismer i olika länder riskerar att allvarligt störa konkurrensförhållanden och handelsflöden. Svenska kraftnät kan därför se nytta med kompletterande lagstiftning som rör marknadens design t.ex. när det gäller styrning av elbörserna och harmoniserade stödsystem för att främja förnybar produktion. För att skapa en riktig inre marknad behövs en bättre koppling till slutkundsmarknaden. Denna koppling saknar tillräckliga förutsättningar idag. En aktivering av konsumenter förutsätter också att de nås av prissignaler och därmed kan bidra till efterfrågeflexibilitet. Den utveckling som pågår innebär att kraftsystemet blir mindre robust när stora planerbara produktionskällor ersätts av små väderberoende. Svenska kraftnät instämmer i att den nuvarande energy only marknaden behöver justeras för att hantera de förändringar som nu pågår. Marknaden prissätter energi och frågar inte efter effekt, vilket lett till ett energiöverskott som pressar ned elpriset och konkurrerar ut den planer- 1/12

2 bara produktionen som levererar effekt. I tillägg subventioneras idag det som inte behövs, energiproduktion vilket snedvrider marknadens funktion. Volatila priser är nödvändigt för att aktivera slutkunder/konsumenter och stimulera efterfrågeflexibilitet. Det är dock inte självklart att konsumenterna och de politiska systemen i EU:s medlemsländer är beredda att acceptera den ökade prisvariationen med tidvis mycket höga elpriser som skulle behövas för att ge tillräckliga incitament för kapacitet och ökad andel förnybart. Harmoniserade stödsystem som inte snedvrider prisbildningen är positivt, eftersom det kan minska onödiga flöden över nationsgränserna som kräver nätförstärkningar och operativa åtgärder i grannländerna. Om kapacitetsmekanismer införs för att hantera ett tillfälligt och akut behov är det viktigt att de inte utformas på ett sätt som hindrar framväxten av faktiskt marknadsbaserade lösningar (typ efterfrågeflexibilitet) eller cementerar behovet av subventioner. Svenska kraftnät anser också att flexibilitet hos förbrukningen kommer att utgöra en viktig del i elmarknadens funktion och för att kunna balansera systemet. Svenska kraftnät tror dock inte att detta kommer att räcka, utan det kommer också att behöva tillföras planerbar produktion i någon form. Svenska kraftnät anser inte att regionala driftkontrollcentra s.k. Regional Security Cooperation Initiatives (RSCi) ska utvecklas till självständiga kontrollcentra. Ett mer effektivt nyttjande av de sammankopplade kraftsystemen i Europa bör istället nås med hjälp av ökad regional koordinering och tätt samarbete mellan TSO:erna. TSO:erna bör ansvara för den nationella driftsäkerheten utifrån de särskilda lokala förutsättningarna men med sikte på en regionalt nytta. I Norden har TSO:erna samarbetat effektivt för den nordiska elmarknadens och driftsäkerhetens bästa utan att det nationella ansvaret för driftsäkerheten varit ett hinder. Svenska kraftnät instämmer i att samarbete mellan TSO:er och DSO:er är av betydelse för att möta en ökad andel förnybar energi och ökad förbrukningsflexibilitet. Nätkoderna förutsätter att varje land förutom en nationell systemansvarig också har delsystemansvariga som ges vissa arbetsuppgifter inom systemhållningen. Så är vi inte riggade idag med bara regionnätsägare. Svenska kraftnäts tycker att ACER redan har ett tydligt legalt mandat men ser det som en fördel om ACER kan agera som en facilitator när det gäller NRA:ernas beslutsprocesser och den koordinering mellan NRA:erna som CACM och övriga koder kräver. 2/12

3 Svenska kraftnäts anser inte att ENTSO-E:s roll behöver stärkas legalt men ser däremot positivt på ett ökat samarbete mellan TSO:erna inom och mellan regionerna. Det kan göras utan utökat mandat. Questions and answers Linking wholesale and retail markets to deliver a new deal for consumers 1) Would prices which reflect actual scarcity (in terms of time and location) be an important ingredient to the future market design? Yes. Market design should ensure that electricity prices accurately reflect power system scarcities and externalities such as adequacy, location, etc. This will allow rewarding or charging market parties according to their contribution or burden provided to the system. Wholesale price spikes and increasing volatility which may emerge as a result of prices reflecting actual scarcities should be complemented by effective regulatory oversight to avoid market manipulation and improve investment signals. An important issue is the need of public/political acceptance of scarcity prices. Competition between suppliers, rather than regulated prices, should shield consumers from high prices. Would this also include the need for prices to reflect scarcity of available transmission capacity? The wholesale and end-user prices should also reflect scarcity of available transmission capacity. The transmission capacity constraints can adequately be reflected by bidding zones configuration and price differences between zones when transmission capacity is fully utilized or through redispatching within and across bidding zones. Hence there is no need for handle the scarcity price separately. Traders should not need to bother about transmission as such as the bidding zone prices reflect it. 2) Which challenges and opportunities could arise from prices which reflect actual scarcity? Opportunities: Increased investment incentive for flexible generation, storage or demand response, especially if prices rise to reasonably high levels frequently enough, trigger the development of the hedging dimension of the market to manage volatility risks. Increased value of grid connections between zones with highest/most frequent price differences. 3/12

4 Challenges: Extremely high prices could create risks difficult to manage for some parties, in particular small market participants and difficulties for public/political acceptance of high prices. Further, it might lead to energy surplus and scarcity of capacity. How can the challenges be addressed? The challenges can be met by incentivizing all market participants to contribute to solving the system scarcities for which they are responsible and by increased demand side flexibility, promoting energy storage and price hedging contracts. Could these prices make capacity mechanisms redundant? Prices reflecting actual scarcities are a prerequisite for increased demand side flexibility and for incentivize investments in generation. However, today it seems that the energy only market is not sufficient to ensure adequacy. A transitional solution that valuates power and/or flexibility might be needed to ensure adequacy. 3) Progress in aligning the fragmented balancing markets remains slow; should the EU try to accelerate the process, if need be through legal measures? Svenska kraftnät believes in general that any additional measures may delay rather than accelerate the process. The progress towards regional cooperation and integration for balancing markets varies significantly between different regional systems as they are facing different challenges. Harmonization of the balancing markets is a key step on the way towards reaching the target model. The NC EB should provide the basic framework for this harmonization across the member states and regions based on its timely implementation. However, the experiences from the early implementation projects should be monitored in order to ensure progress in the step wise approach that is foreseen in the code. 4) What can be done to provide for the smooth implementation of the agreed EU wide intraday platform? A smooth implementation of the cross border intraday project (XBID) can be provided if the NRA s support the project. NRA s should ensure the smooth approval of methodologies requested by GL CACM as well as the XBID costs associated with the European wide implementation of the platform. 5) Are long-term contracts between generators and consumers required to provide investment certainty for new generation capacity? 4/12

5 No. Hedging products are a crucial feature of the future market and investment incentives. However, it is not a prerequisite. It should be noted that distinctions should be made between direct delivery contracts between generators and consumers on the one hand and more general risk hedging products on the other hand. Preferable, the power trade should take place in an open market and the long term contracts should not hamper the (physical) wholesale market. What barriers, if any, prevent such long-term hedging products from emerging? The main barriers to the development of risk hedging products in Europe currently are the lack of adequate price signals, the existence of regulated prices and asymmetries for the risk between the generators and suppliers/consumers. Further, extensive regulation related to reporting and financial obligations are substantial cost drivers and work as barriers on the financial market. Hedging products will emerge in the market (offered by the power exchanges/clearing houses) if the necessary preconditions are set. To ease that process, one should strive for political and legal stability. For example one should go for full implementation of the third market internal market package inclusive the network codes before taking any additional legal measures, as it hampers investments and prerequisites for long term contracts. Is there any role for the public sector in enabling markets for long term contracts? If general hedging products do not emerge, governments and regulators could facilitate this by introducing capacity obligations on market participants until products are development. 5/12

6 6) To what extent do you think that the divergence of taxes and charges10 levied on electricity in different Member States creates distortions in terms of directing investments efficiently or hamper the free flow of energy? To a large extent. A high level of taxes and charges limits the non-regulated part of the electricity price relatively reduces the incentives to react and dynamically to price signals. The costs associated with renewable energy support schemes are charged and taxed in various ways in different member states. This impacts negatively the functioning of the market and the effectiveness of the market price signals leading to new (unnecessary) flow paths of electricity often beyond national borders which require network investments and operational measures in neighbouring member states. 7) What needs to be done to allow investment in renewables to be increasingly driven by market signals? Investments in mature renewables should be driven by EU Emissions Trading System. Renewables support should be limited to immature technologies and be in addition to market prices, not replaces them. Further, one should promote a high degree of governance and flexibility in the support schemes. Renewable generation should as long as possible bear its own costs in order to give proper and balanced price signals. 8) Which obstacles, if any, would you see to fully integrating renewable energy generators into the market, including into the balancing and intraday markets, as well as regarding dispatch based on the merit order? There are no real obstacles for intraday market. Participation to intraday markets is an opportunity for renewables generators who need to rebalance their positions. However, it is of importance to have gate closure as near the delivery hour as possible in order to promote renewables generators. With regard to balancing existing technical obstacles can be managed by a gate closure time closer to delivery hour in order to facilitate renewable generators when forecasting their generation. A gate closure time closer to delivery hour will also improve the TSO s possibilities to calculate adequate transmission capacities leading to less need for dispatch. With regard to dispatch based on merit order there are no real obstacles. 9) Should there be a more coordinated approach across Member States for renewables support schemes? 6/12

7 Yes, it definitely would benefit locational efficiency of investments in both short and long terms. It would also decrease the distortions between the different markets and member states. What are the main barriers to regional support schemes and how could these barriers be removed (e.g. through legislation)? The main barriers are different approaches and levels of support schemes of renewables among the member states stemming from different goals, obligations, and solutions. The least distortive way to support renewable energy lies in higher CO2 prices. 10) Where do you see the main obstacles that should be tackled to kickstart demand- response (e.g. insufficient flexible prices, (regulatory) barriers for aggregators / customers, lack of access to smart home technologies, no obligation to offer the possibility for end customers to participate in the balancing market through a demand response scheme, etc.)? The main obstacles lie in insufficient volatility in market prices (including all market time frames) and in regulated prices. It should be acknowledge that units in the concept Demand Side Response have different pre condition and hence more or less suitable for different time frames. Prices signals towards the end consumers should cover the whole chain of time frame. The balance market may also be seen as complex to participate in as there are technical and IT-technical preconditions to be met. In addition the existing rules are often set due to historical reasons, e.g., volumes of bids and Balance Responsibility Party versus Balance Service Provider, i.e. an aggregator. The existing solution for System management and Balance Responsibility Parties in Sweden does not support the idea of aggregator with consumption covered by several Balance Responsibility Parties. A number of shortage situations with high prices and lost load would kick-start the incentives for investments in smart grid activities. Stepping up regional cooperation in an integrated electricity system 11) While electricity markets are coupled within the EU and linked to its neighbours, system operation is still carried out by national Transmission System Operators (TSOs). Regional Security Coordination Initiatives ("RSCIs") such as CORESO or TSC have a purely advisory role today. Should the RSCIs be gradually strengthened also including decision making responsibilities when necessary? Svenska kraftnät thinks that the full decision making responsibility in system operation should remain with the TSO s. The establishment of regional control centres with 7/12

8 decision making responsibility would bring more risk than benefits to consumers as it would require a review and change of the existing technical and operational practices and new role and responsibilities of the national control centres, and increased complexity of the processes while introducing operational risks. In all cases it is necessary to set up the RSCI s and have them up running according to the forthcoming NC before any further responsibilities can implemented. Is the current national responsibility for system security an obstacle to cross-border cooperation? No. Our experience from the integrated Nordic market is that the national responsibility in system security is not an obstacle to cross border cooperation. However, as Svenska kraftnät s transmission grid does not include the 130 kv while this is the case for the other TSO s there might be some challenges when it comes to operational security and capacities. Would a regional responsibility for system security be better suited to the realities of the integrated market? No. The establishment of regional control centres with decision making responsibility would bring more risk than benefits to consumers as it would require a review and change of the existing technical and operational practices and new role and responsibilities of the national control centres, and increased complexity of the processes while introducing operational risks. 12) Fragmented national regulatory oversight seems to be inefficient for harmonised parts of the electricity system (e.g. market coupling). Would you see benefits in strengthening ACER's role? Svenska kraftnät does not see the need for substantial changes in ACER s legal mandate and role. However, we see benefits with stronger cooperation among the NRA s and a clear role for ACER as a facilitator among NRAs for cross border projects and joint regional NRA decision processes as foreseen in the network codes all NRA s decision. 13) Would you see benefits in strengthening the role of the ENTSOs? How could this best be achieved? What regulatory oversight is needed? No, Svenska kraftnät does not think the role of ENTSO-E needs to be strengthened. However, we see benefits with a stronger cooperation among the TSOs. 14) What should be the future role and governance rules for distribution system operators? How should access to metering data be adapted (data handling and ensuring data privacy etc.) in light of market and technological developments? Are additional provisions on manage- 8/12

9 ment of and access by the relevant parties (end-customers, distribution system operators, transmission system operators, suppliers, third party service providers and regulators) to the metering data required? With increasing local renewable generation, the traditional role of the Distribution System Operators (DSOs) is evolving. The DSO is becoming more of an active grid manager rather than being a passive recipient of energy from the transmission system. This means that the DSO will need to coordinate more frequently with the TSO to ensure the effective and efficient management of the grid. As levels of variable generation increases and demand levels become more fluid the TSO and DSO will require system services and flexibility to maintain a secure grid. 15) Shall there be a European approach to distribution tariffs? If yes, what aspects should be covered; for example tariff structure and/or, tariff components (fixed, capacity vs. energy, timely or locational differentiation) and treatment of self-generation? Svenska kraftnät believes the distribution tariffs should be cost reflective and facilitate an efficient grid development. It might be beneficial to have harmonized tariff structures given these conditions. However, it is not top priority. 16) As power exchanges are an integral part of market coupling should governance rules for power exchanges be considered? Yes, it is crucial that the power exchanges are appropriate regulated in relation to the kind of activity they perform. For the majority of their activities, power exchanges operate in a competitive market environment and are already subject to regulatory oversight by NRAs (financial or energy regulators). For this part, the regulatory oversight should suffice. With regards to the specific activity of market coupling operators, the regulation on CACM defines the areas where NEMOs need to cooperate and where NEMOs should compete. Power exchanges involved in the coupled spot market have a de facto monopoly role due to their exclusive access to the border capacities and the benefits from increased liquidity. Therefore, the power exchanges spot markets activities should be considered as a monopoly business which require regulatory oversight and clear mechanisms for cost recovery. There are areas in CACM where the role of individual NRAs is not clear or consistent. One example for this is the cost recovery mechanisms via TSOs. ACER could take a stronger role and asses the line of competition versus cooperation between the power exchanges in market coupling operation. In particular the possibility power exchanges 9/12

10 to compete with each other e.g. in the same bidding zone needs careful reconsideration. The potential benefits of such competition have to be compared with the associated costs which are usually to be borne by TSOs and the end consumers, and the lack of regulatory control. A European Dimension to security of supply 17) Is there a need for a harmonised methodology to assess power system adequacy? Yes, a harmonized methodology could support improved decision on market design and required investments. It must, however, be stressed that the methodology must be general enough to properly asses all parts of the European grid, with their differences in grid topology and generation mix. 18) What would be the appropriate geographic scope of a harmonised adequacy methodology and assessment (e.g. EU-wide, regional or national as well as neighbouring countries)? Svenska kraftnät prefers a regional scope. This would allow for neighboring countries to make coordinated assessments. The regional scope could preferably be based on the countries with the same electric synchronic system. If analyses are to be made on a pan-european level it is important that that they take into account the national and regional analyses and that it is made flexible enough to include the differences between regions. 19) Would an alignment of the currently different system adequacy standards across the EU be useful to build an efficient single market? Svenska kraftnät does not think this is necessary. While there are clear benefits in defining common adequacy indexes, a harmonization of their values or standards would contradict customer benefits. Nevertheless, we do see possible issues deriving from highly divert adequacy standards across Europe and within regions which need to be addressed: market distortions, free riding or implicit cross-subsidies between member states. For this purpose, the role of solidarity in Security of supply needs to be defined within a pan-eu coherent framework. Member States shall stay in control of the integration process to ensure its acceptability. It should be understood that although the assessment of adequacy is best performed at regional & pan-eu level, the deployment of measures to manage scarcity is/should be determined by the national specificities of the generation mix in each member states and the detailed knowledge of the national power system by each national TSO. 10/12

11 20) Would there be a benefit in a common European framework for crossborder participation in capacity mechanisms? If yes, what should be the elements of such a framework? Would there be benefit in providing reference models for capacity mechanisms? If so, what should they look like? A capacity market is the last resort, and should be avoided if possible, since it adds more subsidies to the market, thus blocking market development. A European framework and reference models for capacity markets may be interpreted as a general goahead for capacity markets and is not desirable as such. In case only a few countries develop capacity mechanisms there are no need for a common framework but in the case that more countries are interested in capacity mechanisms it could be useful to present one or a few reference models. We believe common guiding principles, and not criteria, should be shared to inform the design of capacity mechanisms, if they are required. In our opinion, the main principles which have to be respected by any capacity mechanism are: necessity, regional compatibility, cross-border contribution to security of supply, market wide remuneration, coherency, level playing field, presence of exit criteria, cost efficiency, forward looking, commitments to deliver capacity. A limited capacity mechanism such as the Swedish Peak load resources (Strategic reserves) is a strictly national matter. Svenska kraftnät foresees a need for a mechanism that give incentives to investments in capacity and hence price power rather than only energy. 21) Should the decision to introduce capacity mechanisms be based on a harmonised methodology to assess power system adequacy? In general, ENTSO-E recommends an evidence based market design as a good practice to ensure that market rules are targeted to address real security of supply issues. Basing the introduction of capacity mechanisms on adequacy assessments is recommended and there are benefits in performing coordinated assessments in order to consider the international dimension. However, it should be acknowledged that although the assessment of adequacy is best performed at regional and pan-eu level, the deployment of measures to manage scarcity is/should be determined by the national specificities of the generation mix in each member states and the detailed knowledge of the national power system by each national TSO. There is a lack of clarity in what the concept capacity mechanism includes or should include. A limited capacity mechanism such as the Swedish peak load resources (stra- 11/12

12 tegic reserve) is a national matter. Introduction of non-discriminatory capacity market should be a national decision. It is important that the responsible party for system operations has the authority to influence the situation within its remit, such as choosing the methodology to ensure power system adequacy. 12/12