Recap of open issues Intraday, transparency and hedging - PowerPoint Presentation

1. Recap of open issues Intraday, transparency and hedgingNordic CCM Stakeholder Meeting July 1, 2021Ulrik Møller ULM@energinet.dk

2. IntroductionNordic stakeholders have raised concerns on three elementsIntradayPerception is that FB including the non-intuitive flow will decrease amount of cross zonal capacity for ID trading, thus not delivering the flexibility the ID market is intended forHedgingPerception is FB, including the non-intuitive flows, will lead to severe complicated price formation and thus decrease in liquidity of e.g. EPADSTransparencyPerception is that TSOs will not publish sufficient grid data in order to secure transparency

3. ID capacity: transitional solutionIntroducing FB at the same time in the DA and ID timeframe is practically not possible This means that when FB DA goes live a transitional ID ATC solution will be used.In the sequel the transitional solution will be touched uponThe actual workings of ATC extraction will also be shown in the report to NRA on the 3 month parallel run

4. ID capacity: transitional solutionIn the ID transitional solutionID ATC capacity is provided at gate opening for the ID continuous tradingThe ATC capacity is extracted from the DA FB domain and reflects the DA left-over capacityD-1D15.00ID gate openingID continuous trading (NTC / XBID)Common Grid ModelD-2DA left-over capacityID Transitional

5. ID capacity: transitional solutionHow is the intraday market supposed to work and still deliver flexibility to the Nordic TSOs and market participants?In the ID transitional solutionID ATC capacity is provided at gate opening for the ID continuous tradingThe ATC capacity is extracted from the DA FB domain and reflects the DA left-over capacitythis invokes the following question: to what extent is there a mismatch between the DA FB and the ID ATC and an efficiency loss due to the transition from FB to ATC? This will be elaborated upon the next slides.ID TransitionalID Transitional

6. ID capacity: transitional solutionDA FB > ID ATCAs long as the ID allocation is not able to cope with FB constraints, the ATC capacity is extracted from the DA FB domain and reflects the DA left-over capacity to be used in the ID marketID TransitionalID TransitionalD-2 CGMDA capacity calculationFB parameters(PTDFs and RAMs)and DA MC outcomeATC extractionID allocation-300-200-1000100200300400-400-300-200100200300400-1000Exchange(A>C)Exchange(B>D)ATCdomainFB / linearized security domainATC(B>D)ATC(D>B)ATC(A>C)ATC(C>A)

7. ID capacity: transitional solutionDA FB > ID ATC and non-intuitive flowsAccording to the ACER decision (No 04/2020 published on 30 January 2020) on the non-intuitive flows, the FB MC shall allow non-intuitive flowsStakeholders mentioned that “non-intuitive flows inevitably will lead to arbitrage situations”.If the DA market ends up with non-intuitive flows, this is due to congestion(s) somewhere in the system (i.e. CNE(s) are fully loaded). As there is a congestion in the system, on all directional borders that would further load the congestion will not have any additional capacities; As such, no arbitrage options will appear on these directional borders. ID TransitionalID Transitional

8. HedgingProvided a sufficient level of transparency (see next slide), it’s the assessment of TSO that FB may not lower the liquidity of the financial market:The key solution must be for the market players to have a fundamental model that can apply FB in order to be able to forecast future spot prices, and thus been able to put a meaningful price at EPADsGiven at proper designed and calibrated fundamental model, non-intuitive flows should not pose a problem in terms of forecasting as this will be taken care of by the “PTDF set-up” in the modelThe market design is still on the zonal level.  No structural changes in terms of bidding zone configurations (bidding zone definition, bidding zone borders and the prices on the bidding zone level).However, the TSOs acknowledge that calibrating the model might be difficult due to lack of data, e.g. PTDFs will change hour by hour and is a function of a complicated CGM model

9. TransparencyStakeholders apply grid data in order to forecast spot pricesTwo kind of data are applied:The result of LT CC and outage management via NUCS (ex-ante data)The historical data from the market operation (ex-post data)Ex-ante data can be directly applied in forecasting modelsEx-post data can be applied to statistical analysis, which in turn, the results from this, can be applied in forecasting modelsThe prerequisite for this is the access to these data, which might face certain barriers, at FB go-live:Nordic RSC will not be ready with a perfect solution for LT CC and data for NUCS National regulations may hinder publication of data, e.g. more specific location of internal CNEs on a lower resolution than BZ level

10. AnnexProblem statements

11. Problem StatementsIntraday (ID)Statement 1: How is the intraday market supposed to work and still deliver flexibility to the Nordic TSOs and market participants?Sub-question: How is flexibility defined and will the room for flexibility decrease and is this an economic efficiency problem given a certain reference for comparison (what is the reference)?Statement 2: TSOs: “No arbitrage should be possible with a non-intuitive flow  0 MW in ATC capacity will be given in the intuitive direction.”With zero capacity, Market participants are locked-in intraday:More and more intermittent power creates a need to trade over borders closer to deliveryImbalance to be covered by regulation in same bidding zone – restrict the free market’s ability to actively offer flexibility, and rely more heavily on a reactive system operationMarket participants will adapt to the day ahead bid knowing the risk for being locked-in IDSub-questions:FB DA and ID ATC: can non-intuitive flows lead to arbitrage?Is zero ID capacity on certain borders a problem in terms of economic efficiency, given a certain reference for comparison (what is the reference?)?Is a more optimized (FB) DA market at the expense of the ID market? Can a quantitative or qualitative statement be made on the socio-economic impact of introducing DA FB including the ID impact as well?

12. Problem StatementsHedgingStatement 1: We perceive a risk that EPADs are not a sufficient hedging instrument after introducing non-intuitive version of FB. Long-term transmission rights might also not work in combination with non-intuitive flows in the DA market.Sub-questions:How do you apply the apply the “tool” hedging and what need does it cover?What is a sufficient hedging instrument?Why would EPADs and LTTRs not work in a FB setting where non-intuitive flows can occur?Statement 2: Impacts to the financial market and hedging possibilities are not covered in the studies performed by the TSOs up to date.Sub-questions:What impact would you like to have assessed?If you could define such a study, what would be assessed, and how (quantitatively or qualitatively)?

13. Problem StatementsTransparencyStatement 1: The minimum level for transparency (related to both input and output data) in the Nordic countries should be the same as in CWE region today. This implies e.g. that the TSOs should publish also information on the location of the internal critical network elements with permanent identifiers. If one a more TSO does not publish this information, it is impossible for market participants to understand, explain and forecast the market results – only TSOs have the necessary data to do this.Sub-question:How do you apply grid info today and how do you foresee to apply it in the future FB set-up?Why is a permanent identifier needed to understand, explain and forecast the market results?Statement 2: TSOs: What would be the socioeconomic cost of lower transparency and lost confidence in the market price?Sub-questions:Why is the transparency of FB considered to be lower than the current NTC?