Energinet.dk's ancillary services strategy 2015-2017
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1.
Introduction
In August 2014, Energinet.dk published its group strategy plan for 2015-2017
entitled 'Integration'. This ancillary services strategy should be seen in light of
Energinet.dk's group strategy plan and explains how the ancillary services area
can contribute to meeting the three commitments set out in the strategy plan:
-
We guarantee a high level of security of supply for electricity and gas – now
and in the future
We take responsibility for an economically viable transition
We contribute to a healthy investment climate in the energy sector.
We have chosen to focus on ancillary services in a separate strategy because
ancillary services play a significant role in the development and operation of the
power system and thus in ensuring Energinet.dk's ability to meet its commitments.
The strategy was prepared in autumn 2014, with the involvement of market
players and other stakeholders. In addition to the strategy, a memo has been
published which describes this process and provides further background and
framework for the strategy, thus putting the strategy into perspective1.
The new strategy is based on the basic framework defined in the ancillary services strategy 2011-2015 and considers the overall efforts towards 2020 as well
as specific initiatives in 2015-2017 in line with the group strategy plan.
2.
Energinet.dk's ancillary services principles
From an overall point of view, Energinet.dk's objective is to ensure wellfunctioning markets and procurement of ancillary services, thereby facilitating
sales for Danish players and ensuring access to the necessary resources.
The energy system is currently undergoing significant changes; a trend which
will continue in future. Fluctuating renewable energy from wind turbines and
solar cells is being introduced into the power system to an ever-increasing extent. This places considerable demands on Energinet.dk's handling of the power
system, including in particular the balancing of the system, where ancillary services constitute an important element.
The phasing out of power stations as a consequence of the fact that an everincreasing portion of the electricity consumption is being covered by wind and
solar energy poses a special challenge. The power stations have traditionally
been, and still are, important suppliers of ancillary services. Energinet.dk therefore focuses on ensuring that the necessary functionality can be procured in an
economically optimum manner, despite the declining number of power stations,
eg from wind turbines, the demand side, international connections and grid
components.
1
Available in Danish only
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With a view to addressing these challenges, we centre the strategy on three
principles:
-
-
-
Internationalisation, which offers the opportunity to procure ancillary
services abroad while strengthening Danish suppliers through improved
sales opportunities.
Competition, including providing better opportunities for new technologies
and suppliers to participate in the markets and ensuring that all major supplies to the power system are priced correctly.
Transparency, including providing better insight for the market players
into Energinet.dk's internal processes and making more information about
the markets available.
High level of security of supply
Efficient transition
Healthy investment climate
Transparency
Competition
Internationalisation
Ancillary services strategy
Figure 1 Three principles underpinning Energinet.dk's commitments.
The three principles map the direction of the future work with ancillary services.
At the same time, we define specific initiatives in the strategy which underpin
the principles, but we also emphasise that it may be necessary and expedient to
reconsider these over the course of the strategy period, as new opportunities
arise or framework conditions change. The principles above will then form the
framework for new and/or adapted objectives.
We believe that all three principles are equally important, and the order in which
they are mentioned should therefore not be seen as a reflection of any prioritisation of the principles relative to each other. In the following sections, the specific
initiatives within each principle are described. Each initiative is stated in a text
box and is consecutively numbered. In conclusion, an overview is provided of
the timing of the initiatives.
3.
Internationalisation
3.1
Long-term objective
Energinet.dk believes that international markets for ancillary services are a viable way of ensuring a high security of supply at the lowest possible economic
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costs. This results in more liquid markets with good competition and robustness
to changing needs and technological possibilities. This is also in line with the
EU's overall ambitions to develop a coherent European energy market.
Energinet.dk continuously assesses the opportunities for exchanging and sharing
reserve capacity across borders and assesses on the whole how reserve capacity
should be dimensioned and procured in an ever more closely connected European power system with very large concentrations of wind and solar energy at
local level. As concerns the establishment of joint reserve capacity markets, the
coming network codes2 set out the direction. The network codes will enter into
force during the strategy period 2015-2017, with a subsequent implementation
period. We therefore believe that the efforts should focus on a gradual implementation of the network codes through pilot projects and bilateral/regional
cooperation.
The issue of transmission capacity reservation is a key element in the long-term
vision of coherent reserve capacity markets. The network codes mention various
methods of handling reservations in a market perspective, among other things
the possibility that players can make the reservations. Energinet.dk sees it as a
positive aspect that the possibility of reservation is available and will, based on
economic assessments, consider this possibility, where relevant. As there is no
immediate short-term possibility of making reservations on the existing connections, Energinet.dk has no plans of making any further transmission capacity
reservations during the strategy period in addition to the reservations already
made.
3.2
Energinet.dk's efforts in the short term
Energinet.dk is involved in various international cooperation projects with a view
to establishing and maintaining alliances that are a condition for concluding
agreements and establishing international trading in ancillary services. Energinet.dk will maintain and strengthen these efforts going forward.
1
Energinet.dk will continue to pursue structured efforts to strengthen alliances with the most important TSOs with a view to establishing common markets for ancillary services.
Examples of this could be:
-
The close cooperation with the Nordic TSOs
Bilateral semi-annual workshops with the neighbouring TSO
TenneT in Germany
IGCC.3
As concerns FCR4, Energinet.dk's objective is to establish trading across price
and synchronous areas. This does not require reservation of transmission capac2
Rules for a common European power market. See http://networkcodes.entsoe.eu/.
3
IGCC = International Grid Control Cooperation; cooperation on the netting of imbalances with the
potential for expansion into further trading. In addition to Denmark, Germany, Austria, Switzerland,
the Netherlands, Belgium and the Czech Republic participate in the cooperation.
4
FCR = Frequency containment reserve; fast reserve capacity that stabilises the frequency in the
event of outages in the power system.
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ity, as such reserve capacity is normally only activated for short periods of time
and therefore involves the supply of insignificant energy volumes.
For AC connections, the exchange may take place within the existing margins on
the connection. This has already been established in Eastern Denmark which, via
Oresund, is part of a joint Swedish/Danish market. There are no plans to introduce changes in this market, but an ongoing analysis of the Nordic frequency
quality might result in adapted product definitions, including in particular response time requirements. As concerns Western Denmark, a similar solution is
expected to be established on the Jutland-German interconnection (initiative 2).
For DC connections, Energinet.dk will investigate the possibilities of exploiting an
additional short-term load capacity, if any, for the exchange of reserve capacity
(initiative 3). In 2015, the supply of primary reserve capacity from Norway via
the interconnection between Jutland and Norway (Skagerrak) functions as the
basis for experience gathering and for assessing whether establishing similar
solutions on other interconnections would be possible and expedient.
2
Energinet.dk will establish the possibility of Danish participation in
the common market for FCR with Germany, the Netherlands, Switzerland and Austria.
At the beginning of 2015, a test project will be carried out using a
new model for calculating TRM5 on the Jutland-Germany interconnection, which will be used to transfer the reserve capacity.
The further process depends on the outcome of this test project.
Energinet.dk's objective is Danish participation in the common
market by 1 January 2016 at the latest. This requires that the TRM
test project is successful, and that the German regulator, the Federal Network Agency for Electricity, Gas, Telecommunications, Post
and Railway (Bundesnetzagentur), is subsequently willing to approve the interconnection between Jutland and Germany for trading
in FCR.
3
Energinet.dk will investigate the economic benefits of and technical
opportunities for establishing trading in frequency-controlled reserves via DC connections without reserving transmission capacity
on the connections, eg supply of FDR from Western to Eastern
Denmark.
The initiative will be launched at the beginning of 2016 based on
experience from the exchange of reserve capacity across the Skagerrak interconnection and is expected to be completed in October
2016. One or more implementation projects may follow after this,
depending on the outcome of the analysis.
As concerns FRR6, Energinet.dk will implement more initiatives aimed at the
international markets. In the Nordic countries, concerted efforts are being de5
TRM = Transmission reliability margin; a safety margin incorporated in the assessment of available
capacity to cover current minor imbalances caused by, for example, short-term forecasting errors.
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voted to establishing a common market for both FRR-A capacity and activation
(initiative 4). Towards the Continent (Germany), Energinet.dk is initially working
to open up for cross-border trading in FRR-A and FRR-M activation (initiative 5
and initiative 6, respectively). Such activation takes place at the time of operation and can be made across borders in the cases where unused transmission
capacity is available in the desired direction. Trading in FRR activation thus does
not require advance reservation of transmission capacity, as the activation can
be carried out nationally if the connection is already being fully utilised by other
trading.
This has the immediate effect that competition is achieved on the activation
price and potentially larger markets are obtained for the suppliers. In addition, it
has the effect going forward that it will contribute to interconnecting the markets
internationally, despite the fact that reserve capacity cannot immediately be
traded. The way is thus being paved for a future linking of the markets, also in
terms of capacity.
The challenge in establishing cross-border trading in FRR to Germany is that the
German market model for these products excludes players that have not obtained availability payment from bidding on the activation. In order for Danish
players to be able to bid on the activation, the German market design must thus
be adapted with a view to opening up for 'voluntary bids'. The schedules for
these activities are subject to uncertainty, but may be driven by the implementation of the network codes, which propose requirements for the use of free
bids.
4
Energinet.dk will contribute to establishing a common Nordic FRR-A
market.
A joint Nordic solution for FRR-A capacity is expected to be established in 2016, but it is uncertain, however, how transmission capacity limitations should be handled in this market, and thus uncertain how large volumes Danish players will be able to offer in the
market. A pilot project concerning reservation of FRR-A capacity is
currently being conducted on the Hasle interconnector between
Norway and Sweden.
Trading in activation is expected to be established in 2017, which
will enable activation utilising unused transmission capacity.
6
FRR = Frequency restoration reserve; reserve capacity that is to eliminate imbalances within a
maximum of 15 minutes. Divided into automatic (FRR-A) and manual (FRR-M) reserve capacity.
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5
Energinet.dk will establish cross-border trading in FRR-A activation
in relation to Germany.
Under the auspices of IGCC, specifically, there is a potential for
'SCR assistance'7 and cross-border FRR-A activation, possibly with a
common bidding list. These options will be analysed in 2015, and
the further plans depend on the outcome of these analyses.
Until a significant demand for FRR-A has been secured which ensures that Danish players have an incentive to maintain the ability
to supply FRR-A, Energinet.dk will ensure maintenance of our supply ability through calls for tenders for FRR-A supply ability.
6
Energinet.dk will establish trading in regulating power (activation of
manual reserve capacity, FRR-M) between the Nordic and the continental synchronous area.
A pilot project under the auspices of ENTSO-E is currently analysing
the possibilities. In the event of a positive outcome of the pilot project, a specific market solution will be designed, IT systems will be
implemented and a test period will be commenced. The solution is
expected to be ready for market operation in mid-2018.
3.3
Consequences for Danish players
To support international market integration, Energinet.dk cooperates with other
TSOs on harmonising products and marketplaces. This may lead to Danish characteristics in the market design being abandoned, eg low limits for minimum bid
size and markets with high time resolution and short time frames. Energinet.dk
acknowledges that, in the short term, this may be to the disadvantage of some
of the Danish market players. We believe, however, that the participation in
international markets outweighs this disadvantage and that, in the long term,
the potential for exerting an influence on the international market is improved
by participating in the market as soon as possible rather than by remaining outside.
This is also true in relation to product definitions and technical requirements,
which Energinet.dk is working continuously to harmonise in cooperation with
other TSOs. Energinet.dk believes that this is a prerequisite for establishing
common markets and for establishing equivalent – though not necessarily identical – product definitions. In practice, this means that there may be slight differences between the technical requirements in different countries, which allows
for the establishment of competition across borders without disproportionately
high conversion costs for the players involved.
4.
Competition
It is a condition for well-functioning markets that sound competition can be established in the markets. In the coming strategy period, Energinet.dk will there7
Possibility for a TSO to automatically activate FRR-A regulating energy from another TSO in
strained situations.
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fore implement initiatives aimed at strengthening competition in the ancillary
services markets. The efforts are focused partly on valuation of the technical
services and properties required to operate the power system and partly on
opening the markets to new suppliers by removing barriers.
4.1
Valuation of technical services and properties
Energinet.dk will explore the possibilities of creating new ways of valuing technical services and properties in respect of which there is currently no or limited
competition.
This applies specifically to properties required to maintain power system stability, in which context Energinet.dk has purchased synchronous condensers that
partially cover the need for properties required to maintain power system stability. Energinet.dk has chosen this strategy for the purpose of reducing the economic costs of securing the properties required to maintain power system stability.
Going forward, the strategy in this area consists of two aspects: Investment and
operations:
-
-
In terms of investment, Energinet.dk still finds it appropriate to invest in
grid components as an integral part of the transmission grid, if the economic costs of ensuring the necessary properties in the system can be reduced.
In terms of operations, Energinet.dk may in certain operating situations
choose between using own grid components or purchasing similar properties as a service from a power station. Energinet.dk will therefore examine
the possibilities of establishing solutions for optimising the operating expenses across own grid components and commercial suppliers.
In this context, Energinet.dk will also establish mechanisms to ensure that the
need for properties required to maintain power system stability in all normal
operating situations is covered by own grid components and/or by an equivalent
service purchased on market terms. Alternatively, Energinet.dk could order
plants to be started up in order to supply the service; this is a tool that Energinet.dk believes should be used in rare cases only.
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7
Energinet.dk will analyse the possibilities of more market-based
purchasing of properties required to maintain power system stability. The analysis will cover two main areas:
-
-
Possibility of optimising operating expenses across commercial
suppliers of properties required to maintain power system stability and Energinet.dk's own grid components.
Reduction of forced operation (orders) by prioritising marketbased purchasing and/or the use of Energinet.dk's grid components.
The initiative will be launched in mid-2016 and is expected to be
completed by the end of 2016. Subsequently, a process of adapting specifications and technical regulations may follow, depending
on the outcome of the analysis. Initiative 10 forms the foundation
for this initiative and must be completed first.
In addition to the properties required to maintain power system stability, there
are certain technical properties and functions which are required today as part of
the technical regulations, but which may be in the nature of ancillary services.
Energinet.dk will therefore examine to which extent it is possible to determine
the value of these and define them as products/services that can be purchased
on an equal footing with other ancillary services.
8
Energinet.dk will analyse the possibilities for a new valuation of
services and properties that create value for the power system, and
that are not currently regarded as ancillary services.
In this connection, Energinet.dk will prepare an overview of Energinet.dk's need for technical properties and other functionality that
ensure the safe operation of the power system, including how this
need is covered through ancillary services and requirements in
technical regulations. The overview will serve as the starting point
for a discussion with stakeholders.
The analysis will be based on the findings and recommendations
from Market Model 2.0 and conducted in the second half of 2015,
with subsequent implementation of any new services in the course
of 2016, including method approval from the Danish Energy Regulatory Authority.
4.2
Focus on removing barriers
Energinet.dk believes that the markets for ancillary services should to the widest
possible extent allow all suppliers to participate, regardless of the technology
behind the production of a given service. It is important that there are no barriers which, in practice, keep some suppliers out of the market.
This could, for example, be flexible electricity consumption or wind power which,
due to the current market requirements, is experiencing barriers in relation to
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participating in the markets with services which they would physically be able to
supply. The purpose of opening the market for new suppliers is to increase competition in the market and ensure an adequate offering of services, also during
periods when the conventional suppliers are not available for various reasons. A
stronger market and lower economic costs would thus be achieved overall. It
should be noted that the purpose is not to promote some technologies at the
expense of others but, on the contrary, to lay down broadly defined market rules
that allow different technologies to participate on equal terms.
As mentioned in section 3.3, there may be a risk that harmonisation of product
specifications in connection with internationalisation may have an impact on the
market design which is inexpedient for some players in the short term. This is a
challenge that we are aware of and that we address by maintaining a close cooperation with other TSOs at all times in order to steer the international requirements in the desired direction.
9
Energinet.dk will review and possibly adapt the market rules with a
view to removing the barriers for new potential suppliers within the
framework provided by the international market harmonisation,
including future network codes.
This could, for example, include the possibility of establishing online
measuring at an aggregated level, or the possibility for a supplier to
supply services from several units with different balance responsible parties8. The identification of barriers will be carried out in cooperation with the Market Model 2.0 project in 2015.
Energinet.dk will carry out one or more pilot projects in which new
rules and requirements can be tested on a small scale, before any
roll-out to the rest of the market. The pilot projects are expected to
commence in mid-2015 and may continue until 2017. Any changes
in market rules will subsequently be implemented at the end of
2017.
5.
Transparency
As far as Energinet.dk is concerned, good market transparency consists of two
important aspects:
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Openness about Energinet.dk's internal division of responsibilities and
processes in light of Energinet.dk's important role as the only purchaser
of ancillary services in the Danish power system.
Information to market players on the condition of the market, including
access to information about traded prices and volumes.
These are reviewed in the following two sections.
8
A division of the roles of BSP (balancing service provider) and BRP (balance responsible party) is in
line with future network codes.
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5.1
Division of roles and processes at Energinet.dk
Over the past year, Energinet.dk has implemented organisational changes which
have resulted in separation of the framework-setting role and the operational
responsibility. In respect of ancillary services, this means that the design of procurement principles and marketplaces is separated organisationally from the
day-to-day operations involving the purchasing of ancillary services in the control centre. A balancing of a wide range of interests and needs takes place in
connection with the development of products and markets, whereas the control
centre which purchases ancillary services only takes the current technical requirements into consideration. This ensures that focus is maintained on economic, holistic considerations when setting the framework for the markets, and that
the operational decision does not involve any strategic choices.
The division ensures that decisions on development of the markets can be based
on a neutral balancing of the suppliers' interests vis-à-vis the interests in the
day-to-day system operation relative to a wide range of other stakeholders.
Legal
framework and
approvals
International
relations
Relations with other
markets
Long-term
development trends
Technical needs and
opportunities of the
power system
Economic optimisation
Strategy
Technical possibilities
and limitations vs.
economics
Product definitions
Other market rules
Suppliers
Seller
ANCILLARY
SERVICES
MARKET
Operational
considerations
Purchaser
Control
centre
Figure 2 Division of roles for the operation and development of ancillary services.
We have experienced that this separation is not always visible externally, and
that there is a general demand for greater insight into Energinet.dk's internal
procedures and priorities in relation to, for example, the identification of needs,
including the design of reserve capacity, which Energinet.dk performs every day
with a view to developing and operating the power system.
We would like to help eliminate any uncertainties about Energinet.dk's handling
of ancillary services and thus contribute to a healthier investment climate.
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Specifically, we recommend the following initiatives with a view to improving the
insight into Energinet.dk's 'engine room':
10
Energinet.dk will document relevant internal procedures for handling ancillary services9, including:
-
-
how the framework-setting role and the purchasing role are
separated in Energinet.dk's organisation10
principles and assumptions underlying the determination of
the need for different types of services, including reserve
capacity and properties required to maintain power system
stability
procurement principles and settlement
handling and communication in case of deviations from
normal procedures.
The initiative is expected to be completed in 2015 with a view to
publication in several stages. The first part of the separation of
roles in the organisation is expected to be announced at the end of
Q1 2015, and the other stages at the end of 2015.
5.2
Information for and about the market
Energinet.dk will ensure that information about markets and products within
ancillary services is continuously made available to the market players in a
structured form.
Under the auspices of the market player working group for ancillary services,
which was established at the beginning of 2014, information has been provided
on an ongoing basis about, for example, new calls for tenders and the general
status of the development of the markets. We have seen that the dialogue in
this working group is very positive and fruitful, and we would like to further
strengthen the dialogue with a wider circle of market players and other stakeholders by introducing a more formalised, continuous information flow.
9
The scope and level of detail may, if necessary, be limited by the restrictions which, for example,
legislation and international and commercial agreements place on the publication of sensitive information and methods.
10
This item is recommended in the electricity regulation committee's (Elreguleringsudvalget) final
report, December 2014.
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11
Energinet.dk will maintain the market player working group for
ancillary services and also implement the following initiatives for
improving market transparency. Energinet.dk will determine the
need for and the content of the individual initiatives through a dialogue with the market players and other stakeholders.
-
-
-
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Quarterly report on the ancillary services markets, with historical volumes and prices and descriptions of important events in
the markets.
Annual status report with follow-up on developments in the
past year and expectations for the coming year. This will include a schematic overview of the market volume for Energinet.dk's purchasing, for Danish players' sales opportunities
and for different types of ancillary services, as well as an overview of the use of transmission connections for transfer of ancillary services. It should be noted that Energinet.dk does not
prepare price forecasts for ancillary services, neither in the
short nor in the long term.
Process for uniform communication in the event of changes in
the market, eg new and/or changed products, changes in auctioning times etc.
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6.
Overview of initiatives
Initiative
Description
1
Structured efforts to strengthen international
alliances
2015
2016
2017
IGCC
Nordic cooperation + bilateral workshops
2
3
4
5
6
Common market for FCR (primary reserve
capacity) with Germany, the Netherlands,
Switzerland and Austria
Analysis of possible FCR via DC connections
Nordic market for FRR-A capacity and activation
Cross-border trading in FRR-A activation in
relation to Germany.
FRR-A supply ability maintained through calls
for tenders for supply ability
Trading in regulating power (FRR-M activation) between the Nordic and continental synchronous area (Germany)
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TRM testing, evaluation and
implementation
Experience with reserve capacity across the Skagerrak
interconnection
Market operation
Analyses
Implementation, if
relevant
Common Nordic market solution (FRR-A capacity)
Design and implementation
IGCC analyses
Method approval
Common bidding list (FRR-A
activation)
Potential for 'SCR assistance', common bidding list
(schedule uncertain)
Monthly calls for tenders for FRR-A supply ability
Design
Implementation
Test
(until mid2018)
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Initiative
Description
7
Analysis of the possibilities of more marketbased purchasing of properties required to
maintain power system stability (initiative 10
forms the foundation for this initiative and
must be completed first).
8
9
10
11
2015
2017
Analyses
Analysis of the possibilities for new valuation
of services and properties that are not currently regarded as ancillary services
Analyses
Adaptation of market rules with a view to
removing the barriers for new potential suppliers, such as flexible electricity consumption
and wind power
Documentation of Energinet.dk's procedures
for handling ancillary services (documentation
of separation of roles in the organisation at
the end of Q1 2015)
2016
Implementation, if relevant
Implementation, if relevant
Implementation
Analyses
Pilot projects
Org.
Other stages
Initiatives for improving market transparency
Determination of
need
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Quarterly reports and annual status report
Process for uniform communication
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