Update on Ofgem’s interconnector policy
consultation
FUI IG, London, 13th September
Consultation scope & responses
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•
Seeking views on:
– proposed models for the allocation of cross border transmission
capacity and efficient use of electricity interconnectors
– regulation of new investment.
We received 21 responses from interconnector owners, TSOs, energy
companies and other organisations
IC owners
TSOs
Energy
Companies
Organisations
IUK
National Grid
EON
AEP
Moyle
RTE
Centrica
APX
Britned
Eirgrid
EDF
Consumer Focus
Elia
RWE
Statnett
Statkraft
SSE
Mainstream Renewable
Power
Statoil ASA
IPR
Consultation conclusions
• Published summary of responses – July
– http://www.ofgem.gov.uk/Europe/Documents1/Summary%20
of%20Responses%20from%20Electricity%20Interconnector%
20policy.pdf
• Preparing “next steps” letter – for publication end September
– Sets out our next steps in:
• Market coupling in the FUI Region
• Tackling barriers to market coupling in GB (TNUoS,
Firmness, 2 power exchanges)
• Developing a new regulatory regime for interconnector
investment
Market coupling in the FUI Region
• Committed to implementation of the “enduring solution” for day
ahead market coupling of the FUI to the NW Europe Region
• Steps to achieve this:
– Britned to implement its “embedded solution” as an interim
step
– Support for and participation in the NWE TSO and PX projects
to develop a common algorithm to support price coupling
across the region
– GB to implement the enduring solution including both IFA and
Britned
– In the longer term, through cooperation of NRAs in the FUI
region, support extension of market coupling to include SEM
(All Ireland market)
Tackling barriers to market coupling in GB:
TNUoS Charging
• Problems highlighted by respondents:
– TNUoS charges create a deadband that prevents price
convergence in coupled markets
– Avoidance of “Triad” charge (demand TNUoS) causes inefficient
flows on interconnector
• Solution proposed:
– National Grid consulted over summer on complete removal of
TNUoS charge on Interconnectors
– Final conclusions published by National Grid 6th September
– Decision by Ofgem Authority expected by end of September
– If approved, changes to charging methodology effective 1st
October 2010.
Tackling barriers to market coupling in GB:
Firmness
• Share view of many other NRAs that:
– Implicit auctions require physical firmness as a prerequisite
– Physical and financial firmness should work towards delivering
the same outcome
• Recognise that Britned will be offering physically firm products
• Consistency with CWE’s approach to firmness i.e. financial
firmness after nomination of capacity
• Contributing to ERGEG work addressing firmness through the
framework guideline / network code process – leading to a
common European approach
Tackling barriers to market coupling in GB:
2 power exchanges
• Respondent highlighted existence of 2 PXs in GB as a potential
barrier to market coupling
• We've been considering how market coupling could be
implemented in GB..
• Possible solutions, already presented to IG...
• We believe it is technically possibly for two Pxs to deliver a single
a coupling solution
• TSOs, Pxs & IC owners should be part of a clear roadmap, for the
implementation of the enduring coupling mechanism
LT Coordination
•Coordination of LT auctions, key priority for the FUI region.
•In our letter we highlight the next steps agreed by FUI IG...
Intraday timeframe
•The increased amount of intermittent generation expected in GB and SEM
markets, places additional value to Intraday timeframe.
•Together with the Dutch NRAs, we are co-chairing, on behalf of FUI the
Regulator’s group of the NW ID project: ID market coupling solution by
2012.
•In parallel, once SEM introduces ID trading, FUI will develop coordinated
ID capacity products & work on the implementation of the ID coupling
model
Developing a new regulatory regime for
interconnectors
•Given that the preferred EU approach is a regulated model we are
developing a regulated investment regime for non-exempt interconnectors,
but remain open to the merchant route.
•Fully regulated approach would be a significant departure from our current
approach, requiring several changes to our regime and longer time to
implement.
•As respondents highlighted, the Cap and Collar model:
– maintains merchant investment whilst safeguarding consumers from
taking undue levels of risk.
– is a good compromise between the advantages & disadvantages of
the merchant and regulated models
Developing a new regulatory regime for
interconnectors
•Project “NEMO”, is our “pilot” project in exploring how cap and collar model
could be implemented in GB.
•Together with CREG, NG and Elia we aim to establish:
– High level principles behind the new regime
– Explore options for cap& collar design , satisfying these principles
– Implementation mechanisms required to adopt a cap & collar (eg
changes in the regimes on both sides)
Timeline:
•Proposal by the end of 2010
•Possible a joint consultation with CREG in 2011
Developing a new regulatory regime
for interconnectors
•While, NEMO will be our pilot project to develop a regulated regime, we
acknowledge that there are other ICs under discussion: e.g. links to France,
Ireland, Norway..
•We envisage holding similar discussions with relevant TSOs and regulators
to discuss if this approach could be seen as a high level solution for other
non-exempt ICs..
•We also remain open to the merchant route.Under FUI workstream on IC
investment, we intend to develop a coordinated approach towards
exemptions with other regulators...