VERBUND Austrian Power Grid AG
Wagramer Straße 19, IZDTower
1220 Vienna
Telephone:
+43 (0)50313-161
Telefax:
+43 (0)50313-167
E-Maìl:
apg@verbund.at
www.apg.at
CEE Regulators
Matthias Steiner
Rudolfsplatz 13a
1010 Wien
Austria
28 October 2009
Verbund-APG Feedback on the PCG
Target Model and Roadmap Propositions
Dear CEE Regulators,
Please find below the feedback of VERBUND - Austrian Power Grid AG on the PCG Target Model
and Roadmap Propositions.
We welcome the opportunity to comment on this project’s interim outcome, which we regard as a first
but important step in the process of collectively elaborating possibilities of the future design of an
integrated European electricity market. We appreciate the stakeholder driven quality of this project
and will continue our contribution by participating in the Market Integration Design Project.
Thank you very much for incorporating our comments into the region’s feedback.
Kind regards,
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Verbund-APG Feedback on PCG Target Model and Roadmap Propositions
1. Do you agree with the proposed target model? If not, specify why
In general, we agree on having harmonised principles on deep and thorough coordination on capacity
calculation. Also, a model of a flow-based market coupling based on price coupling (and loose
volume coupling where appropriate as an interim solution) for the day ahead market, aiming to
achieve increased integration of regional markets, is desirable. Nevertheless, at the core of all
harmonisation and integration endeavours should be the correct and justified assignment of
responsibility to the various potential levels of operation or planning. In our opinion, the principle of
subsidiary shall serve as a guideline. An initial assessment and determination of the market
dimensions requiring and permitting the reallocation of competences, and thus responsibilities, is
essential in any case. Special attention is to be drawn to the coherence of competencies and
responsibilities, not to jeopardize the secure operation of networks, whereas the decentralised
operation of networks will remain crucial for various security aspects.
In the following we first comment on the different work streams presented in the target model before
elaborating on more general issues.
Forward markets
APG supports the proposed harmonisation route towards the employment of a 100% FTR model in
the forward markets. An interim solution based on PTRs w/ UIoSI (and FTR) represents an adequate
starting point for such an evolution. The rationales behind favouring an FTR model as target model
are (a) the optimisation of capacity usage, (b) efficiency and increased security of network operation
(through TSO scheduling and dispatch), (c) hampered capacity reservation, and (d) improved
accommodation of price spreads into the markets. Nonetheless, APG regards a transition from PTRs
to FTRs to happen in the smoothest way by auctioning PTRs with a use-it-or-sell-it property and
gradually phasing out their physical usage.
Concerning the firmness of transmission rights, APG is of the opinion that TSOs should only be
responsible to guarantee the (physical) firmness of the capacities sold to the market participants. For
us it does not seem to be rational that TSOs also have to guarantee for the market value of trades
done via these capacities, as the conditions for these market values are beyond the influence of
TSOs and as TSOs have no market insight in order to evaluate these additional risks. Various
instruments exist for hedging against that risk offered by other specialised institutions. Finally we are
pleading that all costs of firmness should be fully recoverable from national tariff mechanisms and
congestions revenues.
Day-ahead timeframe
There are some doubts on our side whether the current description of the generic roadmap might be
too general and thus requires a more detailed description of the processes in order to show a
pragmatic way for implementing the day-ahead target model. Especially the governance issue
-3between top-down and bottom up process needs more elaboration and the timeframes given for that
are in our view not realistic enough. Besides that, APG recognises that as an interim solution, a
volume coupling mechanism may be considered to facilitate the transition towards price coupling.
Intraday time frame
The target model proposed by the Intraday Work Stream is not matching with the target models of
the remaining work streams, as it mainly focuses on a continuous trading solution. Besides the
consequently created incompatibility between the timeframes, this approach hampers the planning
(unclear investment incentives) and operational (less time for matching ahead of real time) security of
the networks. Furthermore, the meshed grid structure in (continental) Europe and the various
transmission paths (flows) of electricity between source and sink can hardly be accommodated in
such a model; market splitting requires predefined bidding areas, which are hard to establish within
such a network structure. This shortcoming can hamper depicting the market value of a congested
line and so conceals the need for investment and hinders the proportional allocation of rents to TSOs
for this purpose. We regard this, however, as a necessity for having an intraday auction model.
Capacity Calculation
We want to underline the practicability of the CC outcomes and its emphasis on requirements and
options of such a process. In this respect, we point out that agreeing on a shadow market model as
an underlying model regarding the Generation Shift Keys, may represent a viable compromise
towards the target model.
Balancing
We agree on the necessity of having a staggered development towards the integration of balancing
markets, as foreseen in the target model and roadmap. However, it is crucial to not neglect the local
responsibilities for maintaining system security and the subsequently required continuation of
balancing operations at decentralised level. When aiming at a common merit order mechanism for
the balancing market, as proposed in the target model, some prerequisites shall be highlighted and
preserved. In order to ensure that balancing takes place in not too remote areas, certain quotas or
other security mechanisms have to be considered1. Emphasis should be placed on all security
aspects as regards balancing, such as the need to manage primary control to a certain minimum
extent on a local level or not to expand reserve markets without restrictions.
General remarks
The overall governance of the project, and the subsequent process including this consultation, lacks
central guidance in our view, as for example in the form of a central target model. The subsequently
diverging outcomes of the work streams present a fuzzy picture of the targeted future direction and
exacerbate thorough assessment from sides of the stakeholders. Moreover, the results from the
C.p. UCTE technical document “Geographical Distribution of Reserves”, available at:
http://www.entsoe.eu/_library/publications/ce/otherreports/Geographical_Distribution_of_Reserves.zip
1
-4Governance Work Stream do not allow for interpreting crucial assignments of responsibilities, a core
requirement for the success of any of the proposed measures.
We intend to especially highlight that the present consultation process did not allow sufficient time for
responding. Additional difficulties were added to that by the high level of detail of some outcomes,
which at the same time lacked explanations or definitions of processes and mechanisms. The latter
would have eased evaluation and responding in detail. As a consequence, the feasibility of
implementing the target models is hard to assess due to often missing descriptions of a concise final
target and detailed roadmaps, when at the same time providing comprehensive technical
specifications.
2. Given your starting point in your region what do you consider the best interim steps to
successfully achieve the target model for your region?
The first priority of the CEE region is the finalisation of the flow-based coordinated explicit auction
system. This would be a milestone and the solution developed could be used in other regions for their
explicit coordinated auctions and/or their capacity calculation for market coupling. Moreover, deeper
coordination/cooperation between the CEE and SEE markets could provide a basis for overcoming
obstacles experienced in the past.
The next step may be the development of a hybrid solution (explicit and market coupling) in this
region, as not all CEE market areas might have the necessary conditions for full market coupling
(e.g. existence of a PEX and enough liquidity in whole sale markets). CZ and SK have already started
a bilateral market coupling initiative in parallel to the CEE solution which should be integrated into the
overall CEE regional system and potentially extended to other countries. The coordinated explicit
capacity allocation system in SEE, the Coordinated Auction Office (CAO), could be extended by a
market coupling software in cooperation with power exchanges in the region and also benefit from
experience of other regions. The outcome of the MIDP can potentially serve as guidance and
orientation.
3. What are the most critical challenges you are likely to face in applying the proposed target
model to your region?
AND
4. What are the challenges you are likely to face in coordinating with adjacent regions?
As already stated above, the introduction of continuous trading in the intraday market has the
potential to cause unfavourable effects in allocating the congestion rent and securely operating the
network.
An additional challenge is the variable speed of development of wholesale markets in the CEE region
which may necessitate hybrid solutions and sub-market regions, at least for an interim period.
A core challenge in implementing the target models is the institutionalisation of cooperation between
stakeholders (i.e. the governance) and to ensure the exchange of information. Both represent a
necessary requirement for any process aiming to enhance cooperation and coordination, but do not
-5get the respective attention in the propositions. Of utmost importance for the various market
segments is to safeguard the provision of information from generators to TSOs, both in advance of
and during operation.
Concerning the coordination with other regions we think that especially the issue of capacity
calculation, the monitoring of security of operation of control zones involved and potential crossborder re-dispatch schemes have to be extended to a wider region as soon as possible – at least in
the centre of continental Europe. This is a pre-requisite for all schemes, explicit and implicit ones.
Ongoing developments as for example the TSO-Security Centre of eleven TSOs are very promising
and need further regulatory support.
5. How will you seek to coordinate implementation between the regions? Do you think the
PCG guidance could be beneficial for effective coordination of all regions? If not, how
could coherence and convergence be ensured?
The stakeholder driven approach of the PCG/MIDP is valuable and represents a necessary step in
developing a target model for all European-wide endeavours as regards congestion management and
other harmonisations. Nevertheless, part and parcel of such a project is to ensure a well organised
and structured approach; a prerequisite which has to evolve further in the near future. As increased
coordination/cooperation requires both technical/practical knowledge and exchange (best dealt with
in the present bottom-up approach) as well as a fully fledged decision-making process or apparatus;
the success of PCG guidance will depend on its ability to implement this. The work stream
propositions show that the process itself lacks coordination and guidance, which is not inherent in the
governance structure of the project. High level discussions on the future market design criteria could
prove a useful element in ensuring future high level decisions on side of the involved stakeholders.
This may be enabled by increased steering of the project by the PCG, and consequent streamlining
of output.
Especially the governance issue is a key to success of the development. It should be clarified as
soon as possible which functions/elements/processes have to be harmonised or even performed on
an inter-regional basis and which issues allow for and require a bottom-up approach (e.g. capacity
calculation, system security monitoring).
The supposed model in which regional functions are assigned to new regional institutions, founded
and steered by all stakeholders involved (e.g. auction offices, TSC cooperation, CORESO etc.) can
be a successful foundation for the endeavours pursued by the MIDP. Stakeholder participation is an
important condition in order to secure the best interest of the whole society. Still, developing
consistent and compatible solutions remains a challenge to be solved. The role of such institutions is
to safeguard a European perspective without compromising secure and responsible operation of the
electricity system.
6. Please provide comments on the proposed roadmap
Most of the (diverging) roadmaps proposed are merely of indicative nature, at best.