www.cornwall-insight.com Tom Palmer and Tom Edwards HELPING YOU - - PowerPoint PPT Presentation

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HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

Tom Palmer and Tom Edwards

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HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

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• Welcome to first customer flexibility event
• Builds on success of our renewables customer event
• Will be held every 6 months in future – next one likely to be

in March for customers

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• Frequency Response
• Tender results
• SNaPS developments
• Capacity Market and Power Purchase Agreements
• Developments and rules changes
• Flexible PPAs
• Reserve
• Fast Reserve
• STOR
• Market Developments
• Project TERRE
• Balancing Mechanism Lite
• Cornwall Flexibility services for 2017/18
• Refreshments in the Theatre Bar

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HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

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• Market characteristics
• Not a market

– Many historic bilateral arrangements

• Monopsony - National Grid

– Driven by system operator incentives scheme

• Decision making not transparent
• Reporting transparency
• Not all about the commercial – different technical requirements and service

types can be bundled as one making it complex

• SNaPS offer the chance for reform of structure and type of services but

also the procurement and transparency – but will it?

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Primary Dynamic FFR Static FFR

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• National Grid published the responses to its consultation in

September 2017

• Grid received 128 responses from a range of industry participants
• 98.1% of respondents agreed or were neutral with the SNaPS

approach

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• Grid identified a number of insights, including;
• Standardisation was the preferred approach for future products

– Will make service procurement more transparent – Offers simple products with small number of parameters – Other options too complex and not necessarily technically feasible

• Standardisation could lead to secondary trading and more efficiency

stacking of services

– 63% of respondents felt secondary trading of products was a positive step

• A mix of short and long-term products was the preferred option

– Short-term markets can remove forecasting risk and allow for changes to commercial strategies – Longer term contracts produce investor confidence and lower cost of capital

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• Grid identified a number of insights, including;
• Potential to trial alternative procurement approaches was well

received

– Includes auctions – Respondents recommending moving to more ongoing performance monitoring regime

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• Process of developing services, through its DS3 program likely to be up to

4 year agreements through competitive auction

• Use scalers according to product to provide clarity to participants on

added value and how prices may change

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• Example of product scaler applicable to fast frequency

response

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• Investors in demand side response, storage and other

peaking plants often looking for long-term bankability

• Neither SNaPS reform of FFR market or even Irish DS3 is

suddenly going to provide certainty to investors for long-term

• However, improvements should provide more clarity,

transparency and understanding of the potential options available

• Need to understand the range of uncertainty in outcomes

around success and price

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HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

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• Capacity Market
• Consultation
• Upcoming auction
• Flexible PPAs

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Final week for Capacity Market…. However big unknowns remain even when it closes

• The de-rating for storage projects - Duration tests / Guarantees required
• Additional DSR capacity
• Satisfactory performance tests
• Metering re-assessment
• Revised technology class

Taking place after the body appointed to specifically manage change the capacity market rules accepted or rejected changes ???

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• Even without the capacity market a lot of uncertainty remains

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System Needs and Product Strategy Clean Growth Plant Coal Closure Policy Levy Control Framework Carbon Price Support Medium Combustion Plants Directive Fortune favours the brave or misery loves the cowardly? Brexit

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• Competition expected to be fierce, as always, with the following capacity influencing

the clearing price

• Gas Reciprocating
• Battery storage
• Demand side response
• Combined Cycle Gas Turbines
• Open Cycle Gas Turbines
• Interconnectors
• CCGT expected to continue to struggle to be successful despite interest
• Not yet delivered under capacity market
• Eggborough, Calon, RWE, Carlton Power, ESB, Intergen
• Need to get comfortable with uncertainty (load factor, emissions, peak price

capture)

• OCGT will continue to be the transmission scale capacity of choice
• Progress/ Millbrook/Hirwaun (Drax), EDF, Intergen
• Maybe more OCGTs especially where have connection/shared infrastructure

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Focus will be on the following

• Gas Reciprocating
• Lower capex and improving efficiency
• Flexibility of revenue streams – wholesale, Portfolio FFR
• Loss of triads, loss of STOR spill & embedded benefits uncertainty
• Battery storage
• Potential for high returns in a market not dependent on wholesale power prices
• Limited opportunity alternative revenue streams
• Demand side response
• Increasing awareness and participation
• Limited by contract duration for customer need
• Interconnectors
• Those with cap and floor and built on time

– Nemolink, Eleclink, NSN, IFA2, Greenlink

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• Flexible generation requires a flexible PPA
• Not just a route to market
• Also a optimiser of revenue streams
• Many of the traditional renewable PPA providers migrating across to flexible market
• No one size fits all approach as it will depend on the investors/owners priorities

Generator optimisation

• Markets as flex PPA
• Generator sets strike price

to run on

• Supplier monitors market

for triggers

• Generator hedges and

calls dispatch through portal Supplier optimisation

• Markets as flex PPA
• Supplier has more control
• ver running pattern and

dispatch

• Uses only op. model to do

this

• Generator takes volume

risk

• Supplier takes price risk

Range of options between these

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• Share of revenue streams
• Linked to outturn prices to provide security
• Maybe even a tolling agreement

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Gas Services Agreement Balancing Services Applicable Balancing Service Volume Data Supply and PPA Data sharing and reporting Remote Dispatch and Optimisation Future Markets Reviewing Performance Capacity Market Trading – DAM, IDM, BM, NIV

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HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

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• There are three main reserve markets
• The Balancing Mechanism
• The Short-Term Operational Reserve
• Fast Reserve
• All of these services overlap to some extent
• Commercial and technical decision by system operator are as

complex and transparent as other balancing services

• Reserve reform low on SNaPS agenda, focusing on real-time

flexibility , equal access and pan-European services

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Tendered availability prices (£/hr) Tendered utilisation prices (£/MWhr) Average tendered prices (£/MW/hr)

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• System needs
• Requirement for reserve set to increase – both upwards and

downwards regulation

• Interconnector trading arrangements changing – Xbid allows

change up to gate closure, more variable import/export flows

• Trans European mechanisms for scheduling replacement

reserve and manual frequency response reserve

• Product strategy
• Rationalisation – Fast Reserve removed?
• Standardisation – standardising parameters across all services

to increase transparency i.e service windows & delivery periods

• Improvements – Reserve not at top of agenda, move to short-

term markets and more reliance on EU platforms seems likely

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HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

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• Ongoing changes
• Volatility
• Move to PAR1
• European developments
• Project TERRE (P344)
• Xbid
• Levelling the playing field
• Balancing mechanism lite (P355)

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Introduction of P305

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• Cashout reform is ongoing
• Move to PAR 1 in November 2018
• Dynamic LoLP
• Increase in VoLL to £6,000/MWh
• More intermittency
• Over 7GW of RO capacity added in 2017
• Offshore wind achieving low prices in CfD auctions
• Marginal cost increasing
• Baseload plant having to offer higher prices to make up for lack
• f baseload economics
• More peaking plant being added to the system, reciprocating

engines, batteries & OCGT

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• Project TERRE = Trans European Replacement Reserves Exchange
• Advances implementation of the EU balancing Guidelines to harmonise reserve

dispatch

– BM actions – STOR and – SO to SO instructions

• EU Electricity Balancing Guideline provides a framework to enable

cross border balancing markets

• Facilitates sharing of balancing resources between TSOs
• Includes provisions for procurement of balancing services, cross zonal capacity

and cross border settlement

• Replacement Reserves means operating reserve used to restore the

required level of operating reserves to be prepares for a further system imbalance

• Includes operating reserve with activation time from 145 minutes up to hours

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National Grid Project TERRE BSC parties Settlement

• 1. Grid submits

requirements to TERRE platform

• 2. Parties submit TERRE

bids to Grid

• 3. Grid submits TERRE

bids in €/MWh to platform

• 4. TERRE platform

issues RR acceptances to Grid

• 5. Grid issues BOAs to

match RR acceptances

• 6. GB RR acceptances

fed into imbalance at clearing price

• 7. Parties paid for

energy and imbalance

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Source: National Grid

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• National Grid raised P344 to implement project Terre requirements in

GB

• Grid is expected to be using RR products from TERRE go live,

currently scheduled for Q3/Q4 2018

• TERRE expected to impact;
• Calculation of parties imbalance volumes
• Interconnectors in the BSC
• Timing of BMRS data and settlement runs
• Default rules for missing or late TERRE data
• Publication of imbalance prices and GB related RR acceptances
• The EU EB GL allow participation in TERRE by customers and

aggregators (non BM participants)

• P344 proposes a new participation category
• Virtual Lead Party can register Virtual BM Units which contain metering

system whose flexibility can be bid into TERRE

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• PeakGen raised this proposal on 21 June that seeks to

introduce a new “BM Lite Balancing Mechanism” to allow smaller generators, to offer energy to SO for energy balancing in competition with the large BMUs already in the market

• Requires new registration system for the BSC
• Parties which want to offer energy to BM would register their

meters, or ask their supplier to register their meters, into the new system

• These parties would then be able to create EG BMUs by

allocating meters to it

• Size range of 5-200MWs
• Specifically does not consider DSR

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• The proposer contends that within the current Balancing

Mechanism it is difficult for smaller parties to compete effectively with larger generators to provide balancing energy to the SO

• Smaller generators are typically dispatched through the Short-

Term Operational Reserve (STOR) via the Standing Reserve Dispatch (SRD)

– The proposer claims this leads to lower levels of transparency and higher costs because of the need for additional systems to deliver similar services as well as the different treatment of imbalance charges.

• Current route to market considered unappealing
• SVA – through additional BMUs, requires supplier because of

MRA requirement but can aggregate different meters#

• CVA – don’t need to be a supplier, but can’t aggregate meters

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• BMU registrant would be required to submit physical data
• FPNs, MELs, SELs, ramp rates and Bids & Offers
• PeakGen envisages the EG BMU would MVRN all its energy

to a supplier but retain control of the EG BMU for BM purposes

• A supplier would also be able to register the EG BMU on

behalf of a generator

• An EG BMU party would also be able to take control of the

energy but would be required to pass further qualification

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CVA SVA Source: Elexon

www.cornwall-insight.com Activity Date Workgroup meeting 1 2 August 2017 Workgroup meeting 2 Week beginning 11 September 2017 Workgroup meeting 3 Week beginning 9 October 2017 Workgroup meeting 4 Week beginning 6 November 2017 Industry Impact Assessment 20 November – 11 December 2017 Workgroup meeting 5 Week beginning 18 December 2017 or 8 January 2018 Assessment procedure consultation 19 January 2018 – 9 February 2018 Workgroup meeting 6 Week beginning 12 February 2018 Assessment report to panel 8 March 2018

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• Markets are changing both physically and commercially
• The underlying economics of the system will mean

more intermittency and low load factors will mean more volatile pricing

• At the same time the regulatory landscape is offering

new routes to market for flexible generators

– Increased participation from generation and DSR – Increasing competition with EU resources and distributed generators

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Service Overview Delivery Flexibility Forum

• A forum hosted by Cornwall Insight aimed at

stakeholders with flexibility interests

• A platform for information exchange on balancing

services, embedded benefits and more

• Presentations on topical issues to stimulate

understanding and debate Monthly Frequency Response Report

• Commentary on policy and regulatory developments
• Forecasts of value obtainable from non-bilateral

frequency response services

• Analysis of technical and commercial requirements of

the schemes Monthly Energy Market Bulletin

• Weekly report focusing on wholesale energy market

pricing and drivers of values

• Supported by regular webinars with our pricing

experts Weekly

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Service Overview Delivery BM Report

• A daily report focusing on developments in Balancing

Mechanism and imbalance pricing

• Reports explain the factors influencing system prices

and who is setting the price

• Explains likely trends over the coming day

Daily Flexibility Matters

• A quarterly briefing report focusing on the key policy,

regulatory and governance developments impacting

• n the flexibility market
• Alerts on key developments are included in the

subscription service Quarterly

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• Three stage report due for

publication in November 2017

• Detailed examination of the

market conditions, following pre-qualification data

• Forecast of the T-4 auction
• utturn
• Post auction review (Feb)
• Long term forecast (July)
• Embedded benefits calculator
• Due to be issued in October
• A simple tool that generators

can use to understand the value

• f embedded benefits from their

project

• Updated with, network price

changes, forecasts

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Capacity market forecast Embedded benefits calculator

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Training

• Over 25 public courses being

held this year in London and Warwick

• 100 bespoke training days

delivered in-house last year. Topics include:

• Embedded benefits and

PPA workshops

• Storage and DSR revenue

streams

• Capacity market
• New Flexibility, I-SEM and

Water courses have been launched

Consultancy

• Growing practice with varied

clients on broad range of topics

• Work recently has included
• Commercial DD on battery

storage

• Modelling of revenue

streams for gas, diesel and storage

• Assessment of embedded

benefits reforms

• Routes to market for new

investors

• Competition analysis of the

PPA and retail supply markets

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• Fairness and Competition in the Retail Energy Market
• 22 November 2017 in London
• Hosted by Cornwall Insight
• Topics on the agenda include:

– Making markets fairer for all – New perspectives on established markets – Innovation in the energy supply chain – Debate on balancing fairness and innovation

• Speakers include: BEIS, Ofgem, E.ON UK, Ovo Energy, Centrica,

Octopus Energy, Gilmond and MoneySuperMarket

• Contact Richard Wetherall for more details

– R.wetherall@cornwall-insight.com – 01603 604422

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Refreshments downstairs in the bar

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Tom Palmer t.palmer@Cornwall-insight.com 01603 604429 Tom Edwards t.edwards@Cornwall-insight.com 01603 604411