Primary Consideration: Single or separate accounts Workshop 3 - - PowerPoint PPT Presentation
Primary Consideration: Single or separate accounts Workshop 3 03/10/12 These slides are initial thoughts to aid discussion only. They are not in any way meant to signify the views of GEMA, which for the avoidance of doubt has not made any
These slides are initial thoughts to aid discussion only. They are not in any way meant to signify the views of GEMA, which for the avoidance of doubt has not made any decisions on this particular issue.
– SCR Objectives – Interactions with the Target Model
– What are the options?
production and consumption separate – each party is assigned a Production and Consumption account
– is it more efficient to allow parties to combine imbalances?
imbalance exposure across production and consumption accounts
– prevent parties on both sides of market from having an undue advantage – prevent parties from continually adjusting physical positions to self- balance without instructing SO – avoid the possibility that allowing netting could encourage vertical integration
should not be unduly restricted without good justification
Consumption or Vice Versa’ – raised 2012 and currently going through BSC modification process – proposer suggests that larger players have found ways around separation and current arrangements are preventing smaller parties from managing imbalance risk in most efficient way
– incentivise optimal level of investment (through appropriate price signals) – pay firm customers appropriately for the DSR service they provide if their demand is involuntary interrupted – incentivise plant flexibility and DSR
– minimise market distortions due to the need for the system operator (SO) to balance the system – incentivise participants to balance their position as far as is efficient – appropriately reflect the SO’s costs for balancing in cash-out prices
CM – align GB balancing arrangements with EU balancing and capacity allocation and congestion management framework guidelines – work closely with the DECC to ensure cash-out arrangements and the EMR CM complement each other
imbalance volumes will be calculated or settled – these will be set out in the next stage which is to draft the network codes ‘The Electricity Balancing Network Code(s) shall define harmonised principles for calculating imbalances. All imbalances shall be subject to compensation via the imbalance pricing.’ ACER (2012); ‘Framework Guidelines on Electricity Balancing: Draft for Consultation’
unduly advantaged? – proposer of P282 suggests parties have found ways around separation
single consumption accounts (using MVRNs)
risk in the most efficient way? – removing separation may provide more options for parties to better balance their positions
– if there was a single cash-out price, would single trading accounts still be an important consideration?
Does the original rationale for separation of accounts hold? Does the separation of accounts prevent parties from managing their imbalance risk in the most efficient way? Would a single trading accounts still be an important consideration under a single cash-out price?
– may not allow parties to balance their positions in most efficient way – parties may have found ways to circumvent separation which undermines original rationale
– parties would operate through a single trading account per party to which all energy and imbalances would be allocated
administrative costs, or where other reasons exist such that separation of accounts remains desirable, an alternative option could be considered – e.g. arrangement such as that being considered currently under P282 - allow parties to consolidate imbalances across accounts
Are there any alternatives to the options considered above? What are the advantages/disadvantages of each option? What are the administrative costs of implementing single account?
parties could offset opposing imbalances – parties would only be exposed to net imbalance – smaller volume is exposed to cash-out risk, reducing total imbalance charges – but cost to SO of balancing has not changed and total imbalance charges have
Are imbalance charges made more or less cost-reflective?
Source: Analysis supporting P282 modification - Elexon
charges – reduces amount redistributed through Residual Cashflow Reallocation Cashflow (RCRC) – Reduction estimated as part of analysis supporting modification P282
– impact relatively small in comparison to gross value of imbalance charges (around 3%) but is more significant relative to net imbalance charges – i.e. RCRC (around 56%)
– benefit parties which use both accounts and have wide spread or large variations in imbalances or; make errors in cross-account trades – would not benefit to same extent parties using both accounts but which have low spreads of imbalance, or; use which only one account
What impact would being able to consolidate imbalances have on the incentives for parties to balance?
both production and consumption accounts, a single account may reduce extent to which parties hedge long overall – however, a single account does not change inherent volatility associated with either consumption or production volumes – could reduce headroom provided to SO through hedging
imbalances close to gate closure – where parties have opposing imbalances on different accounts, parties would have no incentive to resolve these imbalances – parties have an incentive to spill to maintain a balanced position across their portfolio – may create uncertainty for SO if parties revise PNs close to gate closure – also an incentive to take action to self-balance after gate-closure in contravention of Grid Code
contract notifications for volumes traded, which may reduce transparency – parties may only be required to submit contract notifications for net volume
replaced by the use of MVRNs under this option – this reduces volume against which notified volume charge is applied
industry charges
arrangements for parties
What would be the impact on the visibility of trading and the notification of the SO of volumes? Are there any wider impacts on trading arrangements of operating under a single account?
market – parties operating on one side would not receive same benefit – however, current separation may be reducing balancing ability of smaller parties
could be encouraged to participate
− reducing compliance costs and potentially improving conditions for market entry − single accounts could also improve terms of PPAs for smaller generators
– parties are not incentivised to resolve imbalances which can be netted – unlikely to have an impact on longer term trading
Would combining imbalances encourage vertical integration? How will this impact on different parties? Would this have a significant impact on liquidity?
− under single price, any opposing imbalances on party accounts would net providing the benefit being considered under a single
− would an information imbalance charge reduce incentive for parties to spill to resolve their net imbalance?
− allowing parties to combine imbalances reduces RCRC − although reductions in RCRC are generally beneficial for smaller parties, the reduction under a single account benefits parties that operate on both accounts to a greater extent
What are the interactions of a single trading account with other SCR considerations?
Does the original rationale for separation of accounts hold? Does the separation of accounts prevent parties, particularly smaller parties, from managing their imbalance risk in the most efficient way? Would a single trading accounts still be an important consideration under a single cash-out price? Are there any alternative options? What impact would being able to consolidate imbalances have on the incentives for parties to balance? What are the wider impacts on trading arrangements of operating under a single account? What will be the impact of a single account be on different market participants? Would this have an impact on liquidity and market transparency?