1 I-SEM – Market Rules Working Group Meeting XIII15th December 2016
2 Agenda Capacity Market Code; Capacity Market Agreed ProceduresUpdate on T&SC consultation Parameter study update Proposed approach for changes to Reserve in Capacity Settlement AOB & Next Steps.
3 Agenda Capacity Market Code; Capacity Market Agreed ProceduresUpdate on T&SC consultation Parameter study update Proposed approach for changes to Reserve in Capacity Settlement AOB & Next Steps.
4 Capacity Market Code – BackgroundThe date for the commencement of the Capacity Market Code consultation has been moved out to the week of January 9th. This has afforded an opportunity for an additional Working Group Meeting. In this section we primarily focus on the Capacity Market Auction rules. These have been developed to reflect the SEM Committee Locational Issues Decision Paper. It covers: Locational Capacity Constraints Conduct of the Capacity Auction (enduring process) Variations in Capacity Auction process Transitional arrangements (during the first 4 years) Interim arrangements (special arrangements that apply for a limited time) We will also provide updates on changes to the broader CMC resulting from the SEM Committee’s Capacity Requirements and De-Rating Methodology Decision Paper and feedback from the RAs
5 Capacity Market Auction Rules – A GuideSection Content Descriptions D.3 Locational Capacity Constraint Information included in Capacity Auction Information Pack E.9 Relationship between Capacity Market Units and Locational Capacity Constraints included in Qualification Information Results F.3 Clarified that Demand Curve quantities are de-rated quantities . F.4 New section on setting Locational Capacity Constraint (which are also de-rated quantities). F.5 Locational Capacity Constraint Information included in Final Auction Parameters F.8 Conduct of Auction – new section covering unconstrained auction in F.8.3 (Determination of the Auction Clearing Price) and the constrained auction (Capacity Auction Clearing). F.9 Updated auction results section to reflect Locational Capacity Constraints
6 Capacity Market Auction Rules – A GuideSection Content Descriptions Chapter M Chapter renamed as Interim Arrangements rather than Transitional Arrangements. Some features are not linked to Transitional Auctions M.3 Apart from some minor restructuring, main changes for transitional auctions are: a shorter timeframe for setting Locational Capacity Constraints implementation of the requirement that quantities scheduled in unconstrained auction – other than any partially scheduled inflexible offer – are cleared in the constrained auction. M.4 States that Locational Capacity Constraints will not be applied to any auction other than a T-1 auction until the RA’s require this. M.5 Describes principles for an alternative solution methodology that the System Operators may use to solve the constrained auction of F.8 until such times as the RA’s remove that option.
7 Purpose of Locational Capacity ConstraintsThe original concept was to only have an unconstrained auction: No consideration of transmission constraints All de-rated capacity could supply any point in the SEM A single price for all capacity. It would be possible that insufficient de-rated capacity would be cleared in constrained areas of the SEM, with the risk that Generation required for power system security reasons would exit the market without them being replaced in the auction. The SEM Committee has determined that there will be a limited number of Locational Capacity Constraints to ensure that a minimum amount of capacity clears in the areas that those constraints apply to. Constraints can be nested for up to 2 levels. A Level 2 constraint is entirely within a Level 1 constraint.
8 Locational Capacity ConstraintsLevel 1 Capacity ≥ 2500 MW Capacity ≥ 500 MW Level 2 Level 2 Transmission Network Level 1 Capacity ≥ 800 MW Capacity ≥ 1000 MW The SEM The “area” of a Locational Capacity Constraint is defined by points on the transmission system.
9 Setting of Locational Capacity Constraints (F.4)The System Operators will determine the set of Locational Capacity Constraints applicable to each Capacity Year (for which they are required, see M.4). F states the constraints are to be set “for the purpose of system security”. The constraints only limit a single dimension – the capacity cleared – and there is uncertainty as to what the make up of that capacity will be. The methodology to be used will be determined by the System Operators and will be provided with the proposed constraints to the RAs for approval (F.4.3.4).
10 Setting of Locational Capacity Constraints (F.4)F.4.3 describes the timing of the first determination of the Locational Capacity Constraints. Rules set a time earlier than any time in a Capacity Auction Timetable. Currently we have 63 months before the Capacity Year for a T-4 auction and 15 months before the Capacity Year if there is only a T-1 auction held. The constraints will not be associated with Capacity Market Units at this time. The RAs can approve or reject these proposed constraints and may request more information from the System Operators (under F and F.4.3.6). F.4.4 describes the Locational Capacity Constraints to be used in an auction. These are mapped to qualified Capacity Market Units. F (a) says that a Capacity Market Unit must be entirely within the area of the Locational Capacity Constraint to be able to supply that constraint. The mapping of Capacity Market Units to Locational Capacity Constraints is included in the Qualification Information Results which are subject to RA approval under E.9. Thus a participant can use the normal post qualification review / dispute processes if it believes the mapping of one of its Capacity Market Units is incorrect.
11 Setting of Locational Capacity Constraints (F.4)F requires that the System Operators review constraints to see if they can be satisfied by all existing and new capacity that is qualified and by all existing capacity that is qualified. The situations of concern are: There is not enough capacity qualified to satisfy the constraint if all existing and new capacity clears. F has a process for the System Operators to lower the limit to a point that can be satisfied (rather than having the auction algorithm be infeasible). It is possible to satisfy the constraint but only if new capacity is cleared. But: Qualified New Capacity is not required to participate in the auction. The auction design includes features that may prevent New Capacity clearing as a result of a Locational Capacity Constraint (see next slide). In this case the System Operators inform the RAs. The RAs can exempt New Capacity from limitations in the operation of the auction (F ). All changes to limits must be approved by the RAs and the RAs also have the option to set a limit to zero (F.4.4.9)
12 Locational Capacity Constraints and Capacity AuctionsFor the auctions in the transitional period only, the additional capacity cleared to satisfy these Locational Capacity Constraints is in addition to the solution to any quantities required to be cleared as a result of the unconstrained auction [“Option B”]. If Locational Capacity Constraints are applied to enduring auctions [“Option D”] then, under the SEM Committee decisions, capacity required to satisfy those constraints may displace capacity that would otherwise clear in an unconstrained auction (where this gives a higher value of Social Welfare). As a locational constraint may have only a short duration and can create local market power, the SEM Committee has included in the auction design a feature that excludes some New Capacity from being cleared to satisfy a constraint. This applies to: New Capacity that is seeking an award of greater than 1 year and That has an offer price greater than the Auction Clearing Price and Which is not exempted under F (i.e. constraints may not be feasible otherwise). This capacity can still be cleared in the unconstrained auction if competitive.
13 The Capacity Auction (F.8) – Enduring ProcessInputs Demand Curve Locational Capacity Constraints Validated offers The Demand Curve as describes price as a function of demand. This means that the area under the demand curve is quadratic in demand. F allows the Demand Curve to be approximated – e.g. as a (big) set of price-quantity pairs – to cover the possibility that the original form may be problematic for some solution techniques. The intention is that the approximation would be a very close approximation. F also allows the use of “slack variables” on Locational Capacity Constraints which would allow an optimisation to solve even though the constraint is not satisfied. These slack variables would have very high prices so they are not used if there is a feasible solution. Without this feature optimisation solver software might fail to produce any solution.
14 Auction Clearing PriceThe Capacity Auction (F.8.3) – Auction Price Setting The Unconstrained Auction Described in F.8.3 (ignoring Ties) Price (€/MW per year) Auction Price Cap Demand Curve This solution corresponds to F.8.3.2(a) as the Demand Curve crosses the offer curve on a horizontal section. Inflexibility is ignored here, but is employed in tie-breaking. Auction Clearing Price Offer Step X Inflexible Price Setting Offer De-Rated Capacity (MW)
15 Auction Clearing PriceThe Capacity Auction (F.8.3) – Auction Price Setting The Unconstrained Auction Described in F.8.3 (ignoring Ties) Price (€/MW per year) Auction Price Cap Demand Curve This solution corresponds to F.8.3.2(b) as the Demand Curve crosses the offer curve on a vertical section. Inflexibility is ignored here, but is employed in tie-breaking. Auction Clearing Price Offer Step Y Inflexible Price Setting Offer De-Rated Capacity (MW)
16 The Capacity Auction (F.8.3) – Tie BreakingA tie exists if two or more price quantity pairs have the same price. Under F the tie breaking order is: Schedule “Clean” Capacity Market Units first This is based on Qualification data If this does not resolve the tie then schedule based on the highest value of Net Social Welfare See next three slides If this does not resolve the tie then schedule shorter duration price quantity pairs first. If this does not resolve the tie then take in random order. Tie-breaking only actually impacts the solution if the tied price is the price that the unconstrained auction clears at. This is because all lower priced tied price-quantity pairs will be fully scheduled anyway.
17 The Capacity Auction (F.8.3) – Net Social WelfareThe “Net Social Welfare” provision is a rule that: Accounts for the trade-off between cost & benefit for each price-quantity pair. Provides a means of ordering Inflexible and Flexible price-quantity pairs in an auction where otherwise we are ignoring Inflexibility. If we have 5 tied price-quantity pairs, all of different offered quantities, and some Flexible and some Inflexible: Given what has already been scheduled (under F.8.3.2) we evaluate the Net Social Welfare of each offer in isolation (F.8.3.5). For a flexible offer we can vary the quantity scheduled to maximise Net Social Welfare. See next slide. For an Inflexible offer its Net Social Welfare is that associated with fully scheduling it. See subsequent slides. Assuming the tie is broken we would then schedule that one which has the highest Net Social Welfare. We then repeat this process with the remaining 4 tied price-quantity pairs, having added the 5th to what has already been scheduled.
18 + The Capacity Auction (F.8.3) – Net Social Welfare PriceArea under Demand Curve Net Social Welfare > 0 + Offer Price Quantity offered from this step Offer price × q CQS CQS+q Capacity Cumulative Quantity Scheduled A Flexible Offer Price Quantity Pair
19 + - Price Area under Demand Curve Net Social Welfare < 0The Capacity Auction (F.8.3) – Net Social Welfare Price Area under Demand Curve Net Social Welfare < 0 + Offer Price - Offer price × q CQS CQS +q Capacity An Inflexible Offer Price Quantity Pair
20 + Price Area under Demand Curve Net Social Welfare > 0 Offer PriceThe Capacity Auction (F.8.3) – Net Social Welfare Price Area under Demand Curve Net Social Welfare > 0 + Offer Price Offer price × q CQS CQS +q Capacity An Inflexible Offer Price Quantity Pair
21 Transitional Auctions (M.3.3.2)A Branching Point in the Rules Unconstrained Auction Transitional Auctions (M.3.3.2) Enduring Auctions (F.8.4.2) Scheduled Quantities in the Unconstrained Auction, excluding the Price Setting Offer if it is a partially scheduled Inflexible step Will be cleared automatically in the Capacity Auction Clearing Process Will clear a mix of offers that maximises social welfare while satisfying the Locational Capacity Constraints without regard for the Unconstrained Auction result. (* Subject to the Offer Price Clearance Ratio, discussed later) Only cleared if required by Locational Capacity Constraints or (after that) if improves Social Welfare The Price Setting Offer if it is a partially scheduled Inflexible step, plus unscheduled steps. The Auction Clearing Price which is the price of the Price Setting Offer Price for all offers with a lower price, others paid-as-offer. Inflexibility is Respected In Both Cases
22 The Constrained Auction Problem The Capacity Auction (F.8.4) – Capacity Auction Clearing The Constrained Auction Problem Exclude New Capacity with a duration > 1 year if not scheduled in unconstrained problem and not exempted (F.8.4.3) Maximise area under Demand Curve (given cleared offers) less cost of those offers (F.8.4.2), subject to the following limits (F.8.4.3). Flexible offers clear between 0 and maximum quantity. Inflexible offers clear to 0 or maximum quantity. Within a Capacity Market Unit, offers cleared in order of increasing price. Quantity cleared from Capacity Market Units contributing to a Locational Capacity Constraint must cover the MW capacity required (or all be cleared). Though RA’s must determine that Locational Capacity Constraints will be used for the auction under M.4 Any New Capacity with a duration > 1 year and exempted can only be cleared to satisfy a Locational Capacity Constraint once all other capacity contributing to that constraint has cleared (e.g. we add a big number to their costs). Tie breaking rules are satisfied (see next slide).
23 The tie breaking rules applied in F.8.4.6 have the following intent: The Capacity Auction (F.8.4) – Tie Breaking The tie breaking rules applied in F have the following intent: If the solution found has a quantity x scheduled from a set of Flexible offers (U,V,W) with an aggregate quantity X > x, where for each impacted CMU the lower priced steps have all cleared then: If U contributes to a Locational Capacity Constraint while V and W do not, then any quantity cleared from U that is required to satisfy that Locational Capacity Constraint is not tied with V and W. A tie only exists between Inflexible Offers if they have the same quantity offered, the same price, and substituting one that is scheduled for one that is not would produce the same Social Welfare (F would still require that constraints be satisfied). This is a relatively unlikely situation but could arise if a participant has two identical units and offers them at the same price. In each case We would expect to see the quantities that are subject to the tie scheduled in order of Clean technology, shortage duration, and then randomly.
24 The Capacity Auction (F.8.4) – Offer Price Clearance RatioThe Offer Price Clearance Ratio (F (c ) and F.8.4.5) is a concept introduced to give some flexibility in the future. Under the SEM Committee decisions the quantities scheduled in the unconstrained auction have no relevance to what is cleared in the constrained auction under the enduring process. The Offer Price Clearance Ratio is introduced to allow some limits to be imposed at a later stage if required. This ratio can be set by the RAs to a value less than 100%. If set to, say, 90% then all offer steps with a price strictly less than 90% of the Auction Clearing Price would be cleared in the constrained auction. By default the ratio will be 0%. This will have no impact as it would only clear Capacity Market Units with a negative offer price, which is not allowed.
25 For each combination we would then schedule the Flexible offers. The Capacity Auction (F.8.4) – Why This Problem is Hard The constrained auction is “combinatorial” because of the need to consider Inflexible offers. I.e. if we have 3 inflexible offers A, B, C then potential solutions are to schedule: A, B, C, A and B, A and C, B and C, all three, or none of them (8 options). For each combination we would then schedule the Flexible offers. Only some of these will be feasible and fewer will be optimal Why is this a hard problem? With 3 inflexible offers there are 23 =8 possible combinations for clearing them. That could be solved in under a second by simply trying all combinations. With 100 units (even with just 1 offer step each) there will be 2100 1030 possible combinations. Trying 1 billion per second would take 3000 times the age of the Universe! Off-the-shelf commercial “Mixed Integer Programming” (MIP) solvers can solve these sorts of problems, though may only find a close to optimal solution within an acceptable run time. F defines an Allowed Timeframe for a solution.
26 Then clear more to satisfy the constraints (to extent possible) Chapter M – Transitional and Interim Approach The problem to be solved is the same as for the enduring problem except that: “Transitional” rule, M (“Option B”) replaces the Offer Price Clearance Ratio of F (c ) with the requirement that all quantities scheduled in the unconstrained auction (other than a partially scheduled Inflexible offer) are to be cleared in the constrained auction. “Interim” rule, M allows the System Operators to use a solution method other than Mixed Integer Programming. When using such method they must publish the methodology as part of the Capacity Auction Information Pack. M specifies that the solution methodology referred to above will: Clear everything to the minimum level required by F.8.8.4( c) or M as applicable. Note that the reference to M may be missing in your document. Then clear more to satisfy the constraints (to extent possible) Then if the Price Setting Offer was a partially scheduled inflexible offer, see if a better solution can be found by scheduling more. The number of combinations of Inflexible offers that must be explored can be limited, but the optimal solution should still be found for problems small enough that the limits need not be enforced to get a solution in the allowable time.
27 Price (€/MW per year) INFExample of a Simplified Process – Level 2 Constraint Price (€/MW per year) Quantity required to clear to cover constraint if all flexible Not Cleared Auction Price Cap Select 2 inflexible offers each side. Each trial solution is formed by taking one combination of the inflexible offers and solving for the flexible offers given these. Quantity cleared already that contributes to constraint Cleared INF De-Rated Capacity (MW) Feasible trial solutions become starting points for the similar Level 1 Constraint problem.
28 Capacity Market Code – De-Rating MethodologyThe SEM Committee’s Capacity Requirements and De-Rating Methodology Decision Paper makes changes to how Initial Capacity is defined. These will be reflected in the Capacity Market Code. Autoproducers will have an Initial Capacity equal to their Maximum Export Capacity. An Autoproducer can seek a Unit Specific Price Cap allowing it to value capacity used to serve its own load at price in excess of the Existing Capacity Price Cap. The Autoproducer will need to provide evidence of the costs for reducing their underlying consumption. Dual Rated Units will be treated like other Generator Units, but their Initial Capacity must reflect the highest Registered Capacity on any fuel. The generator can seek a Unit Specific Price Cap if use of the highest Registered Capacity fuel is not its normal operating mode. Evidence of the costs of switching fuel to reach its maximum Registered Capacity must be provided.
29 Capacity Market Code – De-Rating MethodologyThe current rules have the RA’s setting an Effective Import Capacity for each Interconnector , with this becoming the Initial Capacity. Now Interconnectors will have an Initial Capacity equal to their Aggregate Import Capacity (which is a registered value in the market). In applying De-Rating The RA’s will determine a scale factor for each market external to the SEM (e.g. GB). It is this factor which converts Aggregate Import Capacity to Effective Import Capacity. The RA’s will determine a single De-Rating Curve for all Interconnectors, but by applying the scaling factor to the MW dimension can convert it to be an Interconnector specific De-Rating Curve that applies to Aggregate Import Capacity.
30 Capacity Market Code – Information ReleaseAn action item from earlier Working Groups was to give feedback on what information should be released for Qualification and the Auctions. Based on suggestions from the RA’s, the next version of the Capacity Market Code will specify that once a Capacity Market Auction has been run that all Qualification and Auction results that are currently Participant Private information will be public. This information will be released under section F.9.5 (which is already Public data). This would not reveal offer prices for offers below the clearing price, but would reveal pay-as-offer prices.
31 Capacity Market Agreed Procedures Update on T&SC consultation Agenda Capacity Market Code; Capacity Market Agreed Procedures Update on T&SC consultation Parameter study update Proposed approach for changes to Reserve in Capacity Settlement AOB & Next Steps.
32 Modifications process for the APs under the CMC (Terry Grimwade)Capacity Market Code Agreed Procedures Key points to note in relation to the agreed procedures (“APs”) under the Capacity Market Code (“CMC”): AP 1 “Registration” AP 2 “Default and Suspension” AP 3 “Qualification Process” AP 4 “Communication Channel Qualification” AP 5 “Transaction Submission and Validation” AP 6 “System Operation, Testing, Upgrading and Support” AP7 “Emergency Communications” Modifications process for the APs under the CMC (Terry Grimwade)
33 Registration as a Party to the CMC (for accession to the market)Agreed Procedure 1 “Registration” Registration as a Party to the CMC (for accession to the market) If registered under Trading and Settlement Code (“TSC”) a more straightforward registration procedure shall apply under the CMC (e.g. information required may already have been submitted under the TSC) Unit registration (prior to Qualification for a Capacity Auction) In order for a Party to participate under any of the arrangements under the CMC, it shall register a Candidate Unit Allows the Participant to seek Qualification for a Capacity Auction. Upon Qualification for the first Capacity Auction the Candidate Unit becomes a Capacity Market Unit under the CMC Unit may be registered provisionally
34 Voluntary TerminationAgreed Procedure 1 “Registration” Deregistration Similar to TSC Criteria in relation to Awarded Capacity to be satisfied in order for Deregistration to be permitted Voluntary Termination Voluntary Termination Consent Order issued provided that certain conditions are satisfied (set out in paragraph B of the CMC) and the Party has obtained the written consent of the Regulatory Authorities Intermediary Removal
35 Issue of a Termination Order by the System OperatorsAgreed Procedure 2 “Default and Suspension” Suspension System Operators may issue a Suspension Order in respect of Capacity Market Units with prior written approval of Regulatory Authorities in a number of circumstances (set out at paragraph B of the CMC) System Operators shall issue a Suspension Order in respect of Capacity Market Units in the event that a Participant fails to provide Performance Security Similar to TSC (no registration of Supplier of Last Resort required) Issue of a Termination Order by the System Operators Prior written approval of the Regulatory Authorities required
36 Agreed Procedure 3 “Qualification Process”Five part process Actions to be taken by Participants prior to Qualification e.g. Opt-out Notification Submission of Qualification Information by Participants Qualification Assessment by System Operators Qualification Results Other Qualification related processes Applicable timelines are set by the Regulatory Authorities. They may vary for each auction Expectation that any procedures in relation to auctions shall be included
37 Obtaining a Digital Certificate Agreed Procedure 4 “Communication Channel Qualification” Obtaining a Digital Certificate A Digital Certificate obtained for access to the Balancing Market (obtained in accordance with the TSC) shall allow access to the Capacity Market Some additional procedures may apply for access to the Capacity Market Interface Communication Channel Qualification Two Communication Channels established and maintained: Type 1 Channel (manual communication) Type 2 Channel (assisted communication (human to computer)) No Type 3 Channel under CMC Type 2 Channel testing
38 Digital Certificate Cancellation Agreed Procedure 4 “Communication Channel Qualification” Digital Certificate Cancellation Cancelling a Digital Certificate shall revoke access to both the Balancing Market and Capacity Market (as applicable) Communication Channel Suspension Similar to TSC Participant may request suspension of Communication Channel System Operator may identify a requirement to suspend a Participant’s Communication Channel Notifications to Participant Steps taken with Participant to resolve the issue
39 Agreed Procedure 5 “Transaction Submission and Validation”Submission of Data Transactions by Participant (or Data Processing Entity) via Type 2 Channel High-level validation of Data Transactions by System Operators to ensure System Operator’s Isolated Market System can receive data (validation criteria set out in AP) Deemed received by System Operators once validation complete Timelines for submission of Data Transactions for the Capacity Auction are set out in the Capacity Auction Timetable published by the Regulatory Authorities Timelines for submission of Data Transactions for the Secondary Trade Auction are set out in the Secondary Trade Auction Timetable and Secondary Trade Information Pack published by the System Operators Participants (or Data Processing Entities) may query certain data e.g. Qualification Capacity Register, Provisional Qualification results
40 Agreed Procedure 6 “System Operation, Testing, Upgrading and Support”Helpdesk Facility in place to allow Parties to report an incident, request assistance or request information under the CMC Three categories of Helpdesk Requests Change management and implementation of system upgrades to System Operators’ Isolated Market Systems No procedural step table in relation to post event reporting. The CMC requires one annual external auditor’s report and post event reporting (e.g. following a systems failure) shall only be a notification by the System Operators to the Regulatory Authorities in accordance with the CMC
41 General System FailureAgreed Procedure 7 “Emergency Communications” Auctions under the CMC occur less frequently than trading under the TSC. Allows for flexibility in relation to Emergency Communications procedures under the CMC CMC provides that AP 7 may modify any of the time periods under the CMC for doing any act or thing during a Limited Communication Failure, General Communication Failure or a General System Failure, and the modified time period shall apply during the period of that failure General System Failure System Operators may defer a Capacity Auction or Secondary Trade Auction until failure ceases Participants shall be notified and Capacity Auction Timetable or Secondary Trade Auction Timetable / Secondary Trade Information Pack shall be adjusted accordingly
42 General Communication FailureAgreed Procedure 7 “Emergency Communications” General Communication Failure Participants shall be notified of alternative communication method and the Capacity Auction Timetable or Secondary Trade Auction Timetable / Secondary Trade Auction Information Pack shall be updated if required Limited Communication Failure (impacting submission of Capacity Auction Offers) System Operators shall assist Participant in submitting Capacity Auction Offers Limited Communication Failure (impacting submission of Secondary Auction Bids and Secondary Auction Offers) Impacted Party shall submit data in the format specified by the System Operators Data submitted more than one hour before next scheduled Secondary Trade Auction System Operators shall upload data before next scheduled Secondary Trade Auction Data submitted less than one hour but more than five minutes before next scheduled Secondary Trade Auction System Operators shall use reasonable efforts to upload data before next scheduled Secondary Trade Auction Data submitted less than five minutes before next scheduled Secondary Trade Auction System Operators shall not upload data before next scheduled Secondary Trade Auction
43 AP Modification ProcessUnder the TSC, APs can be modified by unanimous agreement of the modifications committee. There is no modifications committee under the CMC CMC APs deal primarily with IT system and business processes to manage obligations set out in the CMC E.g. Qualification and auction processes, including timelines, largely set out in CMC itself Does not seem appropriate to refer an AP modification proposal to SEM Committee where procedures being modified relate to IT systems or business processes e.g. obtaining a Digital Certificate
44 System Operators will publish their decision and reasons AP Modification Proposal Submission of proposals for modifications to APs follow same process as modifications to the CMC If a proposal relates solely to an AP, a similar consultation process is to be followed as that set out for CMC modifications, but will be led by the System Operators (Regulatory Authorities to be informed and invited to participate) System Operators will make a determination on the proposal, taking into account views expressed during the consultation and an assessment of the proposal in terms of it better facilitating the achievement of the CMC objectives System Operators will publish their decision and reasons Similar to modifications to APs under the TSC, the Regulatory Authorities will have the right to veto an AP modification decision within a specified period (2 working days under the TSC)
45 Capacity Market Agreed Procedures Update on T&SC consultation Agenda Capacity Market Code; Capacity Market Agreed Procedures Update on T&SC consultation Parameter study update Proposed approach for changes to Reserve in Capacity Settlement AOB & Next Steps.
46 Trading and Settlement Code Amendments Consultation UpdateI-SEM Market Rules Working Group 13 15th December 2016
47 ISEM ETA Trading and Settlement Code Amendments ConsultationConsultation paper published on 15th November 2016 Consultation on the draft amendments to the market rules in order to implement the I-SEM market design, including the full suite of draft Appendices and Agreed Procedures Allowing all market participants and other interested parties to carry out their own detailed review of the provisions of the TSC Amendments The SEM Committee welcomes feedback on the proposed drafting
48 ISEM ETA Trading and Settlement Code Amendments ConsultationResponse template provided in Appendix A of the consultation paper The SEM Committee asks respondents to submit their views in this template Closing date for responses is 17:00 on 10th January 2017 Responses should be sent to both and
49 Requests for extension for responsesNumber of requests for extension to the deadline due to SEMO settlement spreadsheet training on 16th December Argued that sufficient time should be given to allow participants stress test the settlement algebra through the spreadsheet Deadline for responses remains 10th January 2017 However, supplemental comments on the settlement algebra can be submitted up to 31st January 2017
50 ISEM ETA Basis for Supplier Charging ConsultationConsultation on the appropriate basis for supplier charges – gross demand; non-negative net demand; or net demand The outcome of this separate consultation will form part of the SEM Committee’s decision on the TSC Amendments Deadline for responses was 14th November 2016 Approximately 360 responses received RA team currently working through these responses List of respondents will be published on SEMC website shortly RAs ask interested parties to check that they are included & notify us if any responses have been omitted in error
51 Capacity Market Agreed Procedures Update on T&SC consultation Agenda Capacity Market Code; Capacity Market Agreed Procedures Update on T&SC consultation Parameter study update Proposed approach for changes to Reserve in Capacity Settlement AOB & Next Steps.
52 List of parameters circulated in previous presentationsETA Parameters Had intended that more information would be made available through the RWG as this was progressed However, this has not been possible due to other issues to be addressed Stocktake did not include any change with respect to parameters decision (still May 2017) First publication due in January, to include parameters to be used in Credit Cover calculations and Imbalance Settlement Second publication due in February, to include parameters related to imbalance pricing and scheduling process List of parameters circulated in previous presentations
53 Undefined Exposure Period Historical Assessment Period Credit Cover Parameters Undefined Exposure Period Historical Assessment Period Analysis Percentile Parameter Level of Warning Limit Level of Breach Limit Credit Cover Adjustment Trigger Fixed Credit Requirement
54 SEMO prepares annual submissions to set these parameters Credit Cover Parameters Statistical analysis approach takes the SEM calculations as its starting point All these parameters are used in the determination of credit cover for the SEM SEMO prepares annual submissions to set these parameters Most recent submission (for 2017) published for consultation by RAs in September this year with RA decision on Dec 9th Given that parameters are intended to work in the same way for I-SEM as for SEM, not clear if any benefit from considering different approach for this consultation phase While documenting the approach applied today, we will make use of the “fresh pairs of eyes” on the project to see if an alternative method could be developed
55 Credit Cover ParametersCurrent approach – In general, parameters relate to calculations around the undefined exposure Analysis is based on a “steady” level of demand for a supplier participant With access to historical data, model the calculation of the undefined exposure as set out in the Code Using different values for each parameter, compare the calculated undefined exposure against the actual realised exposure This produces an undefined exposure variance – the delta between the forecast and the actuals If variance is too high, then participants are over-collateralised; if too low, then greater level of unsecured risk
56 The “things we don’t know we don’t know” Undefined Exposure Period This is the look-ahead part of each participant’s required Credit Cover The “things we don’t know we don’t know” Intended to ensure that if a participant defaults on day D, that there is sufficient collateral in place to meet all obligations up until the default is resolved For a defaulting supplier, this involves suspension from the market and activation of the supplier of last resort procedures in the retail arrangements The undefined exposure is intended to cover any obligations that accrue during this time Key inputs to this determination is the Supplier Suspension Delay Period Generator Suspension Delay Period also a factor but SSDP is key Current setting is SSDP + 2 days (to account for unsettled amounts) SEMO analysis for January document is likely to concur with this
57 SEM has HAP for billing period and for capacity period Historical Assessment Period (HAP) SEM has HAP for billing period and for capacity period I-SEM only uses a HAP for billing periods Approach will be to assess with more up-to-date data, apply different levels of HAP to test the undefined exposure variance Current analysis based on 60/80/100/120 days – may consider 45 days in our review Duration of undefined exposure period is key to the HAP If UDEP = 16 days, then a HAP of 45 days only gives 29 samples for analysis This may not give an appropriate result
58 Percentile analysis is how the undefined exposure is determined Analysis Percentile Parameter Percentile analysis is how the undefined exposure is determined To complete the calculation to the nth percentile, different values of z score can be applied to determine different levels of percentile confidence 1.96 has been used for the 95th percentile since SEM start in 2007 As with assessment for HAP, approach will be to test more up to date data, with assumption of HAP / UDEP, and consider the undefined exposure variance Will review results to see which setting provides most appropriate level of credit cover 1.96 is current SEMC decision
59 Currently the Warning Limit is a “for info” value Level of Warning Limit Currently the Warning Limit is a “for info” value Set at 75% in the TSC and therefore not part of SEM parameter setting For I-SEM, consideration may be given to the Warning Limit having a status particularly with respect to interactions between NEMO(s) and SEMO (e.g., with respect to delivery risk) In this light, the value is being considered as a parameter going forward The question is a matter of time – how much notice is appropriate for a participant that their credit cover may cause them an issue over the short term period Analysis will consider a participant’s exposure increasing against a fixed level of posted credit cover Given that a CCIN needs a response within 2 working days, how much further notice is of benefit to participants that this may be imminent Participant responses will be important in determining this value
60 Breach Limit is new concept in I-SEM Level of Breach Limit Breach Limit is new concept in I-SEM For SEM, CCIN applies where posted credit cover is less than required credit cover For I-SEM, CCIN applies where required credit cover/posted credit cover > Breach Limit This can persist today’s approach by setting the Breach Limit to 100% However, initial analysis may take account the two working day response time Therefore, the Breach Limit could be set at a level below 100% where it is considered that if the participant does nothing, their posted credit cover will be less than their required credit cover in 2 days The same analysis as done for the Warning Limit will be used here Warning Limit will be set lower (and therefore earlier) on the scale
61 Take the standard “steady” supplier data used for other parameters Credit Cover Adjustment Trigger Applied where a participant’s exposure is expected to adjust due to unforeseen change in circumstance This could apply for acquisition of new generation; a supplier gaining (or losing) a significant customer contract; etc. This is not applied for normal seasonal changes which the standard calculation will account for over a period of time No current analysis completed by SEMO for recent parameter setting consultations Proposed approach – Take the standard “steady” supplier data used for other parameters Apply varying levels of block increase (e.g., 10%, 15%, 20%, 25%, etc.) to its volume Assess the new undefined exposure variance Where variance represents significant under-collateralisation, this indicates that Adjusted Participant rules should apply
62 FCCR represents minimum credit cover requirement for a unit Fixed Credit Cover Requirement (FCCR) FCCR represents minimum credit cover requirement for a unit Different levels applied for generator units and supplier unit based on different risk profile in the SEM Current approach makes use of re-settlement exposures which are mainly on suppliers Different market timeframes in I-SEM likely to mean different risk; however, re-settlement changes are still likely to remain largely on suppliers with most generation metering and positions finalised for initial settlement With no view of imbalance prices, difficult to make any argument for new values for the FCCR Given this, January paper will propose persisting the current SEM values until sufficient I-SEM data is available
63 Aggregated Settlement Period (α): Imbalance Settlement Parameters Aggregated Settlement Period (α): 0.5 hours (same as Imbalance Settlement Period); No analysis required: half hour products available, in line with ETA decision. Imbalance Weighting Factor (WFIMBγ): Value equal to 1; No analysis required, not implementing weighted imbalances for go-live, in line with ETA decision. Information Imbalance Price (PIIuγ), Information Imbalance Quantity Weighting Factor (WFQIIuγ), and Information Imbalance Tolerance (TOLIIuγ): All values equal to zero, in line with ETA decision; No methodology required for go-live, but propose to summarise in paper the points made which would need to be taken into account in the development of any methodology for these parameters.
64 Settlement Recalculation Threshold: Fixed Credit Cover Requirement (FCCR) Settlement Recalculation Threshold: Analysis approach still to be determined Uninstructed Imbalance Parameters: Engineering Tolerance (TOLENG), MW Tolerance (TOLMWt), System Per Unit Regulation Factor (FUREG): Likely to have similar values and logic for those values to today, based on physical fundamentals similar to SEM. Premium for Under Generation Factor (FPUGuγ) and Discount for Over Generation Factor (FDOGuγ): Analysis approach still to be determined.
65 Settlement Recalculation Threshold: Imbalance Settlement Parameters Settlement Recalculation Threshold: Analysis approach still to be determined Uninstructed Imbalance Parameters: Engineering Tolerance (TOLENG), MW Tolerance (TOLMWt), System Per Unit Regulation Factor (FUREG): Likely to have similar values and logic for those values to today, based on physical fundamentals similar to SEM. Premium for Under Generation Factor (FPUGuγ) and Discount for Over Generation Factor (FDOGuγ): Analysis approach still to be determined.
66 Capacity Market Agreed Procedures Update on T&SC consultation Agenda Capacity Market Code; Capacity Market Agreed Procedures Update on T&SC consultation Parameter study update Proposed approach for changes to Reserve in Capacity Settlement AOB & Next Steps.
67 Problem trying to resolve:Reserve in Capacity Settlement Problem trying to resolve: The detailed design allows for any capacity utilised for DS3 System Services such as capacity providing reserve to count towards obligations; Units which are desynchronised and providing replacement reserves, who would not normally clear in the market and who may not be able to clear in the market if they tried without creating unintended outcomes; To handle those scenarios, we need to calculate the obligations met through quantities held for reserve – this information is not readily available for settlement. Number of suggested approaches: EDIL Reserve Flag; Available Reserve Quantity from Ramp Rates; Base on whether Offer Price in Merit. The approach developed attempts to: Address concerns highlighted by participants, using the suggested approaches; Preserve market signals and incentives; Minimise impacts on system and process changes.
68 Solution at a high level:Reserve in Capacity Settlement CAVEAT: this solution is still subject to the full Change Control process. Solution at a high level: System Service Flag (FSSuγ): Used to trigger quantity calculation based on Flagging and Tagging process; Determine if contributing to binding Replacement Reserve constraint based on the same tests as Imbalance Pricing. System Service Difference Quantity (QDIFFCSSuγ): Calculate the quantity of a unit’s Obligated Capacity Quantity deemed to be satisfied through being utilised for the provision of the relevant services; Calculate a non-zero value for QDIFFCSSuγ if FSSuγ is = 0 for that Imbalance Settlement Period, otherwise QDIFFCSSuγ has a value of zero; Based on the difference between the Actual Availability (qAAuγ) and the maximum of: QD (for level of headroom held between dispatch and availability); and QEX (to ensure against double-counting of market volumes). Tracked Difference Quantity (QDIFFTRACK): Add QDIFFCSS to QDIFFTRACK before it is considered in Non-performance Difference Charges. Reporting: Some minor changes to reflect new inputs to settlement process on settlement documents and other settlement publications.
69 Outcomes of this approach: Reserve in Capacity Settlement Outcomes of this approach: Calculates a quantity held for reserves with the information available to the market: Quantities are only calculated when they are required (i.e. “free” reserve is not counted, only count when unit is at a position to provide reserve); Quantities are calculated on a Generator Unit basis, therefore can be used with Capacity Aggregators – if some units contributing to these constraints while others are not, the quantity for the relevant units will contribute to meeting the aggregator CMU’s obligation; Calculated as a difference quantity in a similar manner to the calculation of other quantities, easier to integrate into the overall solution; Based on availability to ensure units which are not available to be inc’d up to the level required to meet its Obligated Capacity Quantity are still exposed; Since it is based on availability, applies to those reserve system services where full availability can be provided (i.e. Replacement Reserve). System Service Difference Quantity counts towards meeting the unit’s Obligated Capacity Quantity without itself being subject to a Difference Charge: The price component is not considered based on the assumption that the price of utilisation of this quantity will always be less than the strike price.
70 Outcomes of this approach: Reserve in Capacity Settlement Outcomes of this approach: Reduction in exposure directly linked to the unit being held for system service reasons: If a unit was contributing to the binding system service constraints, and therefore prevented from being inc’d on/up, their capacity obligation is further met through the extent they were available to be inc’d on/up above their traded position. Unit remains exposed if they are not meeting obligation through market trades or system service utilisation: Prevents reduction in exposure above what is required for the market design, reducing potential for causing additional “hole-in-the-hedge”. Addresses issues of where units which do not normally clear in the market, and are therefore unsynchronised, but are providing Replacement Reserve: These units would not have to try and trade in the markets to meet their obligation if they are going to be held off for provision of replacement reserves; This should prevent unintended market outcomes, impacts and incentives which may have arisen from these units trying to meet their obligations through market trades.
71 Outcomes of this approach: Reserve in Capacity Settlement Outcomes of this approach: The proposed approach should result in same intended outcome as a reserve instruction in EDIL more consistently… The basis and information used for issuing a reserve instruction in EDIL, and for determining a System Service Flag, are the same: if the unit is contributing to a binding operational constraint, a message to trigger the reissue of instructions for the provision of these services, and a System Service Flag, would result; The determination of binding constraints under both approaches would be carried out using the same system: the indicative operational scheduling tool which is used for the Flagging and Tagging Process; Automating the approach, rather than relying on the manual process of issuing instructions, means the approach is more robust and the intended outcomes should arise more consistently. …while minimising the scope and scale of system, process and rules changes for TSO/MO and Participants: The Reserve EDIL instruction approach would require changes to: Scheduling systems, EDIL systems, Instruction Profiling systems, Settlement systems, Interfaces between all of those systems, System Operator procedures, the Trading and Settlement Code, and potentially the Grid Code; It would also increase the frequency of issuance of instructions for the same level of output, increasing workload and information/data while not being of operational benefit to the SO or generator unit control centres as it is only required for settlement. The proposed approach would require changes to: Imbalance Pricing systems, Settlement systems, the single Interface between those systems, and the Trading and Settlement Code.
72 System Service Flag (FSSuγ):Reserve in Capacity Settlement Solution detail: System Service Flag (FSSuγ): If a unit contributing to a binding operational constraint for the provision of Replacement Reserve, in any Imbalance Pricing Period within an Imbalance Settlement Period, set the value of FSS for that Imbalance Settlement Period equal to 0. System Service Difference Quantity Calculation: Based on System Service Flag, calculate System Service Difference Quantity as follows: 𝑄𝐷𝐼𝐹𝐹𝐶𝑆𝑆 𝑢𝛾 =𝑀𝑎𝑥 𝑞𝐴𝐴 𝑢𝛾 ×𝐷𝐼𝑆𝑃 −𝑀𝑎𝑥 𝑄𝐸𝑋 𝑢𝛾 , 𝑄𝐷 𝑢𝛾 , 0 × 1− 𝐹𝑆𝑆 𝑢𝛾 Tracked Difference Quantity Calculation: Increase the Tracked Difference Quantity, so that QDIFFCSS can count towards meeting the capacity obligation through reducing the quantity exposure to Non-performance Difference Charges, as follows (with the equivalent equation also for autoproducers): 𝑄𝐷𝐼𝐹𝐹𝑇𝑅𝐴𝐶𝐾 𝛺𝛾 =𝑀𝑖𝑛 𝑄𝐶𝑂𝐵 𝛺𝛾 , 𝑄𝐷𝐼𝐹𝐹𝑇𝑅𝐴𝐶𝐾′ 𝛺𝛾 + 𝑢 ∈ 𝛺 𝑄𝐷𝐼𝐹𝐹𝐶𝑆𝑆 𝑢𝛾 QDIFFTRACK’ is the value for QDIFFTRACK calculated after Within-day Difference Quantities and Charges have been concluded; Use this value of QDIFFTRACK in the Non-performance Difference Quantity calculation.
73 EG1: DAM, IDM, SS and N-P (not binding):Reserve in Capacity Settlement Difference Charges EG1: DAM, IDM, SS and N-P (not binding): Requirement MW Trades 1 2 3 4 qD PN
74 EG1: DAM, IDM, SS and N-P (not binding):Reserve in Capacity Settlement Difference Charges EG1: DAM, IDM, SS and N-P (not binding): Quantity for Difference Charge if Price > Strike Price Requirement MW Trades 1 2 3 4 N-P ID Tracked Difference Quantity B Tracked Difference Quantity QEX
75 EG2: DAM, IDM and SS (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG2: DAM, IDM and SS (binding, qAAxDISP>QCOB): Requirement MW Trades 1 2 3 4 qD PN qAA
76 EG2: DAM, IDM and SS (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG2: DAM, IDM and SS (binding, qAAxDISP>QCOB): Quantity for Difference Charge if Price > Strike Price Requirement MW Trades 1 2 3 4 SS ID Tracked Difference Quantity B Tracked Difference Quantity QEX qAA
77 EG3: DAM, IDM, SS and N-P (binding, qAAxDISP
78 EG3: DAM, IDM, SS and N-P (binding, qAAxDISP
79 Reserve in Capacity SettlementCalculate the System Service Difference Quantity (QDIFFCSSuγ) based on the difference between the Actual Availability (qAAuγ) and the maximum of: The Dispatch Quantity (QDuγ); To get the quantity of capacity held by maintaining this level of output. The Ex-Ante Quantity (QEXuγ): To prevent double counting of ex-ante trade quantities in situations where the unit has “biased” their FPN quantity less than the total ex-ante trade quantities; and To prevent double counting of ex-ante trade quantities in situations where the unit has been dispatched to a quantity less than the total ex-ante trade quantities.
80 EG4: DAM, IDM and BM inc (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG4: DAM, IDM and BM inc (binding, qAAxDISP>QCOB): Requirement MW Trades 1 2 3 4 qD PN BM Trade qAA
81 EG4: DAM, IDM and BM inc (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG4: DAM, IDM and BM inc (binding, qAAxDISP>QCOB): Quantity for Difference Charge if Price > Strike Price Requirement MW Trades 1 2 3 4 SS ID Tracked Difference Quantity B Tracked Difference Quantity QEX BM Trade qAA BM Trade
82 Reserve in Capacity Settlement Difference ChargesEG5: DAM, IDM and BM dec (binding, qAAxDISP
83 Quantity for Difference Charge if Price > Strike Price Requirement Reserve in Capacity Settlement Difference Charges EG5: DAM, IDM and BM dec (binding, qAAxDISP
84 Reserve in Capacity Settlement Difference ChargesEG6: DAM, IDM and BM dec (binding, qAAxDISP
85 Quantity for Difference Charge if Price > Strike Price Requirement Reserve in Capacity Settlement Difference Charges EG6: DAM, IDM and BM dec (binding, qAAxDISP
86 EG7: DAM, BM inc and Notified Imbalance (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG7: DAM, BM inc and Notified Imbalance (binding, qAAxDISP>QCOB): Requirement MW Trades 1 qD PN BM Trade qAA BM Trade
87 EG7: DAM, BM inc and Notified Imbalance (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG7: DAM, BM inc and Notified Imbalance (binding, qAAxDISP>QCOB): Requirement MW Trades 1 SS N-P BM Trade Quantity for Difference Charge if Price > Strike Price ID Tracked Difference Quantity B Tracked Difference Quantity QEX qAA Notified Imbalance
88 EG8: DAM, BM dec and Notified Imbalance (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG8: DAM, BM dec and Notified Imbalance (binding, qAAxDISP>QCOB): Requirement MW Trades 1 qD PN BM Trade qAA BM Trade
89 EG8: DAM, BM dec and Notified Imbalance (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG8: DAM, BM dec and Notified Imbalance (binding, qAAxDISP>QCOB): Requirement MW Trades 1 SS N-P Quantity for Difference Charge if Price > Strike Price ID Tracked Difference Quantity B Tracked Difference Quantity QEX qAA BM Trade
90 EG9: DAM, BM inc > QEX and Biased PN (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG9: DAM, BM inc > QEX and Biased PN (binding, qAAxDISP>QCOB): Requirement MW Trades 1 qD PN BM Trade qAA BM Trade
91 EG9: DAM, BM inc > QEX and Biased PN (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG9: DAM, BM inc > QEX and Biased PN (binding, qAAxDISP>QCOB): Requirement MW Trades 1 SS N-P Quantity for Difference Charge if Price > Strike Price ID Tracked Difference Quantity B Tracked Difference Quantity QEX qAA BM Trade QAOBIAS BM Trade
92 EG10: DAM, BM inc < QEX and Biased PN (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG10: DAM, BM inc < QEX and Biased PN (binding, qAAxDISP>QCOB): Requirement MW Trades 1 qD PN BM Trade qAA BM Trade
93 EG10: DAM, BM inc < QEX and Biased PN (binding, qAAxDISP>QCOB):Reserve in Capacity Settlement Difference Charges EG10: DAM, BM inc < QEX and Biased PN (binding, qAAxDISP>QCOB): Requirement MW Trades 1 SS N-P Quantity for Difference Charge if Price > Strike Price ID Tracked Difference Quantity B Tracked Difference Quantity QEX qAA BM Trade QAOBIAS BM Trade
94 Reserve in Capacity SettlementNext Steps: This afternoon or tomorrow morning, publish this set of slides: Include in considerations for TSC consultation responses; Include in Rules Working Group escalation process. Drafting of rules for TSC: New subsection in Chapter F, in between Within-day Difference Quantities and Charges (F.18.5) and Non-performance Difference Quantities and Charges (F.18.6) for determination of System Service Flag, and calculation of System Service Difference Quantity and its addition into the Tracked Difference Quantity; Small changes to Appendix E and G to reflect publication requirements; Small changes to glossary to incorporate new terms, variables, and to define the specific system services considered in this approach. Change request to vendors being raised: Implementation subject to full change control process.
95 Capacity Market Agreed Procedures Update on T&SC consultation Agenda Capacity Market Code; Capacity Market Agreed Procedures Update on T&SC consultation Parameter study update Proposed approach for changes to Reserve in Capacity Settlement AOB & Next Steps.
96 Next Steps The a full version of the Capacity Market Code will be submitted to the Regulatory Authorities will be submitted to the Regulatory Authorities next week. The Regulatory Authorities will be putting the Capacity Market Code out for consultation during the week of January 9th. By all means submit comment within the usual 5 working days following this meeting. These will be reviewed and any changes we would normally make will be passed on to the RAs.