“R3 DYNAMIC PROFILE” beleidsplatform VREG 24 juni 2013

1. “R3 DYNAMIC PROFILE”beleidsplatform VREG24 juni 2013

2. Agenda Challenges ahead & how to mitigate ? • Overview ELIA reserves • Role Balancing Responsible Party (BRP) • Support balancing by BRPs • Facilitate diversification & steps taken “R3 Dynamic Profile” • Stakeholder consultation via Expert Working Group • Development of R3 Dynamic Profile product • Product features • Timing of tendering

3. Many challenges ahead…how to mitigate ? • The significant increase in installed solar and wind generation capacity will have an impact on the system management as well as on the size and nature of the residual system imbalances, used as input for the dimensioning of the reserves, due to: • forecast errors • ramping 5

4. Overview of ELIA contracted reserves

5. Role of Balancing Responsible Party (BRP) Balancing responsible parties (BRPs) are responsible for balancing their perimeter on a 15-minute time interval in the Belgian system. BRPs have to nominate a balanced perimeter in day-ahead and have to perform intraday adjustments according to more accurate intraday forecasts and actual measurements of production and off-take, as the uncertainty on the final balancing position of the perimeter decreases towards real-time. Any residual system imbalance is in last instance resolved by Elia by deploying the reserves at its disposition. As a result, any assessment of the required reserve volumes crucially depends on the behaviour of BRPs Once all metering is known, ELIA calculates imbalances per Qh per BRP Imbalances are invoiced at imbalance tariffs: MDP= Marginal Decremental Price = Lowest downwards activation price MIP = Marginal Incremental Price = Highest Upwards activation price 5

6. Mitigation 1: support balancing by BRPs Residualbalancingneeds, tobesolved in real-time by TSO, shouldbeminimised. • TSO responsibility • Design appropriate incentives (imbalance) • Develop liquid short-term markets in cooperation withPXs (NWE ID project) • Providepubliclyavailableforecastingandbalancing data • BRP responsibilities • Invest in & useforecasting • Be pro-active on markets (tradetheirimbalance, offer flexibility in DA & ID) • Develop flexibility in theirgenerationportfolios 5

7. Mitigation 1: support balancing by BRPs

8. Mitigation 1: support balancing by BRPs

9. Mitigation 2: facilitate diversification • Purpose: opening the Balancing Energy & Reserves Market to a new kind of flexibility. • Today : • Majority of Balancing Energy & Reserves provided exclusively: • By injection ARPs (who have signed a CIPU contract) • On Centralized Production Units • Exceptions: Interruptible Load and R1 Load from ELIA-Grid Users • Goal: • Extend participation of Balancing Energy & Reserves to new resources (load and decentralized production units) and new players.

10. Steps taken towardsdiversification…

11. Continuous stakeholder consultation Against this fast-changing context, ELIA established the Balancing Taskforce (as ad hoc group under Users’ Group) as the platform via which Elia consults the market when proposing evolutions to balancing and ancillary service mechanisms. During such Taskforce of Jan 11th 2013, dedicated to the contractual models for diversification, it became clear that there are quite some complex issues to be tackled in this respect. Those issues are emphasized for resources located in distribution grid as Elia does not own any metering in those grids. It’s for this specific purpose that an “Expert Working Group” (as subgroup of TF Balancing) has been created, consisting of BSPs, BRPs, DSOs, FORBEG and ELIA. Main questions to be discussed within the working group: - How to manage the impact on the BRP of the activations by a BSP non-BRP: - How the manage the control and remuneration of ancillary services provided from resources that are not directlymeteredby Elia. - Balancing services provided by resources located on distribution grid, should not cause congestion problems on distribution grids  importance of establishing a prequalification process with DSOs to assess and qualify eligible access points.

12. The development of R3 Dynamic Profile Conclusions of this working group will directly be reported to the Task Force Balancing. Elia will finalize its proposals taking into account the input of the Taskforce and will then require appropriate approvalfrom CREG. Experts has met 4 times now with focus on establishing the R3 Dynamic Profile product for 2014 using flexibility residing at distribution access points (short term) and providingrecommendationsfor the long term. In order to achieve this first step, Elia introduced on April 17th, according to article 233 of the Federal Grid Code, a proposal to the CREG for the applicable reserve volumes for 2014 with a specific part related to the procurement of reserves through a ”R3 Dynamic Profile” product. Having no experience with the performance of such a product, Elia decided to limit the volume of ”R3 Dynamic Profile” to be procured at 50 MW maximum for 2014. After technical qualification performed by DSOs and Elia, Elia will apply a market based approach to contract between 0 to 50 MW with the “R3 Dynamic Profile” product.

13. “R3 Dynamic Profile”: product description • No correction of ARP-perimeter • Amendment of ARP-contract, introducing notion of “Dynamic Profile Provider”, incl. information to ARP when activating • Capacity only product (no activation price nor payment to BSP) • Needs • To open R3 to Distributed Energy Resources (load and prod with AMR Meter) through BSP participation; resources at TSO level could also be eligible to be part of the BSP pool for this product; • Volume and selection • Limited volume in comparison with R3 production due to the model characteristics (i.e. end of the merit order, tariffs impact) and to gain experience. Start with max 50 MW • Number and duration of activations • Around 40 activations; Maximum duration of 2 hours; • Availability control • Requirement of 100% availability (cf R3 Production); Controlled per quarter-hour; • Based on real metering (15’ metering) provided by DSO (and not on nominations); • Activation control • 1 activation = number of quarters between start and stop of Elia-bid • Based on real 15’ metering and not on 10” T.M. • Reference curve: based on the last 15’ metering • Settlement in balancing prices : as R3 Dynamic Profile is only activated in merit order after R3 Production is activated, the MIP will reflect the most expensive R3 free Bid price

14. Communication DSO prequalification decision Timing Tendering 20/9/2013 Communication selection BSP Design Freeze 17/4/2013 11/10/2013 R3 DP ready to start Contract notice R3 DP Tendering R3 DP first Results 1/12/2013 7/6/2013 (might be earlier) 23/9/2013 Official start R3 DP R3 DP tendering starts 1/1/2014 1/7/2013 2013 apr mei jun jul aug sep okt nov dec jan 2014 2014 • Starts at contract notice; • BSP must submit max number of EAN’s to DSO with required information before Aug 20th at the latest; • From end of May to Aug 20th, BSP can/must ask for “preliminary advise” from DSO for certain EAN; • DSO communicates the officially validated EAN by Sep 20th Today Drafting of contracts 17/4/2013 30/5/2013 17/5/2013 30/6/2013 Finalization contract 1/7/2013 22/9/2013 Tendering procedure 7/6/2013 Submission + preliminary advise 20/9/2013 Prequalification by DSO This is minimum time Elia & BSP need for adapting IT-tools, Installation of communication lines, … 23/9/2013 11/10/2013 Selection of BSP 28/10/2013 30/11/2013 Signing of contracts + implementation 1/12/2013 31/12/2013 Testing period 14

15. BACKUP SLIDES : R3 Dynamic ProfileProduct Description Elia ENMAN

16. “R3 Dynamic Profile”: product description Example without activation Examplewithactivation of 40 MW to GU & no correction • No correction of BRPs perimeter • Only upward activation in “all or nothing modus” (complete contracted volume is activated); • BRPs position is raised with the effectively activated energy • BRP (and through him Supplier) is remunerated by the tariffs; • BRP is not penalized for the discrepancy; • A specific control of the activation is necessary as there is no incentivizing correction • In principle the final position of the BRP is favourable towards the position of the zone • The effect will be moderate due to characteristics of the product: • Limited activation duration • Limited # of activations => after R3 production in merit order BRP 2 Initial Position: +100 injection – 100 load = 0MW BRP 2 New Position: +100 injection- 60 load - 0correction= +40 MW GU (Load) Offtake = 100MW 60MW GU (Load) Offtake = 100MW supplier Buys Sells Prod Injection =100MW supplier Buys Sells Prod Injection =100MW Activation settlement: 40MW for BSP GU Imbalance settlement: + 40 MW @ MIP

17. “R3 Dynamic Profile”: product description BRP 1 Position: -100MW BRP 1 Initial Position: -100MW Zone is short: -100 MW • Capacity Only product Elia Activation Request @ GU: -100 MW (load convention) NO correction Imbalance settlement: -100 MW @MIP BRP 2 Initial Position: 0MW BRP 2 New Position: +100MW BRP 2 New Position: +100MW Zone is balanced GU 100MW Prod 100MW GU 100MW 0MW Prod 100MW Activation settlement fur GU Imbalance settlement: +100 MW for BRP Result: As there is no correction of BRP’s perimeter, activation costs are not covered by tariffs Activation costs have to be = 0 €/activation & entire remuneration provided on capacity fee • Number and duration of activations have to be contractually fixed • Such product cannot be price maker • Volumes to be limited, at least initially

18. “R3 Dynamic Profile”: product description • Needs • To open R3 to Distributed Energy Resources (load and prod with AMR Meter) through BSP participation; • Resources at TSO level could also be eligible to be part of the BSP pool for this product; • To have nearly the same “quality” as R3 prod and at competitive price; • To be able to launch a Tender for this product in 2013, in parallel with ICH; • Volume and selection • Limited volume in comparison with R3 prod due to the model characteristics (i.e. end of the merit order, tariffs impact) and to gain experience. • Start with max 50 MW • Minimum threshold for participation: 5MW P/OP/BASE offer (for other selection rules, see annexe) • Candidate BSPs must provide their margin for P/OP/BASE per EAN of their pool • Number and duration of activations • Both contractually predefined and will influence the reservation price • Number as close possible as number of R3 prod activations but can be less, as activated at the end of merit order • Around 40 activations • 12h between 2 consecutive activations • Duration of activation must be limited to avoid a change of NRV sign during activation • On the other hand a duration of activation must fulfil to current R3 prod characteristics and needs of dispatcher • Maximum duration of 2 hours; Trade off between conservative need and price

19. “R3 Dynamic Profile”: product description • Availability control • Requirement of 100% availability; • Based on real metering (15’ metering) and not on nominations; • Controlled per quarter-hour; • No control during the activation • Penalty per quarter-hour based on Capacity Remuneration with penalty factor • With a yearly cap = yearly reservation remuneration Penalty for 1qh of missing power [€/qh] = 1,3 * Missing power [MW] * Capacity Remuneration [€/MW/h] * 1/4 Pmad Agg R3 Pmad • Missing power [MW]= R3 [MW]– Pmadeq [MW]* Margin = Power that cannot be curtailed (vital elements of a site) R3= Contracted MW that BSP must have available at any time Pmeasured = Meq Pmad = MW that BSP really has available

20. “R3 Dynamic Profile”: product description • Reminder: No remuneration to BSP for the activation due to the model characteristics Ref = Load equivalent off-take of last 15’min P(k) = Load equivalent off-take during activation R3 (k) = contracted volume (fixed amount; which might depend on PEAK/L-OFFPEAK-period) Qh1 = quarter when the activation starts

21. “R3 Dynamic Profile”: product description • Limitation of 15 min metering data points • Activation control Last Qh for activation serves as reference Qh (Ref) Elia Request for activation P(k) = Really activated energy Ref stop start R3 Qh 2 Qh 3 Qh 1 Qh 0 Energy that should be activated (incl. billable Margin) No availability control during activation