EU4Energy Governance: Ukraine/Moldova Workshop on Cross-border

1. EU4Energy Governance: • Ukraine/Moldova • Workshop on Cross-border • Electricity Balancing Cooperation • Vienna 28.02.2019 Case study – Implementation of regional electricity balancing cooperation in the Western Balkans Zoran Vujasinović Branko Leković Electricity Coordinating Center Ltd. V. Stepe 412, 11040 Belgrade 33, Serbia, www.ekc-ltd.com

2. Agenda

3. WesternBalkans6 Region Keyfacts • Decadesofcommonoperation in YU/UCTE/ENTSO-E • Wellconnected network • Beingmember (orstrivingtowards) ENTSO-E • As EnergyCommunityContractingParties, following EU Acquis (EU  Treaty  EnC) • Balancing market: under development; working towards regional and pan-EU integration

4. XBB WB6 Balancingproject: Keyinformation • Under the initiative and support of EnergyCommunity, • With WB6 ContractingParties as partnersandfinalbeneficiaries, • EKC and IMP performedtheproject“Technical Assistance to the Implementation of Cross-border Electricity Balancing“in the WB6 region • The main goal of the project: • In line with EU (EBGL) roadmap and in line with the state of art in the region, to prepare the WB6 systems for the implementation of Imbalance Netting and mFRR/RR (tertiary) energy exchange mechanisms • Withthefollowingkeyaspects: • Currentstateand general gapanalysistowards EB GL • TheoreticalandmethodologicalaspectsofImbalanceNettingand mFRR/RR • Simulationsoftware & dryruns & analyses • Organisationalandcontractualneeds START: Dec 2017, END: FEB 2019

5. Deliverables of the WB6 XBB project • Task 1: Current state WB6 FinalDraftReport & • detailedGapanalysis (Annex) • Task 2: Usage of LFC blocksFinalDraftReport& detailedGapanalysis • Task 3: ImbalanceNettingTarget model, • IN softwareplatform IN tests&analyses • FinalDraftReport • Task 4: mFRR/RRTargetmodel, • mFRR/RR softwareplatform mFRR/RR tests&analyses • FinalDraftReport • Task5: Integration roadmapIntegrationsteps, • Contractualframework, • Final Draft Report

7. Gap Analysis of WB6 legislations • WB6 primary and secondary legislative against ElectricityBalancing Guidelines (EBGL) • Legal and technical analysis • Around 30 documents analyzed • Comprehensive guideline on more than 350 pages

8. KEY EBGL REQUIREMENTS • Numerous definition (such as balancing services, energy and capacity, BSP…) Functions and responsibilities • TSO shall be responsible for procurement of balancing services from BSP and shall apply Self-dispatching model • BSP shall qualify for providing bids • Contract for balancing capacity means obligation for bidding balancing energy • Price of balancing energy can’t be predetermined in contract for balancing capacity • BRPs are financially responsible for their imbalances and they can reschedule their position before ICZGCT • Balancing energy Gate Closure Time shall be close as possible to real time and not before ICZGCT • Requirements for standard product • preparation period; • ramping period; • full activation time; • minimum and maximum quantity; • deactivation period; • minimum and maximum duration of delivery period; • validity period; • mode of activation • And also variable characteristics: • price of the bid; • divisibility; • location; • minimum duration between the end of deactivation period and the following activation • TSO may develop a proposal for specific products for balancing energy and balancing capacity Minimum and maximum duration Preparation period Ramping period Deactivation period FAT

9. KEY EBGL REQUIREMENTS Procurement of balancing services • The activation of balancing energy bids shall be based on a TSO-TSO model with a common merit order list. • All TSOs shall develop a proposal for a methodology to determine prices for the balancing energy • Marginal pricing (pay as cleared) • Harmonisedmaximum and minimum balancing energy prices are allowed, including bidding and clearing prices • Upward and downward balancing energy bids shall be separated in different common merit order lists • Procurementmethod forbalancingcapacityshall be market-based for at least the frequency restoration reserves and the replacement reserves • the procurement process shall be performed on a short-term basis to the extent possible and where economically efficient Cross-zonal capacity for balancing services • Before the implementation of the capacity calculation methodology, TSOs shall use the cross-zonal capacity remaining after the intraday cross-zonal gate closure time

10. KEY EBGL REQUIREMENTS Settlement • The settlement processes shallensurefinancialneutralityofTSOs • TSO shall establish a procedure forthe calculation of the activated volume of balancing energy based on requested or metered activation • Payment for balancing energy : • Commonsettlementrulesfor: FRR, RR and imbalance netting • Single imbalance pricing • Imbalance settlement period of 15 minutes • Each TSO shall set up the rules for: calculation of the final position, determination of the allocated volume, determination of the imbalance adjustment pursuant, calculation of the imbalance • Payment for imbalance: • The imbalance price for negative/positive imbalance shall not be less/greater than the weighted average price for positive/negative activated balancing energy from frequency restoration reserves and replacement reserves.

11. KEY (NON)COMPLIANCES IN WB6 REGION General provisions Non-compliant • Numerous definitions need to be reformulate and general inconsistency between legislations Functions and responsibilities Compliant • Self-dispatching model • Role of BRPs Non-compliant • Prequalification process mostly missing • Requirements for standard product are missing • Possibility for NRA to regulate price of balancing capacity and energy in some cases (North Macedonia, Kosovo*) Procurement of balancing services Compliant • A general possibility for the TSO to exchange balancing services Non-compliant • “Pay as bid” pricing of balancing energy • Limited price difference for balancing energy • Annual procurement of balancing capacity with regulated prices • Provision regarding exchange and transfer of balancing capacity are missing

12. KEY (NON)COMPLIANCES IN WB6 REGION Cross-zonal capacity for balancing services Non-compliant • Provisions regarding calculation and allocation of CZC for balancing services are missing Settlement Compliant • Single imbalance pricing • Procedure for calculation of activated balancing energy Non-compliant • Clear usage of imbalance adjustment is missing • Imbalance settlement period is one hour • Usage of coefficient determined by NRA for imbalance pricing • Value of avoided activation of energy is not well defined • Procedure for claiming recalculation is missing • Common settlement rules with CGES , NOSBiH and EMS • Imbalance price cannot be negative (zero is minimum)

13. KEY TAKE AWAYS FROM WB6 REGION Key Takeaways • Requirements for standard product are missing • Exclude possibility for NRA to regulate prices • Contracted/“pay as bid” prices should be changed to marginal pricing • Imbalance settlement period is one hour • Prices for balancing capacity are regulated and procurement is year ahead process • Common pricing, settlement rules, CMOLandstandard product between EMS,CGESand NOSBiH • General inconsistency between documents and numerous definitions

14. LFC BLOCKS Load-frequency control (LFC) block: part of a synchronous area, physically demarcated by points of measurement at interconnectors to other LFC blocks, consisting of one or more LFC areas, operated by one or more TSOs fulfilling the obligations of load-frequency control

15. Task 2: Impactof LFC Blocks on integration • How touse theexistence of Control Blocks, to boostfurther regional integration, in line with EU target model for balancing • Common reservedimensioning, as opportunity for lowering reserve • withensuredavailable CZC • Exchange andsharingofthebalancingreservewithintheblock • SO GL defines no limitsforreservesharingwithinthe LFC block • “Pre-netting” on the level of LFC blocks, under IGCC umbrella • Existing IT infrastructure

16. LFC Blocks: Currentstate • SMM Control Block • Common FRR dimensioning, exchange of tertiary energy (mFRR/RR) applied between EMS and CGES, pilot tests of Imbalance Netting • SHB Control Block • Adoption of new operational agreement in accordance with SO GL, exchange of tertiary energy (mFRR/RR) applied, Slovenia and Croatia are within INCIGCC (Feb 19) • OST and KOSTT cooperation • Service agreement for provision of secondary control (still not operational) • No intention to form LFC block

18. ImbalanceNetting • Imbalance Netting: mechanismforavoidingcounter-activationsofLoad-frequencycontrolamongControlBlocks (respectingavailabletransmissioncapacity) • IGCC as a target pan-EuropeanImbalanceNettingproject • All C.E. TSOsare approachinggradually • All to participateby 2022

19. IGCC: implementation status in Europe • IGCC as thetarget EU IN project • Member TSOs (20): • Operational members (13) • Non-operational members (7) • EMS: plan to operate within IGCC IN mechanism inQ2 2019 • Observers (7): NOS BIH, CGES, MEPSO, ESO, MAVIR, SEPS, CREOS o o o o o o

20. ImbalanceNetting: dryrun in WB6 • Imbalance Netting target model for WB6:fully in line with pan-European model (IGCC project) • Withassumed “pre-netting“ at LFC block level • IN demo platform • IN tests (experiment on WB6) performed on theTSOs’ data for 14-20 May 2018

21. INtests: estimated savings, summary • Test 1: “WB6” • Test 2: “WB5” (without NOS BIH) • Test 3: “SMM” (EMS, CGES, MEPSO)

22. WB6 Implementation roadmap • WB6 toexploit the existence of LFC block(s) and perform pre-netting within each LFC block(subordinated to IGCC) • SMM, SHB • possibly perform one pre-netting among LFC blocks, and • inevitably go towards the IGCC project

24. Types of balancing services

25. mFRR & RR integration – processes in Europe • Trans European Replacement Reserves Exchange (TERRE) is the European implementation project for exchanging replacement reserves. • According to EB GL (Art.19, Art.31) and MFRRIF (Art.1), pan-European RR energy exchange process, and consequential TERRE platform is considered optionalfor all TSOs. • Manually Activated Reserves Initiative (MARI) is the European implementation project for the creation of the European mFRRplatform. • According to EB GL (Art.20) and MFRRIF (Art.1), pan-European mFRR energy exchange process, and consequential MARI platform is considered mandatory for all TSOs.

26. WB6 cooperation – balancing energy exchange process • BSPs provide upward and downward bids to CMO list • TSOs provide requests for upward and downward regulation • Algorithm provides optimal solution, combining • Down bids&up requests • Up bids&down requests • Under transmission constraints (CZC)

27. mFRR/RR in WB6 cooperation: keyfacts • Standard product: • in line with MARI and TERRE • For WB6 temporarily tailored to take into account actualspecifics • hourly products, instead of 15 min • Synchronised Gate Open / ClosureTimesforactivationsandbidding at CommonMeritOrderList • TSO-TSO settlement of exchanged balancing energy • Cross zonal marginal pricing –themost expensive bid in non-congested groupofareasdefinestheprice

28. WB6 balancing energy exchange - dry run • Simulationsoftwareand WB6 dryrunexercised at common mFRR & RR platform, embedding: SA mFRR, DA mFRR, RR • The dry run was performed on the basis of TSOs’ data for period16th -22nd of July 2018 Indicativeestimation of annual benefits in WB6 EUR 4.3 million/year

29. WB6 integrationroadmap • In the WB6 region, aFRR mostlyused to coverimbalances; “tertiary control” (mFRR&RR) primary deployed by EMS (to keep required band for aFRR) • mFRR and RR processes share similar task • RR usually treated as an “emergency” energy import for the largest outages • MARI (mFRR) is mandatory EU project, TERRE (RR) voluntary project •  • Pragmatic approach for WB6 is to focus on mFRR integration • Steps: • Defining standard mFRR products • Regional integration 1 (EMS, CGES, NOS BiH) • Regional integration 2 (All) • Integration into MARI

30. BACKUP SLIDES (general)

31. European processes in establishing XB balancing cooperation • Linkage of ElectricityBalancingGuidelines (EB GL) obligations and 4 related processes • Reference to 3 processes under WB6 XBB project

32. Basic principles Standard product(s) • Standardization of balancing products for CMO list • Minimum set of product attributes that allow activation within suitable algorithm for Balancing Capacity and Balancing Energy Minimum and Maximum quantity Minimum and maximum duration Preparation period Ramping period Deactivation period Divisibilityof volume in MW Minimum and Maximum duration of Delivery Period • Validity period beginning time – ending time • Price of bid • Mode of activation (Manual or Automatic) Divisibilityof delivery period in seconds

33. POTENTIAL OF LFC BLOCKS FOR FURTHER BALANCING COOPERATION Common dimensioning • Opportunity for TSOs within LFC blocks to decrease the volume of total balancing capacity → common dimensioning incident for the whole LFC Block • Common dimensioning of balancing reserve is applied within both SMM and SHB block but currently in the form of non-obliged operational procedure • Knowing that SMM and SHB TSOs at the same time Bidding Zones (this is not so in e.g. German Control Block), at least the Cross Zonal Capacity among them required for the application of common reserve needs to be formally recognized and made available.

34. POTENTIAL OF LFC BLOCKS FOR FURTHER BALANCING COOPERATION Sharing of reserve • Opportunity for LFC Blocks/Areas to further decrease volume of reserve → common usage of one agreed part of the reserves • Implementation requirements: • Allowed if: 99% of LFC Block imbalances during one year (probabilistic) - are lower then thedimensioning incident in MW (deterministic) • Sharing volume is limited to 30% of the size of dimensioning incident • Sharing of reserve is not applied in WB6 region among existing blocks

35. POTENTIAL OF LFC BLOCKS FOR FURTHER BALANCING COOPERATION Exchange of reserve • Opportunity for LFC Block/Area to procure part of its reserve (up to 50%) in another area → changing geographical distribution of balancing reserves • Reasons: • Technical – LFC Block/Area cannot provide required volume of reserve • Economic – Balancing reserve in another LFC area is more economically efficient • Exchange of reserve is not applied in WB6 region among existing blocks

36. Basic principles Types of balancing services • Balancing services exist on two levels: • balancingcapacity (reserve) • (activated) balancing energy • Consequently balancing integrationcan be done on thelevelofbalancingcapacity (reserve) orbalancingenergy (activation) (activated) Balancing energy P max Balancing capacity (balancing reserve) t min

37. BACKUP SLIDES (task 1/2)

38. Task 2: Existing C.Blocks Impact of existing Control Blocks on integration • Current LFControl Blocks in WB6: • SMM • SHB • SMM: • Secondary (aFRR) control in hierarhical mode (by EMS) • Common dimensioning of reserve: EMS and CGES • Exchange of tertiary (mFRR/RR) energy • Intitiative/pilot of Imbalance Netting • SHB: • Secondary (aFRR) control in pluralistic mode (by ELES) • Common dimensioning of reserve • Exchange of tertiary (mFRR/RR) energy • SI and HR in INC withAustria

39. BACKUP SLIDES (IN)

40. INimplementationroadmap

41. Pre-netting • Optimisation region • … is twoor more LFC blocks, applyingeither: • imbalance netting, (explicit pre-netting) or • the exchange of aFRR over CMOL (and, by this, implicit netting embedded) • Internal LFC block pre-netting (as practicallymandatory), is notseen as theOptimisation Region • Allowednettinglayers: •  possible: - internal LFC block pre-netting • - Opt. region: one pre-nettingamong LFC blocks(or aFRR CMOL) • - finally, IGCC

42. Task 3: IN IN: settlement example • TSO 1 “imports” 70 MWh (=100-30), with opportunity price of 55 EUR/MWh • TSO 2 “exports” 50 MWh (=60-10), with opportunity price of 20 EUR/MWh • TSO 3 “exports” 20 MWh (=20-0), with opportunity price of -10 EUR/MWh (e.g. negative price) • Imbalance netting settlement price • = 33.21 EUR/MWh • Savings: • TSO 1 = 70*55 – 70*33.21 = 1525 EUR • TSO 2 = -50*20 – (-50)*33.21 = 661 EUR • TSO 3 = -20*(-10) – (-20)*33.21 = 864 EUR

43. Task 3: IN IN: settlement • Previous example given in a “snapshot” of data • ISP • In reality, within one ISP, TSO can have both positive and negative demand • Options for settlement: • To net the positive/negative activations (then to treat “dominant direction”) • To separately account positive and negative portions (thus to apply 2 opportunity prices per TSO, per ISP) • Cummulative: 10 MW • Cummpos: 12 MW • Cummneg: -2 MW • 10 MW • 12 MW • -2 MW

44. Opp. prices, settlement price Opp. price, upward Settlement price (WB6 test) Opp. price, downward • Settlement price, as the result from “WB6 test” is shown as well • Perfect condition for max. savings is: Opp. Price, up> Settlement price>Opp. Price down • But, savings ensured for all TSOs even if it is not so in each timestamp

45. IN: Used data (Limits) • aFRR Limits: 200 MW per each TSO • ATC: Remaining ATCs after latest allocation (after day-ahead/Intraday) are used • Relatively high values: no congestions appear

46. Savings Savings: WB6 test CGES: Down price is 35 EUR/MW, quite high.  “Beats” settlement price in some periods  Savings negative (loss) in some periods But overall IN effect on MNE is benefit, as for all TSOs

47. Savings: WB6 test

48. BACKUP SLIDES (mFRR/RR)

49. WB6 cooperation – proposed mFRR energy product Min.delivery: MARI 15 min WB6 50 min FAT 12.5 min 2.5 5min 5min T-15 T T+15 mFRR timeline MARI T-60 T T+60 Proposed mFRR timeline WB6

50. European process and WB6 regional characteristics • WB6 regional characteristics • In the WB6 region, “tertiary control” (mFRR&RR) primary deployed by EMS (to keep required band for aFRR), with some of the TSOs (OST, NOSBiH) relying more on aFRR and rarely activating “tertiary control” • RR is rarely used in the product format which is recognized within EB GL. It is usually treated as an “emergency” energy import for the largest outages • mFRRprocess with 2 products and RR process with 1 product, to large extent share the similar timeframe and triggering events, therefore the application of all three “tertiary control” models in parallel seems complex and not justified at this stage • The aim is to find pragmatic and feasible solution for mFRR & RR energy exchange cooperation in WB6 region