Wheeling charges in the framework of the integration of electricity markets

1. Wheeling charges in the framework of the integration of electricity markets Miss Naouel GUENDOUR,– Sonelgaz UPDEA Conference-28th -29th May 2012 – Hammamet –Tunis - Tunisia

2. Outline • Introduction • Concept of transit and transmission • Wheeling charges setting Methodology • Mechanisms used for the Wheeling charges setting • Allocation of interconnection capacities and congestion management • Method for the allocation of interconnection capacities and congestion management • Conclusion

3. Introduction Market integration is the process of progressively aligning the rules of functioning of many markets. • Reducing prices by increasing competition • Creating a transaction a flow • Reducing the need to have a continuous generation capacity for backup • Increasing security of systems by enabling power to be drawn from diverse sources. • Find the way to harmonize rules and move to a common approach Objectives Challenges

4. Concept of transit and transmission The concept of transit has to do with the transmission of electricity from country A to country C using a High Voltage horizontal network of country B. The horizontal network is used for both import and export. • The term Horizontal Network designates the portion of the network that contributes to the transfer of energy over long distances and that is also used for cross-border exchanges between countries. • The precise identification of the horizontal network is a precondition for defining the adequate transit and apply compensation to the manager. • According to ENTSO-E the comparison of load flows is carried out in two specific cases: - First by only taking into account the transit of national loads - Then by adding the loads assigned to international exchanges.

5. ~ ~ ~ ~ ~ ~ Horizontal Network ~ Local Transmission and/or Distribution ~ ~ ~ Vertical Network Distribution ~ The horizontal network is usually the network used for large transmission, that is the way for cross-border transits

6. Wheeling charges setting Methodology • For the wheeling charges by postage stamp, it is made up of : - Loads of energy proportional to the use of the network (kWh) - Loads of power requested (kW)

7. Mechanisms used for the wheeling charges setting 1 1. The CBT (cross-border tariff) mechanism proposed by ENTSO This mechanism, relies on two fundamental principles: • The allocation of costs must only take into account the portion of the networks dealing with cross-border transits. That is the «Horizontal Network» • The application of across-the-board fees for all actors of the market that must be charged to all operators that export all or part of their generated electricity. AT = Depreciation O/M =Cumulative Operating and maintenance Cost A = Cumulative supplementary services cost E = Electricity flow (MWh)

8. Mechanisms used for the wheeling charges setting 2 • Method of long term marginal costs The method of long term marginal cost (CMLT) is used for the assessment of the cost for the purpose of an internal electricity market. Similar to the CBT mechanism, the main objective of the CMLT model is the illustration of a universally applied methodology.. CM = long term marginal cost per kW of power I t = total investment costs on the horizontal network over period t ΔD t = Incremental power a = updating rate t = period C = sharing formula for the calculated transit flow   

9. Mechanisms used for the transit price setting 3 Given that the use of the horizontal network is shared between the national consumption of the crossed country and the international transits, a sharing formula is calculated for each country in order to estimate the share of costs to be allotted to cross-border flows. C = sharing formula for the calculation of the transit flow K = country M = month TEP = transit (GWh) L = monthly demand (GWh) of the country where the transit takes place

10. Allocation of interconnection capacities and congestion management Definition of congestion: situation of constraint in which a transmission line reaches the limit of its capacity and cannot take in supplementary transit without putting in danger the global functioning of the system. • Lifting of congestions in the absence of a market : • temporary congestion : Modification of the generation plan (re-dispatching, …) • permanent congestion: Use of long term solutions (e.g.: investment and network reinforcement ). • Lifting of congestions in the case of an open market : • application of access rules of third parties to the network for the allocation of transmission capacity to users for the determination of the transit capacity reserved to cross-border exchanges

11. Method of Allocation of capacities and (congestion management) 1 • By priority list :the ranking of operators is done according to the commercial offers made, the capacity is allocated in the order of first come first served. The granting of the quantity is allocated to the first users till the exhaustion of the available capacity. • On pro-rata basis: in this system there is no priority. All requests are accepted. If the demand exceeds the available capacity the GRT applies the principle of limitation based on the formula : available capacity (NTC)/total capacity requested. Simple method but without economic signal.

12. Method of Allocation of capacities and (congestion management) 2 • Coordinated generation re-dispatching : coordination among many GRT for the management of cross-border congestions through the coordination of generation plans on every side of the interconnection. • Explicit Auctions (bilateral):the seller determines in advance on the basis of security analysis the available interconnection capacity “ATC”’. He accepts the offers from potential buyers and allocates the capacity the one who made the best offer. • Explicit coordinated auctions :this method is identical to the preceding one, but necesitates more than a division of the capacity to be alloted.

13. Method of Allocation of capacities and (congestion management) 2 • Implicit auctions: • market splitting: applicable in the case of a common market in a given zone. The market operator of the market assesses the real physical flows, determines the likely congestions and on that basis re-organises the market in the geographical zone considered by soliciting the available generation in a portion of the zone in order to lift the congestion. • market coupling: This type of allocation, enables to couple markets in order to facilitate the utilization of capacities of interconnections through the optimization of exchanges through information sharing on electricity flows

14. Conclusion On the basis of the above elements, it is obvious that the setup of a regional electricity market, requires adequate conditions: • Clearly defined regulation for all that has to do with cross-border exchanges, from allocation of capacity to payment of transactions, • Actions in the short and medium run must be taken by TSOs to reinforce infrastructures that will be more and more utilized for commercial exchanges. The setup of a regional electricity market, requires a reciprocity in the application of rules in order to avoid distortions in the fixing of prices (e.g. Crossed subsidies) that could negatively affect the fixing of prices in the regions. This in addition to a transparent and non-discriminatory access to the network, clear payment mechanisms and a stable regulatory framework.

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