Network Codes Become Binding Law
Building a secure, competitive, and low carbon European electricity sector and the internal energy market are ambitious targets that need a clear legal ground to become reality. The network codes complement existing legislation by defining a common ‘code of conduct’ for the different players in the sector, harmonising practices and business processes.
The codes are divided into three families:
1. Market codes are moving market integration forward for more competition and resource optimisation. They define rules on forward or long-term capacity allocation so that market players can hedge the risks associated with cross-border trading. They set how capacity on interconnections is calculated and how congestion is managed to boost cross-border exchanges in the day-ahead (the day before real-time dispatch) and intraday timeframes. Finally, the codes address electricity balancing, that is, the procedures to apply after intraday/market closure and real-time dispatch. The idea is to maximise the exchange of balancing resources as well as to integrate new providers, such as demand response.
2. Connection codes set the EU-wide conditions for linking all actors in all safety to the grid, including renewables and smart consumption. They include requirements for generation and demand facilities, DSOs, and high voltage direct current (HVDC) technologies. The codes will improve security and foster new entrants, new technologies, and smarter grids. It will also help attract investors by creating a common European level playing field.
3. Operational codes reinforce security of supply through state-of-the-art, harmonised, and coordinated rules for operating the grid. Regional cooperation of grid operators is enshrined in EU law. Operational codes also establish common procedures and remedial actions to be applied in the emergency, blackout and restoration states.
Where do we stand in the beginning of 2017?
The year 2016 saw the entry into force of four codes (following capacity calculation and congestion management – CACM, in 2015). The three grid connection codes (requirements for generators, demand connection, and HVDC) and the code on forward capacity allocation (FCA). The two operational codes, the System Operation Guideline, and the Emergency & Restoration Code, are awaiting their entry into force after positive votes from EU member states in comitology.
The remaining market network code, the Electricity Balancing Guideline, was in the comitology process in 2016 and was adopted by EU member states in March 2017.
New Challenge: Implementing the Codes
The period of development of the codes is over; ENTSO-E’s resources are now fully devoted to their implementation. Entry into force of the codes mean they become binding EU law, to be applied by all European and national players. Implementation often requires a combination of national decisions, regional agreements, and pan-European methodologies and tools.
Stakeholder consultation and regulatory approval is as central in the implementation phase of the codes as it is in their development phase. Implementing the codes thus requires the involvement of the whole electricity community, at the EU and national levels.
The codes define which entity is responsible for each implementation task.
- ENTSO-E oversees part of the implementation tasks.
- Additionally, ENTSO-E facilitates the tasks attributed to ‘ all TSOs’ . ‘ All TSOs’ refers to the TSOs of all EU countries (pan-European ‘all TSOs’), or to the TSOs of a specific EU region (regional ‘all TSOs’). The TSOs whose countries are not member of the EU are also involved in the development phase. Because TSOs have decided that ENTSO-E’s structures are the most efficient vehicle to facilitate the delivery of pan-European tasks and of some regional tasks, ENTSO-E coordinates and supports the decision-making process. However, the validation of the deliverables to be submitted to NRAs is made by ‘all TSOs’, not by ENTSO-E.
Once submitted to all EU NRAs (or to those of the region), all NRAs must similarly reach a decision to formally adopt the deliverable and make it legally binding. In case they cannot reach a consensus, a safety net process involving ACER is foreseen. The codes set deadlines for implementation, and these can be ambitious. Therefore, ENTSO-E and the TSO community started early implementation projects before the official entry into force of the codes.
IMPLEMENTING THE CODES: A COLLECTIVE EXERCISE
To involve stakeholders in the implementation of the codes, ACER and ENTSO-E have set up European Stakeholders Committees with three main missions:
- monitoring progress in the implementation;
- serving as a platform to share general views on implementation;
- contributing to a more informed decision-making process for the methodologies and rules still to be developed.
The Market Stakeholders Committee launched in 2015 and gathered four times in 2016. The Grid Connection Stakeholders Committee was launched in 2016 and gathered four times. The System Operations Stakeholders Committee will be launched in 2017.
Implementing the codes is an important task for TSOs, who dedicate considerable resources and whose team members cooperate within ENTSO-E’s taskforces and groups to make the network codes become reality. Markus, Ana and Petra are three passionate engineers working on network codes, listen to their experience in the following videos.
Capacity Allocation and Congestion Management (CACM) Regulation
The rules set by the CACM Regulation provide the basis for the implementation of a single energy market across Europe. The CACM Regulation sets out the methods for allocating capacity in day-ahead and intraday timescales and outlines the way in which capacity will be calculated across the different zones. Putting in place harmonised cross-border markets in all timeframes will lead to a more efficient European market and will benefit customers. The first code to enter into force, the implementation of the CACM Regulation is well under way. Here is the status of the different implementation tasks, performed by ‘all TSOs’ and by nominated electricity market operators (NEMOs).
'All TSOs' tasks
CAPACITY CALCULATION REGIONS
Capacity calculation regions (CCRs) are geographical areas in which TSOs apply a coordinated capacity calculation method. Defining the regions is the first step towards more efficient electricity markets and ‘all TSOs’ submitted a proposal on CCRs to all NRAs in November 2015.The NRAs did not reach a unanimous agreement on the proposal and the task was then referred to ACER. In November 2016, ACER approved the CCRs as proposed by ‘all TSOs’ with one amendment; it merged the Central-West Europe and the Central-East Europe regions in a ‘CORE CCR’.
ENTSO-E will monitor the implementation of this decision through its biennial report on capacity calculation and allocation constraints. The first edition is due by August 2017. The decision and implementation on CCRs is the basis for a series of other regional deliverables to couple day-ahead and intraday markets in Europe, e.g., the common capacity calculation methodologies in each CCR. The TSOs of the Central-West and Central-East Europe regions have taken a first step towards merging by signing a memorandum of understanding in March 2016, to develop a common day-ahead flow-based capacity calculation methodology.
CONGESTION INCOME DISTRIBUTION
Congestion income – defined as the revenues received as a result of capacity allocation – needs to be distributed to the involved TSOs or third-party asset owners. The sharing of the congestion income between the TSOs is typically based on joint agreements among them. ‘All TSOs’ were tasked to deliver a proposal for a pan-European methodology to share congestion income.
The proposal was submitted in August 2016 by all TSOs to all NRAs for approval. Following the reception of a request for amendment by all NRAs in February 2017, all TSOs will submit an amended proposal for the congestion income distribution methodology by April 2017.
BIDDING ZONE REVIEW
A bidding zone is the largest geographical area within which market participants can exchange energy without capacity allocation. As part of the implementation of the CACM Regulation, a reporting on the efficiency of existing bidding zones, and possibly a review, are foreseen. In 2016, ENTSO-E and involved TSOs have continued to progress on the bidding zone review of Central-West Europe, Central-East Europe, Switzerland, and Italy north, closely involving NRAs, ACER, and other stakeholders. In December 2016, ACER sent a letter to all involved TSOs, formalising the current bidding zone review as a formal CACM process. The work will continue in 2017.
DAY-AHEAD FIRMNESS DEADLINE
The day-ahead firmness deadline is the point in time after which cross-zonal capacity becomes firm. To coordinate and harmonise capacity calculation and allocation in the day-ahead cross-border markets, all TSOs have been asked to develop a single pan-European day-ahead firmness deadline. ‘All TSOs’ proposal was submitted to all NRAs on 14 December 2016.
INTRADAY CROSS-ZONAL GATE OPENING AND GATE CLOSURE TIMES
For a given bidding zone border and a given time unit, capacity can only be allocated within a specific timeframe. The intraday cross-zonal gate opening time is the point in time when cross-zonal capacity between bidding zones is released, while the gate closure time is the point in time where cross-zonal capacity allocation is no longer permitted for a given market time unit. On 14 December 2016, ‘all TSOs’ submitted their proposal to all NRAs for approval.
CALCULATION OF SCHEDULED EXCHANGES RESULTING FROM SINGLE INTRADAY AND DAY-AHEAD COUPLING
On 14 December 2016, all relevant TSOs submitted the proposals for calculating scheduled exchanges resulting from single day-ahead and intraday coupling, developed under the ENTSO-E framework, to their NRAs for approval.
TSOs – NEMOs' tasks
PLAN FOR THE MARKET COUPLING OPERATOR FUNCTION
Developing, operating, and governing market coupling is a highly complex task at the heart of cross-border trade and capacity allocation. In April 2016, all NEMOs – defined as the entities designated to perform tasks related to single day-ahead or single intraday coupling – submitted their proposal for the setting-up and performance of the market coupling operator function to all NRAs for approval.
The NRAs asked all NEMOs to review and amend their proposal, thus delaying the approval process, which would formally make the multi-regional coupling project and the cross-border intraday project the pan-European solutions for day-ahead and intraday market coupling. On 14 December, all NEMOs submitted their amended proposal to the NRAs. (On this topic, see also ENTSO-E’s policy paper of July 2016 ‘Governance of the market coupling operation functions – TSOs’ perspective’).
DAY-AHEAD AND INTRADAY ALGORITHMS
The CACM Regulation requires all NEMOs to develop price coupling and continuous trading matching algorithms for the day-ahead and intraday markets. ‘All TSOs’ under the ENTSO-E framework provided all NEMOs with a proposal for a common set of requirements for efficient capacity allocation to enable the development of the price coupling algorithm and of the continuous trading matching algorithm.
MAXIMUM AND MINIMUM PRICES
All NEMOs are developing a proposal on harmonised maximum and minimum clearing prices to be applied in all bidding zones that participate in single day-ahead and intraday coupling. ENTSO-E is cooperating with all NEMOS and all relevant TSOs in the preparation of this deliverable.
All NEMOs are preparing, in collaboration with ENTSO-E and all TSOs, a back-up methodology.
All NEMOs are developing a proposal on products that can be considered in the single day-ahead and single intraday couplings.
The above proposals by all NEMOs, except for the plan of the market coupling operator function, have been submitted for public consultation on 3 November 2016. The final proposals were submitted by all NEMOs to all NRAs in early 2017 for approval.
Electricity Balancing Guideline
Electricity balancing is the process by which TSOs ensure, in real time, sufficient energy to balance inevitable differences between supply and demand. The Electricity Balancing Guideline aims to move Europe from the current situation in which balancing energy is procured at a national level to a situation in which larger markets allow the resources available in Europe to be used in a more effective way. The Electricity Balancing Guideline was approved by EU member states in comitology in March 2017 and early implementation activities are already ongoing.
In 2015 and 2016, ENTSO-E conducted a cost-benefit analysis (CBA) of a change to the imbalance settlement period, over which the imbalance of balance responsible parties is calculated. The study was based on a detailed survey in which stakeholders (mainly generators but also DSOs, imbalance settlement service providers, TSOs, and regulators) expressed their expectations on the consequences of a change of the imbalance settlement period. Four different planning cases were analysed (all regions go to 15 minutes ISP, countries with ISP longer than 30 minutes change to 15 minutes, countries with ISP longer than 30 minutes change to the ISP of their neighbouring country, and all regions go to 5 minutes ISP; for further details see the CBA analysis). The analysis yielded positive results for the third approach and an additional sensitivity analysis, in which Great Britain, Northern Ireland, and Ireland remain at 30 minutes, while all other countries change to 15 minutes.
Furthermore, ENTSO-E conducted a study on the effect of merit-order activation of automatic frequency restoration reserves (aFRR) and harmonised full activation time. The study concluded that, with a merit-order activation scheme, the provider of a selected bid needs to activate more aFRRs per selected bid, which will take more time. The aFRR activation price may decrease since only the cheapest bids are activated, and the aFRR activation price will be higher with larger imbalances and thus could contribute, giving the right signals to market participants for being balanced. For large aFRR activations caused by a power plant trip (for example), the differences between pro-rata schemes and merit-order schemes are smaller. The results of the study will help in defining standard products.
Finally, ENTSO-E created project teams for preparing the ‘all TSOs’ deliverables for imbalance netting, aFRR, frequency restoration reserves with manual activation (mFRR), and replacement reserves. ENTSO-E created project teams for preparing the ‘all TSOs’ deliverables for imbalance netting and replacement reserves. It also approved the International Grid Control Cooperation project as implementation project for imbalance netting and the Trans European Replacement Reserves Exchange – ‘TERRE’- project as an implementation project for replacement reserves. Work on creating project teams for all TSO deliverables and identifying implementation projects for aFRR and mFRR has been started.
Forward Capacity Allocation (FCA) Regulation
Forward markets allow parties to secure transmission capacity before the day-ahead timeframe, while hedging the risks. The FCA Regulation aims at establishing and promoting forward markets in a coordinated way across Europe.
HARMONISED ALLOCATION RULES
An important component of the FCA, harmonised allocation rules (HARs) deal with the procedures for auctioning transmission rights, the terms on which market participants may participate in explicit auctions and the terms for use of cross-zonal capacity. Their early implementation started as early as 2014 with the first version being delivered in 2015. In 2016, following requests from stakeholders, ENTSO-E delivered a second version of the HARs for FCA.
The maximum possible compliance with the (then) draft FCA was the main target when updating the HARs. In addition, the number of border/regional specific annexes was reduced compared to the previous version. The proposal was put to public consultation and comments from all concerned stakeholders were evaluated before the submission of the HAR to all NRAs in July 2016.
Once approved by the NRAs, these HARs will be applied in the long-term auctions for 2017. Following the entry into force of the FCA Regulation in October 2016, ENTSO-E will deliver the HARs as part of the official FCA implementation, including a public consultation in early 2017, with the official submission set at mid-April 2017.
PROPOSAL FOR THE ESTABLISHMENT OF A SINGLE ALLOCATION PLATFORM
ENTSO-E has been working on a proposal to establish the Single Allocation Platform, the European platform to be established by all TSOs for FCA. The proposal will encompass several aspects related to the establishment and operation of the platform, namely, the functional requirements, governance points, and cost sharing issues. The timing for delivering this proposal is set to mid-April 2017.
Deliverables in 2017 include FCA-specific topics (e.g., nomination rules for physical transmission rights), complementing the CACM methodologies to accommodate FCA requirements (e.g., common grid model/generation and load data provision methodology) and a list of monitoring tasks.
Specific Case of South-East Europe
South-East Europe covers a wide range of countries, some of which are not members of the EU and are therefore not subject to the same legislation. For large parts of the region, the Energy Community ensures that the EU internal energy market, including network codes and guidelines, is extended to the countries of this region. ENTSO-E also supports the TSOs of South-East Europe in aligning their legal and regulatory framework with that of the EU. This will ensure the consistent development of their national and regional electricity markets in line with the requirements of the internal electricity market.
In particular, ENTSO-E supports the TSOs of the six Western Balkans countries (WB6) – Albania, Bosnia and Herzegovina, Kosovo1, former Yugoslav Republic of Macedonia, Montenegro, and Serbia – which are not members of the EU. In April 2016, WB6’s TSOs, regulators, and ministries of energy and power exchanges entered into a memorandum of understanding setting obligations to integrate day-ahead markets, and cross-border balancing cooperation. ENTSO-E will support the implementation of the memorandum of understanding and ensure its coherence with market coupling plans at the European level, including by participating as a key external stakeholder in the Day Ahead Market Integration Programme Steering Committee, which met for the first time in September 2016.
1. This designation is without prejudice to positions on status and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.
System Operation Guideline
The System Operation Guideline sets out harmonised rules on how to operate the grid to ensure the security of supply with increasing renewables. It also enshrines in EU law the regional security coordinators (RSCs) that will cover the whole of Europe by the end of 2017. It entails several challenging implementation tasks for TSOs at pan-European, regional, and national levels. The implementation of the System Operation Guideline involves ENTSO-E and TSOs; ACER and NRAs are monitoring progress. From early 2017, the European Stakeholder Committee on Network Codes Implementation dealing with system operations ensures that all electricity stakeholders are involved in the process.
The implementation of the System Operation Guideline started in 2016, with the following main tasks:
- The common grid model (see in IT Tools & Strategy).
- Data exchange: ENTSO-E kicked off a project in April 2016 to develop key organisational requirements, roles, and responsibilities in relation to data exchange in between TSOs, DSOs, and significant grid users. This work is expected to be completed in 2017/by six months after the entry into force of the System Operation Guideline.
- Coordinated security analysis: In February 2016, ENTSO-E began the development of the methodology for coordinating operational security analysis, including methods for assessing the influence of transmission system elements, the principles for common risk assessment and for dealing with uncertainties of generation and load, requirements on coordination between RSCs and the definition of the role of ENTSO-E in the governance of common tools, data quality rules improvement, and the monitoring of the methodology.
- Year-ahead scenarios: In September 2016, ENTSO-E kicked off the work on a common list of scenarios, against which TSOs assess the operation of the interconnected transmission system for the following year. The list will be published every year by mid-July, with the description of the scenarios and the period for which these scenarios are to be used. Work has begun on the process description and the workflow chart.
- Regional security coordinators (RSCs; see in Where Europe Starts: Regions).
Additionally, there is a long list of methodologies, terms, and conditions that need to be developed at synchronous area level and included in the synchronous area operational agreements. By 12 months after entry into force of the System Operation Guideline, all TSOs of a synchronous area must develop and agree on the principles governing the operation of the synchronous area. This includes the load-frequency control structure, frequency quality defining parameters, frequency quality target parameters, dimensioning rules for frequency containment reserves (FCR), operational rules in case of exhausted FCR as well as the risk assessment methodology for these cases, roles and responsibilities for exchanging and sharing the frequency restoration reserves and replacement reserves, and requirements concerning the availability, reliability, and redundancy of the technical infrastructure, to mention but a few. The work on the content of these agreements is ongoing. Some implementation tasks have also started at the national level, ENTSO-E is not involved but will monitor their implementation.
Electricity transmission infrastructure has developed differently throughout Europe due to several national factors, including scale, topography, and economic factors. Furthermore, the levels of interconnection between countries vary greatly. Therefore, the implementation of the three connection network codes – Requirements for Generators (RfG), Demand Connection (DC), and High Voltage Direct Current (HVDC) – relies on parameters set in part at the national level and in part at the pan-European level.
To support the implementation at the national level, ENTSO-E has drafted an initial set of 18 non-binding implementation guidance documents. They highlight the effect on specific technologies, the link with local network characteristics, and the need for coordination between network operators and grid users.
ENTSO-E collected stakeholders’ feedback on the implementation guidance documents from the perspective of the RfG code, and published an updated version in November 2016. The documents were then submitted to a second round of public consultation, this time looking at the DC and the HVDC codes, and were further updated and published in March 2017.
Along the progressive entry into force of the network codes since August 2015 and in addition to the implementation tasks detailed above, ENTSO-E is tasked with monitoring the implementation of the codes and their effects on the harmonisation of applicable rules aimed at facilitating market integration. Most ENTSO-E monitoring activities in 2016 were dedicated to the CACM Regulation, as it is already in the second year of its implementation. ENTSO-E submitted a monitoring plan to ACER in February 2016, explaining the scope, frequency, and method used for the monitoring of the implementation.
In August 2016, ENTSO-E submitted and published its first monitoring report to ACER. The report was dedicated to the progress and potential problems in the implementation of single day-ahead and intraday coupling. This report takes stock of the progress achieved so far in the coupling of electricity markets through the different projects in place before the entry into force of the CACM, which became leading projects following the entry into force of the CACM. These are the day-ahead market coupling project (namely, the multi-regional coupling project) and the intraday market coupling project (namely, the cross-border intraday project).
The report shows progresses in these projects and their progressive extension to European TSOs and NEMOs as well as the foundations for open cooperation between European TSOs and NEMOs. Discussions also took place throughout 2016 with ACER to identify the list of information that ENTSO-E, TSOs, and other market entities should submit to ACER for its own monitoring of the CACM implementation.
Following the entry into force of the FCA Regulation in October 2016, a similar approach will be followed towards fulfilling the monitoring tasks of this regulation. ENTSO-E has also been paving the way for the monitoring of the implementation of the connection codes (RfG, DCC, and HVDC). The connection codes implementation library, initiated in 2015, went live in December 2016. It aims at making all documents on the implementation of connection codes available to stakeholders in an easy and practical way. It will contain all available European and national documents and timelines on the implementation of the connection codes in all European countries and regions and will be populated as documents become available.
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