Energi-, Forsynings- og Klimaudvalget 2015-16
EFK Alm.del Bilag 7
Offentligt
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Denmark’s response to the Commission’s Consultation on a
new electricity market design.
Ministeren
The Commission has on July 15 2015 launched a public consultation on a new
electricity market design (the “Consultation”). The Consultation is broader than
just an updated market model (“version 2.0”) taking into account the increased
RES infeed.
The Consultation is structured in three topics:
Market:
The Consultation includes both short and long term perspective of the market,
RES support schemes, national taxes and charges, the linking of wholesale and
retail markets including data handling and the role of DSOs.
Regional Cooperation:
The Consultation assesses the need for further regional cooperation to enable
better interconnections and a stronger system operation cooperation through
RSCIs (perhaps equipped with decision making power) and with an adapted
regulatory framework, including also a possible regulation of the Power
Exchanges.
Security of Supply:
The current lack of coordination of capacity mec hanisms and methods to
determine generation adequacy is criticized and the consultation suggests
raising security of supply to a regional or European level.
1
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No.
Question 1-10
“Making the Market Work”
Short-term markets
Would prices which reflect
actual scarcity (in terms of
time and location) be an
important ingredient to the
future market design? Would
this also include the need for
prices to reflect scarcity of
available transmission
capacity?
Danish government response
1
Denmark supports prices that reflect actual
scarcity. At the same time, prices should also
reflect externality costs and marginal costs of
realising greenhouse gas reduction goals.
If prices are allowed to reflect the underlying
physics – also in time of scarcity –the market
participants will get the correct short and long term
price signals to invest in new transmission or
production capacity and/or retrofit existing
capacity. Similarly, the consumers will be
confronted with the true costs of using electricity
and thus receiving the right incentives to react to
the price signal.
Consumer awareness is vital in order to activate
the demand side response in balancing the
system.
It follows from implicit auctioning that the prices of
a bidding zone not only reflect the relation between
production and consumption, but also the available
interconnection capacity. Therefore the available
transmission capacity is for most price areas
reflected in the current market system – both in
normal state and in a scarcity situation. However ,
in areas with structural bottlenecks the prices do
not in all cases reflect the actual scarcity.
Challenges:
Suppliers will be exposed to a higher risk
when purchasing energy.
Market players on the demand side will
have to increase awareness about market
prices. Such increased awareness requires
resources.
Increase in number of unexpected price
spikes can challenge public and political
support.
Vulnerable consumers, who may not afford
the new technology and/or have high
dependency on electricity, could be
economically exposed and will need
2
2
Which challenges and
opportunities could arise from
prices which reflect actual
scarcity?
How can the challenges be
addressed?
Could these prices make
capacity mechanisms
redundant?
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separate protection (non-market
legislation).
If scarcity is a result of structural
bottlenecks, temporary challenges exist for
consumer and producers until enough
transmission capacity is established. This
includes that consumers in areas with low
availability of production will be exposed to
very high prices, while producers in areas
with major expansion of renewable energy
will experience a sharp decline in prices.
Opportunities:
Most importantly to send the correct price
signals to investors for both production,
transmission capacity and demand side
investments in order to ensure
economically optimal investment.
To reduce electricity purchase cost on the
demand side if electricity can be purchased
in hours of low price.
Promote storage facility development.
Help overcome transaction cost in
promoting demand-side response
arrangements.
B: Addressing the challenges:
Common approach to handling of
significant price changes by introducing
price zones.
Exploit to which degree flexibility is
optimized and if possible increase
flexibility.
Develop and use hedging strategies for
consumers and producers.
Clearly communicate how allowing volatile
prices would reduce total costs and helps
integrating RES
Products/services will be developed to
minimise the economic risk for consumers
– consumers will see a broader range of
products and can decide their preferred risk
profile (just like insurance).
C: The need for capacity mechanisms would be
reduced if prices reflect actual scarcity. This would
probably not make capacity mechanisms fully
redundant, in particular in areas with weak
3
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3
Progress in aligning the
fragmented balancing
markets remain slow; should
the EU try to accelerate the
process, if need be through
legal measures?
connections to neighboring markets. Market
designs need to be improved as well. In Denmark it
is believed that a market primarily based on
energy-only system is the most efficient way to
ensure investments signals and that capacity
mechanisms should only be activated as measure
of last resort. But the market must ensure
payments for all services delivered to the market,
also balancing, reserve etc. to send the right
investment signals.
Harmonisation and coupling of balancing markets
is essential in a European energy system moving
towards increased renewable energy generation.
It is a challenge to reach agreements with many
countries involved, which each have their own
balancing market design and balancing philos ophy
reflecting different historical circumstances,
geography and energy mix.
A clearer top-down signal enabling the formulation
of a target model for the balancing market design
could help the development. The model should be
specific enough to ensure real cross-border
balancing markets whilst at the same time being
able to embrace the national and regional
differences in energy mix etc. This is a delicate
balance.
The two critical elements that the project needs to
focus on are incentivising quick decision making
and good mitigation of risks. The following
elements could enhance the achievement thereof:
Continue the existing close dialogue with
the European Commission
Secure a strong and competent supervision
by the National Regulatory Authorithy
(NRAs) of the project. This could potentially
be enhanced by having two NRA
representatives following the project’s
steering committee discussions as (active)
observers.
Continue the Florence Forum as a critical
monitoring entity for the project’s progress
Regular risk and cost development
reporting to EU Commission and NRAs
4
What can be done to provide
for the smooth
implementation of the agreed
EU wide intraday platform?
Long-term markets to enable
investment
4
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5
Are long-term contracts
between generators and
consumers required to
provide investment certainty
for new generation capacity?
What barriers, if any, prevent
such long-term hedging
products from emerging? Is
there any role for the public
sector in enabling markets for
long term contracts?
Already today, generators and consumers have the
possibility to engage into long term contracts.
There exist well-functioning financial markets in
many European countries where prices can be
hedged.
However, Denmark finds that mechanisms to
reduce the related costs while still limiting risks
associated with the default of a counterparty
should be assessed. Inspiration could come from
markets such as the Nordic electricity market that
was deregulated around 20 years ago. The
separation of production and sale of electricity from
the transmission has led to an exchange-traded
electricity market that also makes use of central
counterparty clearing in order to manage the
financial risks. It should be explored how this
positive use of the financial market infrastructure
can be withheld and further developed taking into
account the specifics of the electricity markets.
The current low electricity prices and the low prices
in the financial markets show that the market
expects that low prices will continue for the
foreseeable future. Thus, the market participants
do not see a commercial need for investing in new
flexible, thermal generation capacity.
If targets for generation adequacy are ambitious
and only a very low probability of lacking capac ity
in the power system can be tolerated, these price
expectations can contribute to increasing
generation adequacy concerns. In this case other
mechanisms can be needed temporarily to secure
capacity beyond what the power markets including
long-term contracts deliver. But the long-term
target must be to have correct price signals.
Should there be an interest in physical long term
bilateral contracts, it is important that these
contracts will be engaged between independent
parties respecting the unbundling rules.
Besides working to remove the legal financial
barriers that are likely to disturb the development
of long term hedging contracts we see no obvious
role for the public sector to play.
Differences in taxes and charges in energy
production will distort competition, unless
differences in taxes reflect differences in
5
6
To what extent do you think
that the divergence of taxes
and charges levied on
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electricity in different Member
States creates distortion in
terms of directing investments
efficiently or hamper the free
flow of energy?
externalities from energy use between countries .
However, without a strong CO
2-
price signal across
EU, some member countries are encouraged to
implement CO
2
-taxes on electricity which distort
the market and hence could be an obstacle for an
EU wide electricity market.
In any case, the setting of taxes and charges must
remain a national competence.
A strengthened ETS in combination with well-
functioning electricity markets will result in more
correct market signals for deployment of
renewables. There could still be a remaining need
for national support schemes in order to promote
investment in renewables and technology
development and to ensure security of supply.
The increasing RES penetration results in a
growing need for RES to follow the same market
rules as conventional production.
Support schemes for renewables should aim not to
reduce the incentives for operators of RES
installations to follow market signals.
This also means that the support schemes should
include links to market price – including an
incentive not to produce in situations with negative
prices – in order for the RES production to react to
price signals.
These requirements have already been included in
the guidelines on state aid from the European
Commission, and will be implemented in all new
state aid for RES.
In Denmark, the same balancing responsibilities
apply to all larger generators, also RES
generators. Denmark suggests that the same rules
should apply to all larger generators, RES or not,
in order to be in line with the “polluter pays”
principle.
Renewable energy generation from intermittent
technologies as wind and photovoltaics is
characterised by the difficulties in forecasting the
production. The generators are also often small in
size compared to the traditional generators. If they
should be more active in the markets, it would be
important to (i) move gate closure time closer to
6
7
Renewable generation
What needs to be done to
allow investment in
renewables to be increasingly
driven by market signals?
8
Which obstacles, if any,
would you see to fully
integrating renewable energy
generators into the market,
including into the balancing
and intraday markets, as well
as regarding dispatch based
on the merit order?
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the operational hour to increase the security of the
delivery, (ii) decrease the minimum bid size in the
markets and to (iii) allow RES generators to bid in
the balancing markets only in those hours where
they are able to deliver balancing services (it
should not be mandatory for participants in the
balancing markets to bid in every hour).
9
Should there be a more
coordinated approach across
Member States for
renewables support
schemes? What are the main
barriers to regional support
schemes and how could these
barriers be removed (e.g.
through legislation)?
Denmark is in favor of cooperation on energy
policies and further coordination on support
schemes for renewables could at some point
become relevant.
One major barrier has been lack of experience on
support schemes covering more than one Member
State. Denmark and Germany are preparing a
mutual opening of tenders for solar PV which could
provide important lessons for future cooperation on
support schemes.
The experience gathered so far from this project
shows that it is a large administrative task to
extend support schemes across borders. Among
other things, it needs to be considered that support
is given to installations outside the jurisdiction of
the supporting Member State and that the
electricity market setup and other framework
legislation is different in the host country than in
the supporting Member State.
Demand response
Where do you see the main
obstacles that should be
tackled to kick-start demand
response (e.g. insufficient
flexible prices, (regulatory)
barriers for aggregators/cu-
stomers, lack of access to
smart home technologies, no
obligation to offer the
possibility for end customers
to participate in the balancing
market through a demand
response scheme, etc.)?
10
These are the main obstacles:
Inclusion of a new market actor (3 party
aggregator/service provider) in an existing and
consolidated market design is very complicated.
Inclusion should consider innovative solutions to
reduce both transaction and coordination costs for
the service provider.
Current electricity prices and insufficient price
spikes do not provide incentive to the demand side
to invest in solutions making demand response a
flexible resource for balancing.
Insufficient rollout of smart meters and the lack of
hourly end-user settlement based on metered
hourly values.
7
rd
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Lacking easy access to data: To benefit fully from
smart meter data, the data should be easily (but
securely) accessible for consumers and their
service providers in order to support competitive
and innovative markets.
Alignment of roles and responsibilities in regional
areas: Market roles and their interaction due to
responsibilities are different across countries.
Furthermore, market facilitation is handled
differently although aiming for similar or same
purposes. For example the introducing of
aggregators can be solved very differently
depending on the responsibility they are assigned.
Are they (only) replacing/representing the
customer or must they be responsible towards
other market roles due to their size and potential
influence on the markets and system operation?
Questions which may be answered very differently
and thus pose an uncertainty which create an entry
barrier for new/expanding aggregators providing
demand respond products to the market.
In Denmark, analysis from the “Market Model 2.0”
project have shown that in the short term the
potential for demand response lies in emergency
power packs whereas further potential in
aggregating flexible consumption is considered a
long term option. Mandatory solutions can thus
create an unnecessary cost for the suppliers and
thereby the customers.
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Question 11-16
“Regional Cooperation”
Cooperation between System
Operators
While electricity markets are
coupled within the EU and
linked to its neighbors,
system operation is still
carried out by national
Transmission System
Operators (TSOs). Regional
Security Coordination
Initiatives (“RSCIs”) such as
CORESO and TSC have a
purely advisory role today.
Should the RSCIs be
gradually strengthened also
including decision making
responsibilities when
necessary?
Is the current national
responsibility for system
security an obstacle to cross-
border cooperation? Would a
regional responsibility for
system security be better
suited to the realities of the
integrated market?
11
There are potential gains by involving Regional
Security Coordination Initiatives (RSCIs) in
operational tasks as power systems become more
interconnected and the share of variable RES
increases. Any such transfer of operational tasks
from TSOs to RSCIs needs to be carefully
considered in the light of the current system where
the operational responsibility rests with the
individual TSOs. The increasing integration of
markets and the increasing interconnection
requires more cooperation between the TSOs and
also makes it necessary to increase information
sharing and coordination – as is already the case
today in the RSCIs.
Regarding system security, the rules are fairly
clear and will be even clearer once the System
Operation Guideline enter into force. It is not
obvious that there would be benefits from
introducing a regional system security
responsibility, at least not in the short to middle
term until we have seen the benefits from the RSCI
cooperation and the System Operation Guideline.
At this point in time it is important to focus on
cooperation rather than organization Rules that
encourage and enable cooperation and information
sharing will be more effective than introducing a
regional system security responsibility.
12
Adapting the regulatory
framework
Fragmented national
regulatory oversight seems to
be inefficient for harmonised
parts of the electricity system
(e.g. market coupling). Would
you see benefits in
strengthening ACER’s role?
Denmark supports a strengthening of ACER’s role.
The present cooperative approach is time
consuming and makes it difficult to reach results
that are driven by regional and/or European social
welfare gains.
Upgraded responsibilities for ACER could
contribute to developing an appropriate regulation
for retail markets. The challenge of further
responsibilities for ACER and centralised
regulation on a European level is to find the right
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level of regulation which suits all member states
and their individual stage of development.
13
Would you see benefits in
strengthening the role of the
ENTSOs? How could this best
be achieved? What regulatory
oversight is needed?
Denmark supports a strengthening of the role of
the ENTSOs and thereby further developing the
perspective on market, security of supply and
operational matters from a national oriented
perspective to a more regional and/or European
perspective.
In particular ENTSO-E could be given a more
specific role in developing the framework for
regional TSO cooperation (the development of
Regional Security Coordination Centers, RSCIs).
Governance of DSOs should be adapted in
accordance with and in acknowledgement of the
different roles fulfilled by DSOs. Most DSOs fulfill
different roles besides managing a distribution grid.
But roles and responsibility assigned to DSOs
varies across states and sometimes within states.
As such a role-based governance could be
beneficial, also recalling that sometimes TSOs
fulfill some of the roles that DSO fulfill in other
countries and vice versa.
Many roles related to DSOs involve data handling
(collection, administration, aggregation, distribution
etc.) for different types of data (static meter
information, contract data, metering data etc.). All
of these data are essential for market operation –
therefore a swift, standardised and safe access to
these data is essential to ensure effective market
operation and development. For each role
assigned to the DSO it must therefore be ensured
that the DSO remains a neutral facilitator and it
must be ensured that they provide data access
swiftly and on an equal basis for all relevant
parties.
One measure to achieve better neutrality,
functional unbundling, clear roles and secure and
equal access to data for relevant parties is through
establishment of a datahub solution. Datahubs can
be neutrally operated by DSO(s), but also TSOs in
order to ensure ownership unbundling and as such
complete neutrality around especially data
distribution/access etc. while still allowing DSOs to
be responsible for data collection, quality etc. in
the datahub.
10
14
What should be the future
role and governance rules for
distribution system operators?
How should access to
metering data be adapted
(data handling and ensuring
data privacy etc.) in light of
market and technological
developments?
Are additional provisions on
management of and access
by the relevant parties (end-
customers, distribution
system operators,
transmission system
operators, suppliers, third
party service providers and
regulators) to the metering
data required?
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Data privacy should follow existing general
regulation, but a central EU-regulation should more
specifically define a minimum level of privacy, e.g.
consumers should control access to their own data,
access to data should be easy and equal to market
players etc. Focus from the EU should be on
harmonising the roles of the market players which
implies a definition of what kind of data each role
should have access to. This would increase market
transparency for market participants in terms of
what data to deliver and what data to get access
to.
To increase effectiveness in the end-user related
markets, easy access to end-user data should be
ensured through standardised solutions for end-
users, suppliers, aggregators and other service
providers (third parties). Access should both be
possible through the smart meter for close to real
time data and through a data provider (e.g. a
datahub) for other data (ex post).
From a retail market perspective it would increase
market transparency if a standard framework is
introduced.
In Denmark, a framework will be introduced
through the Datahub in 2016. Some DSOs expect
to differentiate their prices, e.g. with lower grid-
tariffs during night hours, weekends, holidays etc.
allowing the end-users to respond to price changes
in grid tariffs in combination with price changes on
whole sale markets. Differentiated tariffs are one of
the key demand respond schemes. The suggested
framework allows the possibility for this, however
still allowing for subscriptions on capacity and
other services.
In practice it will be difficult to implement a full
European approach to distribution tariffs; however
a common framework should be a first step to
harmonisation.
European dimension to
security of supply
As power exchanges are an
integral part of market
coupling – should governance
rules for power exchanges be
considered?
15
Shall there be a European
approach to distribution
tariffs? If yes, what aspects
should be covered; for
example tariff structure and/or
tariff components (fixed,
capacity vs. energy, timely or
locational differentiation) and
treatment of self-generation?
16
As the day-ahead and intraday market coupling
extends and becomes operational, it has become
increasingly difficult to see the benefits of having
competing power exchanges operate the same
algorithms. The function that the power exchanges
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perform appears to become closer to a natural
monopoly function.
As a consequence thereof it should be considered
to establish an appropriate level of governance
rules and regulation for the power exchange
function.
12
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Question 17-21
“European dimension to
Security of Supply”
17
Is there a need for
harmonized methodology to
assess power system
adequacy?
Denmark is in principle in favour of a harmonised
methodology. More information about regional
generation adequacies can potentially decrease
the overall need for flexible capacity.
In Denmark, a probabilistic calculation model is
used to ensure that the intermittent nature of wind
based and sun-based production and transmission
lines can be included in the calculation.
Most importantly, the methodology should be
independent of geographic scope. A regional
geographic scope related to the present market
area would provide sufficient insight.
18
What would be the
appropriate geographic scope
of a harmonised adequacy
methodology and assessment
(e.g. EU-wide, regional or
national as well as
neighboring countries)?
Would an alignment of the
currently different system
adequacy standards across
the EU be useful to build an
efficient single market?
19
A member state should have the right to decide for
higher system adequacy standards than other
member states. This should, however, not give that
member state a right to reduce capacity on
interconnectors as this would be against the
principles of the single electricity market.
20
Would there be a benefit in a
common European framework
for cross-border participation
in capacity mechanisms? If
yes, what should be the
elements of such a
framework?
Would there be benefit in
providing reference models
for capacity mechanisms? If
so, what should they look
like?
Capacity mechanisms should not distort European
power markets. Therefore Denmark finds that
introduction of capacity mechanisms should only
be used as a last resort when facing challenges of
the energy marked. Efficient European power
markets ensure that electricity flows from low-price
areas to high-price areas and thereby ensure
optimal utilisation of resources at a European level.
Efficient power markets can decrease the overall
need for flexible capacity in the European power
system, but it is important that the market provide
payments for all services delivered to the system
Denmark supports common rules for cross-border
participation. Given the ambition to have an
efficient internal energy market it could be
beneficial to have a reference model for capacity
mechanisms. The model should ensure a minimum
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of distortion to the energy market.
21
Should the decision to
introduce capacity
mechanisms be based on a
harmonised methodology to
assess power system
adequacy?
A harmonised methodology to assess power
system adequacy would create a sound basis for
such a decision.
However, even with a harmonised methodology
there would most likely still be different national
levels of system adequacy and different risk
assessments. Therefore the result of the
assessment will probably not create the basis for
an objective decision from a European perspective.
14