Global Settlement the Residual Meter Volume Interval Proportion

Transcription

1 Global Settlement the Residual Meter Volume Interval Proportion DOCUMENT Consultation Paper TYPE: REFERENCE: CER 11/079 DATE PUBLISHED: CLOSING DATE: RESPONSES TO: 29 th April th May 2011 The Commission for Energy Regulation, The Exchange, Belgard Square North, Tallaght, Dublin 24.

2 CER Information Page Abstract: The CER is consulting on the Residual Meter Volume Interval Proportion to be adopted for Global Settlement in the Republic of Ireland. This factor determines the proportion of the Residual Volume to be attributed to interval meter demand (and in turn non-interval meter demand) in settlement. Target Audience: This paper is for the attention of members of the public, the energy industry, customers and all interested parties. Responses to this consultation should be returned by , post or fax and marked for the attention of Seán mac an Bhaird at the CER. The CER intends to publish all relevant submissions received. Respondents who do not wish part of their submission to be published should mark this area clearly and separately or enclose it in an Appendix, stating the rationale for not publishing this part of their comments. Related Documents: Single Electricity Market Operator, 16 th September, Trading & Settlement Code Modifications Committee, Final Recommendation Report (FRR) Mod_34-09, Global Settlement, Version 1.0 Single Electricity Market Operator, Single Electricity Market, Change request CR199/CR234 Global Aggregation: Market Participant Overview SEM Committee Decision for the Regulatory Authorities in relation to Mod_34_09_V2 (Recommendation Report FRR_34_09_V1.0) For further information on this document, please contact Seán mac an Bhaird at the CER. 2

3 Executive Summary Global Settlement will see, for the first time, the demand of all suppliers being explicitly aggregated and the remaining Residual Volume (mismatch between demand and generation) being smeared across all suppliers. To date, the Residual Volume has been attributed, through the Error Supplier Unit, solely to the Public Electricity Supplier. This places Electric Ireland, at a competitive disadvantage in a fully deregulated competitive market. Global Settlement will provide a more equitable proportioning of the Residual Volume amongst all suppliers, providing a level playing field amongst suppliers. Global Settlement, an agreed Single Electricity Market (SEM) day two issue, is to be implemented in the Republic of Ireland in June Its implementation will be triggered by the deregistration of the Error Supplier Unit by Electric Ireland in the Republic of Ireland. Global Settlement in Northern Ireland will occur at a later date when Northern Ireland Electricity Energy Supply deregisters its Error Supplier Unit. A modification to the Trading and Settlement Code allowing for Global Settlement was approved by the SEM Committee in October The Modification was raised by Electric Ireland and developed by the Modifications Committee (and sub working groups). The Modification implements changes to the Trading and Settlement Code that will see the Residual Volume being smeared across suppliers based on their share of demand and their proportion of non-interval demand (demand associated with sites not having interval meters). With profiling identified as the key contributor to the Residual Volume, the Modification weights the Residual Volume towards non-interval demand sites. This is to be done through a weighting factor called the Residual Meter Volume Interval Proportion. Where this weighting factor is equal to zero all the Residual Volume is allocated to non-interval metered sites and if set to unity it would be allocated exclusively to interval sites. With limited access to data to establish the exact extent to which the various factors contribute to the Residual Volume (for example the magnitude of the Residual Volume is unknown) it is considered reasonable to follow, at the outset, the model adopted in Great Britain. Therefore the CER is proposing that in the first instance, all the Residual Volume is attributed to non-interval demand and the Residual Meter Volume Interval Proportion is set to zero. With the implementation of Global Settlement the Residual volume will be explicitly calculated. It is proposed that the Residual Meter Volume Interval Proportion be kept under review. The new data will, at a minimum, be used in the future annual approval of the Residual Meter Volume Interval Proportion. The CER welcomes the views of all interested parties on the proposal set out in the consultation paper. 3

4 Table of Contents Executive Summary Introduction The Commission for Energy Regulation Purpose of this paper Structure of this paper Responding to this paper Background Introduction Background Residual Volume Error Supplier Unit Drivers for Change Calculation of Residual Meter Volume Interval Proportion Deregistration of the Error Supplier Unit Conclusions Appendix A - List of Consultation Questions

5 1.0 Introduction 1.1 The Commission for Energy Regulation The Commission for Energy Regulation ( the CER ) is the independent body responsible for overseeing the regulation of Ireland's electricity and gas sectors. The CER was initially established and granted regulatory powers over the electricity market under the Electricity Regulation Act, The enactment of the Gas (Interim) (Regulation) Act, 2002 expanded the CER s jurisdiction to include regulation of the natural gas market, while the Energy (Miscellaneous Provisions) Act 2006 granted the CER additional powers in relation to gas and electricity safety. The Electricity Regulation Amendment (SEM) Act 2007 outlined the CER s functions in relation to the Single Electricity Market (SEM) for the island of Ireland. This market is regulated by the CER and the Utility Regulator in Northern Ireland. The CER is working to ensure that consumers benefit from regulation and the introduction of competition in the energy sector. 1.2 Purpose of this paper On 6 th October 2010, the SEM Committee approved a Modification for the implementation of Global Settlement (or more commonly referred to as Global Aggregation). Global Settlement sees all suppliers demand being explicitly aggregated and the mismatch between metered demand and metered generation being smeared across all suppliers. Currently, this is not the case as only the demand of independent suppliers is explicitly aggregated and that for the supply incumbent is determined by difference (subtracting the sum of aggregated independent suppliers demand from total electricity available in the pool jurisdictionally). This sees the mismatch between total metered generation and total metered demand (referred to as the Residual Volume by industry) being attributed to the supply incumbent in each jurisdiction. In shifting to Global Settlement the Residual Volume will be smeared across all suppliers in accordance with their proportion of demand and metering type - that is whether their customers are interval or non-interval metered. This allocation to interval and non-interval will be conducted in accordance with a smearing factor, the Residual Meter Volume Interval Proportion (RMVIP). This factor will determine the proportion of the Residual Volume to be allocated to interval metered volumes. The purpose of this paper is to seek comment on the proposed value of the smearing factor. 1.3 Structure of this paper Section 2.0 outlines the background to Global Settlement and sets out the proposed RMVIP value Appendix A contains a summary of the consultation questions 5

6 1.4 Responding to this paper Interested parties are invited to comment on the issues raised in this consultation paper by close of business on 26 th May As responses will be published in full on CER s website, respondents should include any confidential information in a separate Annex. Submissions on this paper should be forwarded, preferably in electronic format, to: Seán mac an Bhaird Commission for Energy Regulation, The Exchange, Belgard Square North, Tallaght, Dublin smacanbhaird@cer.ie 6

7 2.0 Background 2.1 Introduction For each trading period of the wholesale electricity market, suppliers purchase electricity from the gross mandatory pool to meet the demand of their customer base. The quantity of electricity available in the pool (supply) must match the electricity being drawn from it (demand). However, due to some degree of estimation associated with these quantities, as well as data errors and unaccounted for electricity (theft), these figures generally do not align. This mismatch is accounted for in settlement jurisdictionally by including it in the quantity of electricity that the Public Electricity Supplier (PES) must purchase. The additional cost born by Electric Ireland, as the PES in the Republic of Ireland, is in turn passed on to their customer base. With full deregulation and competition having drawing customers away from Electric Ireland this is being born by a relatively small customer base than was previously the case. With independent suppliers not contributing towards the cost of the Residual Volume, Electric Ireland is at a competitive disadvantage. To allow for an even playing field in this regard, Global Settlement is to be adopted. This is where the demand for all suppliers is explicitly aggregated and the Residual Volume then smeared across all suppliers. This smearing is to be done on the basis of a suppliers overall share of demand and metering type. 2.2 Background Residual Volume Within the Single Electricity Market, all Suppliers purchase electricity from the gross mandatory pool to meet their demand. This is done every half hour (every trading period). The quantity to be purchased by an independent supplier is determined by the explicit aggregation of their customers metered consumption. However, this allocation of consumption per trading period cannot be performed completely accurately. This is due to a degree of estimation, data errors and unaccounted for demand due to theft. The estimation is linked to metering limitations, as not all sites are quarter-hourly metered, and the use of predetermined factors to account for system losses (so called loss adjustment factors, which are fixed ex ante for a given tariff year). The associated error can either artificially increase or decrease a supplier s demand. In addition to this demand related inaccuracies, similar factors may distort the generation side. These are related to unmetered embedded generation (spill) and the use of predetermined loss adjustment factors 1, set prior to a given tariff year. As with demand, this error can either artificially deflate or inflate the energy available in 1 CER/10/119, 22 nd July 2010, Distribution Loss Adjustment Factors 1 st October th September 201, SEM/10/066, 24 th September 2010, Single Electricity Market, SEM Committee decision on all-island harmonised Transmission Loss Adjustment Factors (TLAFs), Decision Paper 7

8 the pool. The above factors can result in a mismatch between demand and supply in the wholesale market, this mismatch is referred to as the Residual Volume Error Supplier Unit The Residual Volume must be accounted for as it does not reflect the technical attributes of the electrical system, where supply and demand must remain balanced. This balancing is conducted on a jurisdictional basis through a corresponding adjustment to the quantity of electricity attributed to the Error Supplier Units (ESUs). At present both Electric Ireland and Northern Ireland Energy Supply are designated as the Public Electricity Suppliers (PES) in their respective jurisdictions 2. Both PES licences require the PES to resister the ESU for its jurisdiction. Registration of the ESU means that each PES is purchasing electricity based on the supply-demand balance within the jurisdiction rather than the explicit aggregation of the demand of its own customer base. As a regulated supplier the costs of the ESU to the PES was recouped through regulated tariffs To date the ESU has been calculated in line with Section 7.12 of the Trading and Settlement Code 3. This is however an interim arrangement and the methodology for this calculation will switch to an alternative approach under Section 4.91 of the Trading and Settlement Code. This switch will occur at the next wholesale market release scheduled and on track for weekend of 6 th May The algebra in section 4.91 takes the entire net error for the whole island and then allocates this between the PESs on the basis of relative total generation in each jurisdiction. To date, the algebra in 7.12 separated out the errors in each jurisdiction and allocated them to the respective PES. Some preliminary analysis carried out in 2007, on a limited sample set 18 days from 07/12/05 to 03/09/06, concluded that the Residual Volume showed in day variability, was seasonal in nature but increasing in the winter months, and was positively biased. The net positive bias across the year was attributed mainly to either underestimated loss adjustment factors or theft. The main contributor to the in day variability could not be isolated. However, later analysis 5 has associated this primarily with profiling of non-interval metered demand Drivers for Change In the implementation of the SEM it was agreed by the Regulatory Authorities (RAs) to transition away from the market arrangements where the supply incumbent, or PES, is the sole supplier in a jurisdiction to whom the cost of 2 Condition 20 of the Interim Public Electricity Supply Licence granted to ESB, Condition 52 of the Electricity Supply Licence granted to NIE Energy Limited 3 Single Electricity Market Operator, Trading and Settlement Code V SEM R Single Electricity Market Operator, 16th September, Trading & Settlement Code Modifications Committee, Final Recommendation Report (FRR) Mod_34-09, Global Settlement, Version 1.0 8

9 balancing, or ESU, is assigned. This was deemed a SEM Day Two issue and later be addressed through the adoption of Global Settlement. Global Settlement refers to the explicit aggregation of the consumption of each supplier s customer base. The supplier would then be required to meet this consumption through purchases. The Residual Volume would still remain but be explicitly calculated and appropriately proportioned across all suppliers in the market. Competition in the retail market is the key driver for the introduction of Global Settlement. When the SEM was launched both PES suppliers were dominant in their respective markets and as such the ESU was spread across a large customer base. With the development of competition in the business and domestic markets, north and south, the erosion of the PES market share means that the ESU represents a disproportionate burden on remaining customers. This issues is more pressing in the south where competition in the domestic (non interval metered) market is at a more advanced stage. The introduction of Global Settlement was identified in the Roadmap to Deregulation as a key element of the market structures that must be addressed to level the playing field for all suppliers. With the full deregulation of the ROI retail market from April 2011, it is imperative that Global Settlement is implemented without delay. 2.3 Modifications On 11 th September 2009, Electric Ireland submitted a modification proposal to initiate discussions on Global Settlement. Having received this proposal, the Modification Committee established a Working Group (WG) to consider and develop it. Various options for Global Settlement were developed and consulted on, with a noted preference by the Modifications WG for two proposals; Option A+ and E. (i) Option A+ Option A+, proposed utilising the Single Electricity Market Operator (SEMO) as a vehicle to smear the costs across all suppliers, through the imperfections charge (a Mwh Charge), which is set each year. (ii) Option E Option E identified the proportion of demand for each trading period associated with non-interval meters. The cost of balancing would then be weighted towards these demand sites as they have been identified as a main contributor to the Residual Volume. Following considerable consideration by the WG, the Modification Committee and a public, a Modification Recommendation (Mod_34_09_V2) based on Option E was submitted to the SEM Committee for approval. Approval was granted by the SEM Committee on 6 th October

10 2.3.1 Calculation of Residual Meter Volume Interval Proportion Under the Modification, Global Settlement will commence upon deregistration of the Error Supplier Unit and the Residual Volume will be calculated using the algebra under Section 4.91 of the Trading and Settlement Code. As stated, come the next wholesale release, section 4.91 will be used to calculate the volume of electricity assigned to the ESU. This volume includes not only the demand of its customer base but also the Residual Volume. With Global Settlement, the demand of the Electric Ireland s customer base will be known and will be deducted within the algebra to obtain the Residual Volume. The Residual Volume will then be smeared in accordance to a suppliers proportion of overall demand which consists of both interval and non-interval metered demand. In Great Britain, the Residual Volume is allocated in its entirety to non-interval demand. This fits with the findings of the Modifications Committee WG which found that the main contributor to the Residual Volume is profiling associated with non-interval metered sites. The exact contribution of the various factors amounting to the Residual Volume is, however, not available. The volume of the error, though estimated at a net value of 10 million for the Republic of Ireland, in a given year, has never been explicitly measured and is, as such, unknown. This is due to the fact that the error is currently included in the Error Supply Unit and masked by PES demand. The CER has approached Ofgem to determine whether data is available that would further identify the degree to which profiling errors and other factors contribute to the Residual Volume in Great Britain. No such data was available. The split of the Residual Volume towards either interval or non-interval demand sites is to be calculated by applying a weighting factor called the Residual Meter Volume Interval Proportion (RMVIP). Where this weighting factor is equal to zero all the Residual Volume is allocated to non-interval metered sites and if set to unity it would be allocated exclusively to interval sites. With limited access to data to establish the exact extent to which the various factors contribute to the Residual Volume (for example the exact magnitude of the Residual Volume is unknown) it is considered reasonable to follow, at the outset, the model adopted in Great Britain. This would see all the Residual Volume being attributed to noninterval demand and the Residual Meter Volume Interval Proportion being set to zero. When data becomes available under Global Settlement arrangements it will allow for further analysis of to the factors contributing to the Residual Volume. The CER proposes to keep the RMVIP under review. Proposal 1. RMVIP It is proposed that the Residual Volume be allocated solely to non-interval metered demand - this would see the RMVIP set to zero. The magnitude of the 10

11 RMVIP will remain under review as more information on the actual split becomes available. Q1. Respondents are invited to comment on the proposal to attribute the Residual Volume solely to non-interval metered demand? Are you in favour of the proposal? If not, what value of RMVIP should be selected? Outline reasons for agreement or disagreement. Q2. Do you agree that the RMVIP should be kept under review? If so, how often do you think it should be reviewed? Outline reasons for agreement or disagreement. 2.3 Deregistration of the Error Supplier Unit The trigger for the implementation of Global Settlement will be the deregistration of the Error Supplier Unit, which requires a change to the PES Licence. This change is in relation to Condition 20, which states that the licensee shall in accordance with the provisions of the Single Electricity Market trading and Settlement Code, register, and maintain the registration of, the Error Supplier Unit for the Republic of Ireland This requirement is not in the generic supply licence and its deletion would see the condition align with that of the generic supply licence (Condition 14), as shown below. Condition 20 of the PES licence - Trading and Settlement Codes 1. The Licensee shall be a party to, and shall comply with the Trading and Settlement Code insofar as applicable to it. 2. The Licensee shall be a party to, and shall comply with the Single Electricity Market Trading and Settlement Code insofar as applicable to it. 3. The Licensee shall, in accordance with the provisions of the Single Electricity Market Trading and Settlement Code, register, and maintain the registration of, the Error Supplier Unit for the Republic of Ireland. 4. In this Condition: "Error Supplier Unit" has the meaning given to it in the Single Electricity Market Trading and Settlement Code. The CER is therefore commencing the licence modification procedure as outlined in Section 20 of the Electricity Regulation Act, 1999 with the publication of a notice. It is being published today in the Irish Times and a copy of the notice has been provided to the Electricity Supply Board (the holder of the PES Licence). The notice informs that any comments on /objections to the modification should be submitted to the CER before 26 th May (this provides 28 days for comment). In 11

12 accordance with the requirements of section 20 of the Electricity Regulation Act, a copy of the Notice has also been furnished to the Minister for Communications, Energy and Natural Resources. A copy of the proposed modified licence is published alongside this consultation paper (changes are highlighted). 2.5 Conclusions It is proposed that the Residual Volume will be allocated solely to demand with non-interval metering. This will be conducted by setting the weighting factor, the RMVIP, to zero. With greater access to data on the Residual Volume available under Global Settlement arrangements, it is proposed to keep the magnitude of the value under review. The new data will be used in the future annual approval of the RMVIP. With Global Settlement to commence in the Republic of Ireland from the deregistration of the Error Supplier Unit, the CER has also today commenced the process for modifying the PES s licence. This is to remove the requirement on the PES to register, and maintain the registration of, the Error Supplier Unit for the Republic of Ireland in accordance with the Trading and Settlement Code. 12

13 Appendix A - List of Consultation Questions Q1. Respondents are invited to comment on the proposal to attribute the Residual Volume solely to non-interval metered demand? Are you in favour of the proposal? If not, what value of RMVIP should be selected? Outline reasons for agreement or disagreement. Q2. Do you agree that the RMVIP should be kept under review? If so, how often do you think it should be reviewed? Outline reasons for agreement or disagreement. 13