1. ACER publishes Framework Guidelines on Electricity Balancing

Background

Since then ACER has been involved in a variety of different aspects of the continued implementation and application of the Third Energy Package and continues to play an important role in the development of an EU-wide energy framework. This E-bulletin contains a roundup of some of recent ACER initiatives and developments.

ACER sets framework guidelines which detail key principles and objectives to be contained in the European network codes. The European Network of Transmission System Operators (ENTSO-Es) are then tasked with developing the European network codes in accordance with framework guidelines set by ACER. These Framework Guidelines set out clear and objective principles relating to electricity balancing and aim to assist with the management of an effective integrated electricity network across the EU.

ACER has recently published its Framework Guidelines on Electricity Balancing (the "Framework Guidelines"). ACER held a public consultation and consulted a panel of experts in relation to the development of the Framework Guidelines which will form the basis of the Network Codes.

The Framework Guidelines aim to encourage the integration, coordination, non-discrimination and harmonisation of the balancing regime in order to facilitate the trading of electricity within the European Union in line with Directive 2009/72/EU and Regulation EU/714/2009.

Aims and objectives

These Framework Guidelines seek to outline a clear and objective basis upon which the ENTSO-Es can found the different network codes on electricity balancing based on Article 6(2) of Regulation (EU) No. 714/2009 (the "Electricity Regulation"). In particular the Framework Guidelines aim to:

  • increase market efficiency at EU level and to improve the use of renewable energy sources;
  • improve the security of supply;
  • increase effective competition across the market; and
  • encourage the completion and efficient functioning of the internal market in electricity cross-border trade.

This will be achieved through various different approaches including:

  • the harmonisation of balancing and pricing methodology;
  • increased transparency;
  • by specifically addressing the roles and responsibilities of stakeholders involved in electricity balancing; and
  • the use of balancing reserves and the procurement of frequency restoration reserves and replacement reserves.

Scope, application and derogations

The scope of the Framework Guidelines, as noted above and detailed in the Framework Guidelines, is to set out clear and objective principles for the development of effective network codes across the EU in line with the Electricity Regulation. In particular the guidelines will strive for "integration, coordination and harmonisation of the balancing regimes in order to facilitate electricity trade within the EU in accordance with the Electricity Regulation and Directive 2009/72/EU". The network codes must be developed taking into consideration the contents of the Framework Guidelines and these network codes will then be considered by ACER to ensure that they are in compliance with the relevant legislation and the requirements set out in the Framework Guidelines. In the Framework Guidelines ACER notes that due to the interrelationships between electricity balancing and other framework guidelines, ENTSO-Es are also expected to take into consideration the following codes when drafting the network codes on electricity balancing:

  • the Network Code on Operational Security;
  • the Network Code on Operational Planning;
  • the Scheduling and the Network Code on Load-Frequency Control and Reserves; and
  • the Network Code on Capacity Allocation and Congestion Management.

The requirements of the network codes must be applied over a two year transition period after the entry into force of the Network Code on Electricity Balancing. Network codes take precedence over any national legislation although member states are permitted to bring in more detailed provisions and those provisions which do not affect trade across member states. The ENTSO-Es will ensure that the network codes drafted agree with the competences of the National Registry Authorities ("NRAs") to establish how the balancing codes are calculated.

The Framework Guidelines do allow limited derogation. A transmission service operator ("TSO") which is unable to implement all the provisions within the required time period by reason of:

  • it being "in a significantly different situation from other TSOs in Europe in terms of national balancing arrangements"; and
  • the implementation of provision for which a derogation is required would result in "significant problems in balancing the control area of the TSO,

may request a derogation on particular provisions.

General Principles

Under the Framework Guidelines the aim is to develop an integrated cross-border balancing and reserves market which means that balances and reserves can be traded inter-state across the EU. The Framework Guidelines set out objectives which such exchange frameworks should follow. These include the use of balancing and resources cross-border, the increase and maintenance of operational security, encouraging competition and promoting transparency, increasing the spectrum of participation and improving efficiency.

There is also a focus in the Framework Guidelines on the role of the TSO. The network codes must specifically outline the role of the TSO with respect to electricity balancing to ensure that the codes are effectively implemented. The TSO's are responsible for co-ordination and communication and to organise the balancing markets to ensure integration. TSOs must set out the terms and conditions of balancing in line with both the network codes and national and EU legislation. The Framework Guidelines state that the network codes must require the TSOs to procure the requisite balancing reserves from balances service providers ("BSP") but may not offer this service themselves except in when system security is threatened. TSOs are also required to co-operate across borders and to co-ordinate with other TSOs to move towards a more efficient system.

Transparency is a key feature of the Framework Guidelines and the guidelines require that certain information as a minimum must be published on a website. This includes the terms and conditions of balancing, the rules and tariffs of the same, requirements to become a BSP and key economic data.

The guidelines also require an increased level of monitoring and reporting. TSOs will be required to develop devices to record real time data on the quality of balancing reserves. ENTSO-E will be required to produce an annual report to show progress which will include data on availability of balancing resources, total cost, quality and welfare gain due to cross-border transactions.

Standardisation and Procurement

The Framework Guidelines also require the standardisation of the particular specification of all balancing products in order that the systems can be effectively integrated; there is a particular focus on renewable balancing resources. With respect to cross-border balancing reserves the guidelines require that the network codes "shall provide that the bids from the merit order list (list submitted by BSPs in price order) are activated through a non-discriminatory, fair, objective and transparent mechanism which optimises the use of balancing resources and of the transmission infrastructure and minimises the cost of balancing whilst taking into account technical and network constraints".

The guidelines also propose that the network codes lay out controls for the harmonisation of the price structure of balancing to encourage a competitive and fair market.

  1. ACER Consultations

ACER opened and invited responses to two public consultations which have recently closed. The first related to forward risk hedging products and harmonisation of long-term capacity allocation rules. The second concerned draft Framework Guidelines on rules regarding harmonised transmission tariff structures for gas.

Forward Risk-Hedging Products and Harmonisation of Long-Term Capacity Allocation Rules

In line with Regulation (EC) No 714/2009, ACER adopted Framework Guidelines on Capacity Allocation and Congestion Management for Electricity ("CACM Framework Guidelines") in July 2011, which also deal with forward markets and long-term capacity allocation. The CACM Framework Guidelines and the Network Codes to be developed by ENTSO-E on the basis of the CACM Framework Guidelines will be applied by TSOs with regard to the integration, coordination and harmonisation of congestion management regimes in the long-term, day-ahead and intraday timeframes. For each timeframe a Target Model has been devised representing a common vision of all stakeholders for the Internal Electricity Market which is due to be completed in 2014.

This consultation was issued in the context of the Electricity Regional Initiative's effort towards the early implementation of the Target Model for capacity allocation and congestion management. It deals with two aspects of long-term transmission rights: (a) forward risk-hedging products; and (b) the harmonisation of long-term (forward) capacity allocation rules.

Framework Guidelines on rules regarding harmonised transmission tariff structures for gas

This consultation concerned draft Framework Guidelines on rules regarding Harmonised Transmission Tariff Structures in European Gas Transmission Networks ("Framework Guidelines on Tariffs"), which ACER is preparing pursuant to Article 6 of Regulation (EC) No 715/2009 and on the basis of a request from the European Commission dated 29 June 2012.

Directive 2009/73/EC1 (the "Gas Directive") confers upon the NRAs the power to fix or approve, sufficiently in advance of their entry into force, at least the methodologies used to calculate or establish the terms and conditions for connection and access to national networks, including transmission tariffs. Although no specific tariff structure is foreseen or implied by its provisions, the Gas Directive and Regulation (EC) No 715/20092 (the "Gas Regulation") provide for certain requirements which need to be complied with in the final tariff or tariff methodology.

The Framework Guidelines on Tariffs aim to provide guidance on the structure and the methodologies for setting gas transmission tariffs to be paid by network users for the transmission services offered at each entry and exit point by TSOs, irrespective of whether they are physical or virtual. Another aim is setting clear and objective principles for the development of a Network Code on harmonised transmission tariff structures for gas (the "Network Code on Tariffs"), pursuant to Articles 6(2) and 8(6)(k) of the Gas Regulation. The goal of the Network Code on Tariffs is to lead to gas transmission tariff structures in Europe without discrimination between any type of network users and without any detrimental effects on cross-border trade.

The overarching objective of the Framework Guidelines on Tariffs and the Network Code on Tariffs is to lay down clear and objective requirements for harmonising the gas transmission tariff structures across the EU, contributing to non-discrimination and effective competition, and the efficient functioning of the market. Thus the harmonisation of national tariff structures will contribute to the establishment of the Internal Natural Gas Market.

Impact and outlook

When finalised, the framework guidelines and the European network codes that will be drawn up based on the guidelines will have a significant impact on national network codes and existing arrangements for electricity transmission system operators and significant grid users.

The European network codes will prevail over any relevant national and international codes. Where national codes, standards and requirements are more stringent than the European codes they will continue to apply in so far as they are compatible with the European codes.

ACER will continue to publish further framework guidelines on issues such as congestion management, tariffs, incentives to increase cross border trade and investment incentives for TSOs. These will result in further European network codes which will affect national network codes and may require industry players to adjust their business practices.