Ancillary Services Market Offers

UdD of enabled UP for Primary Reserve, Secondary Reserve, Tertiary Reserve and Balancing Services have:

i. the obligation to submit predefined offers for programming phase;

ii. the possibility to submit non-predefined offers for both programming and real-time balancing phases.

If no non-predefined offers are presented for real-time balancing phase, offers from the same relevant period of programming phase will be taken into account [5].

Programming Phase Offers (MSD)

UdD must indicate the reference program for the offers, otherwise GME considers the updated cumulative program as the reference one. In case of non-predefined offers, UdD can submit:

i. Up to 3 couples of price-quantity upward (downward) offers, going from its physical program to its maximum (minimum) effective power, for all services except those explicitly mentioned below. This is allowed since 1^st January 2010, when GME entitled the operator to present three different offers on MSD for its power band (four on MB), with different price and quantity. In terms of quantity, the third offer is meant to contain previous ones. In terms of price, it must be equal or increasing for upward offers, equal or decreasing for downward offers [7];

ii. 1 price for upward (downward) Secondary Reserve;

iii. 1 price for upward Minimum (Minimo) service. Minimum service is either an upward or downward offer, enabled UdD offers to increase or decrease their production from the resulting physical program to technical minimum power;

iv. 1 price for downward Switch-Off (Spegnimento) service. Switch-Off is a downward offer, enabled UdD offers to reduce production from the smaller between physical program and technical minimum power to switch-off;

v. 1 price for Switch-On fee (Accensione), if enabled. Switch-On is the fee required by enabled UdD for Start-Up its UP. Cap imposed;

vi. 1 price for Setup-Switch fee (Cambio Assetto), if enabled. Setup-Switch is the fee required by enabled UdD for switching its plant setup. Cap imposed [5].

If an enabled UdD submits both upward and downward offers with the same unit, selling prices must be higher than buying ones.

Balancing Phase Offers (MB)

Possibilities for balancing offers are the same as MSD. A minor difference is that while on MSD the operator can submit 3 different offers for every relevant period, on MB 4 offers are allowed. Furthermore, MB offers must improve economic conditions of MSD ones for the same relevant period.

Offers Adjustment

Presented offers are adjusted by Terna, in order not to create divergences between offers, updated cumulative program, reference program and technical limits. There are two subsequent adjustment types.

i. Program adjustment: Terna evens updated cumulative and reference programs inconsistencies. Generally, if the reference program is lower than the updated cumulative program, downward offers are reduced and upward offers are increased, in terms of quantity. Contrariwise, if reference program is higher than updated cumulative program, downward offers are increased and upward offers are reduced, in terms of quantity. Program adjustment starts from UdD perspective less convenient offers¹² and stops when programs difference is nil.

ii. Technical adjustment: Terna considers offers resulting from the first adjustment step and compare them to technical limits of the UP. Consequently, according to which technical limit is violated, either upper one or lower one, offers are adjusted and eventually used for the market results determination.

The logical approach of both the adjustments is described in a simplified way in Figure 1.5, for a certain relevant period. For the first approach the black dot represents the reference program while the black triangle is the cumulative program. Dashed lines are offer limits defined by operators offering for MSD. The up arrow stands for upward offers, down arrow for downward ones. If during MI sittings UdD position passes, for instance, from dot to triangle, Terna modifies operators offers accordingly, as shown by arrows’ length change.

For the second approach the logic is still the same. Offers are modified at a second step to respect technical limits indicated, in this case, by dashed lines.

12 i.e. selling offers with lowest price and buying offers with highest price. Adjustment is a preservative criterium.

ΤΗΕ ΙΤΑLIAN ELECTRICITY MARKET CHAPTER 1

Figure 1.5 The logic of the adjustment process. The dot indicates the reference program and the triangle indicates the updated cumulative program.

Offers Selection and Remuneration

Terna selects offers using economical and power-flow criteria. The detailed algorithm lays beyond this thesis’ aim of verifying the economic feasibility of participating to ASM with an energy storage system. Thus, the focus here is on how and when offers are remunerated.

Since MSD and MB are pay-as-bid markets, accepted offers correspond to a cash-flow from Terna to UdD in case of upward offers, from UdD to Terna in case of downward offers.

Cash-flow is equal to the unit price [€/MWh] submitted in the accepted offers multiplied by the accepted quantity¹³.

On MSD Terna:

i. Accepts offers for mFRR and congestion management;

ii. Reserves offers for aFRR, Start-Up and Setup-Change fees;

On MB Terna:

i. Selects and activate resources for real-time balancing;

ii. Activates previously accepted offers;

iii. Accepts and activates previously reserved offers;

iv. Selects and activates additional resources for mFRR;

v. Accepts and remunerate Switching-On and Setup-Change offers;

vi. Activates emergency resources.

13 In case of accepted fees offers the submitted price corresponds to the total transaction.

Interruptibility and load refusal services are activated in case of balancing impossibility.

Until now, only the relevant services for this thesis have been analyzed. In Table 1.2, provision and remuneration criteria for different enabled resources are resumed.

Table 1.2 Enabled UP duty, competence market and remuneration [6].

Services type Enabled Resources Provision Remuneration Primary Reserve Mandatory for relevant

UP Mandatory Optional [8]

Secondary Reserve Mandatory for relevant UP

MSD & MB Pay-as-bid Tertiary Reserve Mandatory for relevant

UP MSD & MB Pay-as-bid

Balancing Mandatory for relevant

UP MSD & MB Pay-as-bid

Congestion

management Mandatory for relevant

UP MSD & MB Pay-as-bid

Voltage Regulation Mandatory for relevant UP

Mandatory None

Load Interruptibility UC Auctions SMP¹⁴ €/MW/year +

Pay-as-bid €/MW for every interruption

and power Load refusal Thermoelectric UPs,

P>100Mw Mandatory None

14 i.e. System Marginal Price, resulting from market clearing.

REGULATION DEVELOPMENTS CHAPTER 2

CHAPTER 2 REGULATION FRAMEWORK

DEVELOPMENTS

In recent years, the European electricity markets are experiencing numerous changes due to the new challenges coming from environmental issues and energy policies adaptation. Main drivers are the integration of renewable energies services (RES) and the interconnection of national market, in order to hedge the risks coming from unprogrammable resources but also to increase the economic efficiency of the markets for all European citizens. Italian regulation framework is changing to support this transition and to adapt to European directives, such as the approach to real-time energy trades. Directives like 300/2017/R/eel aim to enlarge the number of resources participating to the market, admitting small generators and even consumption units (i.e. Demand Response, DR). This process is needed to support the electricity system in the progressive reduction of traditional high inertia thermal plants, that guarantee grid stability and provide ancillary services. Regulatory changes are the result of the joint work of Agency for the Cooperation of Energy Regulators (ACER) the main European regulatory authority, the European Commission and the European Network Transmission System Operator for electricity (ENTSO-e). The Commission defines long-term goals, ACER how to translate them into energy markets and ENTSO-e how to implement them. Rethinking electricity markets needs new interactions model between Transmission System Operators (TSOs) and Distributed System Operators (DSOs). In this chapter, the state of the art of TSO-DSO relations management is presented, then a brief analysis of European programs for markets integration and member-States measures for market opening is provided. After that, the Italian new regulation framework that applies to this thesis is presented in 2.3.

REGULATION DEVELOPMENTS CHAPTER 2