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Majandus- ja Kommunikatsiooniministeerium 18.05.2018 nr 1.1-10/2018/474 Suur-Ameerika 1 10122 Tallinn Avariireservelektrijaamade kasutamine puhta energia paketi valguses Käesoleva kirja lisana saadame Teile Eesti ja Soome süsteemihaldurite Eleringi ning Fingridi ühise positsiooni avariireservelektrijaamade kasutamise käsitluse kohta puhta energia paketis. Lugupidamisega /allkirjastatud digitaalselt/ Taavi Veskimägi Juhatuse esimees Elering AS Lisad: Lisa 1 Elering-Fingrid ühine positsioon Elering AS | Registrikood/Reg. code 11022625 | Kadaka tee 42, 12915 Tallinn, Estonia | + 372 715 1222 | + 372 715 1200 | www.elering.ee | Ametlik e-post/Official e-mail: [email protected]  Joint position paper of the Finnish and Estonian 1 (1) Transmission System Operators 14 May 2018 Fingrid and Elering support the Council’s General Approach on the Electricity Directive to enable continued ownership of their emergency reserves In November 2017, Fingrid and Elering circulated a joint position paper to their respective ministries concerning the future rules governing TSO ownership of assets providing emergency reserve services in light of the ongoing European legislative process to revise the Electricity Directive. Since then, the European Parliament and Council of the European Union have consolidated their respective negotiating texts for the Electricity Directive in advance of the upcoming ‘trilogue’ negotiations later this year. It is, at this juncture, that Fingrid and Elering would restate their deep concern that future provisions under Articles 40 and 54 of the draft Electricity Directive may prohibit Fingrid and Elering from owning and operating their fleet of generating units that act as emergency reserves. As outlined previously, Fingrid and Elering are operating relatively isolated power systems that sit at the periphery of the EU electricity system. Both systems are, by European standards, exceptionally vulnerable to unforeseen disconnections and supply shortfalls, while having limited resources on the market to manage such risks. These events are rare, but necessitate both Fingrid and Elering to maintain a sufficient level of emergency reserves to ensure operational security in these instances. It must be emphasised that given the exceptional circumstances under which emergency reserves are deployed, they do not have any distortionary impact on the market for ancillary services. It is for this same reason that a functioning market for the provision of such services cannot exist. If Fingrid and Elering are prohibited from owning these reserves, they will be forced to dispense of these assets on unfavourable terms and procure the needed services from the new owners of the same reserves. Such a mandatory sale of infrastructure that forms part of the TSOs’ regulated asset base would have to be done at a discounted price and then subsequently re-contracted by the TSO at a far higher price than if the assets were under TSO ownership. This would raise operating costs and directly result in higher grid tariffs for consumers, with no benefits to the electricity market. The versions of the Article 40 and 54 of the Electricity Directive contained in the European Parliament’s Plenary Text, as well as the European Commission’s Proposal, would result in the prohibition of future ownership. To prevent such a scenario, Fingrid and Elering affirm their support for the versions of Article 40 and 54 contained in the Council’s General Approach. While these versions may provide sufficient scope for TSOs to avoid the costly procurement of emergency reserves services it would still be preferable to include an additional clause enabling TSOs to continue to directly own those assets providing ancillary services which were owned prior to the entry into force of the Directive until the end of their serviceable lifetime. These would be deployed only to ensure operational security when other ancillary services procured from the market have been exhausted. Fingrid and Elering are available to provide further detailed information on the issues outlined in this paper and would strongly welcome further discussion to clarify their position. Attachments Position paper of November 2017  1 (2) 8 November 2017 AMENDMENT PROPOSALS TO REV2 OF THE ELECTRICITY DIRECTIVE Original Suggested amendment 4. In performing the task described in point (i) of paragraph 1, the 4. In performing the task described in point (i) of paragraph 1, transmission system operators shall [ensure that the the transmission system operators shall [ensure that the procurement of] procure balancing services [and, unless procurement of] procure balancing ancillary services duly justified by a cost-benefit analysis, and approved [and, unless duly justified by a cost-benefit analysis, by the competent authority, non- frequency ancillary and approved by the competent authority, non- services, is] according to: frequency ancillary services, is] according to: (a) transparent, non-discriminatory and market-based procedures; (a) transparent, non-discriminatory and market-based procedures; (b) ensures effective participation of all qualified electricity undertakings and market participants including (b) ensures effective participation of all qualified electricity renewable energy sources, demand response, energy undertakings and market participants including storage facilities and [] electricity undertakings market renewable energy sources, demand response, energy participants engaged in aggregation. For that storage facilities and [] electricity undertakings purpose, [in particular by requiring] regulatory market participants engaged in aggregation. For authorities [or] and transmission system operators shall, that purpose, [in particular by requiring] regulatory in close cooperation with all market participants, [to] authorities [or] and transmission system operators define technical modalities for participation in these shall, in close cooperation with all market participants, markets on the basis of the technical requirements of [to] define technical modalities for participation in these markets in accordance with the Commission these markets on the basis of the technical requirements Regulation 2017/1485 establishing a guideline on of these markets in accordance with the Commission electricity transmission system operation []. Regulation 2017/1485 establishing a guideline on electricity transmission system operation [].  2 (2) 8 November 2017 5a. The requirements of paragraph 4 shall apply to the 5a. The requirements of paragraph 4 shall not apply to the provision of non-frequency ancillary services by provision of non-frequency ancillary services by transmission system operators, unless the regulatory transmission system operators, unless in cases where authority shows that the market-based provision of the regulatory authority shows that the market-based non-frequency ancillary services is economically not provision of non-frequency ancillary services is efficient. This obligation does not apply to fully economically not efficient or in cases where facilities integrated network components. providing ancillary services have been owned by transmission system operators for at least two years prior to the [date of entry into force of this Directive]. This obligation does not apply to fully integrated network components.  Joint position paper of the Finnish and Estonian 1 (2) Transmission System Operators 9 November 2017 TSO ownership of emergency reserve assets requires special consideration under the future Electricity Directive On 30 November 2016 the European Commission published its “Clean Energy for All Europeans” Package. Fingrid and Elering, as firm believers in market based solutions, welcome its release and supports the Package’s central objectives relating to the design of electricity markets. The legislative proposals contained within the revised Electricity Regulation and Electricity Directive broadly correspond to the measures necessary to enhance the efficiency, integration and flexibility of the European electricity market. The focus on the consumer is also to be strongly welcomed. Since its release Fingrid and Elering have had the opportunity to further examine the details and implications of key elements of the Package. In particular, we have assessed the implications of draft provisions relating to TSO ownership of ancillary services as specified under Articles 40 and 54 of the draft Electricity Directive. These would prevent Fingrid and Elering continued ownership and management of key ancillary services, which are used to ensure security of supply in an electricity system subject to several critical and unique conditions and, which do not have a distortionary impact on the electricity market. The electricity markets of Finland and Estonia are, by European standards, geographically isolated as their power systems sit at the periphery of the EU electricity system. Finland is heavily dependent on imports with around 20 percent of total electricity consumption provided for by imports from within the Baltic sea region and Russia while interconnection capacity is limited. Estonia on the other hand is a transit country, operating cross-border interconnections with a capacity exceeding local demand. These factors increase the relative vulnerability of their power systems to unforeseen disconnections and supply shortfalls. This vulnerability is further compounded by small domestic reserve markets which are characterised by low liquidity and a narrow pool of suppliers for balancing energy. Furthermore, Estonia is part of Russian IPS/UPS synchronous area, where present agreements require TSOs to hold a share of emergency reserves. This requires Elering to hold reserves to be used in the synchronous area. It is for these reasons that Fingrid and Elering have been granted permission by their national authorities to own and operate a limited fleet of power generators providing emergency reserves.1 These reserves are deployed under exceptional circumstances when system security is endangered such as the sudden and unforeseen trip of a large generating unit or outage of a major interconnector. Such events are rare but can result in supply shortfalls corresponding to 10-20 percent of consumption. The rarity of these events, which may only occur at intervals of less than once a year, negates the establishment of a liquid and functioning market for such reserves. Furthermore, it is essential to note that Fingrid and Elering owned emergency reserve assets are only deployed after all commercially available balancing resources have been exhausted or used for exceptional congestion management purposes for AC interconnections in the event a large generator trips. These features of ancillary service ownership and deployment mean that there is no distortionary impact on the market for reserves or, more generally, on the efficient functioning of the wholesale 1 Fingrid directly owns 935 MW of generating capacity comprising of 10 emergency reserve plants. In addition to this, Fingrid has long-term contracts for the use of 263 MW of emergency reserve capacity. Elering directly owns 250 MW of generating capacity comprising of two emergency power plants. Joint position paper of the Finnish and Estonian 2 (2) Transmission System Operators 9 November 2017 electricity market. Attempting to procure these reserves commercially would be economically inefficient and result in disproportionate costs to consumers2. It is for these reasons that Fingrid and Elering strongly see the need for the future Electricity Directive to recognise and take into account the particular conditions affecting the Finnish and Estonian power systems, and the subsequent need for a derogation from any measures which may prevent the future ownership and management of their emergency reserves, which ensure system security at the lowest cost for consumers. As a solution, Fingrid and Elering suggest specific amendments to the wording of the Council REV2 of the Electricity Directive. These are annexed to this joint paper. Fingrid and Elering remain at the disposal of the European institutions to provide more detailed information on the issues outlined in this paper and would strongly welcome further discussion to clarify their position. Attachments Amendment proposal 2 As the only buyer of such services Fingrid and Elering would be in a very weak negotiating position and subject to bids and pricing power from a small pool of domestic providers.