Saatja: "Vidmantas Salietis" <
[email protected]>
Saaja:
[email protected], "MKM info",
[email protected]
Teema: Joint letter of the market participants
Kuupäev: 2023-06-15 12:51
Dear Madam/Sir,
I am hereby extending to you a joint letter of the Baltic market
participants regarding the derogations which are currently being discussed
in Brussels in respect to the Baltic balancing market.
We, the Baltic market participants, are of the opinion that currently
proposed derogations will have an absolutely detrimental effect to the
development of the balancing market in the Baltic states.
That is why we kindly ask you to consider three important proposals which
are highlighted in the attached letter, so that properly functioning
Baltic balancing market could be promoted as soon as possible.
The contact information of the market participants, which have decided to
join this letter, is provided on the cc line of this e-mail.
Best regards,
Vidmantas Salietis
Ignitis Group
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Ministry of Energy of the Republic of Lithuania
Ministry of Economic Affairs and Communica ons of the Republic of Estonia
Ministry of Climate and Energy of the Republic of Latvia
Cc: Energy Commissioner and DG Energy of the European Commission
15.06.2023
Deroga ons to the Bal c states regarding func oning of the balancing market
Dear Madam/Sir,
On 6 June 2023 General Secretariat of the Council extended to Permanent Representa ves Commi ee
proposals, prepared by the Presidency, amending Regula ons (EU) 2019/943 and (EU) 2019/942 as well as
Direc ves (EU) 2018/2001 and (EU) 2019/944 to improve the Union’s electricity market design. These
proposed amendments contain several deroga ons to Estonia, Latvia and Lithuania regarding balancing
markets and their func oning.
Having studied the content of the proposals, we are of the opinion that if given proposals will be adopted
and implemented then they would have significantly detrimental effect to development of balancing
market in the Bal c states. In our opinion proposed amendments do not take into account that the Bal c
countries already have a func oning balancing market and significant investments are just now being
prepared for mee ng its future requirements (Igni s has launched expansion of Kruonis PSHP1, Ees
Energia is acquiring first large-scale energy storage device2, large-scale energy storage facility Energiasalv
has obtained building permits3). These investments are being planned based on the assump on that the
Bal c states launch full-fledged market-based balancing market by 2025. If the Bal c states should
nevertheless opt for non-market-based solu ons where preference is given to assets owned by TSOs then
it would not only result in scaling back market-based investments but also distort the investment climate
in the Bal cs for the years to come.
In the light of the la er, it is most unfortunate that the given deroga ons have not been discussed with the
Bal c market par cipants, which have relentlessly promoted opening of full-fledged balancing market as
soon as possible to provide guidance for market-based investments. Therefore, we are turning to you with
our comments and proposals which are aiming to establish a fully func onal market-based balancing
market in the Bal c states as soon as possible.
The proposed amendments of the European legisla on, which we would hereby like to comment are as
follows.
(53b) Since Estonia, Latvia and Lithuania are not yet synchronised with the European electricity system,
they face very specific challenges when organising balancing markets and the market-based
procurement of ancillary services. While synchronisa on is well underway, one of the cri cal
prerequisites for stable synchronous system opera on is the availability of sufficient balancing capacity
reserves for frequency regula on. However, being dependent on the Russian synchronous area for
frequency management, the Bal c countries were not yet in the posi on to develop an own func oning
1
h ps://view.news.eu.nasdaq.com/view?id=bca0bc8b2c56ffc370df702da9ae9f96e&lang=en&src=listed
2
h ps://www.energia.ee/en/uudised/avaleht/-/newsv2/2023/05/31/ees -energia-hangib-ees -esimest-
suursalves t
3
h ps://news.err.ee/1608821584/building-permit-issued-for-paldiski-hydro-pump-electricity-storage-facility
balancing market. The Russian war of aggression against Ukraine has substan ally increased the risk for
security of supply resul ng from the absence of own balancing markets.
Therefore, the requirements of Ar cle 6 (9), (10), (11) of Regula on (EU) 2019/943 and of Commission
Art 41 (2) of Regula on (EU) 2017/2195, which are designed to apply to exis ng balancing markets, do
not yet reflect the situa on in Estonia, Latvia and Lithuania, in par cular as the development of
balancing market requires me and new investments in balancing capacity. Estonia, Latvia and Lithuania
should therefore, irrespec ve of those requirements, be en tled to conclude longer-term contracts to
procure balancing capacity for a transi onal period.
Comments to recital 53b: it is true that the Bal c states face specific challenges regarding de-
synchronisa on from the Russian grid and synchronisa on to Central-European grid. But it’s also true that
the Bal c market par cipants have during the last three years relentlessly urged the local TSOs, regulators
and the responsible ministries to work out as quickly as possible a framework for market-based
procurement of system services so that the market par cipants could prepare themselves and make
necessary investments into required asset base (including storage). Unfortunately, this has not happened
so far. This framework is s ll missing, and the market par cipants have been forced to postpone their
planned investments. Meanwhile, the TSOs in the Bal c states have made con nuous prepara ons for
filling the gap le by market par cipants and to par cipate and compete with the market par cipants in
the to be established fully fledged Bal c ancillary services market. We have previously several mes turned
the a en on of the European Commission services to these developments (TSOs shall not interfere to
market compe on and not procure genera on and storage assets), but unfortunately with no obvious
effect.
(53b) Estonia, Latvia and Lithuania should also be exempted from the requirements of certain provisions
of Ar cle 40 (4) and 54 (2) of Direc ve (EU) 944/2019 insofar as this is necessary to ensure system security
for a transi onal period.
Comments to recital 53b: providing full and uncondi onal exemp on to Bal c states regarding applica on
of Ar cle 40 (4) and 54 (2) of Direc ve (EU) 944/2019 is clearly detrimental to speedy development of
balancing markets in the Bal c states. Although the Bal c states have not yet developed their own fully
func oning balancing market, certain elements of it (mFRR, ER mFRR) exist and func on already today.
Moreover, given the absence of aFRR market in the Bal c states, the largest market par cipant in Estonia
is currently providing aFRR services on cross-border basis to Finnish TSO. There are also other market
par cipants in the Bal c states, which are currently developing and are in possession of required assets
and are willing to par cipate in balancing markets. Therefore, we are of the opinion that the Bal c states
should not apply, and the EU should not provide to the Bal c states uncondi onal exemp ons so that the
Bal c TSOs could procure balancing services without applying transparent, non-discriminatory and market-
based procedures. On the contrary, we are of the opinion that the Bal c TSOs shall apply for the
procurement of balancing services via transparent, non-discriminatory and market-based procedures and
exploit the assets of TSOs only as much as the market par cipants fail to provide the required services
during very short and limited events in the market. Therefore, the deroga ons shall clearly state that the
assets of TSOs should be exploited as the last resort only.
(53c) The transi onal periods for Estonia, Latvia and Lithuania should phase out as soon as possible a er
the synchronisa on, and be used to develop the appropriate market instruments offering short-term
balancing reserves and other indispensable ancillary services, and should be limited to the me
necessary for this process.
(9a) In Ar cle 66, the following paragraph 6 is added:
6. By way of deroga on from Ar cle 40(4), the transmission system operators in Estonia, Latvia and
Lithuania shall be able to rely on balancing services provided by domes c electricity storage providers,
transmission system operators related undertakings, and other facili es owned by transmission system
operators.
By way of deroga on from Ar cle 54(2), Estonia, Latvia and Lithuania may allow their transmission
system operators and transmission system operators related undertakings to own, develop, manage and
operate storage without following an open, transparent and non-discriminatory tendering procedure
and may allow such storage to buy or sell electricity in the balancing markets.
The deroga ons from Ar cle 40(4) and Ar cle 54(2) shall apply up to three years a er Estonia, Latvia
and Lithuania have joined the con nental European synchronous area. When necessary to preserve
security of supply, the Commission may grant an extension of the ini al three year period by a maximum
of five years.
Comments to recital 53c and paragraph 6 of Ar cle 66: we are of the opinion that the transi onal periods
should not only be phased out as soon as possible but it should also be clearly stated in the deroga ons
that a er the end of transi onal periods the Bal c TSOs shall divest their power genera on and storage
assets within prescribed period of me (for instance, 6 months), so that they could focus on their core
ac vi es without ge ng disturbed and wrongly mo vated by their asset base.
We strongly disagree with the proposed deroga on, which uncondi onally allows the TSOs to own,
develop, manage and operate storage without an open, transparent and non-discriminatory tendering
procedure and allow such storage to buy or sell electricity in the balancing markets. Such deroga on will
not facilitate development of balancing market in the Bal c states. On the contrary, it will damage the
market because no market par cipant can compete with the assets which are financed by the TSOs.
Therefore, proposed deroga ons shall explicitly state that the assets of TSOs can only be exploited as the
last resort and in cases when the market fails to provide the required service.
Transi onal period of three to five years is by far too long. A er successful execu on of synchronisa on to
Central-European grid, the TSOs should immediately start prepara ons of dives ng their power genera on
and storage assets so that market-based balancing market could start func on properly.
(13a) In Ar cle 64, the following paragraph is added:
2a. By way of deroga on from Ar cle 6(9), (10) and (11), Estonia, Latvia and Lithuania, may conclude
financial contracts for balancing capacity up to five years before the start of the provision of the
balancing capacity. The dura on of such contracts shall not extend beyond eight years a er Estonia,
Latvia and Lithuania have joined the con nental European synchronous area.
The na onal regulators of Estonia, Latvia and Lithuania may allow their domes c transmission system
operators to allocate cross-zonal capacity on a market-based process as described in Ar cle 41 of
Commission Regula on (EU) 2017/2195, without volume limita ons un l six months a er the moment
when the co-op mised alloca on process is fully implemented and opera onal pursuant to paragraph 3
of Ar cle 38 of Commission Regula on (EU) 2017/2195.
Comments to paragraph 2a of Ar cle 64: alloca ng cross-zonal capacity without volume limita ons for
exchange of balancing capacity entails very significant risks for market par cipants given the fact that
hedging market in the Bal c states is very poorly developed. To enable alloca ons without volume
limita ons, the na onal regulators should firstly instruct the TSOs to issue on respec ve border crossings
FTR products (in amount of total transfer capacity of respec ve border crossings) so that the market
par cipants could hedge themselves against deliberate ac ons of TSOs.
For conclusion. We, the undersigned market par cipants, would hereby like to stress the following.
1. Genera on and storage assets owned and operated by TSOs should not be allowed to par cipate in
the market on regular basis. These assets may be used only in case market par cipants are not capable of
providing sufficient balancing capaci es or balancing energy during certain hours. Therefore, the
deroga ons should state clearly that the assets of TSOs should be exploited as the last resort only and
should not par cipate in forward, day-ahead, intra-day or balancing markets.
2. The length of the proposed deroga ons should be kept as short as possible to avoid significant damage
to market-based balancing market. A er successful execu on of synchronisa on to Central-European grid,
the TSOs should immediately start prepara ons of dives ng their power genera on and storage assets so
that market-based balancing market could start func on properly. Transi on me of up to 6 months a er
synchronisa on is sufficient me for such sale.
3. Enabling cross-zonal capacity alloca on without applying any volume limita ons for exchange of
balancing capacity entails very significant risks to market par cipants not only on day-ahead market but
also forward market. Therefore, we urge providing market par cipants with addi onal safeguards either
by limi ng the alloca on of cross-zonal capacity for exchange of balancing capacity up to 50% of the
capacity which is available or by providing on all respec ve border crossings FTRs in amount of total
transfer capacity.
If you have any ques ons regarding the views and proposals, which have been highlighted in this le er,
then we kindly ask you to contact us at your earliest convenience.
Best regards
Vidmantas Salie s Kristjan Kuhi
Member of the Management Board Member of the Management Board
Commercial Officer Energy Solu ons and Energy Trading
Igni s Group Ees Energia AS
Erkki Kallas Aivo Adamson
Member of the Management Board Member of the Management Board
Sunly AS AS Alexela
Knud-Erik Andersen
Chairman of the Management Board
European Energy A/S