Mediumterm TEC Trading

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Medium-term TEC Trading

• ARODG Seminars
• Glasgow London
• February 2007

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Content

• Outline of concept
• Key issues
• Interaction with other industry codes
• Implementation

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Aim

• To facilitate the transfer of rights to use
  existing network capacity without increasing
  costs to industry participants
• to provide opportunities to connect prior to
  the completion of all works necessary to provide
  a compliant connection
• Trading existing capacity more efficient when
  none spare
• Balance effectiveness with pragmatism
• Seeking to work within existing regulatory /
  market rules

Note Presentation describes the key concepts of
aframework not a working model
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Key concepts of trading frameworkAn annual
process

• Trades facilitated using a pre-defined annual
  process
• Staggered process to gather information and
  prepare exchange rates
• Defined timetable
• facilitates resource planning for industry
  participants
• designed to provide sufficient time for analysis
  required
• e.g. exchanges rates and possibly zones
• provide compatibility with existing industry
  processes
• e.g. transmission outage planning

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Key concepts of trading frameworkWhat could be
traded

• Physical capacity
• does not provide value to paper projects
• does not undermine proposals to enhance user
  commitment
• Defined capacity tranches across multiple years
• Rights for a finite duration e.g. up to 3 years
• limits to which assumptions outside operational
  timescales hold
• Seek to fully unwind trade at the end of the
  period
• TEC would remain with the original party
• obligation to pay TNUoS remains with the original
  party
• export rights temporarily be transferred to
  another user(s)

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Key concepts of trading frameworkMatching donors
and recipients

• Counterparties matched according rules to promote
  economically efficient outcomes
• recipients on their willingness to acquire rights
• donors on the willingness to surrender rights
• Capacity prices set by donors
• schedule of MWs prices provided to users that
  want to trade
• exchange rates used to express this information
  in different zones
• Recipients bid for this capacity (adjusted by
  exchange rate)
• One-to-many and many-to-one trades would be
  facilitated

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Key concepts of trading frameworkSetting the
exchange rate

• Exchange Rate set to avoid creating additional
  constraints
• but not will not be taking all opportunities to
  minimise these costs and return the system to
  compliance with the planning standards
• Need to ensure that this is still consistent with
  duties to be economic and efficient, and to
  facilitate competition
• Trades must be subject to an Exchange Rate that
  reflects the capability of the transmission system

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Key issuesCapability of the transmission system

• Assumptions made about generation behaviour in
  planning and operational time frames
• Assumptions ensure that total costs remain
  efficient
• for example, Transmission Owners do not build a
  network that accommodates all generation all of
  the time
• Need to set exchange rates that avoid undermining
  these assumptions or, failing this, need to
  understand the range of consequences of this
• operational costs

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Key issuesCompetition

• Some industry concern that existing generation
  might
• not reduce their TEC when otherwise they would
  have
• is it in the interests of competition e.g. a
  barrier to entry?
• set prices that do not reflect costs / lost
  generation opportunities
• Difficult to preclude by design
• But could consider ways to identify possible
  abuse, if any

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Interactions with other codes

• Have sought to progress these arrangements to
  minimise impacts on other codes
• Impacts on
• CUSC to give force to the new arrangements
• others may become apparent as detailed designed
  proceeds
• Need to ensure that the introduction of trading
  remains consistent with wider duties to be
  efficient and economic
• specifically, System Operator incentives and SQSS
  derogations need to be cognisant of the potential
  impact of capacity trading

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Implementation

• If
• the industry considers it beneficial (now and in
  the future)
• When
• depends on what other access amendment proposals
  are raised
• progress more detailed design
• exchange rate issues present the greatest
  challenge
• How
• discuss detailed proposal informally before
  raising amendment
• enhance the proposal
• provide clarity definition before working group
  phase

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Conclusions

• A flexible trading framework to enable
  opportunities for earlier transmission access
• Seeks to use existing network capability which
  means exchange rate should reflect this
• Still work to do on the detail
• Feedback from the industry would be helpful
• is it something that would be desirable?
• would it be used?