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Integration Rules

Introduction of European Cross-Border Intra-Day Market (XBID) solution will be an important step forward – but integrated European electricity market needs more improvements, believes Tomasz Sikorski from PSE.

The Baltic Sea Region already has a well-integrated power market – but there’s still room for improvements, says Tomasz Sikorski, Vice-President for Polish transmission system operator PSE. He points out that all countries in the Baltic Sea Region are already coupled by functioning Day-Ahead Market Coupling which increases trade efficiency.

“Next significant market integration step will result from introducing European Cross-Border Intra-Day Market (XBID) solution. Implementation of European intra-day market – allowing to match trades all over Europe in continuous manner – is undoubtedly a challenge for all involved transmission system operators and power exchanges,” Sikorski believes. Currently, the expected kick-off date for first borders to be covered by European intra-day solution is envisaged for the first quarter of 2018.

The XBID solution will be introduced at the different borders in Europe by means of so-called Local Implementation Projects (LIPs).  TSOs and power exchanges from all countries in the Baltic Sea Region are engaged in different LIP projects – one of the these covering Lithuania-Poland-Sweden interconnections, adds Sikorski.

“This so-called ‘Polish LIP’ is currently in early stage due to cumulation of work on market integration projects at other borders, but all parties involved see the possibility of implementing it by the end of 2018.”

Get the Most Out of the Infrastructure

Furthermore, PSE, Lithuanian TSO Litgrid and Swedish TSO Svenska Kraftnät have decided to implement so-called Polish optimization area PLA in Nord Pool power exchange. Sikorski explains that PLA is, basically, a technical means to implement the so-called Capacity Allocation Constraints set by the EU.

“The main goal of the proposed improvement of market coupling arrangements is to make a better utilization of transmission infrastructure, thereby offering more capacity to the market and increasing social welfare,” he says.

Currently, when making transmission capacity available to market participants, PSE must – as any other TSO in Europe – take into consideration the technical constraints of the power system. However, specific feature of the Polish market is the fact that the TSO runs integrated scheduling process consisting in simultaneous procurement of balancing energy and reserves, which aims at optimization of the total cost of balancing. In order to avoid competition on forward markets between market participants and TSO for the generation resources, reserves are procured only after the day-ahead market closure.

“As a result, cross-border capacities made available to the market must be feasible in terms of sufficient generation capacity in Poland to ensure reserves level required for secure system operation.”

Market Design Excellence

Talking about the current state of the Polish electricity market, Sikorski believes that appropriate market design – including a congestion management mechanism – is the cornerstone of both efficient market and secure power system operation. He perceives four main pillars for an efficient market design: system security, economic efficiency, incentive compatibility and transparency.

From the perspective of PSE, the current European market model does not fully meet the requirement for the efficient market due to significant volume of out-of-market corrective TSO measures to ensure secure operation. Sikorski points out that the European interconnected power system is undergoing significant transformation, with new renewable and distributed generation resources, as well as changing demand patterns. In his opinion, this puts special requirements for quality of market design.

“In order to cope with upcoming challenges, it is imperative to get the prices right, so that they provide correct incentives for all grid users, leading to efficient use of resources – such as transmission assets, generation and demand flexibility – while respecting system security.”

According to Sikorski, zonal model is not the first best solution to achieve this because such approach hides the physical complexity of the network inside the zone and hinders proper price discovery. “As a consequence, coordination of behavior by price signals is distorted. This inefficiency manifests itself especially in case of large zones spanning across meshed network, like the transmission grid in Continental Europe.”

Retool Energy Pricing

In this context, Polish TSO is a strong proponent of significant redesign of the EU electricity market towards much better representation of the physical system constraints into market processes. According to Sikorski, the redesign of the Polish market to meet the future challenges is under way and heading towards energy pricing scheme reflecting the true cost of energy delivery at each location. He strongly believes that Polish project will show the direction of improvement of the European market and will prove both its effectiveness and its feasibility.

PSE also believes that the Polish market should be complemented with another market segment aimed at ensuring long-term generation adequacy: capacity market. This shall be a fully market-based mechanism, procuring in advance all necessary generation resources in order to handle the future demand.

Last One Standing

Looking ahead, Sikorski perceives that the final breakthrough of smart devices will be a real game-changer, also for TSOs. As smart devices will start to respond automatically to electricity prices – seeking out the cheapest time to heat the rooms, wash clothes or recharge electrical cars, for instance – this will raise the electricity pricing to the forefront of energy talk.

“Sooner or later, prices will be the only mechanism to coordinate energy consumption and generation,” he says, adding that he’s counting on solid cooperation between Fingrid and PSE – both at the regional and European level – in this matter, too.