Resource adequacy

and cross-border capacity remuneration schemes

Konrad Purchała, Director for European Integration Policy

Budapest, 30 May 2017

22

Key Figures of the Polish power system

■ Installed capacity

● ~40 GW

● incl ~7 GW renewable

● incl 1.4 GW pumped storage

■ Peak demand

● Peak winter: ~26 GW in Feb 17’

● Peak summer: ~23 GW in June 16’

■ Electricity production / consumption

● Production : ~160 TWh

● Consumption : ~162 TWh

■ Export/Import (real flows)

● Physical import: ~ 14 TWh

● Physical export: ~ 12 TWh

47.0% 46.6%

22.6%30.2%

3.7%

4.4%3.1%

4.5%

3.7%

0,3%15.0%

7.9%2.4%

4.7%2.6% 1.4%

NGC Generation

Net Generating Capacity (NGC) vs. net energy generation mix (2016)

Renewable hydro

Biomass & biogas

Onshore wind

Pump storage

Other non-renewable

Gas

Lignite

Hard Coal

3

Location of generation units in Poland

Opole - 4 units total capacity1532 MW

El. Bełchatów - 13 units total capacity 5420 MW

Kozienice - 10 units total capacity 2935 MW

Połaniec - 7 units hard

coal, 1 unit biomastotal capacity 1872 MW

Dolna Odra - 6 units total capacity 1362 MW

Rybnik – 8 units total capacity 1780 MW

Pątnów - 7 units total capacity 1708 MW

Adamów - 5 units total capacity 600 MW

Łaziska - 6 units total capacity 1155 MW

Ostrołęka - 3 unitstotal capacity 681 MW

Łagisza - 3 unitstotal capacity 700 MW

Siersza - 4 units total capacity 557 MW

Skawina - 3 unitstotal capacity 330 MW

Turów - 6 unitstotal capacity - 1488 MW

Żarnowiec - 4 units total capacity716 MW

hydro (mainly pumped storage)

lignite

hard coal

Stalowa Wola - 2 unitstotal capacity 250 MW

Jaworzno - 6 units total capacity 1345 MW

Porąbka-Żar - 4 unitstotal capacity 540 MW

Status on

January 1, 2016

4

Cross-border interconnections

Synchronous profile

Germany:

• line 400kV Krajnik – Vierraden (temporary

on the voltage 220 kV)

• line 400kV Mikułowa – Hagenwerder

Czech Republic:

• line 400kV Dobrzeń - Albrechtice

• line 400kV Wielopole – Nosovice

• line 220kV Kopanina/Bujaków – Liskovec

Slovakia:

line 400 kV Krosno Iskrzynia – Lemesany

Asynchronous interconnections

Ukraine:

• line 220 kV Zamość – Dobrotwór

• line 750 kV Rzeszów – Chmielnicka

(currently out of operation)

Bielarus:

• line 220 kV: Białystok – Roś

(currently out of operation)

Lithuania:

• line 400 kV: Ełk Bis – Alytus (with B2B

located in Alytus)

Sweden:

• 450 kV DC cable Słupsk Wierzbięcino –

Stärno

Krajnik

Słupsk

Białystok

DobrzeńWielopole

Krosno

Iskrzynia

Kopanina

Bujaków

AlbrechticeNosovice

Lemešany

Chmielnicka

Dobrotwor

Roś

Stärno

Vierraden

Hagenwerder

Liskovec

Mikułowa

Rzeszów

Zamość

POLANDGermany

Czech

Republic

Slovakia

Ukraine

Belarus

LithuaniaRussia

X

Boguszów

Porici Ustroń /

Mnisztno

BrześćWólka

Dobrzyńska

X

Pogwizdów

Darkov

110 kV

220 kV

400 kV

450 kV DC cable

400 KV temporary on the

voltage 220 kV

X Out of operation

Kudowa -Zdrój

Náchod

Hirschfelde

Trzyniec

750 kV

Alytus

Ełk BisX

(Radial

operation)

(Temporarily diconnected,

(until PST in Vieraden is installed

Back-to-back DC converter

5

■ Factors determining the security of energy supply

▪ Appropriate network infrastructure (network adequacy) development through

regulatory mechanisms

▪ Required amount of generation capacity (generation adequacy) development

through market mechanisms

■ Requirements regarding generation adequacy

▪ Volume of generation capacity must be higher than system peak demand, to cover:

• Losses in generation capacity resulting from limits/outages in the generation resources

• Losses in generation capacity resulting from limits/outages in the network infrastructure

• Contribution from foreign power systems to be also duly considered (although with care)

▪ Important attributes of the generation adequacy

• Volume – building new generation resources and decommissioning the old ones

• Location – coordination with network development

• Technology – adequate for the shape of demand curve (system needs)

Security of energy supply

6

■Will the Energy-only market be able to deliver long-term adequacy?

▪ Some say that generation investments will be triggered by scarcity pricing

▪ Missing generation investments to be tackled by „dedicated strategic generation

reserves” and Demand Response

▪ Reality:

• No dedicated capacity market but all kinds of reserves putting generation capacity out

of the market: network reserve, emergency reserve, balancing reserve, coal reserve, etc…

• Virtually no new investments in conventional generation technologies (only subsidized RES)

• When risks to adequacy identified (trigger for scarcity prices), special measures considered!

■Will it be enough?

▪ Generation investments are very risky: lumpy with long pay-back times (technology

and regulatory risks)

▪ Possibility for a high price every now and then might be insufficient to freeze

billions of EUR for 30 years pay-back

▪ This approach results in volatile and unpredictable electricity prices for final consumers

▪ How do you distinguish scarcity pricing from market power?

How to ensure long-term adequacy?

77

Polish power balance Scenario „BAT modernization”

-22000

-21000

-20000

-19000

-18000

-17000

-16000

-15000

-14000

-13000

-12000

-11000

-10000

-9000

-8000

-7000

-6000

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X I IV VII X

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Excess of required power surplus Deficit of required power surplus Power surplus required by TSO Power surplus available to TSO

MW

8

Recourses adequacy in PolandRelation between unscheduled power flows and generation adequacy

Illustration based on critical generation adequacy issues

experienced on August 10th to 12th 2015 in Poland (insufficient generation to cover domestic demand for energy and reserves)

9

Combination of unscheduled flows issue together with

scarcity situation led to load reduction in PL last August:

August 10th, 2015, 3:30 pm

(day ahead market schedules vs related physical flows)

HU

3519

262

58

9

1810

14

66

329

2010

I

Import

2433

54,99€

0

1160

185

1000

NL – B

Import 5954

NL 51,42€

BE 47,47€

I

1349

D

Export 7435

31,40€

PL

Import 0

76,06€

CR

Export 1626

32,13€

HU

Import

2722

60,05€

SK

Import 430

32,13€

250

FR

Export 8189

37,04€ AU

Import 3176

31,40€CH

Import 1928

35,06€

schedules of day ahead market (DA)

DK West/East

72,09€ / 72,09€

S

10,59€

calculated flows DA;first run of DACF

25

3

Schedule in line with price difference

Schedule not in line with price difference

913

10

Situation on the DE-PL border on 10.08.15 (1)

10

500 MW

2000 MW

3000 MW

(3) MRA limited due toexhaustion of power reservesfor MRA at AT, CH i SL

500 MW

0 MW

(2) CZ, HU, HR, SK:no possibility to increasegeneration for MRA

(1) 6 pm on Aug 9th:XBR not possible at alldue to power reserves in PLat the minimum DA level

500 MW

(4) Relieving DE/PL from Congestions due to Unscheduled flowscompleted only at 3 amon Aug 10th

11

11

500 MW

2000 MW

3000 MW

500 MW

0 MW

max 3.4 GW

500 MW

(1) 9pm on Aug 9th:power deficit of 1.2 GWin Poland

600 MW(2) 1.2 GW import fromthe only available direction(Germany) would have increased flow on congestedDE/PL border by 600 MW

(3) to relieve the flow by 600 MWincrease of 6 GW of generation in Western Germany (where available only) would be necessary (only 3.4 GW available), moreover no more time to agree it (only 4h left)

4) 6 am on Aug 10th: power deficyt in PolandIncreases by another 1 GW

Situation on the DE-PL border on 10.08.15 (2)What should be done to allow for 1.2 GW import

12Source:

European Commission

Not correct

13

■Complement the energy market with adequacy-related commodity

▪ Liberalized energy market is a multi-commodity market

▪ Capacity market is a market-based means to correctly remunerate the service

rendered by stable generation for the overall security of supply

■ Planned Capacity Market in Poland - structural market

improvement by implementation of the missing market segment

▪ Market based mechanism ensuring competition between

• all generation technologies

• cross-border resources

• demand side

▪ Reduces the investment risks for utilities, not eliminating it!

▪ Tool for authorities to set adequate levels of security of supply

▪ However, required clearance from EU competition authorities

• Capacity market is considered by EC as state aid

Solution to generation long-term adequacy:

dedicated generation capacity market

14

■Capacity market is a mechanism to facilitate generation adequacy

▪ Domestic resources are under jurisdiction of relevant authorities: easier to execute

delivery of energy, less prone to political twists (i.e. unexpected nuclear phase-out)

▪ However, EU law requires equal treatment of all resources

■ According to EC, procurement of generation resources outside

of the country cannot be unduly limited (free movement of goods

and services)

▪ One need to account for the available cross-zonal transfer capacity

▪ However, no guarantees for delivery to the concerned Member State can be required

• According to the EC, it is up to the market to ensure that the energy will be directed

to the Member State with energy deficit.

■ Talks between EC and Poland on the capacity market are ongoing

▪ Main issues: details of cross-border participation, distinction new/modernized

Cross-border participation in capacity

mechanism

Thank you for your attention