The media are sharing a story about a letter from PrJSC Ukrhydroenergo, appealing to PrJSC Ukrenergo regarding too many dispatch teams in the conditions of the new electricity market, and also states that in August it will not be able to provide services of automatic and manual secondary frequency and capacity control without concluding contracts and making payments.
As a public discussion has begun around this document, Ukrenergo considers it necessary to clarify the current situation.
Currently, our dispatchers indeed issue many orders requiring immediate execution, especially for hydro power plants and pumped storage power plants. The reason for this is that in the free market deviations from load schedules (i.e. actual consumption) occur much more frequently than under the old market model.
Previously, SE Energorynok prepared daily generation schedules based primarily on the demand forecast. Generating companies had limited influence in this process.
In the new market, producers and consumers independently prepare generation and consumption schedules based on the auction results within the respective market segments. However, at certain hours, price restrictions in the day-ahead market and the intraday market are cost-prohibitive for producers, so instead of entering these segments, they withhold electricity to sell it in the balancing market.
Another reason for the large number of orders for hydropower plants that require immediate execution is the lack of readily available reserves for balancing the power system (not loaded, ready-to-operate or underloaded power units).
The reason for this is that there is currently no ancillary services market, where market participants are compensated for keeping reserves.
In the previous market model, electricity producers received this compensation. In particular, PrJSC Ukrhydroenergo was paid under two tariffs: for the electricity generated and the for the capacity. Payment for capacity covered the costs of keeping reserves. In the new market, only the ancillary market participants, who have won the respective auctions, are eligible to receive the reserve maintenance fee.
To become a part of the ancillary services market, producers must have their equipment verified and tested. However, the Regulator approved the procedure for their implementation only 9 days before the launch of the new market – on June 21, 2019. (Resolution No. 1120 “On Approval of Amendments to the Transmission System Code”).
It should be noted that it takes at least 3-6 months to complete the verification of a market participant. That’s why none of the producers has yet been able to become a participant in the ancillary services market. In these circumstances, producers are forced to maintain the reserves to balance the system free of charge, which is not commercially feasible for them. This is why there are no contracts for the services of frequency and capacity regulation, which PrJSC Ukrhydroenergo is complaining about.
We also would like to inform that PrJSC Ukrhydroenergo has already requested Ukrenergo to conduct a verification of its power units, which is a pre-requisite for participation in the ancillary services market. Our company is ready to conduct all the necessary works as promptly as possible, understanding the complexity of the situation both on the market overall and specifically for PrJSC “Ukrhydroenergo”. The procedure and conditions of the verification and testing are currently being negotiated.
In addition, Ukrenergo suggested to NEURC to set up a transitional period, during which electricity producers could temporarily receive a “readiness fee”, while postponing the required testing of their electric installations. This could ensure sufficient reserves available until the producers complete all the required procedures and become full participants in the ancillary services market.
Therefore, we should stress that the lack of reserves and a large number of dispatch control orders can only be resolved by launching the ancillary services market as soon as possible and amending the regulatory documents discussed above, as appropriate.