Energy Regulatory Office Seminar on SEE Energy Community Treaty The Regulatory Framework & Market Model of the Kosovo Energy sector Dr. Nick F Frydas Head of ERO & Chairman of the Board Prishtina March 2006 1 www.ero-ks.org
Kosovo Regulatory Framework EC Strategy Paper 2002 Principles of S&A process SoS, Economic Growth, Investments Adopt EU legislation ATHENS MoU 2002-03 SEE REM Dir 2003/54 Legally binding agreement Dir 2003/55 Between EC and SEE parties Art 23 & 25 respect. Ind. Regulatory Authorities ECSEE Treaty EC Reg. 1228/03 (signed 25 October 2005) ERO Assembly adopts Laws – SRSG promulgates them: 2004/8 on Energy (29.04.04) Established 30/06/04 2004/9 on Energy Regulator (29.04.04) ERO Independent Body under section 2004/10 on Electricity (29.04.04) 11.2 of the Constitutional Framework 2 www.ero-ks.org
Legal framework on Energy Sector Promoting integration of Kosovo Established since June 2004 � in European Economic area � Law on Energy – EU in future � Law on Electricity � in all relevant international � Law on Energy agreements Regulator � in legal framework of EU harmonizing Kosovo’s EU map energy legislation with the EU energy legislation 3 www.ero-ks.org
Mandate of ERO Economic Regulation of all Energy Activities (Electricity – Heating – Gas) Objective “Set the Regulatory Framework for a transparent and competitive Energy Market, in compliance with EU directives and ESCEE Treaty” Tasks � Perform the twin function of protecting Customers and ensuring Investors’ interests. Set criteria, issue & monitor Licences for Energy Enterprises. � Ensure non-discriminatory access to all transmission network users at prices reflecting true economic costs � Promote economic efficiency by providing appropriate short and long term price signals 4 www.ero-ks.org
Statutory Powers of ERO � Issue Secondary Legislation (Rules, Co d es, Decrees etc.) � Set the Criteria and Issue Licenses for Energy Enterprises � Approve Tariffs on Public Services Activities (non Market- based) � Approves PPAs for PS . � Grants Permits for Construction of new Capacity, Lines and Pipelines and Direct Lines. � Issues “Certificates of Origin” for RES – Approves “compensation cost” of PSO. Recovery of “Stranded Costs” determined and approved by ERO � Resolution of Disputes between Customers/Licensees, Arbitration Procedures � Approves Grid/Distribution/Metering/Market/etc. Codes 5 www.ero-ks.org
Secondary Legislation (i) Developed by ERO -Statute of ERO- -Code of Ethic and Conduct- -Rule on Pricing- -Tariff Methodology- -Regulatory Accounting Guidelines- Tariff Aplication Guidelines- -Implementation Plan for the Price Review- -Schedule of Fees- -Rule on Dispute Settlement- -Rule on Licencing- D E V -Rule on Disconnection- O R P O P R A E y b 6 www.ero-ks.org
Secondary Legislation (ii) Under development by ERO -Rule on Authorization Procedures for Construction of New Generating Capacities- -General Conditions of ES- -Administrative Fines and Measures- -Rule on Public Register- -Rule on Confidenciality of Information- c -Pro-forma Licenses- i l b u n P o i t n a O t l u s n o C 7 www.ero-ks.org
Decisions issued by ERO � District Heating Tariff for Termokos and DH ”Gjakova” for the season 2004/05 � District Heating Tariffs for Termomint for season 2004/05 � The Criteria of determining and calculating unauthorized use of electricity � KEK Request regarding the Disconnection Procedure � KEK Request regarding the Connection Procedures and Prices � District Heating Tariffs for DHC ”Gjakova” Heating Season 2005/06 � District Heating Tariffs for DHC Termokos for Heating Season 2005/06 � District Heating Tariffs for PMU Standard/DHU Termomit for Heating Seaso 2005/06 � District Heating Tariffs for DHC Zvecan for Heating Season 2005/06 D E V � KEK Request regarding ABC Policy O R P O P R A E y b 8 www.ero-ks.org
Legal Framework & Enforcement Primary Legislation (Law on Energy, Law on Electricity, Law on Energy Regulator) Regulator (ERO) Licenses Generators Suppliers/ Public DSO MO TSO KEK Traders Suppliers Generation Market Rules Grid Code Distribution Code Metering Code Electricity Standards Code Consumer Protection Code Electrical Equipment Code Use of Interconnection Agreement Ancillary Service Agreements Connection Connection Issued by ERO Agreements Agreements Issued by TSO Use of System Use of System (Approved by ERO) Agreement Agreement Issued by MO (Approved by ERO) General Conditions of Issued by DSO Electricity Supply 9 (Approved by ERO) www.ero-ks.org Licenseee Price Rule and compliance Methodology
Market Design - Net Pool Price of BM Settlements (MO) Settlements (MO) METERED METERED NOTIFICATION OF NOTIFICATION OF CONTRACT CONTRACT Bilateral Contracts Regulated for PS/PGen Producers/ Suppliers/ Importers EC “Simulated Price Schedule” Based on forecasted Demand Level Transfer price for PS/Pgen (published ) Ancillary services Regulated prices for PG contract variable cost of generation at Baseload / “SPOT” Regulated “availability Fixed Costs to be recovered at Peak Hourly Prices fee” period capped at import price or VLL ITSMO Physical Physical SO does the Notification Notification Load Forecasting Scheduling (SO) Scheduling (SO) Bids/Offers Bids/Offers Quantities Quantities Prices Caped Prices Caped Balancing Market (SO) Balancing Market (SO) Price of BM 10 www.ero-ks.org
Seasonal load and price curves €/MWh MW 450.00 1000 January- April-June July-September October-December March 900 400.00 800 350.00 700 300.00 600 250.00 500 200.00 400 150.00 300 100.00 200 50.00 100 - 0 1 1 6 1 6 1 6 6 1 6 1 6 1 6 1 6 1 6 1 6 1 3 4 6 7 9 0 2 3 5 6 8 9 1 2 4 5 7 8 4 8 9 1 2 3 5 6 0 1 2 3 4 6 7 8 9 0 1 1 1 1 1 1 1 1 1 1 2 2 Hours/4 demand Marginal fuel price (€/MWh) Marginal price (€/MWh) 11 www.ero-ks.org
Simulated Market Price formula In any Settlement Period “ j ”, the Simulated Market Price ( MP sj ) is derived from the formula: ( ) 2 DD Msj VC k MP = + RR * * CC sj Ms Msj M where: Msj “ s ” is the season in which Settlement Period “ j ” falls; “ M ” is the marginal plant in the merit-order dispatch in Settlement Period “ j ”; VC Ms is the variable costs of the marginal plant “ M ” in the season “ s ”; DD Msj is the modelled dispatch of the marginal plant “ M ” in the Settlement Period (in MWh); CC Msj is the available capacity of the marginal plant “ M ” in the Settlement Period (in MW); RR Msj is residual Required Revenue (in €) for the remainder of the year of the marginal plant “ M ” in the Settlement Period derived from the formula: RR Msj = RR Msj-1 – ( MP sj-1 – VC Ms ) * DD Msj-1 ; k M is a scaling factor designed to scale back the contribution to Required Revenue of the marginal plant “ M ” in each Settlement Period to that of total annual revenue requirement that is derived from the formula: ( ) 2 DD = n 8760 Msj ∑ k = CC M = n 1 Msj with “ n ” as each Settlement Period in the year to which Required Revenue applies; with the constraints: MP sj ≤ MP sj-1 but only where the season “ s ” is the same in both Settlement Period “ j ” and Settlement Period “ j-1 ”; and MP sj ≤ VC M+1s where “ M+1 ” is the next plant in the merit order stack in ascending order of variable cost. 12 www.ero-ks.org
Derivation of Capacity Penalty Reference Price The Capacity Penalty Reference Price (PCMAX) is derived from the formula: ( ) 2 MWSEC PEAK PCMAX = CYTOT ) MWSEC * / ( n = 8760 PEAK ∑ 2 MWSEC n = n 1 where: CYTOT is the annual fixed costs (in €) of providing sufficient annual capacity to give a security margin that is based on costs of provision on the lowest merit units on the system (possibly Kosovo A4 and A5); “PEAK” is the Settlement Period “j” of highest forecast demand MWSECj is Megawatts Security Capacity which is the capacity above Normal Dispatched Capacity (NDC) and below the Capacity Requirement (ATREQj) for Settlement Period “j” which is derived from the formula: MWSECj = Max (ATREQj – NDC , 0 ) where: ATREQj is derived from the formula: * ∑ ATREQ QESU = ATMN TLF / j j aj where: a “j” is any Settlement Period; ATMN is the Capacity Margin Requirement (expressed as a ratio of peak demand plus security margin to peak demand); QESUaj is forecast Supply Unit Metered Demand; “a” is any demand-side Metering System that is not an Interconnector and is not an Embedded Generator or Auto-producer with Generator Declared Capacity; and TLFj is the Transmission Loss Factor (TLF) forecast for Settlement Period “j”; NDC is a forecast sum of Generator Declared Capacity excluding capacity assumed for reserve where, for the time being it is assumed that In the forecast year, where capacity is dispatched in merit order, there will be sufficient base load capacity (whether from new generation or net imports) to reduce Kosovo B net operating hours to approximately 4000. 13 www.ero-ks.org
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