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20 January 2021
newsletter
austria

Austria: Network reserve to become part of congestion management system

Introduction

With an amendment to the Electricity Industry and Organisation Act 2010 passed by Parliament, the network reserve will become part of Austria's congestion management system.

The aim of the new legislation is to achieve grid stability and security of supply in an efficient and cost-effective manner. Network reserve is the provision of additional generation capacity or reduced consumption capacity to resolve network bottlenecks in the transmission network. It is procured in a transparent, non-discriminatory and market-oriented tendering procedure. For the first time, the provision of consumption capacity is also part of the Austrian congestion management system.

Due to their volatility, renewable electricity plants lead to higher grid loads. At the same time, they displace other conventional power plants from the market which could step in at short notice when the generation output of photovoltaic and wind power plants is low. Therefore, system-relevant power plants are in danger of being shut down permanently or at least temporarily. The associated risk of bottlenecks and blackouts can be reduced by the procurement of network reserve capacity. Therefore, network reserve can be viewed as a cornerstone of climate protection and renewable energy production.

System analysis

The demand for network reserve will be determined by the control area manager (CAM) by means of an annual system analysis, which must be coordinated with the regulatory authority. The analysis will cover a period of two years and must take various aspects into account, such as:

  • geographical criteria;
  • notified plant closures;
  • weather and climate conditions; and
  • demand-side responses.

Although the system analysis must be based on a method and input data agreed upon with the regulatory authority, an approval by the regulatory authority is not required. This can be viewed critically because the determined network reserve demand can be the basis for a prohibition of closure ordered by the regulatory authority against plant operators.

Closure notifications

Operators of power plants with a bottleneck capacity of more than 20 megawatts (MW) must notify the CAM of plant closures, irrespective of whether they wish to participate in the tender for the network reserve. The purpose of the closure notification is to provide the CAM with information on the future unavailability of power plants, which is required for the system analysis.

The notification must be based on a binding decision of the company which operates the power plant. For example, a resolution of the supervisory board may be necessary. In the case of short-term unavailability, a simple resolution of the management may also be sufficient.

The notification must be submitted one year in advance and include the start and duration of the closure. Temporary, temporary seasonal and permanent closures of plants must be notified. Temporary closures are measures that cause the power plant to have a lead time of more than 72 hours but can generally be made ready for operation again. Temporary seasonal closures are temporary closures which take place during the winter or summer. In the notification, plant operators must state whether and to what extent the closure is due to legal, technical or economic reasons. For example, combined heat and power (CHP) plants which cannot be operated profitably in the summer months must notify their future temporary seasonal closure.

Plant operators which fail in the (subsequent) network reserve tender must close their plants for the notified period. They may be recommissioned only with the approval of the regulatory authority. The question remains as to who checks whether a notification has been submitted in due time and in accordance with the requirements of the Electricity Act since (legally compliant) notifications are a prerequisite for participation in the network reserve tender and a fine of up to €75,000 may be imposed for a failure to notify a closure.

Network reserve procurement

The network reserve is procured through a transparent, non-discriminatory and market-oriented tendering procedure organised by the CAM. Those eligible to participate include:

  • operators of power plants and consumers – which can temporarily reduce or shift their consumption – with a bottleneck capacity of at least 1MW;
  • operators of power plants on the European internal electricity market and in Switzerland;
  • aggregators that combine several generation or consumption units to a pool of at least 1MW.

A tender participation requirement for operators of power plants with more than 20MW bottleneck capacity is a binding closure notification. However, foreign power plants must submit a comparable closure notification to their responsible transmission system operator (TSO) or regulatory authority.

Selection of network reserve providers

Network reserve providers are selected in a two-step procedure. For this purpose, the CAM will define technical eligibility criteria in consultation with the regulatory authority and publish a request for proposals. Power plants are eligible only if their emissions do not exceed 550 grams of CO2 per kilowatt hour electricity and do not generate radioactive waste. In addition, compensation for the provision of network reserve may not be paid to companies in difficulty.

In the request for proposals the CAM must specify:

  • the maximum network reserve demand in MW for the first year of the system analysis period;
  • the period for which a network reserve demand has been identified; and
  • the products to be procured.

Eligible products are two-year, one-year and seasonal network reserve contracts. Seasonal network reserve contracts are concluded for the period of a winter or summer season.

If a bidder meets the eligibility criteria, it will be invited to submit a bid in the second stage of the procedure. The bids are reviewed based on a reference value, whereby the most expensive 10 % of the offered capacity is not included in the calculation of the reference value. The objective is to exclude excessively expensive bids which may otherwise have to be awarded a network reserve contract. If the network reserve demand cannot be covered by the bids that do not significantly exceed the reference value, the CAM will invite all bidders to submit new bids, which must be cheaper than the previous ones. It is not clear why bidders below the significance threshold must also submit a new bid. According to the wording of the law, it would be possible to submit a bid which is only marginally cheaper. However, there is a risk that previously more expensive bidders will then be awarded the contract.

The CAM must choose those bids which allow the network reserve demand to be covered for the first year of the system analysis period at the lowest cost. The lowest cost as a criterion for awarding the contract is related to the total cost of the procurement for the first year, so that the overall efficiency of a plant to resolve a particular congestion (also in terms of location and effectiveness) may also be relevant. The regulatory authority must review the selection and approve it by issuing an official decision. An appeal against the decision does not have a suspensive effect.

Once approval has been granted, the CAM must conclude contracts with the selected network reserve providers (for no longer than the duration of the notified closure period). There is no statutory right to the conclusion of a contract. Two-year network reserve contracts may be concluded only if a continuous demand for network reserve has been established for the entire contract period. Seasonal network reserve contracts may be concluded only for the duration of a single winter or summer season. Operators of power plants with a bottleneck capacity of more than 20MW which wish to submit an offer for a two-year network reserve contract must also submit an offer for a one-year network reserve contract. This is intended to avoid over-procurement. By concluding a network reserve contract, the operators of contracted generation plants must make their plants available exclusively for congestion management. Market participation is not permitted for the duration of the network reserve contract.

If the demand determined for the first year of the calculation period cannot be covered by the eligible bids submitted, or if fewer than three bids were submitted by different companies, the regulatory authority will request the operators of suitable generation plants which have not yet been contracted to disclose their expenses and costs. The CAM will then cover the outstanding demand by contracting at the lowest cost. According to the wording of the law, it is not clear whether plant operators that participated in the tender, plant operators that did not participate in the tender or all plant operators that have notified a closure are requested to disclose their expenses and costs.

Prohibition of closure

If the network reserve demand determined for the first year of the system analysis still cannot be met, the regulatory authority may, upon a substantiated proposal by the CAM, require power plant operators that notified their closure to keep their plants in operation exclusively for congestion management purposes for one year, but no longer than the duration of the notified closure period (prohibition of closure). Market participation is not permitted during this period. Power plants will be selected based on their economic and technical suitability for network reserve. An appeal against a prohibition of closure imposed by the regulatory authority will not have suspensory effect. Operators will be compensated annually for the economic drawbacks and costs associated with the provision of the network reserve. The Electricity Industry and Organisation Act regulates in detail which cost components are to be compensated.

Market return

Operators of generation plants have a one-time opportunity to withdraw from the network reserve system and re-enter the market. This applies to:

  • the shortening of network reserve contracts;
  • the shortening of the prohibition of closure; and
  • the withdrawal of a binding closure notification.

Plant operators must ensure that the respective plant is available for congestion management, under the same availability conditions, until the expiry of the originally envisaged duration of the contract or duration of the prohibition of closure.

The regulatory authority may only approve the recommissioning of a closed plant if the reasons and circumstances which were originally decisive for the closure have changed significantly.

Comment

The aim of the network reserve is to achieve network stability and security of supply in an efficient and cost-effective manner. Procurement is carried out within the framework of a transparent, non-discriminatory and market-oriented tendering procedure. For the first time, the provision of consumption capacity is also part of Austrian congestion management. Overall, the network reserve system constitutes a good way to resolve bottlenecks in the transmission network, but there are some points in the Austrian legislation which need clarification.

First published on ILO, 18.01.2021

authors: Bernd Rajal and Arian Farahmand