6 Active participation in the development of the electricity market

Those measures were necessary to establish appropriate competition mechanisms in the energy market and ensure its correct pricing. However, it was not the only objective for which market mechanisms were launched. Apart from a correct pricing mechanism, it became necessary to simultaneously guarantee the security of electricity supply while ensuring its high quality.

The basic assumption behind the implementation of the electricity market is that electricity as a product has to be separated from other commodities for which it is a carrier. This makes it possible to separate the pricing of electricity as a product from other services (involving, among other things, ensuring the secure operation of the power system) and to introduce competitive trading rules in the segment. Under conditions of market economy, electricity gradually ceases to be treated as an essential "good", which a public utility enterprise is obliged to supply, and it becomes an ordinary traded "commodity".

In addition to a correct new definition of electricity as a commodity, for a competitive energy market to exist there must also be its relevant participants. They are categorised according to the significant roles they play in the national power market, i.e. generators (power plants, CHP plans, RES), traders (companies trading in energy), transmission companies (transmission system operators, TSOs) – in Poland, Polskie Sieci Elektroenergetyczne) and electricity distributors (distribution system operators, DSOs), and final consumers (households and all non-household customers who buy electricity for business purposes).

In the energy market introduced in Poland, competition takes place not only between its actors but also between its different segments – and in different timeframes. Starting competition in the contract market many months or even years ahead of the trading day, continuous flow of information on the technical and commercial/technical (contracting status) balancing of the system, as well as interactive impact of markets and entities, support the ongoing optimisation of the market position of each entity, Rationalisation of their commercial risk is conducive to active participation in competition. Such a model best supports market optimisation of the way consumer demand for electricity is covered. Importantly, a practical opportunity to implement a liberalised and decentralised energy market has emerged relatively recently, owing to a significant progress in the development of technology, in particular ICT.

It is important to separate the FBMC functions of capacity calculation and allocation between system operators - with regard to transmission capacity calculation, and energy exchanges – with regard to transmission capacity allocation.

We have shared our position on the organisation of the electricity market many times in the course of the work. We have spoken in various forums on the possible directions of further detailed solutions.

Representation of network resources in market processes

The European electricity market concept is based on a zonal model. It provides that the European power network is divided into zones grouping together dedicated system areas (bidding zones). The assumption is that there are no transmission constraints within those zones (the zone is a “copper plate”) – and consequently the same electricity price applies. Hence, transactions within a zone can be concluded freely with no need to allocate transmission capacity for their execution. However, capacity allocation applies to connections between zones whose capacity is insufficient to meet the needs of market participants.

Currently, the bidding zone structure of the European market is based on a division corresponding to national borders, with the following deviations from this rule:

• German and Austria form a single zone,
• Sweden is divided into 4 zones,
• Norway is divided into 5 zones.

Bidding zone structure of the European electricity market

The price exchange clearing price for a given hour is taken to be a price at which a balance is achieved between demand and supply, i.e. the point where the demand and supply curves intersect.

It can be noticed that participants of the competitive electricity market increasingly often opt for transactions in the day-ahead market, choosing current transactions instead of long-term contracts. The reason for a growing interest in the DAM is the fact that the market responds dynamically to the customer's needs. In addition, transaction made in that market yield higher financial benefits than transactions made in forward markets. Another advantage of the DAM is the opportunity to purchase electrical energy through different trading platforms, i.e. telephone trade, the Polish Power Exchange, the balancing market, POEE web platform, and the electronic electricity trading system Kantor Energii.

In the context of the planned integration of the national electricity markets, the main implementation measures are centred around the implementation of the common market encompassing the day-ahead and intraday markets. Therefore, we actively participate in all processes related to the implementation of Flow-Based Market Coupling on all cross-border interconnections from Poland, with a special focus on synchronous connections.

The central segment of the European electricity market model is to be the day-ahead market based on the Market Coupling (MC) process, with trading gate closure time at 12:00 hours. It is a mechanism within which exchange prices for each bidding zone can be calculated in a coordinated manner, in a common process, with a single computational point. Capacity allocation is to be based on the price difference between bidding zones. Thus it is an implicit auction type, i.e. one that combines transmission rights trading with electricity trading. Market participants do not reserve transmission capacity for the purposes of their cross-border transactions, and they only make purchase or sale transactions in the market to which they are geographically assigned (to put it simply). Capacity allocation through the MC mechanism takes place automatically, in the course of energy trading in a manner that maximises the total market surplus.

Market Coupling initiatives in Europe

Price Coupling of Regions initiative 

Price Coupling of Regions (PCR) is the initiative of seven European Power Exchanges (APX, Belpex, EPEX SPOT, GME, Nord Pool Spot, OMIE and OTE) to develop a single price coupling solution to be used to calculate electricity prices across Europe and allocate cross-border capacity on a day-ahead basis. The integrated European electricity market is expected to increase liquidity, efficiency and social welfare.

Initially, the initiative of Energy Exchanges involved the day-ahead electricity markets in Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, as well as Italy, Latvia and Lithuania.

The project started in 2009 and the PCR parties signed the cooperation agreement in June 2012. The initiative is open to other European Power Exchanges wishing to join. In 2016, PCR was joined by the Polish Power Exchange TGE.

We have initiated measures aimed to implement the first local XBID solution in the Polish bidding zone. It includes the interconnection between Poland and Sweden and Lithuania. At a later stage, steps will be taken to connect synchronous borders (within the CORE CCR).

Interconnections

Nowadays, when the EU policy exerts a strong influence on the shape of the power sector, cross-border interconnections play a significant role in the formation of a national power system. At the end of 2015, a new Poland-Lithuania cross-border DC interconnection was commissioned, increasing Poland's import and export capacity by 500 MW. The Poland-Lithuania power link is a strategic project designed to close the Baltic Ring.

In addition, as a result of arrangements with Swedish operator SvK, a so-called virtual market zone has been operating since July 2017, which allows total constraints on the SwePol and LitPol links to be defined. This will ensure a better market-based use of both interconnections (e.g. for the purposes of electricity transit from Sweden to Lithuania via the Polish system in case it is not possible consume it in the Polish Power System).

Regional cooperation under the TSO Security Cooperation (TSC) initiative

We actively cooperate with other European operators under the TSO Security Cooperation (TSC) initiative. The members of TSC are 13 operators, and on 1 September 2014 the dedicated company TSCNET was established which support operators by performing tasks involved in day-ahead and intra-day operational planning, mid-term coordination of integration of network elements, and coordination of remedial actions between operators. These tasks fall within the remit of the Regional Security Coordination Initiatives (RSCIs), i.e. regional coordination and supervision centres.

The TSC initiative includes measures aimed to optimise the use of remedial actions during operational planning at the regional level, introduce a system of early warning against critical situations in the system and implement five required services provided by TSCNET (as RSC) to operators in the TSC region.

PSE's representatives also work in the TSC working groups.

Engagement in XBID

We are engaged in work on the Accession Stream – a group aimed to align the knowledge level with the XBID mainstream (countries of North-Western Europe and Italy, Spain, Portugal, Austria) and eventually to implement XBID solutions in non-mainstream countries. We also take measures in areas which are not mandatory for members of the Accession Stream, in which solutions are developed that influence the conditions of future operation of the European intraday market (e.g. participating in the preparation of the Intra-Day Operation Agreement).

Engagement in MNA

We have prepared and presented for approval by the ERO President the rules governing the coexistence of multiple NEMOs (Nominated Electricity Market Operators) in the Polish bidding zone (MNA – Multi NEMO Arrangements). The rules in question were approved by the President of ERO on 5 June 2017. In July 2017, we started working towards MNA implementation, which requires changes both in the national balancing market and in the organisation of the market coupling process on the LitPol and SwePol links.

We cooperate in the processes of developing or giving opinions on European regulations and related documents on the operation security and stability of the power system, carried on within ENTSO-E, the TSC initiative and individual CCRs.

Presented below are the key issues of our cooperation.

• improvement of the quality of the cross-border capacity calculation and allocation process,
• improvement of the system operation planning process (Day-Ahead Congestion Forecast and Intra-Day Congestion Forecast),
• introduction of fair rules for the allocation of inter-TSO remedial actions, assigning the obligation to cover such costs to the parties responsible for their generation (polluter pays principle),
• implementation of the European electricity market solutions consistent with the requirements of the European network codes, in particular with regard to implemented guidelines on capacity allocation and congestion management (CACM) and system operation guidelines (SOGL) pending implementation, as well as a network code network code on electricity emergency and restoration (NCER),
• improvement of cohesion between the market model and physical laws, by starting flow-based allocation for the intra-day and day-ahead markets, and for the cross-border balancing market.

We actively participate in the process of preparing ENTSO-E's comments on documents published by the European Commission as part of the Winter Package – in particular, with regard to the regional operating centres (ROCs), calculation of cross-border exchange capacity, issues concerning elements of the new market model and capacity mechanisms.

The ICT strategy highlights the unavoidable and mutual dependence of cyber security of our company, its market partners at home and abroad, and entities of the Capital Group, and it describes the overall impact of cyber security on the operational stability of the PPS.

In collaboration with our shareholders (the a/m entities), we carry on activities aimed to ensure an appropriate level of ICT security and strategic harmonisation of the efforts made. We also closely cooperate with entities responsible for cyber security of the country and the power sector.

To enhance the cooperation, build awareness of threats to cyber security and approach to counteracting such threats, we actively participate in numerous conferences, seminars, as well as national and international industry cooperation forums.

Representatives of the ICT Department are also engaged internationally in projects aimed to ensure energy security in Europe. One of such areas is the activity in the European Network of Transmission System Operators for Electricity (ENTSO-E).

GRI 103 To ensure security of PSE critical infrastructure, we cooperate on an ongoing basis with public administration entities at the local, regional and central levels. In 2016, representatives of our company actively participated in regional and national forums on critical infrastructure (CI) protection, a major area of cooperation between public administration and critical infrastructure operators.

In the year under review, we prepare protection plans for CI sites owned by PSE S.A. In 2017, the plans were coordinated with parties including provincial Police commanders of competent territorial jurisdiction, provincial commanders of the State Fire Service, and provincial building inspectors and province governors, and then with the Minister of Energy. The last stage of work on the plans will be their submission for approval to the Director of the Government Security Centre.

PSE has closely cooperated with the government administration, in particular the Government Security Centre, the ABW Anti-Terrorist Centre, the Police, and provincial authorities during the organisation and protection of the NATO Summit in Warsaw (7-10 July 2016) and the World Youth Day in Krakow (25 July-1 August 2016).

Our company, together with the Metropolitan Police Headquarters and the Security and Crisis Management Department of the Mazowieckie Province Authority, also took part in the crisis management exercise DELTA 2016. The purpose of the exercise was to check the preparedness of public administration entities and selected CI operators to the introduction of alarm level 4 DELTA.

In December 2016, we established the PSE Computer Emergency Response Team (CERT) at our company. The Team is a part of Security Department.

CERT performs the following tasks:

• conduct analyses and resolve incidents in the 1st and 2nd lines of support,
• coordinate incident management,
• improve employee awareness, publish threat alerts and warnings,
• issue ICT security bulletins,
• report incident information,
• perform forensic (legal) analyses,
• perform analyses of security threats and problems (including malware analysis),
• cooperate with third parties in coordination of incident management,
• exchange threat information with third parties (e.g. CERT NASK, CERT.GOV.PL, RCB),
• provide security advisory services,
• create and develop security standards.

Following the establishment of the CERT, we took measures aimed to join the Trusted Introducer initiative supporting response to security incidents in Europe and neighbouring countries. The initiative was established in 2000 by TF-CSIRT – the largest European organisation promoting cooperation with CERT. On 22 June 2017, PSE CERT as the fourth Polish response team became a member of Trusted Introducer. Joining this prestigious group paved the way to broader cooperation with other European teams, and consequently to more efficient, faster and more effective response to incidents of ICT security incidents at PSE. What is more, our company has submitted the declaration of lead entity managing the Sectoral CERT for the electricity area.

The planned functions are listed below:

• coordinating incident management within the sector,
• conducting analyses of ICT security threats and complex incidents,
• keeping a register of incidents in the power sector,
• publishing threat alerts and warnings,
• threat information exchange between sector entities,
• improving the awareness of the sector's employees.