Dear FASS Teams,

Bord Gáis Energy (“BGE”) welcomes the opportunity to respond to the Consultation on the Day-Ahead System Services Arrangements (“DASSA”) Top-Up Mechanism (“the RAD Proposal”). We agree with the Regulatory Authorities’ (“RAs”) response to the proposed Final Assignment Mechanism that a top-up mechanism should: allow for updates of bid up to gate closure, discourage withholding volumes from the initial DASSA auction, and base ex post volume requirements on real-time needs rather than ex-ante forecasts. BGE is concerned that the TSO’s approach to this ask appears to be driven primarily by concerns over gaming and market manipulation, which we believe have not been properly justified.

Under the SEMC’s decision on the DASSA Volume Forecasting Methodology, reserve volumes are procured on a worst-case scenario basis. This means that, in practice, system services will consistently be over-procured relative to real-time needs. Even accounting for some lapsing of DASSA orders, it is still the most likely case that cleared DASSA volumes will exceed real-time requirements most of the time. In addition, the Secondary Trading mechanism will provide a further signal to deliver real-time requirements and as a result, RAD volume requirements will often be minimal or even zero. BGE does believe a not commercial incentive exists for providers of reserve to withhold their volume from DASSA in expectation of higher prices in secondary trading or at the RAD. In the event of one market participant attempting to withhold volume from DASSA, competing providers would simply fill that volume requirement at the DASSA stage. Furthermore, the expectation (based on the market design) that there will not be a substantial requirement for residual volume procurement in the RAD, nor advantageous high prices.

BGE is also fundamentally concerned about the market power mitigation measures proposed in the consultation, specifically the proposed timing of RAD Gate Closure and Price Cap. We believe these measures are disproportionate, unjustified, and will result in highly distortive price signals for system services if progressed, ultimately undermining the core objectives of the FASS framework[1]. The introduction of any market power mitigation measure must be based on a clear and proportionate assessment of actual risk and only progressed where a material risk of market power has been clearly demonstrated. This principle underpins our position throughout this response and informs our recommendation to remove both the price cap and move RAD Gate Closure closer to real-time.

The role of RAD should be limited to acting as a safety net to primarily cover lapsed DASSA orders and non-delivery. We ask that the TSO shift its focus from preventing market power in the RAD to incentivising intermittent renewables and non-fossil flexibility to participate in the system services market, and recommend that the TSOs review the RAD proposal to:

Remove the proposed RAD Price Cap to allow for real time value of reserve to be reflected. As outlined above we expect the volumes in RAD to be typically low and prices to on average be much lower than DASSA and System Service secondary trading. However, in rare edge cases where there is a shortage the market design should be able to reflect the real time value to participants to provide the strongest possible incentive for capability / service provision to meet the underlying system needs.

Move the RAD Gate Closure closer to real time to allow units to better reflect availability and real time conditions. This will incentivise greater participation from intermittent renewables, BESS and conventional generators who have adjusted their Energy and System Service positions vs at the time of DASSA gate closure.

This would better align the RAD with its intended purpose as a back-up mechanism to procure any residual system service volume requirement, whilst also enabling efficient market functioning without introducing unnecessary regulatory burdens.

As set out in SEM-21-021 System Services Future Arrangements - Decision Paper 1, the overarching objective of the programme is “to deliver a competitive framework for the procurement of system services, that ensures secure operation of the electricity system with higher levels of non-synchronous generation.” The associated assessment criteria provided by the SEMC include delivering consumer value through competitive outcomes while appropriately considering levels of market power.

1. The impact of the SEMC Decision on DASSA Volumes Methodology on this consultation

The TSOs and RAs should reconsider the operational role of the top-up mechanism in light of its interaction with the recent SEMC Decision on the DASSA Volume Forecasting Methodology, which was published since the beginning of this consultation. The Decision approves a conservative volume forecasting methodology for DASSA, based on a theoretical maximum LSI/LSO benchmark (500MW at present increasing to 700MW in 2027), along with an additional provision for Consequential Losses (CL). This approach will result in the consistent over-procurement of system service volumes by the TSO for at least the first operational year of DASSA, meaning the requirement for top up volumes in RAD will likely often be zero, and any residual volume requirement is likely to be low. This significantly reduces the operational risk of the RAD compared to when the TSOs and RAs carried out the Joint-Assessment.

The ‘over procurement’ approach taken mitigates the need for the regulatory intervention proposed in the consultation and means a lighter-touch approach to monitoring and oversight can be taken. This ensuing lower level of risk also paves the way to move gate closure closer to real time and remove the RAD price cap, as the impact on the overall market is limited, as discussed below.

FASS - DASSA Top-Up Mechanism - Submissions

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