We have provided a response to the consultation questions below. However, we felt it pertinent to also reiterate long-standing concerns with the implementation of the FASS and DASSA as the ultimate outcome is likely to be seen in the k-factors for imperfections and the new FASS charge rate.

We have engaged with the responses produced by EAI and WEI on behalf of industry and other trade associations. We are supportive of the views expressed in both responses, particularly in relation to the proposals on cashflow risk, transparency and the legal basis for the FASS charge. We have proposed an alternative route for the legal basis and governance of the FASS charge.

Our general views regarding the services being procured in the DASSA, are:

There remains insufficient clear detail and direction of travel in the auction design. There is uncertainty and a degree of complexity in areas where we consider there could have been simpler approaches. Conversely, we see simple approaches in areas where we believe most of industry was not expecting simplification, making this design highly uncertain for investors. This is true for the new all-island supplier charge as well, which is seeking one of two routes for implementation of this charge.

Our impression generally is that what has been communicated to industry thus far does not indicate that the overall design was approached in a methodical way considering:

1. The problem being solved, and the market signals being created,
2. The types of players who may want/need/are expected to respond to the auction (new and existing),
3. The best design that will incentivise the desired commercial behaviour/entry for a market-based framework,
4. What proportion of system services volumes will be fulfilled by DASSA operationally, and other mechanisms. This is relevant for the all-island supplier charge which appears to be used to fund all FASS procurement mechanisms.

The TSO has been clear that the outcome of DASSA auctions does not necessarily flow through to dispatch decisions on system services. This means that participants can never be certain that an accepted DASSA offer will in fact lead to dispatch.

This decoupled approach means it is more challenging to anticipate the full cost to customers and there is a risk of cost inefficiency (unless there are stronger and targeted incentives on TSOs regarding dispatch and balancing costs and economic dispatch decision-making). This issue will likely surface in the materiality and level of k-factor adjustments year-on-year, which Suppliers will bear. We would expect that a difference between DASSA outturn and final system service dispatch will also appear in imperfections as dispatch and balancing actions, again impacting customers. We are of the view that there will be a need to ensure that there is better understanding of the full system benefits and effects of system services for end customers.

Finally, participants are expected to take on the full risk where a unit is dispatched away from its DASSA position by the TSO. This is concerning and out of step with the approach in the CRM, where TSO actions are rightly de-risked for participants so long as they can demonstrate intention to deliver, via market participation. This differing treatment of risk raises concerns about consistency between electricity and system services markets, both of which, generators will participate in.

The SEMC has also yet to publish a decision on the interpretation and implementation of EBGL in the SEM, including the treatment of system services (which will now not be DS3). Therefore, any proposed design approaches that are justified as being EBGL-compliant are premature, whilst there is no definitive interpretation of EBGL for the SEM and FASS by the Competent Authority. If there is further change needed in future to comply with EBGL this will likely have a bearing on costs for industry and for customers.

As the procurement of these services is being transferred to a market-based auction, the responsibility to ensure that the market is designed in a competitive, fair, proportionate manner and where market power considerations are monitored and mitigated, becomes the remit of the Regulators. This is specifically critical given that the TSO is a regulated entity and the sole procurer of the services in the FASS.

We appreciate that it is the TSO’s role to ensure system services are procured to support system resilience and security. However, in agreement with industry, we would question the appropriateness of the TSOs governing competition, market design and regulatory matters such as volume insufficiency and market power. In our view this is the remit of the Competent Authority. We would welcome greater engagement on these matters, as well as the matters set out in this paper as the Competent Authority has a role in protecting the interests of current and future customers.

Question 1: Do you have any comments on the proposed approach to establishing the forecast System Services cost?

The proposed approach only mentions that the FASS charge shall be proposed for regulatory approval. It is not made clear that it would be consulted on publicly, in the same way as other tariffs are annually consulted on. We would welcome greater clarity on this, both that the annual inputs and charge should be consulted on, and that the regulator’s need to signal their approval of the final charge, such as is the case for imperfections.

All-Island System Services Supplier Charge Consultation - Submissions

Primary tabs