DS3 System Services competitive auction delay announced by SEM Committee. 30 May 2016
On 23rd May 2016 the SEM Committee announced that the DS3 System Service competitive auction process planned to take effect from October 2017 will be delayed by one year. The first auction will now take place in the first half of 2018, with the revised date of delivery of the services, October 2018.
The initial auction design was proposed by the SEM Committee in December 2015 and was met with negative reaction from industry participants, particularly due to the complexity of the auction, the commitment model and investor uncertainty. Subsequently the Regulatory Authorities held a workshop in April where industry participants provided feedback on the proposed design and provided alternative approaches to the auction process with perspectives on the design given from conventional generators, demand side units, the wind industry as well as new entrants and new technology.
This decision comes at the same time as the deadline for the DS3 Interim Arrangements tender which passed on the 25th of May. The interim arrangements are now expected to run for two years although it is unclear whether another tender process will take place for the second year of interim tariffs. Even though the DS3 programme is not specifically part of the I-SEM, it is a setback to the overall transition into the new electricity market. The delay comes as a big blow to new entrants in particular for whom DS3 System Services is a key revenue stream and leads to further misalignment with the first Capacity Auction.
DS3 Competitive Auction
Auction design is a critical workstream in the DS3 System Services development. The auction design is a single, uniform, pay-as-cleared price, sealed bid auction for System Service products. Complexity comes from the fact that it is an auction for a contract to supply a package of System Services, rather than each service. Bids will come in the form of packages of products from each provider therefore a simple merit order is not applicable. One of the key frameworks of the auction design that adds intricacy is that a provider will be paid depending on their availability to supply a System Service. Availability is defined as payment for the volume of the service that has been made available by a System Service contract holder in that trading period regardless of the TSOs real-time requirement for that service. The new auction design must be carefully constructed to facilitate new investment while also taking advantage of the benefits from increased competition.
The SEM Committee is currently considering the appropriate next steps and scope for the auction design, in light of the arguments put forward by respondents and the emerging complexity in interactions with the I-SEM workstreams. “The SEM Committee will adopt a pragmatic and flexible approach when setting the scope of the first auctions in order to ensure a competitive process is carried out in 2018, with the potential for further development of that process in subsequent years.”1
The next stage of the DS3 Programme is expected to be the Qualification Trials which will be used to establish the mechanisms by which the characteristics of new technologies and new fast products i.e. FFR, FPFAPR, and DRR can become “Proven” and “Measureable”. A separate OJEU tender process will take place, with trials expected to commence from Q1 2017.
The SEM Committee have said that they will liaise with the TSOs to produce and publish a new programme to take account of this decision and to ensure this new programme is aligned with the CRM process and the I-SEM project plan.
If you are interested in discussing the services ElectroRoute can offer to maximise generator revenue through DS3 please contact the Client Services team for further information.