1. Review of Bulk Energy Storage in SEM Gaelectric Energy Storage T&SC Modification Working Group 6 th September 2012 Mullany Engineering Consultancy Energy, from Utility to User

2. Working Group TOR Define “Technical characteristics & capabilities of a CAES unit, and of other units having similar characteristics ” Proposer: “impacts of registering in the SEM and the Market Rules as currently drafted” – Whether one or more existing registration options could be amended to allow registration of a CAES unit (perhaps by changing definitions in the TSC). Examine the current Special Unit clauses to see if they can accommodate such units Identify potential changes to the TSC What are the likely high level impacts (time, cost and resources to implement option)? How the identified option(s) further(s) the objective of the Demand Side Vision and other SEM Deliver a recommendation to SEM Committee with a drafted modification Mullany Engineering Consultancy

3. Evaluation Criteria Impacts (TOR) Assess the options in terms of the following questions: – The Working Group should consider how the following items, and others that may be discussed, can be addressed with respect to the option by which registration of CAES Units and other energy Storage Units in the TSC will occur. Offering & Scheduling – Commercial Offer data – Technical Offer Data – Other data provision & sharing Energy Settlement Calculation of Eligible Availability Calculation of Capacity Payments – When in generation mode – When in pumping mode Calculation of Constraint Payments and Charges Calculation of Uninstructed Imbalance Payments and Charges Credit & Settlement Inclusion in the MSP software and uplift Treatment of Energy Storage Units when under test – Committee policy objectives? Mullany Engineering Consultancy

4. Policy Objectives We also need to agree as a group what a unit registration in SEM should facilitate for that unit While each proposal must understand how it impacts the list of the TOR evaluation criteria, e.g. Energy Settlement, these more flow from wider SEM policy The policy must be the first high-level port of call when evaluating options, not the detail – Although the detail is important and ultimately required Mullany Engineering Consultancy

5. Our Objectives for this Meeting Long-term: a method for registering storage technologies in the SEM that allows them to recover their short-run costs and compete equitably within the market schedule Today: – A restatement of SEM Policy, becoming the first set of agreed evaluation criteria for our discussions – Evaluation of existing SEM options against those criteria – Agreement that existing options are not sufficient – Listing/workshop alternative structures, agreeing next steps Mullany Engineering Consultancy

6. CAES Overview Mullany Engineering Consultancy Compression Train Generation Train Well Head Storage Cavern Depth p max p min ΔpΔp 81MW load ~53 MW minimum 134MW generation 27MW minimum At stated figures: 8 hours running 10 hours to fill

7. CAES and Other Storage CAES running costs comprise: – The electrical energy consumed to compress air – Avoidable import UoS when consuming power * – The gas consumed in the running of the generator * – Avoidable O&M * We believe what is missing from the T&SC is the ability to ensure those costs marked * are recoverable We believe recovery of such short run energy costs is important for all storage technologies A project needs to evaluate these SEM revenues alongside other DS3 revenues Mullany Engineering Consultancy

8. SEM Policy Evaluation Criteria Mullany Engineering Consultancy Apart from the market structures allowing the recovery of appropriate costs, insofar as possible we should have… – Market schedule should reflect generator characteristics to lower constraint costs for consumers – System operator should have correct data to minimise cost of production in SO dispatch – Commercial offer structures should allow transparent compliance demonstrable to RAs under BCOP – Market revenues earned by generators are independent of SO dispatch, based on the context of the COD and TOD

9. Insofar as possible… Mullany Engineering Consultancy Market does not always succeed in getting COD and TOD to match generator capabilities – Increasing price quantity pairs for CCGT – Generator mode and fuel switching These are limitations caused by the technical / time feasibility of solving the MSP software, and therefore not “unduly discriminatory” This does not mean, however, that a “principle of acceptance” has been established that generators should be OK with managing unreflective cost structures

10. Option 1: “The Split Unit” – Demand Side Unit plus Energy Limited Generator Unit – Potentially “negative generator” instead of DSU Option 2: Pumped Storage – With adjusted efficiency to capture running costs Our Assumptions – Generators, “negative generators” and pumped storage demand subject to full central dispatch – Demand Side Units subject to demand reduction dispatch from a nominated schedule Mullany Engineering Consultancy Existing Options and Underlying Assumptions

11. Mullany Engineering Consultancy Option 1: The Split Unit Demand Side UnitEnergy Limited Generator Unit Submits Running Schedule to Market, COD, TOD Dispatched down by System Operator Submits COD and TOD to Market Dispatched by System Operator Actual Availability, Dispatch, Metered Generation Ex Post MSQ Calculated, Constraint Payments Actual Availability, Dispatch, Metered Generation Ex Post Energy Limit MSQ Calculated, Constraint Payments Dispatch of the demand side impacts the energy limit of the Generator Unit

12. Commercial Offer Data – Both generation and demand have to forecast SMP in making their offer – DSU must forecast a) low demand price and b) when it occurs in nomination – Generation offer made up of cost of demand and overall running costs – Storage has to forecast market prices making BCOP difficult to comply with Energy Limit – Energy limited plant is required to correct energy limits in TOD to minimise cost of constraints – Storage is reliant on SO DSU dispatch to determine stored energy – Generator MSQ revenues are dependent on stored energy – Revenues are not independent of SO dispatch Mullany Engineering Consultancy Option 1: The Split Unit Challenges

13. Restrictive offering of service – Unit owner submitting demand profiles – Demand dispatch down only… – Offer structure limits capability of machine to reduce cost of production A Demand Side Unit service is an overly restrictive operation of a storage device, and is not supported by Gaelectric. (This also includes making the demand not centrally dispatchable via retail registration in a standard Supplier Unit) Mullany Engineering Consultancy Option 1: The Split Unit Challenges

14. Power purchased like any other demand customer This assumes that storage would have the right to manage its own demand schedule When storing, demand has direct impact on generator availability – implication is generator would be self- decommitting Alternatively, demand is fully dispatchable and outside of market Penal relative to existing precedent of pumped storage rules; charged demand price Mullany Engineering Consultancy Option 1: Further Commentary on DSU / Standard Supplier Unit

15. Will improve offered flexibility to system operator – But may need to have some form of maximum stored energy limit to prevent non-technical air compression… Issues with BCOP compliance remain – Any structure that relies on storage submitting a definite price will not be transparent Dependence of revenue on SO dispatch likely to become more difficult – SOs may determine based on COD not to store any energy… Mullany Engineering Consultancy Option 1: Split Unit with Negative Generator…

16. Standard pumped storage unit with efficiency increased to capture running costs What does this mean? See some example on next slide… Note that efficiency increase needs to assume a relationship between forecast SMP and the running costs – Again, this may pose issues with BCOP – But let’s continue to examine this option to see how it evaluates against the other criteria Constraint costs Cost of production Revenue dispatch independent Generator recovering revenues Mullany Engineering Consultancy Option 2: Pumped Storage

17. Mullany Engineering Consultancy Option 2: Standard Efficiency (Standard Storage Technology) MSQ Time (one Trading Day) SMP = €20/MWhSMP = €60/MWh Gen Pump 1MWh 0.7 MWh Efficiency = 0.7MWh. 1MWh storage. Running costs to be recovered = €30 Revenue = -€20 + €42 = €22; Have not recovered the running costs

18. Mullany Engineering Consultancy Option 2: Adjusted Efficiency (Standard Storage Technology) MSQ Time (one Trading Day) SMP = €20/MWhSMP = €60/MWh Gen Pump 1MWh 1.2 MWh Efficiency at 1.2. We assume that plant due to energy limit is not impacting prices Revenue = -€20 + €72 = €52; (IR in previous example plus running costs)

19. Mullany Engineering Consultancy Option 2: Standard Efficiency (CAES) MSQ Time (one Trading Day) SMP = €30/MWh SMP = €40/MWh Gen Pump 1MWh Efficiency = 1.3MWh (burning gas for CAES adds to energy release beyond that stored). 1MWh storage. Running costs to be recovered = €30. Lower high price for demonstration. Revenue = -€30 + €52 = €22; Have not recovered the running costs with “IR” 1.3 MWh

20. Mullany Engineering Consultancy Option 2: Adjusted Efficiency (CAES) MSQ Time (one Trading Day) SMP = €20/MWhSMP = €40/MWh Gen Pump 1MWh 1.8 MWh Efficiency at 1.8. We assume that plant due to energy limit is not impacting prices Revenue = -€20 + €72 = €52; (IR in previous example plus running costs)

21. Mullany Engineering Consultancy Option 2: Adjusted Efficiency (CAES) MSQ Time (one Trading Day) SMP = €20/MWh Gen Pump 1MWh 1.8 MWh Flat SEM Price Example… Revenue = -€20 + €36 = €16; Market will schedule plant with flat SMP

22. Constraint costs: We are deliberately enshrining technical inaccuracies into MSQ to manage commercial cost recovery – MSQ becomes deliberately infeasible to follow in physical dispatch – we enshrine increased constraint costs to the consumer into the code – And unfair MSQ pressure on other generators! Cost of production: System operators are provided with inaccurate data to dispatch the system; – SO requirement to minimise production costs undermined SMP revenue is dispatch independent: good! – But see constraint revenues below… Constraint payments: They are not paid to generator – The lack of constraint payments to pumped storage means that generator is not guaranteed to recover costs Mullany Engineering Consultancy Option 2: Pumped Storage Review

23. Split Unit: – Struggles with BCOP compliance – Revenue not dispatch independent – Generator not guaranteed to recover its costs (worse with negative generator) – Restrictive offer reduces value in reduction of production costs (for DSU) Pumped Storage – BCOP compliance again difficult – Market revenue dispatch independent: good – Generator not guaranteed to recover its costs under constraint scenarios – Enshrining increased constraint costs on consumers – Makes minimisation of cost of production difficult with non-technically accurate offers Mullany Engineering Consultancy Review of Existing Options

24. No existing structure is fit for purpose Gaelectric believes that potential viable options are: – “Interconnector Unit” style unit, with similar flexibility to manage COD as IU, e.g. participant is allowed to manage offer to procure “storage” similar to IU procuring BETTA energy – Pumped Storage Unit, with explicit commercial costs considered in MSQ schedule Constraint payments Seek agreement on first statement, and commitment to work towards development of listed and further potential options… Mullany Engineering Consultancy Gaelectric Conclusions