White Paper

23/4/2018: Presentation of the company – Participation of RES producers in forthcoming RAE auctions for new wind and PV stations

Presentation of the company

The commercial management of Renewable Energy Sources (RES) is changing significantly. According to the European Commission’s State Aid Guidelines for the Environment and Energy (2014-2020), RES producers will be reimbursed through market-based mechanisms and will be subject to balancing costs if production forecasts differ from actual production levels. Towards this direction, Law 4414/2016 establishes the transition to the direct participation of RES units (above certain limits of installed capacity [1]) in the wholesale electricity market, in the balancing mechanism and in imbalance settlement carried out by the Independent Power Transmission Operator (IPTO), including an additional premium on the market clearing price (through a “Contract for Differential State-Aid Support” – or “Feed-in Premium Contract”). Thus, RES producers will gain increased incentives to be competitive, while at the same time they will undertake the responsibility of forecasting their production accurately, namely they will be financially responsible for the additional balancing cost of the power system when this is caused by imbalances between their forecasts and their actual production.

The above framework, in combination with the adaptation process of the Greek market to the European electricity Target Model, implies a direct decentralization of procedures which, until now, were under the central control of the IPTO. In other words, the balancing responsibility is transferred from the IPTO to individual RES producers. RES Aggregators, through which many RES producers participate in the market and in the balancing mechanism within larger portfolios, will play an important role in this context. The contribution of RES Aggregators will be important in limiting the deviations between forecasts and real power output, due to the phenomenon of spatial dispersion that mitigates significantly the uncertainty and variability of RES plants’ production.

Optimus Energy S.A. was recently founded and aspires to be a leader in the activity of aggregated representation of RES plants in the wholesale electricity market in Greece, and abroad in the coming years. Optimus Energy was founded by a group of scientists and energy market executives, with specialized knowledge and years of experience in energy management of thermal and RES plants in electricity markets, in the fields of operational research – optimization, in applications and information systems, as well as in the design and operation of wholesale electricity markets at international level. By investing in scientific and applied research innovation, the company aims to:

  • optimize RES operation
  • create value-added domestic services and systems
  • a dynamic business development.

The strategic objective of the company is to take advantage of its leading position in the Greek market, as well as its high domestic research potential, so as to gradually expand its services to a regional level in Southeastern Europe.

More specifically, Optimus Energy has invested in machine learning and optimal portfolio management software, developed in-house by its scientific staff, in order to achieve:

  • minimization of the balancing cost of RES and CHP plants through the accurate forecast of their production
  • effective day-to-day management strategies on individual markets under the Target Model with the objective of maximizing portfolio revenues.

The services that Optimus Energy is rapidly developing are also crucial to meeting climate targets for further integrating RES into the domestic fuel mix, since they smooth out the stochastic character of RES technologies.

The above-mentioned tools guarantee the formation of Optimus Energy’s charges for its representation services  at the lowest possible level, as well as  the creation of additional profits for RES producers through the provision of balancing services to the TSO.

Optimus Energy has agreed with “TERNA Energy” for the exclusive representation of the latter’s wind parks with a Contract for Differential State-Aid Support. Respective agreements are also expected in the near future with other RES producers in Greece that hold RES plants under the same support scheme.

Participation of RES producers in the forthcoming RAE auctions for new wind and PV stations

In the context of the forthcoming competitive auction procedures for the development of new RES units in Greece, the way by which potential RES producers will handle the balancing cost is particularly important [1]. The balancing cost may prove to be high if a RES producer manages endogenously a portfolio of, e.g., 1-3 wind parks, as at least the following are required:

  1. specialized knowledge of the operation of the wholesale electricity market,
  2. perfect knowledge of the operating conditions and technical capabilities of conventional power plants
  3. investment in machine learning software, in simulation tools, as well as in state-of-the-art information systems to manage the portfolio on a daily and real-time basis,
  4. investment in human resources of excellent scientific background, that will work in shifts (5 people per work place) in order to manage the portfolio of RES plants during the 24 hours, especially for participation in the Intraday Market and in the Real-Time Balancing Energy Market.

This is an important investment, and if undertaken by many RES Aggregators in Greece, the fixed service cost of each (small) portfolio per MWh produced will be high. The investment is estimated at hundreds of thousands of € annually, which in any case is considered to be prohibitive if not carried out under aggregated representation (increased economy of scale). Moreover, apart from the cost of the investment itself, it is estimated that each RES producer (with 1-3 wind parks) will have a high balancing cost [2], well above the maximum unit cost (in € / MWh) guaranteed by Optimus Energy.

The established practice in Europe regarding the management of balancing costs for investments in new RES projects is the following:

  • The RES producer contacts a RES Aggregator. The latter guarantees the maximum level of unit cost (€ / MWh) that will be imposed on the former, for the representation of its stations in the wholesale electricity market and for the related balancing cost.
  • With the above-mentioned guarantee in effect, the RES producer develops a business plan with given revenue flows, formed by its bid price, but also by the balancing cost (footnote 1).
  • Funding from a bank and / or other financial institutions is then requested to bid in the auction for that particular station.
  • The producer and the bank agree on the business plan, and the bank gives the green light for the potential financing of the construction of the station in the event of a successful auction outcome.
  • Following the auction, the RES producer signs a service contract with the RES Aggregator, which is a prerequisite for the subsequent bank’s financing.
  • Thereafter, the RES producer constructs the project and commences its commercial operation, with its representation in the markets being carried out continuously by the RES Aggregator.

The above process protects both the producer and the bank from the risk of reduced revenues due to increased balancing costs, and ensures adequate cash flow for the successful implementation of the business plan.

Optimus Energy, having already successfully completed the necessary infrastructure, machine learning and market simulation tools and IT systems for representing all RES technologies, is able to guarantee a maximum balancing cost to the potential producers wishing to participate in the forthcoming auctions for new RES projects. Optimus Energy will be active in the necessary financing processes for new RES projects, to the benefit of producers and financing houses.

For more information, please contact info@optimusenergy.gr or call 2310-804800.

[1] According to Law 4414/2016, the new RES stations that will succeed in the auctions and will then be constructed have an obligation to participate in the wholesale electricity market and to be balanced, if they are wind power plants with an installed capacity above 3 MW or PV stations with an installed capacity of more than 500 kW.

[2] The balancing cost consists of two separate components:

  1. the cost of imbalance settlement
  2. the cost of Non-Compliance Charges due to significant imbalances between the energy sold in the markets and the actually generated energy.

This statement is based on the assumption that the RES producer will have at its disposal specialized, cutting-edge scientific tools for artificial intelligence and machine learning, in order to perform the best possible forecasts for the production of its parks. If the RES producer does not acquire such tools, then the balancing cost can be even higher.

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