DEVELOPMENT OF RELIABILITY STANDARDS AND MARKET RULES

688
DEVELOPMENT OF RELIABILITY STANDARDS
AND MARKET RULES
JOINT WORKING GROUP
C2/C5.05
MAY 2017

Members
Ole Gjerde, Convenor NO Ben Li, Secretary CA
Juan Bogas ES Saulo Cisneiros BR
Al DiCaprio US Paulo Gomes BR
Phil Johnson UK Dennis Klaar NL
Mark Miller AU Todd Ramey US
Teresa Smit ZA Hiroaki Sugihara JP
JWG C2/C5.05
Copyright © 2017
“All rights to this Technical Brochure are retained by CIGRE. It is strictly prohibited to reproduce or provide this publication in
any form or by any means to any third party. Only CIGRE Collective Members companies are allowed to store their copy on
their internal intranet or other company network provided access is restricted to their own employees. No part of this
publication may be reproduced or utilized without permission from CIGRE”.
Disclaimer notice
“CIGRE gives no warranty or assurance about the contents of this publication, nor does it accept any responsibility, as to the
accuracy or exhaustiveness of the information. All implied warranties and conditions are excluded to the maximum extent
permitted by law”.
WG XX.XXpany network provided access is restricted to their own employees. No part of this publication may be
reproduced or utilized without permission from CIGRE”.
Disclaimer notice
“CIGRE gives no warranty or assurance about the contents of this publication, nor does it accept any responsibility, as to the
DEVELOPMENT OF RELIABILITY
STANDARDS AND MARKET RULES
ISBN : 978-2-85873-391-0

DEVELOPMENT OF RELIABILITY STANDARDS AND MARKET RULES
3
EXECUTIVE SUMMARY
The CIGRE Joint Working Group JWG C2/C5-05 has conducted a review of the historical and recent
development of reliability standards and market rules which collectively govern the reliable and
efficient operations of liberalised electricity markets. This review is the first stage of an overall effort to
identify the challenges to system operators when they attempt to achieve operations reliability and
market efficiency simultaneously and manage the interactions between them.
The review indicates that the development of reliability standards and market rules is at different stage
among the countries and markets included in the review. Further, the level of compliance monitoring
and enforcement varies from one country/market to another. Irrespective of the maturity and
enforcement mechanism, all countries/markets share a common objective to have in place
comprehensive reliability standards and market rules to ensure system reliability and to achieve
market efficiency.
While reliability standards and market rules development in many countries/markets has matured and
reached a rather stable state, such activities are still ongoing as newly identified risks and increased
market activities emerge, which include:
 Increased activities in physical and cyber invasions and suspicious malicious acts;
 Increased penetration of distributed energy resources (DER);
 Advanced technology resulting in innovative approaches to system operations and controls
These emergences will require new and/or revised reliability standards to fully address their potential
adverse impacts on the reliable operations of the interconnected power grid, and new and/or revised
market rules to enable fair and equal access to the electricity markets.
The JWG further assesses that some of the reliability standards and market rules may be intertwined,
and that compliance with reliability standards may have certain adverse impact on market
mechanisms (efficiency), and vice versa. These mutual impacts can create challenges to system
operators when they attempt to meet the simultaneous objectives of maintaining system reliability
through adherence to established reliability standards and achieving market efficiency through
implementation of established market rules. A detailed review and assessment of such challenges will
be conducted at Stage 2 of this task.
Keywords: Market Operator, System Operator, Power (Electricity) Exchange, Transmission System
Operator (TSO), Independent System Operator (ISO), Reliability Standards, Operations Reliability,
Market rules, Market Efficiency, Liberalisation, Deregulation.

4

5
CONTENTS
EXECUTIVE SUMMARY............................................................................................................................... 3
CONTENTS................................................................................................................................................... 5
1. INTRODUCTION............................................................................................................................... 7
2. SCOPE OF TASK.............................................................................................................................. 9
2.1 STAGE 1 – HISTORICAL DEVELOPMENT AND CURRENT STATUS OF RELIABILTIY STANDARDS AND
MARKET RULES................................................................................................................................................................9
2.2 STAGE 2 - ASSESSMENT OF RELATIONSHIP BETWEEN RELIABILITY STANDARDS AND MARKET RULES.......9
3. HISTORICAL DEVELOPMENT OF RELIABILITY STANDARDS AND MARKET RULES.............11
3.1 EUROPE ......................................................................................................................................................................... 11
3.1.1 General Development and Rules in Europe ................................................................................................... 11
3.1.2 Continental Europe ............................................................................................................................................. 12
3.1.3 Nordic................................................................................................................................................................... 15
3.1.4 United Kingdom ................................................................................................................................................. 16
3.2 NORTH AMERICA......................................................................................................................................................... 18
3.2.1 United States of America .................................................................................................................................. 18
3.2.2 Canada ................................................................................................................................................................ 20
3.3 AUSTRALIA.................................................................................................................................................................... 22
3.4 JAPAN............................................................................................................................................................................ 26
3.5 SOUTH AFRICA ............................................................................................................................................................ 27
3.6 BRAZIL............................................................................................................................................................................ 28
4. CONCLUSIONS AND RECOMMENDATIONS...........................................................................33

6

7
1. INTRODUCTION
At the bulk power level of the electricity industry, the term Reliability is generally understood to be a
minimum level of resource adequacy and transmission grid integrity (security and performance level)
to meet system demand and support electricity trading activities. In liberalised electricity markets,
there is generally a set of market rules that govern the business activities related to electricity
transactions among trading entities and between trading entities and the market operator and/or the
bidding pool.
In most instances, system reliability is maintained through compliance with a set of reliability
standards. Before liberalisation, the electric industry has long developed some basic reliability
standards for use by system planners and operators. Compliance with these standards had been
mostly through peer pressure as opposed to being mandatorily enforced through regulations.
With the advent of liberalisation, system operators find themselves having another set of rules to
observe and apply in managing the power grid – the market rules. System operators begin to find
themselves facing increasing challenges having to meet the simultaneous objectives of adhering to
reliability standards and observing market rules.
In this context, it is important to emphasize that the operational procedures established in the Grid
Codes are mandatory and hence must be respected at any time and situation of the power system
operation. It follows that market rules should be adopted to respect the restrictions and limits of the
interconnected power system.
The CIGRE Joint Working Group JWG C2/C5-05 has launched a 2-stage project to identify the
challenges to system operators when they attempt to balance between adhering to reliability
standards and observing market rules, and manage the interactions between them. Stage 1 involves a
review of the development of reliability standards and market rules in several countries and markets;
Stage 2 involves the in-depth assessment of the interactions between them, and the resulting
challenges to system operators as they attempt to meet the simultaneous objectives of maintaining
system reliability through adherence to established reliability standards and enhancing market
efficiency through implementation of established market rules.
This Technical Brochure summarizes the results of the Stage 1 review.

8

9
2. SCOPE OF TASK
The proposed task is being conducted in 2 stages, with each stage as follows:
2.1 STAGE 1 – HISTORICAL DEVELOPMENT AND CURRENT STATUS OF RELIABILTIY
1. Review and present the governing framework, historical development and current status of
reliability standards and network/grid codes that govern the secure operations of
interconnected grid;
2. Review and present the governing framework, historical development and current status of
market rules and network/grid codes, including those that are common to more than one
developed market which govern the non-discriminatory access to and the efficient trading in
the electricity market.
3. Present/speculate on future trend of development in reliability standards, network/grid codes
and market rules.
For this stage, the task is focused on reviewing and tabulating the existing structure of reliability
standards, network/grid codes and market rules, with emphasis placed on reliability and trading in the
operations timeframe.
2.2 STAGE 2 - ASSESSMENT OF RELATIONSHIP BETWEEN RELIABILITY STANDARDS
AND MARKET RULES
1. Identify the reliability standards which (a) have an impact on market activities, (b) may rely on
market mechanism to meet its needs, and (c) may require the development and
implementation of complementary market rules to ensure reliability.
2. Identify the market rules or mechanisms which (a) have an impact on operating reliability, (b)
may rely on reliability standards to ensure consistent application of specific processes in the
market activities, and (c) may require the development and implementation of complementary
reliability standards to address to ensure consistent approaches to achieve the intended
market efficiency.
3. Identify the major challenges to system operators when faced with competing objectives
among reliability standards, market rules and network codes.
4. Identify the major challenges to system operators during transition from existing individual
rules to common rules – both in reliability and in market mechanism.
5. Explore the practicality aspect of operating in a common market including the capacity market
and the associated challenges to system operators.
For this stage, the tasks will be focused on the key interface areas between reliability standards or
network/grid codes and market rules/mechanisms. Further, if reliability standards and/or market rules
are not developed under any regulatory oversight, how are reliability standards and market rules
developed and applied, and how is consistency in commercial arrangements/activities achieved.

10

11
3. HISTORICAL DEVELOPMENT OF RELIABILITY
3.1 EUROPE
3.1.1 General Development and Rules in Europe
In Europe there is a number of activities ongoing that influences both the reliability rules and
the market solutions in the European electricity industry. Over the last four years it has been
devoted considerable effort to the development of network codes (NC) and guidelines (GL) for
the electricity sector. The starting point for this development was the Regulation (EC) 714/2009
on conditions for access to the network for cross-border exchanges in electricity. The goal for
the development of the network codes have been to help achieve Europe’s three energy policy
goals: ensuring security of supply, creating a competitive internal electricity market (IEM), and
decarbonising the electricity sector.
Network codes and guidelines are sets of rules which apply to one or more parts of the energy
sector. The process of developing the network codes and guidelines consists of a number of
steps as described below:
 European Commission (EC) invites ACER (the Agency for the Cooperation of Energy
Regulators) to develop Framework Guidelines (FG)
 ACER perform public consultation
 Final Framework Guidelines are published
 Formal request from EC to ENTSO-E (European Network of Transmission System
Operators for Electricity) to develop Network Codes
 Public consultation with stakeholders
 Final version of NC or GL submitted from ENTSO-E to ACER
 ACER recommendation to EC
 Comitology process performed. Comitology in the European Union (EU) refers to a
process by which EU law is modified or adjusted and takes place within "comitology
committees" chaired by the EC. The EC proposes a text for validation to experts from
the member states. The official term for the process is committee procedure.
Comitology committees are part of the EU's broader system of committees that assist
in the making, adoption, and implementation of EU laws.
 EC submits Code for scrutiny to the Council and European Parliament
 Network Code or Guideline approved and entered into force in 6 to 10 months
ACER developed ten framework guidelines. EC requested ENTSO-E to develop network
codes and guidelines on the basis of the framework guidelines. During the development
process, the number of codes have been reduced to 8 due to merger of three operational
guidelines. There are now 3 connection codes, 3 market codes and 2 operational codes.
These are:
 Connection Codes
- Requirement for Generators (RfG)
- Requirement for HVDC
- Demand Connection (DC)
 Market Codes
- Guideline for Capacity Allocation and Congestion Management (CACM)
- Guideline for Forward Capacity Allocation (FCA)
- Guideline on Electricity Balancing (EB)
 Operational Codes
- System Operation Guideline (SO)

12
- Emergency and Restoration Guideline (ER)
The following five codes have entered into force: CACM, RfG, DC, HVDC and FCA. The SO
and ER guidelines have been validated by member states and are at the time of writing,
February 2017, awaiting validation by the European Parliament and Council and entry into
force. The EB guideline is also awaiting validation by member states.
All the codes and guidelines will in some respect have an impact on reliability standards and
market rules developments in Europe.
At the end of November 2016, the European Commission published it's so-called "Clean
Energy for All Europeans" package. The package contains a detailed collection of legislative
and regulatory proposals combined with facilitating measures. Although the package must still
undergo scrutiny by both the European Parliament and the council of EU, it is clear it will have
considerable impact on the development of the energy sector in Europe.
The regulatory proposals and facilitating measures aim at enhancing and modernisation of the
economy and boosting investments in renewable energy sources (RES), whereas the
legislative proposals focus on energy efficiency, RES, the electricity market design, security of
supply and governance rules.
For reliability standards and market rules the most important proposals are:
 Proposal for a revised regulation of the electricity market;
 Proposal for a revised Electricity Directive, on Common Rules for the Internal
Electricity Market;
 Proposal for a new Regulation on Risk Preparedness in the Electricity Sector; to
ensure that Member States put in place appropriate tools to prevent, prepare for and
manage electricity crisis situations and it thus lays down rules for Member States to
cooperate thereupon in a spirit of solidarity and transparency.
3.1.2 Continental Europe
A. Reliability Standards
Governance
In Europe, each Member States' Ministry of Energy provides the regulatory oversight for
reliability standards development.
A yearly monitoring report is provided by the TSOs to their Ministry of Energy on adequacy
and security of supply according to the European Directive 2009/72/EC.
Developer
This is covered by the general description for Europe in chapter 3.1.1.
Historical development
The Security of Supply Directive was put in force in 2006 and it is still in force. This Directive is
expected to be updated to take into account the evolving situation of the resource mix and
emerging technologies.
The Operation Handbook (OH) is a guiding document, and was originally developed and
adopted by the Union for the Coordination of Transmission of Electricity (UCTE) and its further
development and revision was handed over to ENTSO-E’s RGCE (Regional Group
Continental Europe). It is an up-to-date collection of operation principles and standards for
transmission system operators in Continental Europe.
The main objective of the OH is to provide support to the technical operation of the ENTSO-E
RGCE interconnected grid, including policies for operational security and special operational
measures in emergency conditions and the framework for data exchanges. The overall aim of
the OH is to ensure the interoperability among all TSOs connected to the synchronous areas.

13
Monitoring, investigating, and possibly enforcing compliance of the TSOs with the OH
reliability standards of the RGCE, and the development and adoption of the reliability
standards themselves, is at the core of the RGCE’s mission. Through a rigorous program of
monitoring and investigations on non-compliance with reliability standards, the RGCE strives
to maintain a high level of reliable operation of the Continental European transmission system.
This task is assigned to the Sub-Group Compliance Monitoring & Enforcement (SG CME).
The Sub-Group evaluates the compliance of RGCE member TSOs with the Operation
Handbook standards in order to help the member TSOs to reach full compliance and thus
increase the reliability of the interconnected system operation.
In order to facilitate the compliance monitoring activities of the Continental European
synchronous zone, all TSOs are audited and required to provide self-assessment compliance
information. The ENTSO-E Secretariat maintains a compliance database for this purpose.
Collecting of compliance information is based and dependent on the work of the Control Area
Managers designated by the member TSOs.
Current status
A prominent role is foreseen for Regional Security Coordinators (RSCs) as service providers
to improve TSO-TSO cooperation in the daily operational planning and with the focus on
securing the grid stability from a regional perspective and to coordinate security measures if
needed.
Future trend
ENTSO-E, the European association of TSOs, has developed a pan-European Mid-term
Adequacy Forecast (MAF) looking at how the demand is covered for the next time horizon of
5 – 10 years. Next to that a Short and Medium Term Adequacy Forecast (SMTA) for
operations is under development focusing on the possibilities of remedial actions taken to
secure the system. The challenge is to define system adequacy which deals with both
generation and grid adequacy. Related to that is the so-called Ten Year Network Development
Plan (TYNDP) which offers a view on what grid is needed where to achieve Europe's climate
objectives by 2030. Even if local generation, demand response, storage and energy efficiency,
will play an increasing role, the studies show that an extension of the current grid is needed to
allow the shift of large quantities of renewables to the main consumption centres.
A pan-European ENTSO-E working group 'Operational Framework Internal Audit' will be
created focusing on monitoring the implementation of the new European Codes.
In the Clean Energy Package EC proposes to have TSOs introduce Regional Operational
Centres (ROCs) having regional binding decision power for a wide range of activities in the
system operation timeframe.
B. Market Rules
Governance
The European Commission is responsible for the development of Directives and Guidelines
and to accommodate the Comitology process.
Developer
The European Commission together with the Member States, ACER, ENTSO-E and
stakeholders in the electricity sector develops the market rules. How this is done is further
described in chapter 3.1.1.
Historical Development
In central Europe liberalized market evolved starting in Spain and The Netherlands in the late
90-ties. At the same time National Regulatory Authorities were introduced and Power
Exchanges established in most Member States. The introduction of a more sustainable energy
policy in Europe became reality and received an extra impulse starting from 2003 on when
Germany became the frontrunner in introducing RES at a high pace having prioritized infeed

14
for RES in the electricity system. At the same time a closer market integration took place
resulting in higher energy flows across borders. Due to these developments system operation
across borders is much more interrelated than it was in the past.
After the Fukushima accident, nuclear power phase-out in Germany was triggered posing a
serious challenge from an operational and market perspective point of view for central Europe.
Current Status
New Codes and Guidelines are being developed or have already been developed. One of the
fundamental objectives of the forthcoming legislation on market design must be to improve
wholesale markets’ ability to drive investments, dispatch and electricity usage in line with
system needs. For this purpose, effective price signals are needed in all relevant timeframes,
from long term to day-ahead, to intraday and balancing.
An important step to reach this objective is the implementation of the CACM guide line that
entered into force on 15 August 2015. The provisions of CACM govern the establishment of
cross-border EU electricity markets in the day-ahead and intraday timeframes, as well as
methods for the calculation of interconnection capacity. This directive, based on the
responsibility of the Power exchanges to collect bids and offers within different time-frames,
created the NEMO committee (Nominated Electricity Market Operators). All legislators in the
European countries nominated the Power Exchanges for the day-ahead and intraday
framework in their countries. This committee is working on the design of the common market
for the day-ahead an intraday in order to comply with the deadlines established in the
directive. ACER has determined the geographical scope of the Capacity Calculation Regions
for which capacity calculation for the day-ahead and intraday market timeframes needs to be
coordinated to ensure that capacity calculation is reliable and that optimal capacity is made
available to the market.
Future Trends
Market barriers are expected to be removed, via legislation, to allow wholesale market prices
to reflect scarcity and system costs. An important prerequisite for this to happen is to ensure a
level playing-field between all generation sources so to avoid market distortions. As a
complementary measure, short term markets such as intraday and balancing need to be
further improved and integrated to accommodate more RES participation in the market.
Balancing markets in particular, will play a crucial role to incentivise market parties to provide
more flexibility.
As a general principle the EC’s proposals on improving wholesale market functioning should
centre around the objective of free price formation and the need for prices to reflect actual
system scarcities.
Prices reflecting actual scarcities in the energy market represent an opportunity for market
parties as an investment incentive for flexible generation, storage or demand response,
especially if prices rise to ‘sufficiently high levels’ frequently enough. In addition, volatile prices
should trigger the development of the hedging dimension of the market.
In the case of exceptionally high prices, this may bear financial risks that are difficult for small
players to manage in the market if adequate hedging products (financial products) do not
develop or are not accessible. This highlights the need for hedging products. In addition,
vulnerable consumers may need separate protection (outside of electricity market design
legislation).
Because of the potential difficulties for small market participants and the need for hedging
products, proactive public communication about this aspect of market design is crucial,
emphasising price spikes as natural and healthy market outcomes if they reflect temporary
scarcities correctly. Appropriate market monitoring is needed to avoid market manipulation
and abuse of dominant positions.
The market design and RES legislative proposals aim at ensuring a cost-effective RES

15
development, transparent, non-discriminatory and fully consistent with market signals. This
counts for RES generation, flexible demand and energy storage.
While support schemes are likely to still be needed after 2020, it is now time to establish a
level-playing field among all generation technologies by phasing out priority dispatch, and
applying the same rules for balancing responsibility, curtailments/redispatch and
compensations. Steps have already been made in that direction by Member States and by EU
legislation (e.g. via the reviewed Environmental and Energy State Aid Guidelines – EEAG),
but the EC pushes these principles further and removes remaining exemptions. To improve
efficiency of RES development in Europe, more Member States coordination, especially at
regional level, is also needed. In the Clean Energy Package more regulatory oversight
decision power is proposed by EC for ACER on cross-border issues.
3.1.3 Nordic
Governance
The Nordic countries include Denmark (DK), Finland (FI), Iceland (IS), Norway (NO) and
Sweden (SE). Denmark, Finland, Sweden are members of the European Union (EU) and
Iceland and Norway have an economic agreement (EEA) with EU. The EEA means that
Iceland and Norway are obliged to follow the directives coming from EU and are implementing
them in national legislation just as the EU member states. This is also the case for the
electricity sector. In this way, all the Nordic countries have the same high-level overall
governing structure for the reliability in the electricity industry as described in chapter 3.1.1.
Governance Oversight
Each Member States' Ministry of Energy together with the National Regulatory Authority
(NRA) provides the regulatory oversight for reliability standards development.
TSOs provide a yearly monitoring report to their NRA and Ministry of Energy on adequacy and
security of supply according to the European Directive 2003/72/EC (Security of Supply
Directive).
Developer
This is covered by the general description for Europe in chapter 3.1.1.
Originally, the reliability standards in the Nordic countries were anchored in the regulations
and guidelines of the Energy Act in each country.
The Nordel organization developed the needed harmonization between the countries in the
synchronous area.
During the 1990's and first years of 2000's the liberalization took place in all the countries.
TSOs developed codes including functional requirements to connect to the grid and codes for
operational security and security of supply. An update of the Nordic grid code was developed.
As the European Directives for the electricity sector were developed in 1996, 2003 and 2009
the Nordic rules were adjusted were needed.
Current status
The current status is the same as outlined in chapter 3.1.1.
After the Network Codes and Guide Lines have entered into force the Member States have a
certain time to implement them in the national laws.
The most relevant code for reliability standards in the Nordic countries is the System
Operation Guide Line. Elements from some of the other network codes and guidelines will
also have an impact.
Future trend
Work on updating electricity directives is ongoing as described in 3.1.1.

16
B. Market Rules
Governance
Governance of the Nordic countries’ market rules is the same as that provided for the
countries in Continental Europe (see Section 3.1.1, above)
Market rules were developed in parallel with the development of the power exchanges
themselves. Statnett Marked was established in 1993, as the power exchange in Norway.
Market conduct rules were put in place already from the beginning, covering issues like: Inside
information, prohibition of insider trading, prohibition of market manipulation and disclosure
requirements for information.
When Nord Pool was established in 1996 as the common Norwegian and Swedish power
exchange, the market rules were adjusted to adhere to the legal framework in both countries.
Licenses from both Financial Authorities and National Regulatory Authorities were also
needed.
In 2002 both Finland and Denmark had joined the common Nordic market and Nord Pool was
reorganized. Nord Pool Spot was established and given license to organize and operate a
marketplace for trading with physical power contracts. The ownership of Nord Pool Spot was
shared between the Nordic TSOs. The clearing and hedging activities continued in Nord Pool.
At this time an independent market surveillance entity was established covering both
companies. Market surveillance was an important tool for strengthening trust in the
marketplace. Activities included new set of regulations, increased focus on participant
contracts, ethical guidelines and rules for market behavior.
Since this period, the development has led to a situation where the financial trade was taken
over by Nasdaq OMX in 2009. Nord Pool is again the name of the company organizing the
physical trade. More and more the development in the Nordic region has been aligned with the
development in the rest of Europe. This also holds for the market rules.
Current Status
Development is the Nordic countries is in accordance with the development described in
chapter 3.1.1.
Future Trends
There is a development with introducing competition among Power Exchanges. More market
operators are about to be established in the same market area. This so called Nominated
Electricity Market Operators (NEMOs) will have to operate in parallel and compete.
3.1.4 United Kingdom
Governance
In the UK, the reliability standards by which the Transmission System Operator operates the
transmission system are defined within Condition 17 of the Transmission Licence granted by
the Secretary of State for Department for Business, Energy & Industrial Strategy. This requires
that the TSO develops and operates the transmission system in accordance with the National
Electricity Transmission System Security and Quality of Supply Standard in force at that time
that has been agreed by the Gas and Electricity Markets Authority (OFGEM).
Developer
The process by which changes are made to the National Electricity Transmission System
Security and Quality of Supply Standard is for the TSO to propose the change at the request
of OFGEM and to then undertake a consultation with industry and make a recommendation for
change to OFGEM. If OFGEM agrees with the recommendation, then the change is approved.
As a member of the European Union, the Network Codes and Guide lines approved by the
European Commission are applicable to the United Kingdom and OFGEM will request the
TSO to initiate the process to implement any necessary change to the National Electricity

17
Transmission System Security and Quality of Supply Standard so as to maintain compliance
with Network Codes and Guidelines.
The Reliability Standards under which the UK transmission systems are operated were all
derived from the standards that applied to each transmission system prior to privatisation back
in 1990.
The standards were consolidated the National Electricity Transmission System Security and
Quality of Supply Standards. Over the years various modifications and changes have been
made such that version 22 of the standard now applies
Current status
The current National Electricity Transmission System Security and Quality of Supply Standard
are predominantly deterministic with respect to the connection of demand but probabilistic
standards are now used for the connection of generation. This change has been brought
about by the move to renewable generation. However, deterministic standards still apply with
respect to the operation of both demand and generation and the operation of the transmission
system itself.
Future trend
As more and more renewable generation is connected and as demand becomes more
sensitive to price signals it is likely that the displacement of deterministic standards with
probabilistic standards will continue, initially in the area of demand connection but ultimately in
the whole area of operational control. The introduction of SMART metering in homes and
commercial premises will no doubt hasten this change.
Of more immediate interest will be the decision by the UK to leave the EU. At the time of
writing it is not clear to the author how or if future changes to Network Codes and Guidelines
will be applied to UK reliability standards.
B. Market Rules
Governance
In the UK, the market rules under which electricity is traded between market participants is
governed by the Balancing and Settlement Code (BSC). The code is administered by the BSC
administrator under the guidance and direction of OFGEM with a Panel of participant
representatives in place to manage the code.
Developer
Any change to the code can be initiated by any participant or by OFGEM and for any change a
consultation on the change will be conducted by the BSC administrator with the findings
presented to the Panel the panel will then submit the change to the code to OFGEM for
approval
As a member of the European Union, the Network Codes and Guidelines approved by the
European Commission are applicable to the United Kingdom and OFGEM will request the
BSC Administrator to initiate any necessary change to the Balancing and Settlement Code so
as to maintain compliance with Network Codes and Guidelines.
Initially, after privatisation of the Electricity Supply Industry in 1990, classic central despatch
with a day ahead “pool” was adopted to enable market participants to trade around a system
marginal price every half hour, with the TSO managing the scheduling and despatch of all
generation onto the transmission system.
In 2001 a radically different set of market rules were adopted whereby electricity was traded
bilaterally between market participants right up to gate closure at four hours ahead of real
time. At gate closure, market participants would notify the BSC administrator of their
aggregate generation contract position and, separately, their aggregate supplier position for
the next settlement period. At the same time the participants would provide a physical
notification (PN) to the TSO of each of their generating units expected operating level. The
TSO would then adjust the level of generation by accepting bids and offers around the PN of

18
generation so as to balance the system in real time. The bids and offers instructed in each
settlement period would then be used by the BSC Administrator to determine an imbalance
price that was then used to charge any participant who had found to be either over contracted
or under contracted.
Current Status
The new rules still apply although gate closure was reduced to 90 minutes ahead of real time
in 2003.
Future Trends
As more and more renewable generation is connected and as demand becomes more
sensitive to price signals it is likely that the market rules will need to continue to develop more
innovative demand side products and storage products to enable peaks and troughs in
renewable generation to be managed efficiently.
Of more immediate interest will be the decision by the UK to leave the EU. At the time of
writing it is not clear to the author how or if future changes to Network Codes and Guidelines
will be applied to UK market rules.
3.2 NORTH AMERICA
3.2.1 United States of America
Governance
In the United States of America (USA), the Federal Energy Regulatory Commission (FERC)
provides the regulatory oversight for reliability standards development. The FERC approves all
reliability standards developed by the North American Electric Reliability Corporation (NERC).
The FERC also enforces compliance with the developed reliability standards and assesses
penalties for non-compliance.
Developer
In 2006, the FERC established and certified the NERC as the Electric Reliability Organization
(ERO) to develop and enforce compliance with reliability standards.
NERC is not subject to Canadian regulatory oversight, but it has developed Memoranda of
Understanding with selected Canadian Provincial Governments which enable the adoption of
NERC reliability standards in Canadian provinces to meet individual province’s reliability
objectives. As such, NERC’s reliability standards are also applicable in several provinces in
Canada.
NERC develops reliability standards through a stakeholder process which entails:
 Standards drafted by industry participants;
 Standards commented on, balloted and approved (by 2/3rds vote) by industry
participants;
 Approved Standards adopted by the NERC Board which is made up of trustees
selected from among industry participants;
 Adopted standards filed with the FERC and provincial governments in Canada for
approval;
 FERC approved standards1) 2)
included in US Federal Law
In 2005, NERC transformed the then-existing operating manual and planning standards into a
set of Version 0 reliability standards. Since then, all Version 0 standards have been revised or
1
FERC may remand a standard, or approve a standard with follow-on directives to amend the
standard
2
Individual provincial government in Canada may elect not to adopt a standard and seek other means
to meet the same reliability objective

19
updated, several new standards have been developed to address reliability gaps and
emerging reliability issues some reliability standards have been retired due to their lack of
value to reliability, and some have been transferred to business practices (having no reliability
bearings or values) whose development is under the oversight of the North American Energy
Standards Board (NAESB).
Current status
Today, there are about 120 standards under 14 categories:
 BAL – resource balancing
 CIP – Critical infrastructure protection
 COM – Communication
 EOP – Emergency Operations
 FAC – Facility rating
 INT – Interchange
 IRO – Interconnected system reliable operations
 MOD – Modeling
 NUC – Nuclear interface
 PER – Personnel (training and certification)
 PRC – Protection system
 TOP – Transmission operations
 TPL – Transmission planning
 VAR – Voltage and reactive control
Future trend
There does not appear to be any major deviation from the current set of standards or their
development process. The existing set of standards has reached a rather stable state, i.e.,
subsequent revisions are expected to be infrequent, if at all. However, new or revised
standards may be developed to address risks or impacts caused by emerging technologies or
trends such as increased penetration of renewable energy resources.
B. Market Rules
Governance
In addition to approving reliability standards, FERC is mandated by the 2005 Energy Policy
Act to “prevent undue discrimination and preference in transmission service” and that all public
utilities provide open access transmission service. FERC has regulatory oversight on all
market rules and mechanisms for both organized markets and bilateral trading between
individual entities. Each organized market and individual entities mandated to provide open
access to their transmission networks and energy sources are required to file tariffs with the
FERC for approval.
FERC may and has proposed the development of market rules or processes to facilitate open
and non-discriminatory electricity trading and to enhance market efficiency. The nation-wide
rules or processes are applicable to both organized markets and individual entities accessing
the open grid. In addition to the national rules, individual organized markets also develop
market rules for open and non-discriminatory electricity trading within the market’s footprint.
These rules are required to be filed with FERC for approval;
Electricity markets may also require state government’s approval.
Developer
The FERC develops high-level, nation-wide market rules while individual ISOs and RTOs
develop rules for organized markets. An entity (similar to NERC) – the North American Energy
Standards Board (NAESB), facilitates the development of business practices (so-called
standard practices or business standards) that support trading among entities not participating
in organized market activities or between entities in an organized market and another entity
outside of such a market. The NAESB-developed business practices are filed with FERC for
approval. Once approved, organized markets and individual entities are expected to
incorporate the approved NAESB standards into their tariffs, which would be filed with and
approved by FERC. The FERC approved tariffs thus become market rules in the ISOs and
RTOs, and for trading between individual entities.

20
In 1935 the Federal Power Commission (FPC, the predecessor of the FERC) was authorized
to regulate interstate electricity. In 1977 the FERC replaced the FPC as an independent
regulatory agency within the US Department of Energy. The FERC issued Orders 888 and
889 on 1997 to set the stage for liberalising the electricity market in most areas in the USA.
Since then, a number of FERC Orders have been issued to stipulate additional market rules to
supplement the initial set, aiming at enhancing market efficiency. As part of the 2005 Energy
Policy Act FERC’s authority was expanded to protect reliability of the Bulk Power System
through the development of mandatory standards.
In 2002, independent of the government activities, gas and electricity entities created the
North American Energy Standard Board (NAESB) . NAESB is a member-funded organization
that facilitates the development of standards and business practices for four sectors of the gas
and electric industries – wholesale and retail gas and wholesale and retail electric markets.
NAESB ensures that its standards and business practices provide a consistent platform for
achieving reduced operating/transaction costs and market efficiency.
NAESB standards and business practices are developed and endorsed by industry
participants through established processes, then forwarded to the regulatory agencies for
further review and action. NAESB does not advocate, but rather, it provides the regulators
with status reports - keeping both the politics and policy out of NAESB and providing a critical
separation of responsibilities. NAESB participants who develop the standards. via NAESB, do
not monitor or enforce their use.
Current Status
After the issuance of Orders 888 and 889, and several other Orders in the early 2000’s, there
have not been further development of nation-wide market rules issued by the FERC. On the
other hand, NAESB today is still developing standards and model business practices in all
quadrants, and in several situations, that development is joint across multiple quadrants.
Today, about 20 standards for the wholesale electricity market have been developed and filed
with regulatory authorities (FERC in the USA only).
Future Trends
New market opportunities are being created as a result of changes in the fundamental
characteristics of the Electric Power System. Changes associated with renewable energy,
intermittent generation, and demand side capabilities. The replacement of traditional
resources with newer technologies creates both benefits and limitations. Changes in storage
capabilities as well as direct consumer involvement create needs for the continued evolution
of markets.
Markets are meeting the challenge of providing more services at a lower cost by expanding
their borders to include and share more resources (e.g. by responding to a single contingency
with more units); by increasing the diversity of resources to the benefits of their various
characteristics (e.g. using faster responding technologies to complement the slower but more
available technologies); creating different services to address reliability requirements (e.g.
using flow-based scheduling methods to take advantage of interties that are underutilized);
and expanding ways of sharing services (e.g. reserve sharing groups).
One constant in this time of transition is the System Operator. Operators must continue to
address the real time changes with whatever resources or markets are given to them.
Operators must ensure reliability while being sensitive the growing changes in market rules.
3.2.2 Canada
Governance
In Canada, there does not exist a nationwide regulatory authority that provides the regulatory
oversight for reliability standards development. Individual provincial governments have
oversight over the development and adoption of reliability standards for their respective
provinces.

21
Developer
Most provincial governments adopt the NERC reliability standards, and apply them through
internal empowerment and regulatory processes.
Individual provincial government may develop additional reliability standards as needed,
through a separate process usually involving the ISO/TSO of the province with stakeholder
inputs similar to the process used by NERC.
Those provinces that do not adopt the NERC reliability standards may adopt the regional
standards, or develop their own standards.
The provinces that have adopt the NERC reliability standards have the same development
history as presented above for the USA. Those provinces that have not adopted the NERC
reliability standards have not made public of their standards development history.
Current status
Same as that presented under the USA.
Future trend
Same as that presented under the USA.
B. Market Rules
Governance
Open access is not mandated throughout Canada. As such, unlike its USA counterpart there
does not exist a nation-wide regulator similar to the FERC that provides oversight for
electricity market trading between organized market and among individual entities.
At present, there are two provinces, Ontario and Alberta, that have developed open,
competitive markets province-wide. In these provinces, the provincial government has
established an energy board that provides regulatory oversights over market rule development
and market activities.
Developer
In the Province of Ontario, the Ontario Energy Board (OEB) does not develop or impose the
development of market rules. The OEB, however, approves or remand market rules
developed through a stakeholdering process that is led by the Ontario ISO with participation
by stakeholders.
Similar situation also applies in Alberta.
Note that in Canada, since there does not exist any nation-wide governance on market rules,
there does not exist any entity similar to the NAESB in the USA to develop business
standards. Further, the NAESB standards that are approved by the FERC do not apply in
Canada,.
The market rules in Ontario were developed prior to market opening in May 2005. Since then,
some minor changes and additions have been made, mostly to enhance market efficiency and
to provide a mechanism that ensures generating capacity is available to meet peak demand
without the creation of a capacity market.
The market rules in Alberta were developed prior to its market opening in 2001. Since then,
several changes have taken place with the last set of changes implemented in the early
2010s.
Current Status
To date, the Ontario and Alberta market rules appear to be quite comprehensive and serve all
the needs for supporting a reliable and efficient electricity market in each province.
Future Trends
With the two organized markets – Ontario and Alberta, having matured over the years, major
development of new or revised market rules are not expected in the near future.

22
3.3 AUSTRALIA
In Australia, there are two major power systems - the National Electricity Market (NEM) covering
eastern and southern Australia and the Wholesale Electricity Market (WEM) covering the South
West Interconnected System in Western Australia.
Governance
In the NEM, The Australian Energy Market Commission (AEMC) provides the regulatory
oversight for reliability standards development and approves any changes to the Market rules
required to implement these standards through market processes. The Australian Energy
Regulator (AER) enforces compliance with the developed reliability standards and assesses
penalties for non-compliance.
In the WEM major changes are currently underway which will result in the following:
 The Economic Regulatory Authority (ERA) will provide the regulatory oversight for
reliability standards development;
 The Rule Change Body will approve any changes to the Wholesale Electricity Market
(WEM) Rules required to implement these standards through market processes;
 ERA will initially enforce compliance with the developed reliability standards and
assesses penalties for non-compliance.
Developer
In the NEM, AEMC has established the Reliability Panel to report upon the reliability of the
NEM and to provide advice on the development of reliability standards. This panel develops its
recommendations for reliability standards through a stakeholder process which entails:
 Input from the members of Panel representing the different industry sectors
 A structured consultation process with the market participants and other interested
parties as prescribed in the market rules.
The AEMC then determines the reliability standard.
In the WEM, the ERA will establish a Reliability Advisory Committee to assist in the
development of reliability standards. This committee whose members will be industry experts,
will provide recommendations on reliability standards to the ERA. The ERA will then have the
responsibility for determining the reliability standards.
In the NEM, the Reliability Standard was established in 1998 as part of the start of the NEM It
has been reviewed on number of occasions since then but the principles remain largely
unchanged
In the WEM, the WEM Rules established in 2006 planning criteria which sets out the required
reserve margin for long reserve planning. Minor changes to these criteria were made in 2008
and 2013.
Current status
In the NEM, the principle reliability standard sets out the expected maximum level of annual
unserved energy due to shortage of generation or major transmission network constraints (set
at a long term average of 0.002% of energy supplied). This standard is operationalised by the
Australian Energy Market Operator (AEMO) by determining, through monte-carlo analysis,
minimum reserve levels (MRLs) for each pricing region. If the reserve in any region is forecast
to fall below the MRL then AEMO is authorized under the NER to take action to seek further
directions through special contracts or directions under the National Electricity Law.

23
Other standards which impact upon reliability are
 Frequency Operating Standards which set required levels of frequency control
ancillary services and instances under which under frequency load shedding is
acceptable
 Principles by which supply shortages effecting multiple pricing regions are managed
 System restart standard
 Network reliability standards.
In the WEM, the planning criteria sets out the required reserve margin based upon a
combination of
 a percentage of peak forecast load;
 the maximum capacity of the largest generating unit and
 a level that would limit expected energy shortfalls to 0.002% of annual energy
consumption.
This standard is used by the market operator (AEMO) to determine the reserve capacity
requirement for market customers and hence the level of capacity credits that need to be held
by them.
Other standards which impact upon reliability are
 Frequency Operating Standards which set required levels of frequency control
ancillary services and instances under which under frequency load shedding is
acceptable
 System restart standard
 Network reliability standards.
Future trends
Both the NEM and the WEM are facing challenges due to the changing nature of the power
system in particular
 High levels of renewable penetration
 Reduction in synchronous generation that provides system inertia to assist frequency
regulation
 Both Demand side services and storage are likely to become significant players in the
market
This has been most pronounced in the state of South Australia. This state has only limited
interconnection with the remainder of the NEM. The south east portion of the state is located
within global band of wind known as the “Roaring 40s” and thus ideally suited for wind
generation. Commissioned wind generation has now reached such a point that at times it
exceeds the demand of the state with the excess being exported to the remainder of the NEM.
At the same time the penetration of domestic rooftop solar is one of the highest in the world.
This meant at times very low wholesale electricity prices which have led to the exit of all coal
fired generation in the state.
This has meant under strong wind conditions there will be very little conventional generation in
service resulting in very low levels of system inertia which could create significant issues if the
interconnection with the rest of the NEM is unexpectedly lost. The AEMC and AEMO are
currently conducting a major review to see what further measures may be required to continue
to maintain power system reliability under these changing conditions. The first stage of this
review will evaluate:
 Frequency control and lower levels of inertia during normal operation of the power
system, such as a high rate of change of frequency, and a shortage of frequency
control ancillary services; and
 The emergence of areas of the power system that will be weak, that is have low fault
levels.

24
B. Market Rules
Governance
In the NEM, the AER has regulatory oversight on all market rules and mechanisms for the
NEM as set out in the market rules.
The transmission and distribution network owners level of income which can be recovered
through network tariffs is subject to approval by the AER. These regulated entities are
mandated to provide open access to their transmission and distribution networks Supply
reliability at transmission and customer connection points is monitored by the AER and in
some cases incentive schemes for the regulated entities are in place to encourage action to
improve reliability at this level.
Generators income is not set by the AER. Generators in some regions are required to obtain a
license from the state jurisdiction and are subject to state and federal regulations on
environmental impact. Retailers are subject to more extensive regulation as retail customers’
open access to the energy market is under the state government’s oversight.
The AER monitors market behavior at the wholesale level to ensure that it is in accordance
with the Rules. The Australian Competition and Consumer Commission (ACCC) investigates
any suspected instances of abuse of market power.
In the WEM, the ERA has regulatory oversight on all market rules and mechanisms for the
WEM.
Western Power, the only regulated network entity, is mandated to provide open access to their
transmission and distribution networks in the South West Interconnected System (SWIS). The
network tariffs set by Western Power are subject currently to approval by the ERA but this will
transfer to the AER.
Supply reliability at the transmission and customer connection point is currently monitored by
the ERA.
Generator income is not set by the ERA except for tariffs set for franchise customers.
The ERA monitors market behavior at the wholesale level to ensure that it is in accordance
with the Rules and investigates any suspected instances of abuse of market power.
Developer
In the NEM, the AEMC establishes the rules (NER) for the NEM. State Jurisdictions establish
rules for retailers in the area of customer protection. For some customer classes where
competition has been introduced these state bodies also set default tariffs for those customers
who choose to remain with the default retailer.
In the WEM, the Rule Change Panel establishes the rules for the WEM.
Retail choice is currently restricted to customers with load greater than 50MWh per annum.
Smaller customers are supplied by the franchise retailer with energy tariffs determined by the
state government. Full retail competition is expected to be introduced in 2019.
In the NEM, prior to the 1990s each state had its own electricity supply system dominated by
state owned authorities with very limited interchange between the state systems.
In 1991 the federal government proposed industry disaggregation, introduction of competition
for energy services and enhancement of interconnection between states. In 1995 the
establishment of the NEM was agreed to by states in eastern and southern Australia. The
NEM commenced operations in December 1998.

25
Full retail competition began to be introduced in 2001.
In 2001 Queensland was interconnected with New South Wales and other states and in 2005
the island state of Tasmania was connected to the mainland.
In the WEM, prior to the 2000s the main electricity system in Western Australia known as the
South West Interconnected System (SWIS) was operated as a single state owned entity.
In 2006 there were major changes:
 disaggregation of Western Power into four separate entities
 establishment of the WEM and the IMO.
In 2015 further changes were initiated including:
 Transfer of market operator functions from the IMO to AEMO,
 Transfer of system operator role from Western Power to AEMO.
Current Status
In the NEM, as indicated above:
 The AEMC establishes the NER
 The AEMC sets reliability standards,
 The AER sets the level of costs that can be recovered by network owners and
monitors compliance of market participants to the NER
 The ACCC deals with possible abuses of market power in the NEM
In the WEM, as indicated above:
 The Rule Change Panel administers and amends the WEM Rules
 The ERA sets reliability standards,
 The AER will determine the level of costs that can be recovered by the network owner
 The ERA monitors compliance of market participants to the Rules and deals with
possible abuses of market power in the WEM
Future Trends
The changes to the nature of the power system discussed above are brining into question not
just current power system reliability standards but also the current wholesale market designs.
The developments in the state of South Australia, as discussed earlier, has meant that the
only sources of generation remaining in this state are wind, gas fired generation and limited
supply from coal fired generation elsewhere in the NEM. At the same time, natural gas prices
previously very low have risen sharply due to the commencement of the large scale export of
LNG from eastern Australia. This has meant that depending upon wind conditions wholesale
market prices in South Australia are becoming very volatile which is being reflected in
significant increases in electricity contract prices for market customers. Developments such as
this, have led some electricity market observers to question the continued viability of the
energy-only market design of the NEM.
On the other hand, large scale adoption of domestic roof top solar has meant the system
demand in Western Australia has not grown at the rate expected leading to significant
generator overcapacity in the WEM. Due to the capacity market in the WEM this has resulted
in significant unnecessary costs for market customers.
Also in the WEM network capacity pressures are driving the shift to a constrained network
access regime and high ancillary service costs providing impetus for efficiency improvements
in energy and ancillary service markets (the latter will particularly help the position of the WEM
in the face of the changes to the power system described earlier).

26
3.4 JAPAN
Governance
In Japan, Ministry of Economy, Trade & Industry (METI) provides the regulatory oversight for
reliability standards development. METI approves the rules developed by Organization for
Cross-regional Coordination of Transmission Operators, Japan (OCCTO). All Electricity Power
Companies (EPCOs) such as Power Producer, Retail Electric Utility and Transmission and
Distribution Company (presently: T&D sector of former General Electric Company) are
obligated to be a member of OCCTO.
Developer
OCCTO’s Rules consist of “Operational Rules” and “Network Codes”. “Network Codes”
includes reliability standard in the aspect of system planning & operation.
Electric Power System Council of Japan (ESCJ) was established in 2003 and designated as
only "organization to support transmission, distribution and other related operations" by METI.
And it developed ESCJ rules for power system reliability and ensuring fairness &
transparency. ESCJ started full-scale operation in April 2005. As STEP 1 of "Electricity
System Reform" to be implemented in 3 steps in accordance with the Act for Partial Revision
of the Electricity Business Act, Organization for Cross-regional Coordination of Transmission
Operators, Japan (OCCTO) was established in 2015 to enhance the function of controlling the
supply-demand balance of electricity in both normal and emergency situations on a nationwide
basis with developing electricity transmission and distribution network which is necessary for
cross-regional electricity use.
Current status
As indicated above, OCCTO’s “Network Codes” includes reliability standard in the aspect of
system planning & operation.
Future trend
Long & short term reserve capacity requirement and supply has been discussing in OCCTO,
considering operation of interconnection and penetration of renewable intermittent generation.
B. Market Rules
Governance
Amended Electricity Business Act in 2014 defines an electricity power exchange as a
designated corporation. Japan Electric Power eXchange(JEPX), which operates electricity
market in Japan in 2015, submitted the changed rules in order to satisfy the Amended
Electricity Business Act. Though the JEPX is a designated corporation of market operation,
the electricity exchange is voluntary one in Japan. The rules are based on Electricity Business
Act, and substantially METI has an authority. And Electricity Market Surveillance Commission
started to monitor trading from Sept. 2015. Electricity Market Surveillance Commission
became Electricity and Gas Market Surveillance Commission since April 2016.
Developer
JEPX developed nation-wide rules.
JEPX was set up as a private, voluntary nation-wide wholesale exchange in 2003 and started
operation of day-ahead market (spot market) and forward market in 2005. In 2009, they began
a 4-hour-ahead (intraday) market and it’s improved to a 1-hour ahead market in April 2016.
Current Status
As indicated above, JEPX operates spot, forward and 1-hour ahead market.
Imbalance charge has been calculated based on the market price, and the calculation formula
is defined below.

27
Imbalance charge unit price
= half-hourly weighted average of Spot and Hour-ahead market price × α + β
α : Adjustment term reflecting the nationwide supply-demand situation
α > 1 : while nationwide supply-demand imbalance is deficit side
0 < α < 1 : while nationwide supply-demand imbalance is surplus side
• Set to make the price practically unpredictable to secure incentive to the entities to
comply their planned value balancing
• Value determined after-the-fact depending on the half-hourly supply-demand situation
• No price difference between regions despite the difference of supply-demand situation
β: Adjustment term reflecting balancing cost level difference between regions
β = annual average balancing cost of the region – annual nationwide average balancing
cost
• Set to consider the difference of balancing cost among regions to a certain level
Future Trends
The creation of a real time (spot) market is being planned, but details have not yet been
discussed. After designing a real time market, imbalance charge may be calculated based on
the real-time market price.
3.5 SOUTH AFRICA
Governance
The South African Grid Code (Network Code) details the requirements for network adequacy,
from a planning and expansion perspective. Recommendations for Grid Code additions,
enhancements and amendments are made by an industry body (comprising of representatives
from generators, transmission, distributors, customers and the regulator) and are then
approved by the National Energy Regulator (NERSA).
Some aspects of operational reliability standards are contained in the Grid Code (System
Operations Code) but more detailed requirements are approved within the national utility
(Eskom), which is currently still a vertically integrated utility.
Developer
Recommendations for planning adequacy requirements may be made by any industry
participant, but is likely to be initiated by the transmission business within the national utility.
The System Operator develops the standards for operational reliability for the Transmission
System, with input from various areas of the business.
As a vertically integrated utility, the national utility (Eskom) provided key inputs into the
development of the Grid Code and its associated requirements for network adequacy. Where
the level of detail of operational reliability is not contained in the Grid Code, it has always been
developed within the utility.
Current status
As described above.
Future trend
With the current industry structure, it is unlikely that there will be any significant changes.
There is some work being done on more detailed information requirements from the regulator
regarding the operational standards, but there is currently no intention to changes these.
However, if there is a change in industry structure, such as the development of an
independent System Operator this could lead to some changes.

28
B. Market Rules
Governance
The Department of Energy (DoE) develops an Integrated Resource Plan indicated the
expected generation required on the system in the next 20+ years. They then specify who may
build the capacity, be it Eskom (the utility), Independent Power Producers or they may develop
a program under which the capacity can be developed and power sold. The DoE has
designated Eskom as a Single Buyer for the purchase of all electricity in the country. Thus the
rules associated with the Single Buyer and the current model are in principle governed by the
Department of Energy.
Within the Southern African Power Pool (SAPP) a number of markets exist viz. Bilateral
Trading (Short and Long Term), Day Ahead Market (DAM) Trading and Post Day Ahead
Market (PDAM) Trading. These are ultimately governed by the SAPP Exco, of which all SAPP
members are participants.
Developer
There are no specific market rules as there is currently no market in South Africa. However,
the DoE is accountable for the development of PPAs with the IPPs. These are also signed and
accepted by the National Energy Regulator (NERSA) as well as the Single Buyer (Eskom).
The Scheduling and Dispatch Rules, a component of the South African Grid Code, have been
developed by an Industry Expert Team and approved by the National Energy Regulator.
These rules describe the process to be followed, in the absence of a market and taking
cognisance of the complexities of managing utility generators and adhering to PPA contractual
requirements.
Within the SAPP, the various market rules are developed by a Market Sub Committee,
comprising of members from all operating members with input from various consultants.
South Africa has historically relied almost exclusively on Eskom, as the vertically integrated
utility. A number of customers have had generation for their own purposes, but this was never
part of a market. The introduction of the Renewable Energy IPP program (REIPPP) has seen
a large number of IPPs being introduced on the power system for the first time. This has been
followed by two diesel OCGT plants – similar to those of the utility.
Current Status
The Single Buyer is managing the PPAs with IPPs and plant is dispatched to satisfy PPA
requirements. The currently much larger Eskom fleet is dispatched as required to manage the
supply demand balance and in the most economical way possible considering system
security.
Future Trends
It is expected that the Single Buyer model will continue into the near future. It is envisaged that
further IPP programs such as gas and base load coal may be developed going into the future.
3.6 BRAZIL
Governance
In Brazil, the following entities and authorities are responsible for the governance of the Brazilian
Electricity Sector in terms of Reliability Standards:
 The National Council for Energy Policies (CNPE) is responsible for defining national
policies and directives for the energy sector (electricity, oil and gas), that is chaired by
the Minister of Mines and Energy.
 The Ministry of Mines and Energy (MME) is responsible for implementing the policies
and directives defined by CNPE, conceding licenses for energy public services,

29
defining plans and legislation for the energy sector as a whole including the electricity
market. The electricity laws must be approved by the Congress.
 The Electricity Sector Monitoring Committee (CMSE) is responsible for following up
and assessing the electricity sector evolution in order to define measures to guarantee
electricity supply for all consumers. CMSE is chaired by the Minister of Mines and
Energy and includes the participation, among others, of the Electricity Regulator,
System and Market Operator and the Energy Research Company.
 The Electricity Regulatory Agency (ANEEL) - the Brazilian Regulator - is responsible
for regulating and inspecting the activities related to production, transmission and
distribution of electricity including the activities performed by the System Operator.
 The Brazilian Power System Operator (ONS) - is responsible for managing,
coordinating and controlling the operation of the interconnected power system, and
the access and use of the transmission system in the national context.
 The Energy Research Company (EPE) is responsible for coordinating, developing and
elaborating the energy sector planning for electricity and gas. It is inside of the MME
structure.
Developer
The following entities are responsible for proposing and approving the reliability standards to be
applied in the Brazilian power system:
 The SO (ONS) is responsible for coordinating, developing and elaborating the
proposal of the reliability criteria and standards to be included in the Grid Code.
 The EPE is responsible for defining the criteria to be applied in the studies of the
energy sector planning for electricity and gas.
 The Regulator (ANEEL) is responsible for approving the reliability criteria and
standards proposed by the SO and the criteria to be applied in planning studies
proposed by the EPE.
The process of development of reliability standards has the following steps:
 The SO elaborates the proposal of the reliability criteria and standards with the
participation of all operation players involved.
 The SO is responsible for defining the final proposal and sending it to the Regulator.
 The Regulator starts a new process of discussion with the participation of the SO and
all operation players involved.
 The Regulator is responsible for defining the final procedures of the reliability criteria
and standards to be included after the discussions in the Grid Code.
The historical development of reliability standards presents the following key stages:
 The first Grid Code, including Reliability Criteria and Standards, was developed in
1998 after the unbundling of the electricity industry happened during the 90s.
 Before that, Reliability Criteria and Standards were defined by two bodies: the
Coordinator Committee for the Interconnected System Operation (GCOI) and the
Coordinator Committee for the Interconnected System Planning (GCPS), with the
participation of the players, and they were included in the Grid Procedures of ONS.

30
 After that, the Grid Code has been improved and updated permanently according to
the process of development described above.
Current Status
The reliability standards applied in the Brazilian power system have one basic criterion and
additional system security criteria:
Basic System Security Criterion
The Brazilian power system is planned to resist N-1 contingency severity level. N-1 is used as
a basic security criterion all over the Brazilian interconnected power system. After a N-1
contingency, operational measures can be adopted in order to re-establish the N-1 basic
security criterion.
Additional System Security Criteria
In the operational planning phase, N-2 severity level is considered in the following contingencies
with the objective of increasing system security:
 Outage of two single overhead lines on the same pylons;
 Outage of two single overhead lines on distinct pylons in the same corridor;
 Outage of two single overhead lines on distinct pylons in the same area where there is
occurrence of natural phenomena or bushfire; and/or
 Loss of busbar section.
These conditions are applied in case of at least one of the following situations: (a) there is high
evidence of the possibility of these kinds of contingency, proved by statistical data; (b) there is
high loss of load in the region or area affected by the contingencies described above.
Additionally, the following criteria are applied:
 During periods of “special events”, such as New Year’s celebration, Carnival, FIFA
World Cup, Olympic Games, Election Days, and other special events a more
conservative criterion (N-2) in the interconnected power system is adopted.
 In real time operation, in case of critical meteorological conditions, ONS can adopt N-2
or even N-3 criterion depending on the degree of severity. In these conditions,
additional thermal generation can be used.
 Due to the increase of political, social and economic impacts caused by large
disturbances, a decision was made to apply the N-2 criterion in all transmission and
distribution systems responsible for the electricity supply of the city of Brazilia, the
Brazilian federal capital.
 Due to the same reasons, the application of the N-2 criterion in the main inter-regional
interconnections is being studied.
Future trend
The future trend presents the following challenges:
 Increasing complexity and challenges caused by the wide integration of renewables,
including technical impacts on the power system. In this context, it is necessary to
implement measures to mitigate the impacts caused by intermittent generation to
obtain adequate system performance. One of them is the amount of additional
generation reserve necessary in face of the high variability of intermittent generation
like wind and solar.

31
 On the other hand, it is necessary to improve the technical requirements of the grid
code to provide robustness to the wind turbines so that they are able to resist impacts
from the power system.
 Increase of the distributed generation embedded in the distribution grids without any
scheduling and supervision of the transmission system operator.
 Tendency of operating the interconnected grid close to power system limits.
 Conciliation of the interests between Operation and Market Segments – cooperation in
the power system operation and competition in the electricity market – is only possible
through adequate Grid Procedures (Operation Segment) and Market Rules (Market
Segment).
B. Market Rules
Governance
In Brazil, the following entities are responsible for the governance of the Electricity Market:
 The National Council for Energy Policies (CNPE) is responsible for defining national
policies and directives for the energy sector (electricity, oil and gas), that is chaired by
the Minister of Mines and Energy.
 The Ministry of Mines and Energy (MME) is responsible for implementing the policies
and directives defined by CNPE, conceding licenses for energy public services,
defining plans and legislation for the energy sector as a whole including the electricity
market. The electricity law must be approved by the Congress.
 The Electricity Regulatory Agency (ANEEL) – the Brazilian Regulator – is responsible
for regulating and inspecting the trading of electricity, including the activities
performed by the Market Operator.
 The Electricity Commercialization Chamber (CCEE) – the Brazilian Power Exchange
or the Market Operator (MO) – is responsible for managing and operating the
transactions of purchase, sale, accounting and settlement of electricity in the national
context.
Developer
The following entities are responsible for proposing and approving the market rules to be applied
in the electricity market:
 The MO is responsible for coordinating, developing and elaborating the proposal of
the Market Rules.
 The Regulator is responsible for approving the Market Rules proposed by the MO.
 The Electric Energy Research Center (CEPEL) is responsible for elaborating the
models to be applied in the electricity market.
The historical development of market rules presents the following key stages:
 The first version of Market Rules was developed in 1998 after the unbundling of the
electricity industry happened during the 90s.
 Before that, the Market Procedures were defined by the Coordinator Committee for
Interconnected System Operation and Planning, with the participation of the market
players.

32
 After that, the Market Rules have been improved and updated permanently according
to the process of development described above.
Current Status
The Brazilian Electricity has been operating according to the basic conditions:
1) The Electricity Market has two separate Environments whose main difference is the kind of
contracts among the actors involved. In the Regulated Environment, the electricity contracts
are done by means of auctions involving Generators and Retailers on behalf of captive
consumers. The conditions of these auctions are defined by both the Ministry and Mines and
Energy and the Regulator and there are no free negotiations among the actors. In the Free
Environment, the energy contracts are done by free negotiations between Generators and
Free Consumers without participation of the Regulator.
2) Generators, traders, retailers and free consumers are market players. A hundred percent of
the total demand of each retailer must be supplied by generators through long-term and
medium-term bilateral contracts. All the generators receive the volumes and prices defined in
bilateral contracts. The differences between contractual and real demands are negotiated in
the spot market, which allows for short term bilateral contracts to be negotiated between
generators, traders, retailers and free consumers. Free consumers are free to negotiate their
needs with generators, retailers and traders.
Future Trends
The future trend presents the following challenges:
1) Studies and negotiations are being carried out to achieve efficient regional outcomes for the
South and Central America Regional Markets with the main objective of identifying benefits in
terms of reducing operational costs; increasing both power system and energy supply
security; and reducing CO2 emissions.
2) Increasing complexity and challenges caused by the wide integration of renewables,
including economic and market impacts on the electricity market considering both regulating
and free contracting environments. For that, it is necessary to implement measures to mitigate
the risks for intermittent generation and to obtain adequate market performance.

33
4. CONCLUSIONS AND RECOMMENDATIONS
The JWG C2/C5-05 has completed the first stage of a two-stage project to explore the challenges to
system operators when they attempt to achieve operations reliability and market efficiency
simultaneously, and manage the interactions between them. The first stage effort involves a review of
the historical, current and future development of reliability standards and market rules in several
countries and markets.
The review indicates that the development of reliability standards and market rules is at different stage
among the countries and markets included in the review. Further, the level of compliance monitoring
and enforcement varies from one country/market to another. Irrespective of the maturity and
enforcement mechanism, all countries/markets share a common objective to have in place
comprehensive reliability standards and market rules to ensure system reliability and to achieve
market efficiency.
The JWG further assesses that some of the reliability standards and market rules may be intertwined,
and that compliance with reliability standards may have certain adverse impact on market
mechanisms (efficiency), and vice versa. These mutual impacts can create challenges to system
operators when they attempt to meet the simultaneous objectives of maintaining system reliability
through adherence to established reliability standards and achieving market efficiency through
implementation of established market rules. A detailed review and assessment of such challenges will
be conducted at Stage 2 of this task.
From the review, the following key observations are made:
1. Reliability Standards Development
All countries/markets included in this review started the development of reliability standards well
before electricity market liberalisation to help planners and system operators to achieve
transmission integrity and resource adequacy to meet forecast demand. With the advent of
market liberalisation since the early 1990’s, some of the reliability standards have been expanded
to address issues that may arise from new and increased market activities. In some
countries/markets, compliance with reliability standards is mandatory, and enforced through
regulations and legislations.
While reliability standards in most countries/markets have matured and reached a rather stable
state, development of new and revised standards is still ongoing as newly identified risks and
potential impacts on the interconnected power grid emerge, such as:
 Increased activities in physical and cyber invasions and suspicious malicious acts;
 Increased penetration of distributed energy resources (DER);
 Advanced technology resulting in innovative approaches to system operations and controls
These changes will require new and/or revised reliability standards to fully address their potential
adverse impacts on the reliable operations of the interconnected power grid. It is anticipated that
development of reliability standards will continue in a rather steady pace in the foreseeable future,
and that the new/revised standards will increase the interactions between reliability requirements
and market mechanism.
2. Market Rules Development
The status of market rules development varies among countries/markets, depending on the stage
of evolvement. For mature markets, i.e., those that started liberalisation in the 1990’s, market
rules development has reached a rather stable state. However, as new technology and increased
participation/activities by new market entrants emerge, new and/or revised market rules need to
be developed to enable fair and equal access to the electricity markets. Further, some regions are
still undergoing market merging and coupling and hence development of new and/or revised
market rules is still being actively pursued. These rules have the potential to increase their
interactions with established reliability standards.

34
As the development of reliability standards and market rules continues, despite at a slower pace
compared to the past couple of decades, the likelihood of interactions and even potential conflicting
objectives between compliance with reliability standards and adherence with market rules will
increase. It is thus imperative that these interactions and potential conflicts be assessed and
identified, with an aim to develop possible solutions or compromise ahead of their emergence in real-
time operations.
On this basis, it is the JWG’s recommendation that the Stage 2 effort of this project be initiated
immediately.

DEVELOPMENT OF RELIABILITY STANDARDS AND MARKET RULES

Recommended

Recommended

More Related Content

Similar to DEVELOPMENT OF RELIABILITY STANDARDS AND MARKET RULES

Similar to DEVELOPMENT OF RELIABILITY STANDARDS AND MARKET RULES (20)

More from Power System Operation

More from Power System Operation (20)

Recently uploaded

Recently uploaded (20)

DEVELOPMENT OF RELIABILITY STANDARDS AND MARKET RULES