Polish Capacity Market: auction’s characteristics

As pointed out in my previous article, on the 4th of July, newly created Ministry of Energy presented proposal for the construction of Polish Capacity Market. The evaluation of the proposal, as the market itself, is very complex and cannot be covered in one single article. This article discusses the life cycle of an auction and how the power plants shall prepare themselves if they would like to take part in the auction.

The auction for the power, based on the forecasting of demand, will be carried out four years before the date of delivery. The first auction is planned to take place in November/December of 2017, for the delivery in 2021. Power plants interested in taking part in the market, before joining the auction, should meet the minimum requirements set out in the technical specifications and thus be in possession of the appropriate certificate.

The auction on the capacity market can be characterized using five parameters, necessary for further evaluation of the auction pricing (which will be discussed in details in my next article). The parameters are the following:

  • Delivery period: year of delivery (main auction) or quarter of delivery (supplementary auction)
  • Power demand curve
  • Level of capital expenditures for modernization of units already operating and construction of new power plants
  • Maximum price for the offers
  • Number of auction rounds

The power transmission system operator develops recommended parameters for the auction, which are published:

  • Before 15th of April of the year N-4 (for the auction for the year N), for main auction
  • Before 15th of April of the year N-2, for the supplementary auction

Within two weeks (that is until 30th of April), the President of Energy Regulatory Office evaluates the proposal and forwards its opinion to the Minister of Energy who can either confirm the proposal or modify it. The Minister is obliged to express his opinion regarding the proposal up to 24 weeks before the start of the main auction, but he can change auction’s parameters up to 3 weeks preceding the auction. Furthermore, the Minister can call off the auction in case the total volume offered by the participating units is significantly too low to cover estimated demand.

The general overview of the auction life cycle has been sketched in the graph below.

capacity auction

Once the auction has been concluded, information about the outcome of the auction and its results are being forwarded to the President of Energy Regulatory Office, which within 14 calendar days will publish the final results of an auction. Before the publication of the definitive results of the auction by the Energy Regulatory Office, the Minister of Energy may cancel the auction, in the same time establishing a new date of the auction. In particular, it can take place in case of a situation involving illegal behavior of the bidders or the auction not fulfilling the requirements of Rules of Capacity Market.

Once the main auction is closed, a year prior to the year of the delivery takes place supplementary auction, which targets eventual miscalculations ( in case of lacking capacity in respect to prior forecasting). In the same time, the secondary market and relocation of the volume starts to take place in order to fully covered eventual demands (see the image below).

secondary auction

* the article has been written based on the publicly available information, published by the Ministry of Energy after the public consultation; the images and graphs have been created by the author, based on the available information

* header image has been retrieved from: https://uswitch-cms1.imgix.net/jekyll-cms-website/gas-electricity/guides/assets/images/gas-electricity/guides/energy-guides/electricity-comparison.jpg?ixlib=rb-1.1.0&auto=format&fit=max