Bidding Zone Study - Second Questionnaire on Transition Costs

1. Introduction

The methodology for the bidding zone review process[1] (hereafter Methodology) asks for the evaluation of the transition costs occurring from a bidding zone reconfiguration. This questionnaire is supplementing the first questionnaire (conducted from 6 September 2022 to 14 November 2022) to collect more data to establish a quantitative basis for the estimation of transition costs. As set out in the methodology, it does so for each bidding zone and bidding zone reconfiguration. As such, it informs the bidding zone review transition cost criterium.

Relevant bidding zone configurations

As established in the ACER decision 11-2022[2] on the alternative bidding zone (BZ) configurations from August 8^th 2022 and the subsequent decision for the BZ review region Central Europe to analyse the fallback configurations for Germany, the following reconfigurations will be evaluated[3] for the first step of the BZ review:

The combinations for central Europe to be analysed in a second step as set forth in ACER decision 11-2022 are not known yet and cannot be found in the cost table to be filled out.

You can also open this table to a new tab to facilitate filling out the questionnaire on the following pages.

What do we mean with transition costs

The definition of transition costs is set forth in article 15.11 (a) of the Methodology. Transition costs:

• Are one-off costs, expected to be incurred in case the BZ configuration is amended;
• Shall relate to adaptations that are inherently and unambiguously related to a specific BZ configuration change;
• Shall not relate to adaptations that are, in general, necessary to ensure sufficient flexibility of the systems to cope with a variable number of BZs due to a potential amendment of the BZ configuration in the future;
• Shall include an estimation of the cost of amending existing contractual obligations incurred by market participants, NEMOs and TSOs. Such estimation shall reflect the expected implementation timeline for an eventual BZ change, and the fact that when deciding on the implementation date, Member States are required to balance the need for expeditiousness with practical considerations, including forward trade of electricity.

Transition costs arise for different reasons, such as changes to business processes or adjustment of private contracts, and they are incurred by different actors, such as retailers, grid operators, traders or power exchanges. The purpose of this questionnaire is to gather empirically estimates of the different transition costs from different stakeholders. In subsequent steps these estimates will be analysed and extrapolated based on the received information to quantify transition costs for the reconfiguration of bidding zones.

Examples of transition costs include:

• re-structuring of teams responsible for specific bidding zones;
• re-negotiation of on-going contracts; and
• costs of adapting existing IT processes to specific BZ configurations.

Transition costs do not include:

• IT investments necessary to introduce flexibility of the IT systems in general; or
• a devaluation of assets due to price changes.

How we are going to treat and process the data

The transition cost evaluation used in the assessment of BZ configurations will greatly depend on the results of the two questionnaires on transition costs. Cost estimates are based on the cleaned data from the previous questionnaire, complemented, as the case may be, with the additional responses received with this second questionnaire. Specifically, the data from both questionnaires is checked for robustness by standard methods like a comparison to benchmarks, matching techniques and statistical techniques. Please note that some of the questions are included to control for and test confounding factors and are not included as transition costs themselves. The total cost per market participant group, bidding zone and bidding zone reconfiguration is then extrapolated by scaling the cost estimates based on various market metrics. Due to the remaining uncertainty following from this approach, the cost estimates are depicted as a range. In addition, the relative importance of the different transition cost categories is evaluated and the impact of a change in lead time for the different market participants is analysed. Therefore, all responses are highly appreciated, and additional written remarks are requested.

We would like to make the respondents aware that the data submitted will not be shared with any market participant. However, anonymised versions of this questionnaire might be shared with the responsible national regulatory authorities and/or ACER.

The next section will provide an overview of the cost categories used for the questionnaire. Afterwards, the questionnaire itself is structured as follows: The first sub-section enquires about the background and market role of the recipient. The second section covers the actual cost estimates. The third and last section addresses the effects of intra-company transactions on liquidity, a topic not directly related to transition costs, but relevant for the overall BZ review.

In case of questions, please contact Gjorgji Shemov (gjorgji.shemov@entsoe.eu).