FAQ on the Long-Term Capacity Market

1. Questions about FCC conclusion: are these concluded exclusively for the sale/purchase of capacity (without electricity)? How are FCC counterparties determined? Are FFZ restrictions accounted for, and if so – how?

FCCs may be concluded exclusively for the sale of capacity, as well as for the sale of both electricity and capacity. In which case electricity is accounted for according to FC (Free Electricity Sale and Purchase Contracts) rules, while capacity is accounted for according to FCC rules. Counterparties are determined by agreement of the parties. Counterparties must be located within the same FFZ.

2. Which document provides for the fact that all of a Supplier’s power plants that did not commission a CSC unit in time will receive the smaller of the tariff and the competitive selection price?

Clause 86.38 of RF Government Resolution №89 of 24.02.2010.

3. Will the role of the reserve factor change in the LTMC?

Yes. Currently the planned reserve factor is calculated based on capacity volumes included in the FTS balance and represents the ratio of the total capacity of suppliers included in the FTS balance to the consumption maximum of consumers included in the balance. In the LTMC the planned reserve coefficient will be determined using a Ministry of Energy methodology based on the capacity reserve volume technologically essential to the power system.
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4. How will the LTCM function if demand (consumption) falls?

If demand falls Buyers will still be obligated to pay for all capacity selected at the CCS and supplied (certified+available) to the market. This means that a larger amount of capacity than needed will have to be paid for.

5. How are own use allowances, and upward or downward deviations thereof, accounted for during capacity sales?

The volume of actually supplied capacity is calculated as the maximum (certified) capacity volume multiplied by the availability factor less the own use volume (within the allowance). (If the Supplier exceeds the allowance, he will have to pay for the excess volume multiplied by the capacity availability factor (just like a regular consumer)).

6. What are the main principles of LTCM (Long-Term Capacity Market) participation for cogeneration?

Such generation participates in the capacity selection on the same terms as everyone else. However, a Resolution of the RF Government has instructed the FTS of Russia to develop a series of measures aimed at bringing heat tariffs to an economically justified level.

7. Is the maximum price level in an FFZ (Free Flow Zone) applied to all suppliers in that FFZ (even those that together with their affiliates dispose of less that 15% of the capacity in that FFZ)?

Yes. The maximum price level in an FFZ is applied to all suppliers in that FFZ.

8. Is it permitted to conclude an FCC (Free Capacity Supply Contracts) before the CCS? What happens if the FCC capacity is not selected?

Yes, it is. However, when calculating the actual volume of capacity purchase obligations for the Buyer, only capacity that was selected at the CCS and supplied (certified + available) to the WECM will be counted against these obligations.

9. Do new and existing units participate in the capacity selection on the same terms?

Yes. But if there is not enough supply at the CCS new facilities may participate in the additional selection of investment projects.

10. Will buyers still dispose of the mechanism of selling excess capacity, acquired through FECCs (Free Electricity and Capacity Supply Contracts) for example, after 2011 (if actual peak capacity is lower than forecast)?

As of January 1, 2011 the mechanism of selling excess capacity will no longer be in force. However capacity purchase volumes under FECCs will be lowered if the capacity is unneeded. This means that there will no longer be any excess capacity.

11. Is it crucial to declare CSC (Capacity Supply Contract) capacity into the FTS balance before the competitive selection?

Long-Term CCSs are conducted before the FTS balance for the delivery year is formed (in the future it will be conducted several years before the balance is formed) and participation in the selection is in no way related to the submission of documents to the FTS.

12. What should a Supplier do if the maximum level of capacity payment is not enough to compensate costs?

When filing a bid for the CCS (Competitive Capacity Selection) it is important to take the forecast DAM profit into account. If the maximum level is still not enough, then by filing a bid with an economically justified price that exceeds the maximum level, a supplier will fail to pass the CCS.
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