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TAR NC Implementation Document – Second Edition September 2017 |
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Calculation of the fixed payable price
Where the fixed payable price approach is applied, the payable price for a given
standard capacity product at an IP is calculated per formula below.
P
fix
= (
P
R,y
× IND) + RP +AP
Where:
P
fix
is the fixed payable price;
P
R,y
is the applicable reserve price for a yearly standard capacity product published
at the time when the product is auctioned;
IND
is the ratio between the chosen index at the time of use and the same index
at the time the product was auctioned;
RP
is the risk premium reflecting the benefits of certainty regarding the level
of transmission tariff, where such premium shall be no less than 0;
AP
is the auction premium, if any.
The fixed payable price approach is for the yearly standard capacity product. The
reserve price
used in the formula is the one calculated for the annual yearly capac-
ity auction.
As outlined below, the TAR NC allows fixed and floating payable price approaches
to coexist. Co-existence at a given IP needs to be explained as part of the final
consultation under Article 26(1), and approved by the NRA as part of the decision
under Article 27(4). With different network users paying different prices for the same
yearly capacity product, there will be inevitably some form of cross-subsidisation.
The TAR NC mitigates cross-subsidisation to some extent by introducing indexation
(IND) and risk premium (RP) concepts.
Indexation
seeks to reflect the general evolution of prices over time. Different forms
of indexation include financial inflation measures such as the producer price index,
the retail price index and the cost of steel, and an index related to the calculation of
the TSO’s allowed revenue. Although elements of the fixed payable price will be
known at the time of contract signature, the elements will ‘update’ using the relevant
indexation during the period of contract performance. IND stands for the ratio be-
tween the chosen index at the time of the capacity product use, and the same index
at the time of the capacity product auction. Depending on the chosen index, the
fixed payable price could be higher or lower than the corresponding floating paya-
ble price.
The
risk premium
included in the formula should reflect the benefits of certainty
regarding the level of transmission tariff for network users. The risk premium should
simultaneously reflect the TSO’s risk associated with fixing a certain price level over
an extended period, which prevents adaptation as underlying costs change. The
level of such risk premium must be no less than 0
1)
. Generally, a longer time period
justifies a higher risk premium, as the risk of adverse future changes is also higher.
The TAR NC defines the
auction premium
as the
‘difference between the clearing
price and the reserve price in an auction’
. Any auction premium is included in the
fixed payable price.
1) The risk premium can be equal to zero in case the reserve prices exhibit low volatility and therefore, the application of
indexation is the only change.