Balancing Market Overview 28 October 2021 1 Electricity

Balancing Market Overview 28 October 2021 1

Electricity Market Wholesale Market TSO – System Operation Real-time Balancing PX Markets Bilateral (financial) Contracts’ Market Bilateral long-term contract Contract for Differences (Cf. D) and financial contracts Hedging and trading Day-ahead Market (DAM) Physical contracts Balance between generation and consumption is achieved Intraday Market (IDM) Physical contracts Balancing Market System Operation TSO Imbalance Calculation Physical contracts Deviations System Balance Ancillary services Financial Balance of BRPs based on their actions Reference price Fixed price Balance between BRPs Monitoring balance between BRPs System Balance Frequency control Financial Balance ფიზიკური მიწოდება 1 - 10 Year 28 October 2021 24 Hours Intra-day Day of Delivery 1+ Month 2

The TSO is responsible for balancing the system using the newly established balancing market Residual aggregate imbalance Real-time balancing TSO responsibility to balance Area Control Error Balancing Service Provider (BSP) Reserve Power Bids (availability & delivery) System Balance 50 Hz Financial Compensation- Balancing Market System in balance Selection & Activation of Reserve Power Bids TSO’s responsibility is to observe and assume responsibility for aggregate system imbalance remaining at real-time, so that power reaches (technically) safely to the consumers Financial Compensation TSO Energetic Balancing TSO makes use of the balancing services procured through the balancing market to keep the system balanced Financial Compensation Bilateral (financial) Markets 28 October 2021 GEX Physical Markets TSO System Operation Imbalance Settlement Regime 3 3

BRP/ BSP REGISTRATION 28 October 2021 4

Balance Responsible Party (BRP) registration process transmission system operator Distribution System Operator Exchange Operator Who can become Trader Supplier BRP Electricity producer Large customers Wholesale public Service Organization 28 October 2021 5

Balance Responsible Party (BRP) registration process Extract from the register of entrepreneurs and non-entrepreneurial (non-commercial) legal entities Copy of electricity license, if the candidate is not a trader Documentation to be submitted for registration Information on unlicensed activities Information about the balance group(s) Bank account details Before concluding the contract 28 October 2021 collateral 6

Balance Responsible Party (BRP) registration process The registration process lasts 10 working days The process includes: Ø Determine compliance with the requirements of the submitted documentation Ø Determining the suitability of the candidate technical and organizational means, operational communication testing Ø If the registration process is successful, provide a collateral before concluding the contract Ø After signing the contract, for the balance responsible party will be automatically issued an energy identification code (EIC) by TSO Ø Registered in the register of balance responsible parties. Ø The contact person of BRP will be given the user USER / PASSWORD in the Electronic Management System (MMS) 28 October 2021 7

Balance Service Provider (BSP) Qualification. TSO - Certification Authority Through testing Automatic TSO Enguri Vardnili Khrami 1 Airturbin e participant Kirnati Shuakhe vi Khelvach auri . . . ü Until 31 December 2020, the delivery of the balancing product may be carried out by one or more licensees of the electricity activity defined by the law designated by the TSO, who have the ability to deliver the specified product. ü After submitting the registration application, the candidate goes through the qualification stage. The aim is to determine the compliance of technical and organizational facilities with the conditions and requirements for balancing and ancillary services. ü after successfully passing the qualification, a standard BSP agreement is concluded within 3 working days. 28 October 2021 8

BRP/BSP - Suspend, terminate and re-register The grounds and procedure for the suspension and termination of BRP / BSP’s status shall be determined by the BRP / BSP Standard Agreement. ü In case of a status suspension, TSO will suspend the participation of BRP / BSP on the energy market through the electronic management system. ü In case of termination of the contract, TSO will terminate right to participate of BRP / BSP’s on the energy market through the electronic management system. ü To re-enter the market, the relevant participant must go through the BRP / BSP registration procedure. Before concluding a BRP / BSP contract, TSO must assure themselves that the grounds for the earlier termination no longer exist and there are no reasonable grounds suggesting that such reasons may recur. 28 October 2021 9

Balance Responsible Party (BRP) ü BRP is financially responsible for its own imbalance ü BRP consists of 1 or more balance groups ü The BRP forms a separate balance group for 10 MW And more capacity stations / consumption facilities Balance Responsible Party (BRP) balance group 1 balance group 2 balance group 3 10

Examples: Balancing Groups BRP BG N-1 A Production 10 MW B Consumption 5 MW Consumption 11

Examples: Balancing Groups BRP BG N-1 BRP A B Production A (BSP) 110 MW BG N-2 BG N-3 BG N-1 Production Consumption Production B Production C Consumption K Production M 3 MW 9 MW 5 MW 30 MW 12

Example: Balancing Groups – BRP reassignment BRP BG N-1 BRP A B Production A (BSP) 110 მგვტ BG N-2 BG N-3 BG N-4 Production Conpsumption Production B Production C Consumption K Production M 3 MW 9 MW 5 MW 30 MW 13

Examples: Balancing Groups α BRP α A 35 კვ 110 კვ BG N-1 10 კვ α α α Production A (BSP) Consumption 110 მგვტ 14

Nomination 28 October 2021 15

Nomination of BRP Company Nomination BG 1 BRP x Nomination BG 2 BG 1 BG 2 BG 3 Generation Consumption BMO/TSO Nomination BG 3 16

Nomination / GENEX makes nomination per each portfolio per each balance group linked to appropriate BRP. Nomination BG 1 Portfolio x Nomination GENEX DAM/IDM BG 1 Portfolio Y BRP x BMO/TSO Nomination BG 1 Portfolio Z 28 October 2021 17

XB / TDA Nomination Daily nomination GEX / TDA / non TDA Long-term nomination Short-term nomination Operational Month D-45 XB / TDA+non. TDA Monthly nomination Nomination Process D-2 D-1 1 31 Daily nomination

Definition of Operational Modes Dimensioning of Balancing Products 28 October 2021 19

Definition of Operational Modes 220 KV Salkhino 500 KV Kavkasioni Russia 220 KV Adjara 500 KV Mukhranisveli Back-to-Back 400 KV Meskheti 220 KV Alaverdi Turkey 28 October 2021 Armenia 330 KV Gardabani Azerbaijan 20

Operational Modes Russia (500 k. V) # ������ RU Azerbaijan (330 k. V) AZ 1 Azerbaijan (500 k. V) AZ 2 Armenia (220 k. V) AM Frequency 1 GE+RU+AZ 1+AZ 2+AM yes yes IPC/UPC 2 GE+RU+AZ 1+AZ 2 yes yes no IPC/UPC 3 GE+RU+AZ 1 yes no no IPC/UPC 4 GE+RU yes no no no IPC/UPC 5 GE+RU+AZ 2+AM yes no yes IPC/UPC 6 GE+RU+AM yes no no yes IPC/UPC 7 GE+RU+AZ 2 yes no IPC/UPC 8 GE+RU+AZ 1+AM yes no yes IPC/UPC 9 GE+AZ 1+AM no yes AZ 10 GE+AM no no no yes GE-AM 11 GE+AZ 2+AM no no yes AZ 12 GE+AZ 1+AZ 2 no yes no AZ 13 GE+AZ 1 no yes no no AZ 14 GE+AZ 1+AM no yes AZ 15 GE+AZ 2 no no yes no AZ 16 GE no no GE 28 October 2021 21

Dimensioning of Balancing Products in the Important events country The most powerful generation / consumption object in the system including cross-border transmission lines Cross-border operational modes 28 October 2021 ions that may Climatic condit m affect the syste Planned outage and maintenance of cross-border lines Possible changes of frequency caused by switching off the largest load element in the system. PSS/E Other restrictions 22

Balancing Products Emergency Reserve / Fast (automatic or manual) Frequency Restoration Reserve (automatic) FCR Primary Frequency Containment Reserve (automatic) 28 October 2021 a. FRR Secondary m. FRR Tertiary Frequency Restoration Reserve (manual) ERf ERs Emergency Reserve / Slow (manual) 23

Balancing Tools Frequency Containment Reserve (automatic) Frequency Restoration Reserve (manual) Frequency Restoration Reserve (automatic) Emergency Reserve / Fast (automatic or manual) Emergency Reserve / Slow (manual) P f FCR 0 sec 15 sec 30 sec m. FRR a. FRR 5 min 15 min ERf 60 min 95 min ERs time 24

დაბალანსების ხელსაწყოები Balancing service Activation method Activation Time Availability Time Frequency Containment Reserve (FCR) Automatic full response - 30 seconds Availability duration - at least 15 min Automatic Frequency Restoration Reserve (a. FRR) Automatic Full activation and deactivation time - max 5 min Availability duration - at least 15 min Manual Frequency Restoration Reserve (m. FRR) Manual Preparation Period - (0 -15) min; Activation Time - (0 - 15) min Deactivation Period - 15 min Fast Emergency Reserve Manual Preparation Period - (0 -60) min; Ramping time - 0 – 35 min Slow ER Manual Preparation Period - (0 -24) hour; Ramping Time – up to 12 h ER 25

Balancing Capacity and Balancing Energy Tenders 26

Balancing Products, Procured using Tender ü Balancing Capacity (bid of the whole tender): FCR, a. FRR, m. FRR – 1 week product ü Balancing Energy: 1. a. FRR/m. FRR - საბალანსო ელექტროენერგიის ტენდერი იხურება დღით ადრე 15: 00 (CET) a. FRR, m. FRR Preliminary bid Free bid 27

Tender on FCR, a. FRR, m. FRR Balancing Capacity W-10 D Gate Open W-7 D Gate Closure W-1 D Deadline for publishing of results W W+7 D Week of Delivery - FCR, a. FRR ��m. FRR Fallback Procedures (in case of need) 28

Emergency Management 29

Announcement of State of Emergency Situation Operating state subject to the reasonable control of the TSO to eliminate the situation in the Electricity System that causes deterioration of electricity qualitative indicators and putting into operation of system automatic equipment required for maintaining sustainable operation of the Electricity System that may or will be followed by electricity curtailment and disconnection of customers, as well as to prevent the imbalance of electricity supply and consumption 30

Emergency Situation Before Emergency SMS Market Participant NCC E-mail 31

Mitigating Measures Balancing Products ERf & ERs Activation BSP Capacity Reduction / Increase Cross-border Emergency Contracts Cross-border Curtailment Deviation from Nomination Consumption Curtailment 32

Cancelation of the Emergency Situation and Creation of the Justification Report NCC Market Participant 33

Example: Normal Mode Consumption B Production B Transmission Network A Production C Consumption A Transmission Network - TSO Production A 100 MW Transmission Network B Consumption C 100 MW DAM / 30 MW Bilateral Contracts/ 70 MW 34

Examples: Emergency Mode – Production of “Production A” was reduced/curtailed because of its fault Production B +100 MW Consumption B Transmission Network A Production C Consumption A Transmission Network - TSO Transmission Network B Consumption C 100 MW Production A 100 MW DAM / 30 MW Bilateral Contracts/ 70 MW 1. 2. 3. 4. Production of Production A is reduced/curtailed because of his fault. Accordingly, system gets 100 MW deficit; Production B is activated. +100 MW Balancing Energy is activated for the system balancing purposes; Consumption C receives nominated volume with no interruption; Production A will be in imbalance position. 35

Examples: Emergency Mode – Consumption of “Consumption C” was reduced/curtailed because of its fault Production B 100 MW Consumption B Transmission Network A Production C Consumption A Transmission Network - TSO Transmission Network B Consumption C 100 MW Production A 100 MW DAM / 30 MW Bilateral Contracts/ 70 MW 1. Consumption of “Consumption C” is reduced/curtailed because of its fault. Accordingly, 100 MW consumption is lost and system gets 100 MW surplus; 2. Production B is activated. -100 MW Balancing Energy is activated for the system balancing purposes; 3. Production A is generating nominated energy with no interruption; 4. Consumption C will be in imbalance position. 36

Examples: Emergency Mode – Production of “Production A” was reduced/curtailed. Connector transmission line was switched of because of the Emergency incident in the Transmission System of TSO Production B +100 MW Consumption B Transmission Network A Production C Consumption A Transmission Network - TSO Transmission Network B Consumption C 100 MW Production A 100 MW DAM / 30 MW Bilateral Contracts/ 70 MW 1. Production of “Production A” is reduced/curtailed because of the Emergency incident in the Transmission System. Accordingly, system gets 100 MW deficit; 2. Production B is activated. +100 MW Balancing Energy is activated for the system balancing purposes in Emergency situation; 3. Consumption C receives nominated volume with no interruption; 4. Imbalance position of Production A will be correcting by BMO; 5. The cost of balancing energy provided by Production B will be compensated from TSO tariff. 37

Examples: Emergency Mode – Consumption of “Consumption C” was reduced/curtailed. Connector transmission line was switched of because of the Emergency incident in the Transmission System of TSO Production B 100 MW Consumption B Transmission Network A Production C Consumption A Transmission Network - TSO Production A 100 ���� Transmission Network B Consumption C 100 MW DAM / 30 MW Bilateral Contracts/ 70 MW 1. Consumption of “Consumption C” is reduced/curtailed of because of the Emergency incident in the Transmission System; System looses 100 MW consumption, accordingly, system has 100 MW surplus; 2. Production B is activated. -100 MW Balancing Energy is activated for the system balancing purposes in Emergency situation; 3. Production A generates nominated volume with no interruption; 4. Imbalance position of Consumption C will be corrected and undelivered energy will be compensated by BMO in accordance with the DAM price; 5. The cost of balancing energy provided by Production B will be compensated from TSO tariff. 38

Imbalance Calculation 39

Calculation of Imbalance Volume Imbalance of BRP 5 (MWh) Delivery 150 Metered Power System Imbalance (MWh) Plan 110 Nominated Production Balancing Energy Imbalance BRP aggravating 135 BRP mitigating -120 System imbalance 15 Imbalance volume for 1 ISP 40

Total i. Mbalance and Imbalance Price Total imbalance volume for an ISP is calculating using the following formula: Total imbalance price for an ISP is calculating using the following formula: Imbalance price Imbalance volume Total cost of activated balancing energy Metered power Imbalance volume Nominated volume Activated balancing energy 28. 10. 2021 GSE 41

Imbalance Calculation BSP 1 40 GEL/MWh - 35 MWh m. FRR BSP 2 44 GEL/MWh - 2 MWh a. FRR BSP 3 60 GEL/MWh - 3 MWh BSP 4 64 GEL/MWh- 1 MWh = (35 + 2) * 44 + (3 + 1) * 64 = 1884 GEL Imbalance cost TSO pays to BRPs Imbalance cost BRP pays to TSO = (15+20+35+60+5) - (30+40+20+30) = 15 = 1884 GEL / 15 MWh = 125, 6 GEL/MWh 28. 10. 2021 GSE 42

Collateral and Financial settlement 43

Financial Settlement-Imbalance Settlement cost of imbalance settlement Cost of aggravating imbalance BRP Cost of balancing energy activated for system balance BRP 1 month TSO (BSP) 1 month BRP Cost of mitigating imbalance 44

Financial Settlement TSO tariff TSO pays for TSO pays Remuneration of balancing capacity BRP Compensation mechanism in case of emergency BRP Remuneration or f balancing energy activated operational purposes BRP (BSP) 45

Financial Settlement TSO receives for BRP Explicit cross-border capacity auction • Demand for more than the available capacity pays DSO TSO Financial Settlement with the distribution system operator according with compensation mechanism 46

METERING ü BRPs can view daily hourly aggregated data of the balancing group in MMS. ü Receipt of final metering data - on the 7 th bussiness day after the end of the invoicing month ü The final correction of the annual data takes place (if necessary) once a year on 10 th January of the following year. 30/ 31 01 Invoicing month 01 7 BD 30/ 31 Receipt of final metering data 47

Collateral - to ensure the cost of the imbalance BRP Deposit to account Bank guarantee q Collateral is presented for only to insure the payment of the cost imbalance value q Collateral is submitted one day before the end of the month to ensure the imbalance of the following month q Collateral is valid for at least 50 calendar days from the beginning of the reporting period COLL= Fsys. error * EM * PM I-IV month Fsys. error - Deviation between last year country resource factual and forecasted values (in percent) EM - activated/ consumed energy in the corresponding month of the previous year in MWh (if any), Or forecasted amount for the following month of the current year (in case of new facilities and traders). PM – Balancing electricity price for the last completed month. COLL= Fsys. error * EM * PM 48

Collateral - to ensure the cost of the imbalance from Vth -month COLL = Average (in ; in-1 ; in-2) * 50/30 Average (in ; in-1 ; in-2) - Invoiced amount for aggravating imbalance for the last three months 50/30 - collateral validity period / amount of calendar days within invoicing month. 49

Collateral Payment cycle and scheme of using collateral 50

Thank you for your attention QUESTIONS? CONTACT US ON info. BM@gse. com. ge 51