Cost of new entry (CONE)
'Cost of new entry’ (CONE) encompasses both fixed and variable cost of new entry.
According to the Methodology described in the Annex I to the ACER Decision No 23/2020 of 2 October 2020 on the Methodology for calculating the value of lost load, the cost of new entry, and the reliability standard (VOL CONE RS)):
1. ‘fixed cost of new entry’ is the total annual net revenue per unit of de-rated capacity (net of variable costs) that a new capacity resource would need to receive over its economic lifetime in order to recover its capital costs and annual fixed costs;
2. ‘variable cost’ (‘variable cost of new entry’ (CONEvar) for new entries or ‘variable cost of renewal or prolongation’ (CORPvar) for existing capacity resources that are renewed or whose lifetime is prolonged), is:
- in the case of a generation or storage resource, the average variable cost of generation over the economic lifetime of that resource. The variable cost of generation includes fuel costs, CO2 emission costs and other variable operating expenditures (other variable OPEX) over the expected duration of operation of the resource expressed in monetary units per generated MWh; or
- in the case of a DSR resource, the average of the minimum market prices for activation of that particular capacity resource over the economic lifetime of that resource;
3. ‘other variable OPEX’ are non‐fuel or emission related operating costs and maintenance costs, that may be scheduled based on the operation of the capacity resource.
According to Article 25 of the Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast) when applying capacity mechanisms the EU Member States must have a reliability standard in place.
This reliability standard must be calculated using at least the CONE and the value of lost load (VoLL) over a given timeframe.
Regulation 2019/943 further sets out a detailed framework for the assessment of resource adequacy. This includes meticulous steps to identify and address any potential resource adequacy concerns. As part of this framework, ENTSO-E has been tasked with developing a methodology for calculating VOLL, the CONE and the reliability standard. Pursuant to Article 25(2) of the Regulation 2019/943, the reliability standard shall be set by the EU Member State or by a competent authority designated by the Member State, and shall be based on the specific calculation methodology. Pursuant to Article 23(6) and (7) of the Regulation 2019/943, ENTSO-E was required to submit the proposal for the VOLL/CONE/RS methodology by 5 January 2020 for ACER’s approval in accordance with the procedure set out in Article 27 of the Electricity Regulation. As specified in Article 27 of the Regulation 2019/943, within three months of the date of receipt of this proposal, ACER shall either approve or amend it. In the latter case, ACER shall consult ENTSO-E before approving the amended proposal.
The said procedure was finalised by the ACER Decision No 23/2020 of 2 October 2020 on the Methodology for calculating the value of lost load, the cost of new entry, and the reliability standard (VOL CONE RS). The respective methodology is laid down in the Annex I to the above ACER Decision.
According to the VOLL/CONE/RS methodology, the calculation of CONE has to consider all possible resources (so-called reference technologies) that have the potential to contribute to adequacy, i.e., generation (including renewal and prolongation of existing units and renewable energy resources), demand response and storage. The reliability standards are defined based on the CONE of the marginal resource available to provide additional capacity.
As underlined by the ACER document of October 2022: “Security of EU electricity supply in 2021: ACER Report on Member States approaches to assess and ensure adequacy”, the inclusion of demand response (as well as storage and renewable energy resources) in the calculations of CONE was a key methodological improvement introduced in the Regulation 2019/943 and further developed in the VOLL/CONE/RS methodology. According to the said document of October 2022, the reliability standards are defined based on the CONE of the marginal resource available to provide additional capacity. The ACER also shows the fixed CONE and the relevant reference technology that defined the reliability standard as calculated for ten Member States. Fixed CONE refers to the total annual net revenue per unit of de-rated capacity (net of variable costs) that a new capacity resource would need to receive over its economic lifetime, in order to recover its capital costs and annual fixed costs and is calculated according to Article 15 of the VOLL/ CONE/RS methodology. While the variable costs may also be taken into account in the calculation of the reliability standard, the fixed CONE is generally the most decisive parameter of the two. In six cases, the most efficient resource to provide additional capacity is low-cost demand response. For Germany and Luxembourg, the reliability standard is an average of relevant annual calculations for the years 2023-2031 and includes years when the resource defining the reliability standard is an open cycle gas turbine and years when it is demand response. In the common German and Luxembourg case, the open cycle gas turbine technology becomes the one setting the CONE in years when the potential for additional demand response is exhausted. For Slovenia, the minimum CONE value is presented.