Recommendation on Georgian Electricity Market Clearing and Settlement Mechanism

The Government of Georgia (GoG) has committed to establishing a liberalized and competitive electricity market, with the main directive, 2009/72/EC, setting the rules for organization and functioning of the electricity sector. This includes open access to the market, criteria and procedures for granting authorizations, and operation of the system. The GoG must implement fundamental changes to electricity trading methods, including a transition from a monthly clearing and settlement period to an hourly or daily clearing with settlement periods of 2-3 days. The Governing for Growth (G4G) program, supported by the United States Agency for International Development (USAID), is assisting the GoG in reform implementation. Key areas of support include providing recommendations on the clearing and settlement mechanism, development of Parallel Market Software, and study of blockchain applications in electricity market clearing and settlement processes. Electricity exchanges typically operate several blind electricity trading markets, including a day-ahead market (DAM), intra-day market (IDM), and balancing market (BM). Clearinghouses are necessary for all blind auctions to act as the entity guaranteeing the purchase or sale of a trade. The terms clearing, settlement, and clearinghouse may carry different meanings in different contexts, but for the purposes of this report, clearing refers to the process of transmitting, reconciling, and confirming payment orders or security transfer instructions prior to settlement. Settlement refers to an act that discharges obligations in respect of funds or securities transfers between two or more parties. The report provides background on the current state of the electricity market in Georgia and the clearing and settlement process. It also provides an overview of the ongoing electricity market reform, the transformation process, and current progress. Best practice examples from the EU are discussed, along with options for clearing and settlement. The report explores the application of blockchain technology in the electricity market and concludes with recommendations on clearing and settlement options for the Georgian electricity market. The report assumes a future market structure based on the "Concept Design for the Georgian Electricity Market" approved by the GoG in December 2018 and the fundamental principles of electricity markets as stipulated under the Accession Protocol to the Energy Community Treaty. The report aims to provide a comprehensive analysis of available alternatives for clearing and settlement mechanisms for Georgia's electricity market and to make recommendations on the most suitable mechanism for the sector. Key findings from the report include the need for a transition from a monthly clearing and settlement period to an hourly or daily clearing with settlement periods of 2-3 days. The report also highlights the importance of implementing a clearing and settlement mechanism that is EU compliant and aligns with international best practices. The report concludes that a centralized clearinghouse is necessary for the Georgian electricity market, and that blockchain technology has the potential to improve the efficiency and security of the clearing and settlement process. Recommendations from the report include the implementation of a centralized clearinghouse that is EU compliant and aligns with international best practices. The report also recommends the use of blockchain technology to improve the efficiency and security of the clearing and settlement process. Additionally, the report recommends the development of a real-time day-ahead market simulation system at the Georgian State Electrosystem (GSE) and the provision of training for electricity traders.