Baltic Ring Electricity Co-operation Committee

1
Baltic Ring Electricity Co-operation Committee
2
Contents

• Introduction
• BALTREL Study programme 1999-2002
• Conclusions
• Reporting
• In depth material

3
1. Introduction
4
Russia
Finland
Norway
RAO EES
Rossii
Fingrid
EBL
JSC
Lenenergo
Fortum
Yantarenergo
JSC
Sweden
Estonia
Svenska Kraftnät
BALTREL
Vattenfall
Eesti
Energia
AS
Denmark
Latvia
ENERGI E2
JSC
Latvenergo
Elkraft System
DC
Baltija
Lithuania
Germany
Belarus
JSC
Lietuvos
Poland
E.ON
Energie
AG
Energia
VEAG
Belenergo
Polskie Sieci
Elektroenergetyczne
SA
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The BALTREL vision is to create a common
openelectricity market

• Improving infrastructure for electricity
  exchange and trade
• Creating conditions for competition based on
  responsibility for efficiency and reliability
• Giving equal rights to all market participants
  and increasing customers right of choice of
  power supplier
• Achieving environmental improvements by taking
  environmental effects into account in
  generation, transmission and trade

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Electricity Supply in the Baltic Sea region
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The BALTREL study programme, 1999-2002

• Common rules for deregulated electricity markets
• Common technical rules for transmission grid
  operation and development aimed at supporting
  an open market
• Kyoto mechanisms
• Long-term options joint study of the gas and
  electricity sectors

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BALTREL Studies
The Baltic Ring Study, Phase II Part1
Appropriate Environmental Matters (Kyoto
mechanisms) Part 2 Network development aspects
of a Common Electricity Market Part 3
Operational network aspects of a Common
Electricity Market   Study period July 1999
September 2002 Budget 3 230 000 EURO Financing
50 BALTREL 50 by EU,
Trans-European Networks-ENERGY sector     Common
Rules for the Electricity Market   Study period
July 1999 September 2002   Financing 100
BALTREL
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BALTREL Studies
An Integrated Gas and Electricity Study in the
Baltic Sea Region Carried out by BALTREL and
the Baltic Gas Group Study period July 1999
August 2001 Budget 2 500 000 EURO Financing 25
BALTREL 25 Baltic Gas 50 by
EU, Trans-European Networks-ENERGY sector
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2. BALTREL Study programme 1999-2002
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The old model
Electricity supply
High Voltage

Distribution
Generation

Sales
End

Transmission


user
Retailer
The new model
Wholesale
Retailer

Market



Market
Power
End
Exchange


user
Generation

High Voltage

Distribution

Transmission TSO

Transmission
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Studied parts
Wholesale
Retailer

Market



Market
Power
End
Exchange


user
Generation

High Voltage

Distribution

Transmission TSO

Transmission
13
The BALTREL study programme, 1999-2002

• Common rules for deregulated electricity markets
• Common technical rules for transmission grid
  operation and development aimed at supporting
  an open market
• Kyoto mechanisms
• Long-term options joint study of the gas and
  electricity sectors

14
Common rules for deregulated electricity markets
Intensive work has been devoted to the question
of how the market and regulations should be
designed to enable a functional market to be
established, thus creating the conditions for
sustainable competition. The result is a number
of position papers that describe the model which
is or should be the common reference point and
which the various parts in the Baltic Sea region
must converge towards if a common market is to be
gradually developed.
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The wide variation in the national market
perspective will diminish
/MWh
40
30
20
10
0
2005
2010
2015
National Market, low price country
National Market, high price country
Common Regional Market, low price country
Common Regional Market, high price country
16
Price volatility on the wholesale market in the
Baltic Sea region
Peak
Off peak
Spikes in peak
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Congestion management

• Congestion problems should be managed with
  market-based solutions.
• In the beginning explicit auctions or
  coordinated redispatching across national
  borders, are likely to be used in.
• Grid capacity must be utilized to the maximum in
  order to minimize the negative effect of
  bottlenecks on electricity trading.
• Temporary bottlenecks should be managed in an
  economically efficient manner that
  simultaneously provides incentives for
  investments in both grid and generation
  facilities in the right places, e.g. by
  counter-trading.
• Structural bottlenecks should be managed by
  market splitting
• It is recommended that the focus in further
  discussion should be on a combination of
  market splitting for structural bottlenecks and
  counter-trading for temporary bottlenecks, as
  a way of solving the problem of congestion in the
  future.

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Common technical rules for transmission grid
operation and development aimed at supporting an
open market
A common BALTREL Reference Grid Code has been
developed for the high-voltage networks. Both
operational and planning aspects are considered
here, taking into account the existence of the
three synchronous areas with different described
technical rules.
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Kyoto mechanisms
The opportunities available for jointly solving
or handling important environmental matters have
been dealt with in a special sub-project, in
which investigation has been focused mainly on
Kyoto mechanisms of high relevance for the
region, i.e. Joint Implementation and Emissions
Trading, especially their role in a Baltic Sea
region testing ground for Kyoto mechanisms.
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JI models

• Four models studied
• Binding obligation model A company that is
  subject to some kind of obligations carries out a
  Joint Implementation project.
•  
• Tax refund model The Joint Implementation
  project is set against the domestic tax sum in
  the donor country.
•  
• Government purchasing model A government
  purchases the emission in another country and
  makes the project feasible.
• Clearing house model An independent entity
  such as a clearinghouse is carrying out some of
  the JI-related activities.

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Kyoto targets can be reached for the regional
perspective
Mtonne CO2
2000
Germany
1800
Poland
Combined Kyoto Goal is just under 1600 Mton CO2
1600
Belarus
1400
NW-Russia
1200
Lithuania
1000
Latvia
800
Estonia
600
Finland
400
Sweden
Norway
200
Denmark
0
1990
1995
2000
2005
2010
2015
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Kyoto and environment

• The achievement of a common electricity market
  in the Baltic Sea region is also coupled to a
  common responsibility regarding the environment.
• Environmental goals in the Baltic Sea Region is
  strongly dependent on political decisions.
• It is most important that policies and measures
  should be introduced at the lowest possible
  cost. Abatement costs could be minimized by using
  comprehensively the flexible mechanisms of the
  Kyoto Protocol. Trading is a preferable
  market-oriented instrument.
• To be successful, it is important to remove
  cross-border obstacles reducing efficiency.
• Early action of Kyoto Mechanisms.

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Long-term options joint study of the gas and
electricity sectors
The fundamental hypothesis was that natural gas
would be one of the most appropriate
alternatives for the next generation of
electricity generation, the links between
electricity and natural gas were studied in a
special project, in cooperation with Baltic Gas
the BALTREL sister organization for the gas
industry in the Baltic Sea region.
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Generated electricity from gas fired power plants
as a function of gas price
TWh
350
300
250

200

150

100

2005
2015
10 /MWh
12 /MWh
8 /MWh
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Utilization of a Combined Cycle Gas Turbine in
the Baltic Sea region with oil price and
electricity price (indexation 2015 level)
Utilization
100
90
6800 hours
80
70
60
50
4800 hours
40
30
20
10
0
1
4
7
week
10
13
16
19
22
25
28
31
34
37
40
43
46
49
52
without coupling
with coupling
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Security of supply
BALTREL believes that the power market can
provide enough incentives for sufficient new
production capacity in the future, if

• it is understood that volatile and temporary
  higher prices than the long-term price of new
  capacity are likely and are a sign of good market
  functionality
• prices are based on demand-supply balance,
  without being biased by system operators,
  authorities and governments
•   
• the lead time for approval by the authorities of
  new generation capacity is shortened as much
  as possible, thus removing time consuming
  procedures that have no added value from the
  environmental perspective.

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Security of supply for entire Baltic Sea
regionSurplus of generation capacity
MW
40000
35000
30000
10
National market
25000

20000
6

Common regional market
15000
5

4

4

10000
5000
0





2000
2005
2010
2015
2020

Finland, Norway, Sweden
Belarus, NW Russia
Denmark, Germany, Poland
Estonia, Latvia, Lithuania
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3. Conclusions
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Conclusion 1
The reference alternative to a controlled and
gradual development towards a common electricity
market is an uncontrolled and irregular
development of cross-border trade in the Baltic
Sea region.
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Conclusion 2
At an overall level, the joint, thought-through
solution would undoubtedly always be the most
cost-effective and rational alternative. Its
weakness is the decision process itself, since
this would be based on a number of different
decisions in different countries, which makes
matters difficult and delays them, particularly
in cases where there are undesirable effects for
the individual country, even though the entity
would be improved.
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Conclusion 3
The basic principle for common solutions should
be that whoever benefits also pays the costs for
achieving the benefit.
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Conclusion 4

• Development must take place step by step.
• Important matters, such as financing of
  fundamental investments in transmission
  infrastructure of a cross-border nature in the
  risk situations prevailing on markets exposed
  to competition, are still unsolved.
• It is important to find solutions that guarantee
  cross-border capacity investments that
  correspond to market needs.

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Conclusion 5

• Auctioning of transmission capacity is a first
  step in market-based trade.
• Before more integrated market relations can be
  established, the infrastructure should be
  strong enough to prevent market splitting.
• Spot market trading must be based on the full
  existing internal transmission capacity.
• The last stage is a full Baltic Sea region
  market with very close cooperation of all
  power exchange or even one merged power exchange
  for the whole region.

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Auctioning of transmission capacity is a first
step in market-based trade
Conclusion 5a
A BALTREL Reference Grid Code has been developed
for the infrastructure in order to allow for a
developed market within the framework of the
existing synchronous systems. The next step in
this work is an intensified dialogue in this
matter between the three frequency systems
affected, i.e. IPS/UPS, Nordel and UCTE.
35
Before more integrated market relations can be
established, the infrastructure should be strong
enough to prevent market splitting
Conclusion 5b

• The study indicates that development towards free
  trade does not require a huge enlargement of
  the total transmission capacity in the Baltic Sea
  region. Trade on a deregulated market allows
  for more efficient use of the grid.

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Spot market trading must be based on the full
existing internal transmission capacity
Conclusion 5c
In the long term, congestion management problems
must be solved by the establishment of new links
and, where appropriate, by investments in new
generation capacity. The BALTREL study has found
that some new links are difficult to finance in a
deregulated environment. Some funds can be
raised from congestion management, but full
financing will generally require some form of
additional financing.
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The last stage is a full Baltic Sea region market
with very close cooperation of all power exchange
or even one merged power exchange for the whole
region.
Conclusion 5d
Building new transmission lines is comparable to
building highways and other infrastructure.
Financing of new transmission capacity should
therefore be dealt with in a way that distributes
the cost to all the beneficiaries. Profits from
new investments go to generators and traders,
costs are borne by transmission system operators.
Transmission system operators should therefore be
allowed to recover money from the network users.
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Conclusions 6 Financing
In principle three ways for financing the
necessary investments in infrastructure can be
identified

• By the transmission system operators acting as
  representatives for the whole electricity
  market
• By investors who are interested in using the
  connection and who then have priority in
  conflict with the basic principles of open
  electricity markets
• Public funding. In order to avoid obvious risks
  for conflicts with the basic principles of
  open electricity markets this alternative must be
  restricted to truly exceptional cases

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Conclusions 7
For transmission projects to materialize and to
receive financing both well defined markets that
pay back the investments and strong commitment
are needed. Transmission system operators must
be allowed to make investments that are able to
cover costs in a long-term perspective without
political restrictions.
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5. Reporting
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Towards a common electricity market in the
Baltic Sea region
Executive Report presenting results and
conclusionsof the BALTREL Study
Programme1999-2002 Co-financed by European
Commission TransEuropean Network Program (TEN
Energy Program)
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Towards a common electricity market in the
Baltic Sea region
The present situation in the Baltic Sea region
electricity supply and the vision of a common
electricity market Key issues studied A
continued development towards a common
electricity market in the Baltic Sea region
1. 2. 3.
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(No Transcript)
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6. In depth material
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Electricity Supply in the Baltic Sea region
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Bilateral model Binding Obligation
1. Bilateral agreement
Donor Government
Host Government
2. Licencing
2. Licencing
4. Reporting
4. Reporting
3. Project contract
Donor Company
Host Company
Project realisation
47
Bilateral model Tax Refund
5. Reporting
1. Jl agreement
Donor Government
Host Government
Tax authority
5. Reporting
Validation
6. Tax refund
2. Arrangement
Donor Company
Host Company
3. Approval
4. Project realisation
48
Bilateral model Government Purchasing
7. Reporting
1. Jl agreement
Donor Government
Host Government
4. Approval
2. Arrangement
PurchasingBody
5. Financing
7. Reporting
2. Arrangement
Donor Company
Host Company
3. Investment possibility
6. Project realisation
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Bilateral model Clearinghouse
Reporting
Jl agreement
Donor Government
Host Government
Project arrangement
2. Arrangement
Clearing house
7. Reporting
Project arrangement
Donor Company
Host Company
Investment possibility
Project realisation
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Gas demand in the Baltic Sea region
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Interconnectors and links 1
Project (connection substations)
Voltage
Length
Expected NTC operation mode
400 kV AC
Poland Kaliningrad region (Elblag
Kaliningrad)
100 km
600 MW BTB station
Poland Lithuania (Elk Alytus)
400 kV AC
154 km
600 MW BTB station
Poland Belarus (Narew/Podlaska Beloozerska)
400 kV AC
90 km
1000 MW radial operation of Belorussian power
plant
Poland Slovakia (Byczyna Varin)
400 kV AC
ca. 135 km
under study new synchronous link
Poland Germany (Mikulowa Hagenverder)
400 kV AC
under study installation of phase shifting
transformers on existing synchronous link

400 kV AC
not defined yet new synchronous link
ca. 200 km
Poland Germany (not defined yet)
further internal lines needed within relevant
power systems
52
Interconnectors and links 2
Project (connection substations)
Voltage
Length
Expected NTC operation mode
400 kV DC
Denmark West East (Fraugde Herslev)
60 km
200 - 600 MW HVDC submarine cable
Germany Norway (Elk Alytus)
400 kV AC
580 km
600 MW HVDC submarine cable
Denmark West internal (Aalborg Aarhus)
400 kV AC
117 km
2000 MW new synchronous link
Sweden Norway (Borgvik Hasle)
400 kV AC
100 km
increase of 350 MW reinforcement of existing
synchronous link (thermal upgrade)
Sweden Norway (Jarpstrommen Nea)
300 kV AC
increase of 120 MW reinforcement of existing
synchronous link (thermal upgrade)
70 km
53
Interconnectors and links 3
Project (connection substations)
Voltage
Length
Expected NTC operation mode
330/132 kV
Russia Norway (Kola Kirkenes)
AC ca. 200 km
250 MW BTB station
Russia Finland (Kola Pirttikoski)
330/400 kV
AC 290 km
500 MW BTB station
Russia Finland (North West TPP/Vyborg
Kymi)
330/400 kV
AC 252 km
increase of 400 MW reinforcement of existing
asynchronous link (new lines)
Finland Estonia (Helsinki Veskimets)
under study
100 km
315 MW HVDC Light submarine cable
the project is already decided, expected
commissioning end of 2002
54
Identified issues
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Matters that need to be processed further

• To analyze how elements of general trading
  policy should or can be applied to the
  electricity market.
• To analyze a synchronous solution in comparison
  with an asynchronous alternative.
• Open and profound analysis of system
  responsibilities.
• Harmonization of environmental regulations and
  requirements in the Baltic Sea region.
• Matters exerting influence on the supply
  situation in a longer term must be analyzed
  further in order to avoid future capacity
  shortages.

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Open and profound analysis of system
responsibilities

• Harmonized transmission cost for generation
•  
• Removal of cross-border tariffs
• Settlement of transit costs between transmission
  systems operators
•  
• Well-functioning congestion management
  (combination of market splitting and
  counter-trading)
• Decisions on new interconnections based on
  market needs and sound economic grounds
• Neutral and reliable balance service management
  and settlement

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What role can BALTREL play?

• There is a continuing need for the electricity
  industry in the Baltic Sea region to keep up a
  dialogue about common issues of market and
  infrastructure.
• The dialogue must be carried on internally
  between the companies concerned and also
  externally with organizations such as CBSS,
  BASREC, and relevant parts of the European
  Union as well as with other electricity industry
  organizations.
• BALTREL is a player representing the regional
  electricity supply industry in this dialogue.