Status and Trends of the development in the European Electricity Market

1
Status and Trends of the development in the
European Electricity Market

• Hamburg, April 14, 2005
• Carlo Degli Esposti
• Technical and Economical Advisor

2
Storyboard
Introduction ETSO and the IEM status
CBT Agreement 2005 and perspectives for 2006
Congestion Management and Market Power issues
Development of RES PP in the IEM
The Security of Supply
Conclusions
3
ETSOEuropean Transmission System Operators

• ETSO was established in 1999 at the request of
  the European Commission
• Direct membership of all independent TSOs in the
  EU and associated countries
• ETSO is the only EU wide
• organisation specifically for TSOs
• 38 members at present and growing

Full Members Associate Member
4
Main Objectives of ETSO

• To ensure the development of the EU Internal
  Electricity Market while maintaining the security
  of supply
• To co-operate with organisations and
  institutions having similar objects EC,
  ERGEG/CEER
• The investigation and solution of regulatory
  issues of common interest to the TSO industry

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IEM implementation present status

• A single internal electricity market to be built
  with
• - many congested borders
• - many countries with one or a few national
  champions
• and competition mainly driven by
  cross-border trade

6
Storyboard
Introduction ETSO and the IEM status
CBT Agreement 2005 and perspectives for 2006
Congestion Management and Market Power issues
Development of RES PP in the IEM
The Security of Supply
Conclusions
7
The CBT Agreement 2005

• Implemented successfully for 2005
• It refunds TSOs for the use of national
  transmission networks by cross-border trade
  (transits)
• Funding based on physical net flows metered by
  TSOs
• Cost of the HN still based on annual national
  regulated costs
• 20 countries involved, 31 Transmission Operators
  participation

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New challenges for 2006

• New mechanism to account transit flows and
  related losses under study, but is it worthy to
  complicate?
• LRAIC definition a difficult solution
• Scarce information available for some
  transmission asset costs (especially from East
  Europe)
• cost of capital, depreciation rates, operation
  and maintenance expenses depending on
  operational practice and regulatory framework

9
Storyboard
Introduction ETSO and the IEM status
CBT Agreement 2005 and perspectives for 2006
Congestion Management and Market Power issues
Development of RES PP in the IEM
The Security of Supply
Conclusions
10
Congestion Management

• Congestion Management still a key issue for the
  creation of an efficient IEM
• the EC Regulation is in force since 1st of July
  2004 and
• high expectations on the publication of the new
  detailed Guidelines on Congestion Management in
  2005
• high expectations on the EC initiative of the
  mini-fora
• TSOs are at the core of congestion management
  issues

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Flow-based Market Coupling (FMC)
In cooperation with

• A Joint ETSO-EuroPEX Proposal
• for Cross-Border Congestion Management
• and Integration of Electricity Markets in Europe

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Origins of FMC
Flow-based Market Coupling
ETSO-EuroPEX JWG
Flow-based modelling
Market coupling
ETSO
EuroPEX
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FMC - Key issues

• FMC enables a suitable balance between effective
  congestion management and efficient energy
  trading
• The key is to introduce an administered FMC
  scheme at the day-ahead stage, allowing
  flexibility in forward market, intraday market
  and balancing arrangements
• Further investigation of technical, regulatory
  and contractual matters is necessary

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Market Power Issues

• One of the two main conclusions on CM of the 11th
  Florence Forum
• Market power issues identified as an horizontal
  question common to all parts of the EU
• ETSO invited to co-operate with ERGEG and the EC
  in this field and report back at the next Forum
• ETSO developments in the past years
• 2003 successful ETSO conference
• high level conference to address the key issues
• 2004 more in depth work was asked to be done
  before ETSO takes a position
• Cambridge study seems to provide the necessary
  basis

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Goals of ETSO on Market Monitoring

• ETSO possible targets in Market Power monitoring
  are
• Design congestion management methods which
  maximise the market efficiency (i.e. robust
  schemes to prevent market power)
• Investigate the potential role of TSOs to
  contribute actively to market monitoring
• Design methods and tools to monitor indicators
• Promote new theoretical work by universities

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Storyboard
Introduction ETSO and the IEM status
CBT Agreement 2005 and perspectives for 2006
Congestion Management and Market Power issues
Development of RES PP in the IEM
The Security of Supply
Conclusions
17
Offshore Main Driver for future RES Capacity
in Europe?
Installed capacity in MW
28.500
75.000
180.000

70.000
onshore
x 2,4
offshore
10.000
x 2,6
20031
20102
20202
1 Status quo 2003 /Source EWEA 2 Targets EWEA

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Wind Turbines cannot replace traditional Power
Plants

• Need for back-up capacity in case of calm or storm

• Capacity credit of German wind turbines only
  about 8
• Future offshore-boom will result in increasing
  local concentration of installed wind turbines
• Decrease of capacity credit down to 5

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Wind Energy - an international subject
Wind energy offshore

• - Wind affects flows in foreign grids
• Wind limits cross-border trade
• Faults in the grid have negative
• impact on neighbors
• Wind expansion leads to additional
• wind energy export
• Non-harmonized support schemes
• can lead to bottle necks
• Priority dispatch
• distorts the market

DK
cross-border capacity (MW)
1200
today
0
XXX
XXX
1400
in 2010 with strong wind
0
NL
D
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What needs to be done ?
? Commission Report 2005 on RES promotion in
Europe
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A sustainable Wind development
22
Storyboard
Introduction ETSO and the IEM status
CBT Agreement 2005 and perspectives for 2006
Congestion Management and Market Power issues
Development of RES PP in the IEM
The Security of Supply
Conclusions
23
ETSO recommendations for SoS

• To maintain balance between supply and demand,
  ETSO considers, as essential elements
• The establishment and maintenance of an efficient
  electricity market
• A market based pricing of electricity in
  competitive markets
• A clear definition of the roles and
  responsibilities between the TSOs and market
  players
• Consistency of definitions of the TSOs' system
  responsibility
• A TSOs' active involvement in market design to
  ensure system integrity

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Establishment and maintenance of an efficient
electricity market

• Pre-requisites for an efficient and attractive
  market
• Stable investment climate and regulatory
  framework with transparent and enforceable rules
  that are respected by all market players
• Competitive power market structure to ensure easy
  access for all players
• Market places that cover all time horizons
• for physical power trade/contracts and balancing
  power
• for financial instruments to be used in risk
  management
• No restrictions on the choice of instruments to
  manage the risks
• Consistency of regional rules to ensure a neutral
  and non-distorted playing field for competition

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Market based pricing of electricityin
competitive markets

• Market places should be able to provide credible
  prices for electricity and financial products in
  a market-oriented way without any intervention by
  the authorities or the TSOs
• Market prices reflect as far as practical also
  consumers' willingness to pay for electricity
• Market based prices incentivise generators and
  suppliers to meet their delivery commitments

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Clear definition of roles and responsibilities

• Definition of the roles and responsibilities is a
  precondition for economic incentives to become
  efficient driving forces
• In order to give the right signals for the market
  a clear distinction of the roles and
  responsibilities between the market players, TSOs
  and the authorities is needed
• Market players are responsible to meet their
  commitments in power deliveries in all time
  scales
• TSOs' responsibility to maintain the
  instantaneous balance between supply and demand
  should in principle be directed only to the
  procedures and the operational reserves necessary
  to fulfil this task within given operational
  security constraints
• Authorities are responsible for the overall
  market design and framework for security of
  supply with a duty to react if needed

27
Storyboard
Introduction ETSO and the IEM status
CBT Agreement 2005 and perspectives for 2006
Congestion Management and Market Power issues
Development of RES PP in the IEM
The Security of Supply
Conclusions
28
Conclusions (1)

• ETSO and CEER to develop guidelines for assessing
  the appropriate level of investment in
  infrastructure
• Specific procedures for faster authorisation to
  build new lines
• TSOs to be associated when taking final decisions
  on grid and generation investments
• A European balance forecast and warning signals
  to be produced by TSOs

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Conclusions (2)

• Binding reliability standards at the European
  level for system operation including further
  preventive measures for TSOs
• Harmonise transmission tariff policies in the EU
  to improve coherence in generation investment
• Efficient unbundling also in non-EU countries to
  facilitate information exchanges between TSOs
• Encourage RD programs on reducing the cost of
  EHV underground cables and control of power system

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Conclusion (3)

• Since '99, the new National Regulators have
  sometimes set up inconsistent rules (making it
  necessary to adopt a single basic Regulatory
  framework to be in place in 2004)
• European Institutions and some National
  Regulators have focused on market issues, often
  considering Power System reliability issues as
  "barriers to trade" and discarding technical
  Power System issues as "details"...

No sound engineering without a sound Regulatory
framework!