Sin ttulo de diapositiva

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2005 APEX Conference Orlando, 31th October 2005
SESSION 3 PANEL DISCUSSION NODAL/ZONAL PRICING.
Maria Luisa Huidobro President CEO of OMEL
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NODAL/ZONAL PRICING SOLUTIONS

• Driven by the capacity of the transportation
  network available in the system
• If there is relatively week network. Nodal
  pricing
• If there are very few internal structural
  congestions. Zonal pricing (the existing internal
  constraints will be solved later by
  counter-tradding)
• Several nodes connected by non-overloaded lines
  will have the same nodal price.
• Multinode (zonal) price leads to zonal/system
  price
• The single price solution, when viable (few
  internal constraints), has the advantage of the
  transparency of the results

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COOPERATION BETWEEN ORGANIZED MARKETS TROUGH
MARKET COUPLING

• Why a methodology of cooperation between
  interconnected organized markets in Europe ?
• Maximum price convergence between all cooperating
  markets in case of congestions
• The energy flows from the low price area to the
  high price area
• Maximum use of the limited cross-border capacity
• Equal price if there are no congestions
• Enlarge the relevant market and therefore
  decreases the market power of the regional
  participants
• Is the only way to apply in a consistent manner
  the use it or lose it rule of the long term
  physical rights over the interconnection
  capacities
• Allows market bids and bilateral trades to
  compete under the same conditions
• Makes clear that, when liquid markets exist,
  explicit auctions of the capacity are pure
  financial hedging tools.

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BORDER BETWEEN PORTUGAL AND SPAIN. Recommended
solution MARKET SPLITTING

• LONG TERM Hedging of price differences between
  Portugal and Spain using financial instruments.
• Long term explicit cross border rights provide
  more opportunities for market power abuse than
  financial instruments, with no additional fair
  benefits for participants over financial
  instruments
• Every market participant can hedge the price
  difference risk using a financial instruments,
  without the restriction that the explicit
  auctions have derived from the limited commercial
  capacity
• DAY-AHEAD market splitting.
• It is the only solution that do not distort
  artificially the day ahead prices in both
  systems.
• It can be implemented immediately, since it could
  be independent of the MIBEL official opening.
• Since the energy that crosses the border do not
  belong to any particular participant, it is the
  procedure that creates less market power abuse
  opportunities being impossible to leave the
  commercial capacity empty, if economically makes
  sense that it is occupied.
• Since long term hedging is done financially, all
  commercial capacity will be utilized in the
  Day-ahead market splitting.
• Only commercial capacity that is physically
  available will be used (no artificial minimum
  capacities) in order to avoid market price
  artificial distortions and market power abuse
  opportunities
• No discrimination between bilateral contracts and
  market participants
• REAL TIME SECURITY redispatching.
• The redispatching horizon should be limited to
  the period between intra-day markets never
  invading hours with a true both sides market
  (demand and supply) pending (1 or 2 hours)

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BORDER BETWEEN FRANCE AND SPAIN. Recommended
solution MARKET COUPLING (I)

• LONG TERM Hedging of price differences between
  France and Portugal using financial instruments.
• Long term explicit cross border rights provide
  more opportunities for market power abuse than
  financial instruments, with no additional fair
  benefits for participants over financial
  instruments
• Every market participant can hedge the price
  difference risk using a financial instruments,
  avoiding the physical limitation that the
  explicit auctions have, due to the limited
  commercial capacity available for each auction
  and the impossibility of netting.
• DAY-AHEAD market coupling.
• It is the only solution that do not distort
  artificially the day ahead prices.
• It can be implemented immediately, prior to other
  French borders where the flow of electricity
  through one border is influenced by the flow
  through other borders
• Since the energy that crosses the border do not
  belong to any particular participant, it is the
  procedure that creates less market power abuse
  opportunities being impossible to leave the
  commercial capacity empty, if economically makes
  sense that it is occupied.
• Since long term hedging is done financially, all
  commercial capacity will be utilized in the
  Day-ahead market coupling.
• Only commercial capacity that is physically
  available will be used (no artificial minimum
  capacities) in order to avoid market price
  artificial distortions and market power abuse
  opportunities

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BORDER BETWEEN FRANCE AND SPAIN. Recommended
solution MARKET COUPLING (II)

• INTRADAY MARKETS market coupling.
• A Market Coupling mechanism should be developed
  to couple the two existing intraday adjusting
  mechanisms in France and in Spain (intraday
  markets in Spain and intraday and/or balancing
  markets in France)
• All market participants, even the ones that have
  scheduled a bilateral contract, should be allowed
  in these mechanisms. Forbidding the participation
  of some agents in these mechanisms would create
  market power abuse opportunities
• REAL TIME SECURITY redispatching.
• The redispatching horizon should be limited to
  the period between intra-day markets never
  invading hours with a true both sides market
  (demand and production) pending (1 or 2 hours)

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PENDING PROBLEMS FOR JOINING/COUPLING ELECTRICITY
MARKETS

• IDENTICAL REGULATIONS ARE NOT NECESSARY
• SOME LEVEL OF HARMONIZATION IS IMPERATIVE
• IN LESS REGULATED SYSTEMS, THE REGULATION COULD
  BE SUBSTITUTED BY COMMERCIAL AGREEMENTS BETWEEN
  MARKET/SYSTEM OPERATORS

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IF MARGINAL TECHNOLOGY IS COMBINED CYCLE GAS
TURBINES, THEN

• THE MARGINAL PRICE OF ELECTRICITY WILL BE
  CONDITIONED BY THE GAS PRICE
• IF ELECTRICITY INTERCONNECTIONS ARE WEAK, GAS
  CONNECTIONS OR REGASIFICATION PLANTS CAN SERVE
  FOR THE SAME PURPOSE
• ENOUGH GAS STORAGE IS NEEDED