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CIGRE C5 Workshop 21-23 September 2003, Brasilia Emerging Markets - the European Experience

CIGRE C5 Workshop 21-23 September 2003, Brasilia Emerging Markets - the European Experience. Paul Giesbertz KEMA Consulting Europe. Contents. Developments in European Union Two cases: Netherlands Russian Federation.

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CIGRE C5 Workshop 21-23 September 2003, Brasilia Emerging Markets - the European Experience

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  1. CIGRE C5 Workshop21-23 September 2003, BrasiliaEmerging Markets - the European Experience Paul Giesbertz KEMA Consulting Europe

  2. Contents • Developments in European Union • Two cases: • Netherlands • Russian Federation – Proprietary & Confidential –

  3. Implementation of the EU-Directive(on Internal Electricity Market 96/92/EC) – Proprietary & Confidential –

  4. Liberalisation: European Directive - Overview - • In force since February 19, 1997 • Main provisions: • Minimum of 30% market opening until 2005 • Unbundling (accounting) • Nomination of transmission system operators • Choice between TPA (regTPA or nTPA) or Single Buyer • Authorisation or tendering for new generation => Every member state tries to find a unique solution... – Proprietary & Confidential –

  5. Liberalisation: European Directive - Many options for implementation - Example of Germany and the Netherlands • Germany • Network accessnegotiated TPA or single buyer • Eligibility100% from start on • Unbundling: organisation and accounts • no national regulator • Netherlands • Network accessregulated TPA • Eligibility stepwise to 100% in 2004 • Unbundling legal • independent regulator – Proprietary & Confidential –

  6. Liberalisation: European Directive - November 2002: agreement on Revised Directive • New directive to complete the internal energy market of the EU (power and gas) • obligation to set up a regulator • stronger regulation of cross-border exchanges • new generation based on authorisation only • Non-households eligible until July 2004 • 100% eligibility until July 2007 • legal unbundling for TSOs and DSOs – Proprietary & Confidential –

  7. Obstacles for establishment of internal market • High level of market power of generators & low liquidity in wholesale & balancing markets • High network tariffs • Uncertainty about network tariffs • Disparities between access tariffs between network operators • Insufficient unbundling • Differential rates of market opening • Insufficient interconnection infrastructure – Proprietary & Confidential –

  8. Market splitting Auction Pro rata, %-utilisation, first-come-first-served, draw, other Monopoly „Open border“ Market fragmentation by network constraints Limitation of cross-border flows by network constraints aggrevates the development of a truly European power market Note: - Arrows show direction. - situation as of June 2001 – Proprietary & Confidential –

  9. Power exchanges in Europe • Most European countries have decided for a bilateral market structure • In many countries, bilateral trading (OTC) has been supplemented by the creation of voluntary power exchanges (PX) • Several TSOs operate a balancing market for rt balancing Power Exchanges in Europe • Nordpool/Scandinavia (1991) • OMEL/Spain (1994) • APX/Netherlands (1999) • EEX (LPX)/Germany (2000) • PolPX/Poland (2000) • Borzen/ Slovenia (2001) • OPCOM/Romania (2001) • Powernext / France (2002) • IPEX / UK (2002) • UK PX (2002) – Proprietary & Confidential –

  10. Transmission System Operators (TSOs) in Europe CIGRE WG39.05 TSO model is standard modelExamples: TenneT (Netherlands), Fingrid (Finland), Svenska Kraftnät (Sweden), Statnett (Norway), REE (Spain), CEPS (Czech Republic), REN (Portugal), Elia (Belgium) Transmision Asset Owner Market Operator System Operator – Proprietary & Confidential –

  11. 2004 candidates Current EU member states 2007 candidates CIGRE TF C5-2-1: Classification of Electricity Markets Worldwide – Proprietary & Confidential –

  12. EU Extension – candidate countries • 2004: • Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic, Slovenia • 2007: • Bulgaria, Romania, Turkey (?) – Proprietary & Confidential –

  13. European Union: more information • Second benchmarking report on the implementation of the internal electricity and gas market • Brussels, 7.4.2003; SEC(2003) 448 – Proprietary & Confidential –

  14. Case 1:the Netherlands – Proprietary & Confidential –

  15. Date Market volume opened Number of eligible customers 1998 32% 650 2002 66% 55 000 2004 100% All The Dutch Power Market - Market Opening – Proprietary & Confidential –

  16. The Dutch Power Market - APX • APX operates a day-ahead market since May 1999 • Portfolio bidding – central market clearing • For 24 hours day-ahead • February 2001: introduction of Adjustment Market (intra-day) • Continuous trade – no market clearing • Low volumes • APX has gradually developed • Now: 39 participants & 18% of Dutch market • Daily record on 30-12-2003: 65701 MWh • Volume on DAM: 14.12 TWh (in 2002), 8.24 TWh (2001), 4.62 TWh (2000) – Proprietary & Confidential –

  17. The Dutch Power Market - APX • Until 1-1-2001 market was dominated by “Protocol” • Pool between 4 generators operated by Sep • DisCos contracted from Pool against Bulk Supply Tariff • Trade on APX covered import and trade between DisCos – Proprietary & Confidential –

  18. Netherlands E.ON Netz TenneT Germany RWE Net Elia Belgium The Dutch Power Market – other developments since 1-1-2001 • TenneT (TSO) operates a balancing market (Market for Regulating Power & Reserve) • Market participants can bid on this market, TenneT is “Single Buyer” • Resulting price is used to settle all energy imbalances • TSO Auction (TenneT, Elia, RWE Net, EON Netz) auction cross-border capacity • NL-BE, NL-EON and NL-RWE • Yearly, monthly, daily – Proprietary & Confidential –

  19. Netherlands E.ON Netz TenneT Germany RWE Net Elia Belgium The Dutch Power Market – other developments since 1-1-2001 • TenneT (TSO) operates a balancing market (Market for Regulating Power & Reserve) • Market participants can bid on this market, TenneT is “Single Buyer” • Resulting price is used to settle all energy imbalances • TSO Auction (TenneT, Elia, RWE Net, EON Netz) auction cross-border capacity • NL-BE, NL-EON and NL-RWE • Yearly, monthly, daily – Proprietary & Confidential –

  20. The Dutch Power Market – APX results: traded volumes until 2002 – Proprietary & Confidential –

  21. Price development at APX (NL) in 2002 Repeated occurrence of high prices – Proprietary & Confidential –

  22. Case 2:the Russian Federationsources:Presentation at the informal seminar of EU Energy Ministers by A. Chubais (RAO UESR), April 2002Presentation “The Power Market Model ” in Russia by O.Barkin (ATS), Oct. 2002 – Proprietary & Confidential –

  23. RAO UES of Russia in the country’s energy sector 407 thermal and hydropower plants with installed capacity of 156,000 MW 2,7 mn km of power transmission lines - 96 % of the total length in Russia 627 bln kWh of electricity generated - 72% of the total generation in Russia Total 2001 sales - USD 16,3 bln. 668,000 employees – Proprietary & Confidential –

  24. 1990-s: increase in electric power generation in CIS countries and RAO UES of Russia Bln.Kw/h Total generated electric power in CIS countries 1632 1700 1525 1600 1433 1500 1267 1303 1400 1266 1244 1234 1212 1208 1191 1300 1200 1100 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 692 Bln.Kw/h Total generated electric power by RAO UES of Russia 690 647 675 630 660 615 627 645 623 608 630 604 602 615 600 2001 1993 1994 1995 1996 1997 1998 1999 2000 – Proprietary & Confidential –

  25. Solving the non-payment problem in RAO UES of Russia: 1998 - 2001 Total losses of RAO UES of Russia due to non-payments, mln USD (upon Deutche Bank estimates) 112 101 120 15 47 14 100 13 12 92 80 11 8000 48 7069 33 10 7000 60 9 8 22 6000 40 7 17 6 5000 20 5 15 4000 4 3 0 8 2826 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 3000 2 5 4 9 1 1998 1999 2000 2001 7 1 6 2000 0 3 2 % cash payments for electric power supplied 0 1000 0 1998 1999 2000 – Proprietary & Confidential –

  26. Wholesale Generating Companies Wholesale Generating Companies О Г К О Г К RAO UES of Russia: reform through 2004 Year 2002 Year 2004 Federal Grid Company 52/48% RAO UES of Russia RAO UES of Russia Federal Grid Company 100% 52/48% 100% System operator System Operator Trading System Administrator 52/48% 100% Regional energos АО-энерго АО-энерго Interregional grid companies grids Interregional generating companies sales generation – Proprietary & Confidential –

  27. The participants and infrastracture of wholesale power market SELLERS : BUYERS : Commercial infrastructure Thermal Power Plants Trading System Administrator Large Consumers Hydro Power Plants System Operator Aggregated Customers - through Suppliers Nuclear Power Plants Federal and regional Grid Companies Export Operators Other Generators Technological infrastructure – Proprietary & Confidential –

  28. The basic process of competitive wholesale electricity market Trading (Х-1) Delivery Day (Х) Accounts (Х+1) Sellers Bids Trading results (price, quantity ) Payments Supply Trading Day Ahead Market Balancing Market (dispatching) Collection of accounting data Accounts Long-term contracts CapacityReserving Bids & guarantees Consumption Trading results (price, quantity) Payments Buyers – Proprietary & Confidential –

  29. The basic principles of future competitive wholesale electricity market • Energy Pricing based on Locational Marginal Pricing (Nodal Pricing). The nodal price components are: generation cost + marginal transmission losses+ congestion cost • Central Unit Commitmentand Security Constrained Dispatch • Day-ahead market (forward) • Real-time balancing market • United bid for day-ahead and balancing market • Financial form for long-term contracts. The physical bilateral contracts are allowed only in cases where no constraints are secured (for example - direct supply from power plant to large industrial consumer) • FTR (Financial Transmission Rights) mechanism for transmission constraints hedging – Proprietary & Confidential –

  30. Major restrictions of the transition model • To preserve the regulated sector (FOREM) for 85% of electricity consumption and 85% of planned volumes of production of each supplier • To introduce the competitive sector for 15% of hourly electricity consumption • To grant equal possibilities for participation in the competitive sector for each consumer and supplier • To «connect» both sectors by a uniform process of forming the schedules of capacity loads and introduction of modes – Proprietary & Confidential –

  31. Driver: attrackt investments • Model: • SO & MO & TR • Pool & nodal pricing • Driver: competitiveness • Model: • TSO • Voluntary PX & bilateral contracts – Proprietary & Confidential –

  32. Thank you for your attention!Questions? Pgiesbertz@kemaconsulting.com

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