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Market Opening Experience

Market Opening Experience. Agenda - Introduction - Market Opening Experiences - Conclusions for Turkey. Why reform Electricity Supply Systems? Often heard “reasons”.

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Market Opening Experience

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  1. Market Opening Experience

  2. Agenda- Introduction- Market Opening Experiences- Conclusions for Turkey

  3. Why reform Electricity Supply Systems? Often heard “reasons” Our electricity supply reform aims at introducing competition and private ownership into the former vertically integrated electricity supply system. This introduction shall improve supply quality and ensure lowest possible prices for our consumers. Mismanagement, corruption and wrong investments shall be corrected. We are following the EU: Deregulation, unbundling and electricity markets with competition

  4. In a competitive environment generation and consumption will use the resources more correctly and thus increase the efficiency in the sector In a competitive environment retail business will focus on cost reduction and thus increase the efficiency in the sector The commodity electricity should be traded in line with other commodities like oil, gold, wheat, coffee, cotton The market price for electricity should be used for investment calculations and decisions, not “plans” set up by a monopolist for his supply area (plans backed up by cost recovery) The deregulation facilitates the cooperation between all available resources (instead of local/national you will facilitate regional/international optimization and cooperation) Why Electricity Supply System Reforms? Some good reasons

  5. Nordic? England & Wales? Germany? France? California? Brazil? Australia? Russia? Etc.? Electricity Supply System Reforms Where can we see the success? What does success mean? What shall we look for?

  6. The first electricity supply systems where established (as monopolies) as early as the beginning of the last century It took us 90 years to recognize that they were not efficient enough! We will first be able to judge the last decades reforms in some 20/40/60 years! Electricity Supply System Reforms Let us be honest!

  7. We are replacing the old: local monopoly supply areas with vertically integrated supply company – collective balance responsibility by local supply monopoly – technical models dispatching generation – estimates for future consumption are used for developing plans for future capacity investments – full cost recovery in order to meet the demand increasing supply costs, difficult regulation, no transparencyand sub-optimization Electricity Supply System Reforms The basics

  8. With the new: competition in generation and supply – regulated grids and system operation – market price dispatching generation and consumption – individual balance responsibility supported by real-time balancing activity of SO – investments in capacity left to anyone (public and private) wanting to invest capital increasing supply efficiency, achieving full transparencyand a maximum degree of optimization Electricity Supply System Reforms The basics

  9. Objectives, Instruments and MechanismsTurkey is reforming the electricity supply system by replacing the old monopoly with well designed instruments and mechanisms – goal is to achieve the objectives The objectives should be kept in mind so that the success can be measured (are the mechanisms working and are the instruments good enough) The overall objective is a correct market pricecombined with a well designed framework, which has to secure that the mechanisms are enabled to work Electricity Supply System Reforms What secures a success in Turkey?

  10. Instruments Regulation – sets the framework for the market DAM – pre-balances Turkey a day ahead on an hourly basis –determines the energy price leading to the balance BPM – provides reserves for balancing the system in real-time; –determines the SO’s costs for balancing the system Market Splitting – prices surplus and deficit areas correctly –reduces the flow between congested areas AMR – determines the imbalance settlement volumes SS – cash-settles DAM, BPM and Imbalances Mechanisms Competition – regulates the profit of the competitive part of the electricity supply business (generators, retailers, eligible consumers – facilitates efficiency improvements and optimization Price – The price mechanism is the most important mechanism for generation, demand side and investments BR – Balance Responsibility forces each Balance Responsible to balance his physical with his contractual position and leads to a more or less total system balance Turkish Electricity Market Explanation of instruments and mechanisms

  11. Turkish Electricity Market Market Opening Experience In some years you will be able to talk about your Market Opening Experience Until then you will be able to monitor the success by looking at the market price and analyzing whether the mechanisms are working or not

  12. Agenda- Introduction- Market Opening Experiences- Conclusions for Turkey

  13. It functions as designed! Bad designs have resulted in fatal market collapses (California, England & Wales Pool, etc.) Good designs have resulted in increased efficiency and correct investments/desinvestments Market Opening Experience Overall Experience

  14. Objective is to “slowly and smoothly” transfer the system from the old to the new Pro:The participants can prepare themselves in a more or less controlled environment Con:The mechanisms are only partially enabled to work Market Opening Experience Transitional Phase

  15. What does Transitional Phase mean?- number of eligible participants increases step-by-step- “markets” are released gradually and/or modified during the period Experiences from Transitional Phases:- many have gradually increased the number of eligible consumers (size- dependent), almost all of these had to shorten the planned transitional period, i.e. to release the consumers earlier than planned - many have chosen to release markets imediately in t0 instead of in phases t1, t2 , t3 ...- transitional phases show a tendency of being modified as they are ongoing ... the mechanisms are enabled to work earlier as planned Market Opening Experience Transitional Phase

  16. Why a Transitional Phase?Turkey needs to prepare:- companies have to grow into their new roles and responsibilities- infrastructure has to be modified- know-how and knowledge has to be expanded For you the most important development during this phaseBalance Responsibility will gradually be introduced to more and more participants and the settlement of imbalances will gradually be expanded to reach the desired final design of Imbalance Management Market Opening Experience Transitional Phase in Turkey

  17. Definition- A Balance Responsible has to purchase what it will consume or sell what it will produce in advance of the hour of generation/consumption- The purchase/sell has to be completed before the official deadline for trading (submission of generation schedules), i.e. a day ahead of the next 24 hours of a day’s operation- Any imbalance between contracted and metered volumes will be settled with the Imbalance Price Why?- If each Balance Responsible is in a pre-balance a day-ahead the system is also in a pre-balance a day-ahead- Thus the SO can concentrate on unexpected imbalances in real-time (should not be more than max 3-4% of the consumption) Market Opening Experience Balance Responsibility

  18. General Experience- System Operators always have feared this transfer of responsibility (they have feared too large imbalance volumes in real-time operations)- Many SOs tried to set very high Imbalance Prices to facilitate the balancing efforts, but the result was instead a market disablement due to nobody wanting to be BR- Reasonable Imbalance Prices have shown to be enough facilitation- A clear demand in the regulation (you shall trade into balance, otherwise you risk the loss of your license) and intensive training has shown to be enough Your next taskHow to estimate tomorrow’s consumption/generation/commitment best possible? SuggestionCooperate! Use experience, know-how and knowledge from mature markets! Market Opening Experience Experiences with Balance Responsibility

  19. Agenda- Introduction- Market Opening Experiences- Conclusions for Turkey

  20. Get prepared ASAP- Handling of Balance Responsibility- Risk Management and Portfolio Management- Enable your organization to react fast on changes/modification (things can change or be modified sooner as stated in the plans!) RegulationYou will have a more developed regulation – the transfer from the existing to the new will be finalized end of next year (from T-BSR and DAS over DAS/BPM to DAM, BPM, SS, AMR, the BSR)You should communicate to the rest of the world that this regulation has come to stay! RecommendationDo not try to find the negative sides of the changes … the changes will come anyway … and you will have lost time!Please remember: We are all working for a better and more efficient Turkish Electricity Market. Conclusions What do the experiences learn us?

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