Progress with market integration: European initiatives and impact on FUI

1. Progress with market integration: European initiatives and impact on FUI Adeline Lassource (CRE) Charlotte Ramsay (OFGEM) 10th FUI SG, London, 11th March 2011

2. European Council Conclusions, 4th Feb 2011: • “The internal market should be completed by 2014 so as to allow gas and electricity to flow freely. This requires in particular that in cooperation with ACER national regulators and transmission systems operators step up their work on market coupling and guidelines and on network codes applicable across European networks”.

3. Progress to date … • CWE market coupling • TLC  CWE coupling • ITVC between CWE & Nordic regions) • “AHAG” – stakeholder group • Implementation projects and roadmap … • North West Europe TSO projects • Day ahead & Intraday coupling • Price Coupling of Regions (PCR) • PX initiative (NWE region + Spain & Italy)

4. Framework Guidelines and Network Codes • Technical and Market based Codes • Legally binding rules covering issues relevant to cross border trade and related system operation • Framework Guidelines: Set high level principles for the code (Regulators) • Network Codes: Necessary steps to implement FG (TSOs) • Market integration codes: • Capacity Allocation and Congestion Management (CACM) – in progress • Balancing – FG drafting begins Summer 2011

5. Context: CACM Framework Guideline • Following the adoption of the Third Energy Package, the Commission invited ERGEG to draft a FG on Capacity Allocation and Congestion Management (CACM) • A specific project team was created inside ERGEG ENM TF to draft the Initial Impact Assessment (IIA) and the draft Framework Guideline (FG) • A workshop was organised on 18 October 2010 • The public consultation on the ERGEG draft FG was closed on 10 November 2010 • After the entering into force of the Third Energy Package (3rd March 2011), the Agency shall submit within maximum six months a non-binding framework guideline for cross-border network issues and market integration issues

6. Context: CACM Network Code • EU Regulation requires an increased cooperation and coordination among TSOs to create network codes for providing and managing effective and transparent access to the transmission networks across borders • Network codes shall be in line with Framework Guidelines • As soon as the FG on CACM will be finalised, ENTSO-E has 12 months to submit to the agency the Network Codes •  to be implemented by 2013 • In order to involve all stakeholders during the drafting of the Network codes, ENTSO-E envisages a group similar to AHAG led by ENTSO-E to support the development of the network codes. This group will follow all the codes to ensure consistency in the approaches of the codes

7. CACM: The Target Model • The FG covers most of current Congestion Management Guidelines content (except Transparency which is covered separately) • Scope and level of detail goes beyond the CM Guidelines, reflecting experiences since 2006 • The FG provides an answer to these issues: • Capacity Calculation • Delimitation of Zones • Day-ahead Market • Forward Market • Intra-day Market

8. CACM Target Model (1/3) • Capacity Calculation: • TSOs define and implement either Flow-Based (in meshed grids) or ATC method • Zone delimitation: • Definition: a zone corresponds to a bidding area, • Objective: overall market efficiency, taking into account network topology and contributing to correct price signals • Process: proposed by TSOs, reviewed by NRAs after market consultation

9. CACM Target Model (2/3) • Capacity allocation methods for the day-ahead market: • TSOs, in cooperation with PXs, implement capacity allocation on the basis of implicit auctions via a single price coupling algorithm which determines at the same time the volumes and prices in all relevant zones • Capacity allocation methods for the forward market: • the options for enabling risk hedging for cross-border trading are Financial Transmission Rights (FTR) or Physical Transmission Rights (PTR) with UIOSI (Use-It-Or-Sell-It) • unless appropriate cross-border financial hedging instruments are offered in liquid financial markets.

10. CACM Target Model (3/3) • Capacity allocation methods for the intraday market: • Continuous implicit trading, including reliable pricing of capacityreflecting congestion (i.e. in case of scarce capacity), automatic matching, appropriate block bids and sophisticated products where needed; • A pan-European capacity management module (CMM) allocating continuouslycapacity. Once allocated, capacity is firm.Where applicable, until the full implementation of the provisions of these Framework Guidelines in the CACM Network Code(s), the CMM may provide direct access for bilateral supply (OTC) contracts to the capacity. • A shared order book function provided with the bids submitted by all participating PXs and intraday platforms and real-time information on available transmission capacity.

11. How to reach target model in the FUI? • Focus on day-ahead • Work is needed between TSOs and PXs to implement a proper market coupling between the FUI region and the CWE region • Long term: • Compatibility of the platforms for anonymous secondary trading at least at regional level • General requirements and provisions also clarify other issues for the FUI region: • Clear framework for firmness before and after nominations of LT capacities except in case of force majeure. Physical firmness is the preferred approach • Physical firmness for DA trades even in case of force majeure

12. Thank you for your attention! www.energy-regulators.eu