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Regional Transmission Network Development: Implications for Trade and Investment

Regional Transmission Network Development: Implications for Trade and Investment. Key Regulatory Issues For The Future George Koutzoukos Special Advisor, Regulatory Authority for Energy (RAE Greece) November 11-12, 2009.

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Regional Transmission Network Development: Implications for Trade and Investment

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  1. Regional Transmission Network Development: Implications for Trade and Investment Key Regulatory Issues For The Future George Koutzoukos Special Advisor, Regulatory Authority for Energy (RAE Greece) November 11-12, 2009

  2. The South East Europe Coordinated Auction Office(SEE CAO) Dr George E. Koutzoukos RAE Chairman SEE CAO IG

  3. Regional Electricity Markets • Regional electricity markets established under the energy acquis of the EU, constitute the stepping stones towards the internal market across Europe, • “Regional electricity market”, a market with no barriers to electricity cross border trade; • To remove such barriers efficient, transparent, non discriminatory congestion management of electricity interconnections is fundamental, • A common coordinated congestion management method and procedure shall apply in each Region while,such mechanisms must be compatible to ensure that stakeholders are not confronted with incompatibleregional systems, • Small markets need to integrate to create “critical mass and to dilute market power of local incumbents

  4. The SEE Electricity Region (i) • On June 27th, 2008 the Energy Community Ministersdecided for the implementation at regional level of acommon procedure for congestion management atborders and transmission capacity allocation (Regulation EC 1228/2003 and Its Annex of Congestion Management Guidelines of 2006)thereby effectively establishing the so-called 8th Electricity Region • The 8th Electricity Region includes the following territories: Albania, Bosnia & Herzegovina, Croatia, the former Yugolsav Republic of Macedonia, Montenegro, Serbia, the territory under administration by the United Nations Interim Administration Mission in Kosovo (pursuant to United Nations Security Council Resolution 1244), Bulgaria, Greece, Hungary, Romania, Slovenia and Italy. • Transmission System Operators and Regulators were invited to put in place the necessary agreements and mechanisms by the end of 2009.

  5. The SEE Electricity Region (ii) • This Decision constitutes a concrete step towards the SE Europe Regional market and its integration to the European energy market, • The signature by the TSOs of the Region on December 11th, 2008, in the presence of the Ministers, of the MOU to implementat common procedures for congestion management methods and the establishment of a CAO in SEE proves their de facto commitment andsignals to all regional stakeholders that the regionalmarket process is in evolution and to start planningtheir resources accordingly

  6. The SEE Electricity Region (iii) • The SEE CAO is the basic regional instrument to implement the SEE Electricity Region, • Given overlappings between the members of the 8th region and the ERGEG Electricity Regional Initiative (ERI) Regions, Central East and Central South andhaving in mind the ERI already operates and develops best practise solutions since spring 2006, it should be useful for the 8th Region to align with the ERI practises

  7. Implementation of Regulation 1228/2003 (i) • Most TSOs perform explicit NTC based auctions for yearly and monthly allocation of capacity, only some perform also weekly and few daily • Most TSOs do not perform coordinated auctions. Instead in most cases each TSO auctions its slice of the available capacity (“capacity split”). • Both “clearing price” and “pay as bid” are used • Products offered to auction are not regionally standardised • There is no “secondary market” for cross border capacity, although most TSOs allow free of charge transfer of allocated capacity • Transparency requirements are not fulfilled, and the quality of the data provided to market participants is in most cases poor and not homogeneous within the region.

  8. Implementation of Regulation 1228/2003 (ii) • Overall compliance with the Regulation and its Guidelines is poor • The implementation of auctions that are not coordinated even bilaterally constitutes an important barrier to cross border trade, leads to distorted price signals and impedes market integration • Stakeholders complain for limited access to cross border capacities

  9. Why a CAO (i) • The establishment and operation of the SEE CAO as the single auction office, applying harmonisedCM rules across the SEE Region approved by the ECRB, is a crucial development for the proper implementation of the Cross Border Regulation and its CMG. • The CAO shall speed up transition from the coordinated explicit NTC(ATC) based auctions to the coordinated flow based auctions that shall increase available capacity for cross border trade, improve efficiency and SoS

  10. Why a CAO (ii) • Expected advantages of the SEE-CAO using coordinated flow based auctions are : • better utilisation of existing interconnections; • higher level of transmission system security; • regional trading activities facilitation due to the efficient use of network capacities and the increase of firmness of transactions; • increased transparency among all parties involved; • encouragement of infrastructure investments (due to transparent and easier trading possibilities also with other areas in Western Europe); • basis for further development and more sophisticated allocation

  11. CAO Duties (i) • Conduct auctions for crosscross-border transmission capacity allocation at the regional level, • Develop, test and implement coordinated flow based methodology for transmission capacity allocation • Operate secondary PTRsmarket, • Act as central counter-party for auction revenues clearance (auction revenues first accrue to the CAO that distributes them to TSOson the basis of a previously agreed allocation scheme),

  12. CAO Duties (ii) • Evaluate and manage risk exposure (credit risk), determine and administer appropriate risk management instruments, • Until conditions allow to migrate to the coordinated FBA procedure: • Develop and implement as an interim tool, a harmonised scheme for regional market cross border transmission capacity allocation based on harmonised NTC(ATC) auctions, • Follow developments of the SEE and other Regions’ markets and submit proposals for further market integration, • Security of Supply remains a duty of TSOs

  13. The influence of external factors • Convergence and coherence with neighboring regions (e.g. CEE & CSE) is important • Theproper integrationof Tradersin themarket is a preconditionforthe CAO to function effectively • Thesuccessof the CAO islinked to hollisticapproachfortheregional Market in SEE, involvingfactorslike: • Licensingharmonisation, • Cost-reflective Tariffication, • Investment in Generation Capacity, • Wholesale Market Opening, • Regional Balancing Market, • Regionally coordinated system planning

  14. The CAO Legal Form (i) • An entity with independent legal personality and legal capacity • Constituted and operating under the laws of its Host country (legal status of CAO headquarters, privileges and immunities if any etc..) • In the form of a not-for-profit companyestablished by the participating TSOs • CAO equity equally covered by the participating TSOs • Participation is open to all TSOsof the 8thRegion (either as founding stakeholders or joining at a later stage through a specified procedure)

  15. The CAO Legal Form (ii) • The founding documents must clearly determine : • As the sole object/purpose of the Company, the implementation, for and on behalf of the participating TSOs, of the coordinated congestion management mechanism. This mechanism : • is proposed by the TSOs and approved by the Regulators, • must comply with the EU Cross Border Regulation and its Congestion Management Guidelines applicable in the Energy Community, • The rights and obligations of : • the CAO • its shareholders • the market participants

  16. CAO MONITORING • As the CAO is a regional Institution it is reasonable to involve the regional regulatory Board, i.e. the ECRB, in CAO Monitoring in close cooperation with National Regulatory Authorities (NRAs) • As long as an NTC approach is implemented, ECRB to issue non binding recommendations • Each NRA shall formally approve SEE CAO related documents on a national basis, giving utmost consideration to the ECRB recommendations • In case the decision of the NRA deviates from ECRB recommendations, the NRA shall justify its position to the ECRB • Once FBA is implemented, the ECRB role shall be enhanced • The ECRB Section of the Energy Community Secretariat in cooperation with the ECRB EWG shall draft monitoring procedures and data

  17. Thank you for your attention Dr George E. Koutzoukos Regulatory Authority for Energy (Greece) koutzoukos@rae.gr www.rae.gr

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