Structure of Presentation

2. Structure of Presentation • CBT congestion management • Long-term objectives • Key developments to date • Planned developments • Focus on the Central-South Region • Cross border allocations in 2006 • Cross border allocations in 2007 • The way forward

3. CBT Congestion Management: objectives • Electricity Regional Initiative (ERI)’s goal is to create seven electricity Regional Energy Markets (REMs) as an interim stage towards a single European electricity market. • Effective market integration requires an efficient mechanism for the allocation of interconnection capacity. • Harmonization of congestion management mechanisms: • Coordination of long term CB capacity allocations; • Flow based market coupling for short-term allocations.

4. CBT Congestion Management: key developments to date • Positive steps, even though integration is proceeding at different paces. • Day-ahead market coupling: • Central-West REM (France-Belgium-Netherlands); • Northern REM (Denmark-Norway-Sweden-Finland); • Coordinated explicit auctions: • Central-East REM: all borders – five coordinated; • Central-South REM: three borders.

5. CBT Congestion Management: planned developments • Planned improvements: • Central East REM: flow-based coordinated CM system; • France-UK-Ireland REM: removal of the reserve price on capacity auction on the French- UK interconnector; • South-West REM: single Iberian spot market. • Northern REM: day-ahead market coupling on the Danish-German interconnectors.

6. Focus on the Central-South REM Key priorities: • harmonization of CBT congestion management methods; • Inter-TSO coordination (harmonisation of operational and security standards) • transparency; • integration of intra-day and balancing markets.

7. Focus on the Central-South REM: Cross border allocations in 2006 • Non-coordinated allocation of interconnection capacity (50/50 approach); • On the 50% capacity allocated by Italy: • short-term: import/export bids to IPEX (implicit auction); • long-term: explicit auction of financial rights. • Critical issues: • lack of coordination; • partial inefficiency (no market coupling).

8. Focus on Central-South REM: Cross Border allocation in 2007 • Coordinated allocation of interconnection capacity on three borders (Italy-France, Italy-Austria; Italy-Greece). • Each country allocates all the available export capacity: • short-term and long term explicit auction of physical transmission rights. • Critical issues: • bilateral, not regional coordination; • no coordination on day-ahead or intraday; • partial inefficiency: no opportunity to allocate spare capacity after the daily explicit auction.

9. Focus on Central-South REM: the way forward • Improvement of regional coordination: • long and medium term allocation (yearly and monthly): guidelines for coordinated explicit auction of physical transmission rights; • short term allocation (daily): guidelines on market coupling.

10. Conclusions • The REMs are a pragmatic approach towards a single European electricity market; • In 2006, the REMs made a number of positive steps towards market integration, especially in the area of congestion management; • Cooperation among regulatory authorities in the context of ERGEG and CEER is essential to reach such results.

11. Conclusions/2 • Further developments towards a single European Electricity Market require parallel improvements of hardware (interconnection expansions) and software (networks and congestion management harmonisation); • To this end, we need: • adequate and binding ETSO agreements involving all the necessary parties, including Switzerland (develop ETSOplus); • shared solutions to the NIMBY problems; • national regulatory authorities with strengthened and harmonised powers together with ERGEGplus.

12. Thank You • More information on the • Central-South Electricity Regional Energy Market • is available at www.ergeg.org • Become an “Online Subscriber” to automatically • receive news from the regions