HELLENIC TRANSMISSION SYSTEM OPERATOR

1. HELLENIC TRANSMISSION SYSTEM OPERATOR THE NEW MARKET MODEL AND GRID CODE IN GREECE Dr. Evangelos Lekatsas Chairman of the Board of Directors, HTSO Bucharest 3-5 April, 2006. HTSO

2. INTRODUCTION The scope of this presentation is two-fold: to provide a brief and comprehensive outline of the conceptual design of the basic building blocks of the Greek Electricity Market Model that was introduced with Law 2773/99, as amended by Laws 3175/2003 and 3426/2005, and specified in detail by the New Code in May 2005, and to describe the recent decisions taken to increase the capacity of the interconnections with neighboring countries, thus enhancing competition. HTSO

3. THE LEGAL FRAMEWORK (I) • All non-residential electricity consumers on the interconnected system are Eligible Customers (60.1%) • As of July 1st, 2007 all consumers are defined as Eligible Customers • Free access of Producers, Suppliers and Customers to the Transmission System in a transparent, economic, direct and non- discriminatory way • Secure the adequacy and reliability of the System to cover the demand (in short and long run) HTSO

4. THE LEGAL FRAMEWORK (II) • Organize and Operate the Market ensuring its economic functioning with prices reflecting the cost of electricity delivered. • Organize and regulate the access to Transmission and Distribution Grids. • Establish the legal and operational unbundling of both the TSO and the DSO from Production and Supply. • Reinforces the role of the HTSO (Planning, expanding, enhancing and modernizing the System) • Increases the Competencies of the Regulator , etc. HTSO

5. The New Market Model The new model consists of two markets: • A Capacity Assurance Market. • A Wholesale Energy Market.

6. Market Participants • Producers, i.e. production license holders having Generation Units registered with the Generating Unit Register; • Suppliers, i.e. supply license holders; who have the right to buy, import, export, transit, sell or resell electric energy to End Users or other Suppliers. • Self-Supplying Customersi.e. Eligible Customers who have the right either to import or to buy energy through the Energy Transactions System (Wholesale Energy Market) for their own exclusive use. HTSO

7. The Capacity Assurance Market The Capacity Assurance Market is subdivided into two main parts: • A free approach mechanism, designed to ensure the on-going entry of new capacity into the market in line with the continual growth in demand expected over time; and • An ad hoc mechanism, designed to encourage new entrants to commit to the commissioning of new plants in an appropriate time. HTSO

8. The free approach mechanism is based on contracts for power between suppliers and producers. • Suppliers are obliged to secure Capacity Availability Agreements with Producers sufficient to meet their expected load, plus a prescribed security excess Capacity Margin. • Producers, in order to enter into C.A. Agreements with suppliers, are obliged to have sufficient Capacity Availability Certificates or CACs by commissioning new generators to deliver the contracted power. HTSO

9. CAPACITY AVAILABILITY CERTIFICATES (CACs) • CACs represent a promise to maintain a certain level of technical availability of the generation unit in the future • One CAC, having a written form, refers to capacity of 1 MW with a Reference Period of 1 year • by submitting the CAC to the Register the production license holder accepts: • expressly and unreservedly all CAC terms including • terms of the proposed Capacity Availability Agreement • (CAA) to be subsequently concluded with a supplier • to keep in an equitable manner the promises included in all CACs referring to the same generation unit and having the same Reference Period HTSO

10. The ad hoc approach mechanism The ad hoc approach mechanism is introduced, as a transitional phase, in order to face urgent requirements for new capacity. The HTSO, rather than relying on suppliers to conclude contracts with producers (new generators), acts as an intermediary between the producers with new generators and the existing/new suppliers by launching a Call for Tenders. The Tender is awarded to the producer who offers a part of his issued CACs to HTSO asking, in return, the minimum annual guarantied amount of money per MW of the new generator he will build. It is hoped that this mechanism gives adequate incentives to producers to build new generating units and makes their projects bankable. HTSO

11. CAPACITY ADEQUACY MECHANISM • in the framework of the approved long term energy planning: • the HTSO carries out a special study entitled “Capacity • Adequacy Study” for the adequacy of system power capacity and adequate reserve margins, which is approved by the Ministry of Development following opinion of RAE • this study determines the total power capacity up to which the HTSO is permitted to conclude Capacity Availability Agreements after conduct of auction • for the first implementation of this capacity adequacy mechanism (up to 2010) the upper capacity limit is put at 900 MW and this could be increased by 400 MW in maximum. HTSO

12. AUCTIONS FOR CONCLUSION OF CAPACITY AVAILABILITY AGREEMENTS Subject and scope of auctions for the conclusion of CAAs up to 900 MW • provide investors with guarantee for revenues required to cover a part of the investment cost of their new generation units –provide revenues security corresponding to partial coverage of a producer license holder to recover a part of the investment cost of the unit through conclusion of CAAs and the Economic Agreement for Revenues Guarantee (EARG) contracted with HTSO • the HTSO will ensure that the counterparts will obtain, after subtraction of all relevant operational costs, net residual at least equal to their offer assuming keeping of EARG terms • the maximum amount guaranteed by HTSO is the outcome of relevant study carried out by RAE • the minimum annual amount of guaranteed revenues by the HTSO will remain constant throughout the guarantee period, subject to be decreased, according to the terms of EARG HTSO

13. The Wholesale Energy Market The Wholesale Energy Market comprises four Function Modes: • The Day-Ahead Scheduling Mode (DAS); • The Day-Ahead/Intra-Day Dispatch Scheduling Mode (DS); • The Real-Time Dispatch Mode (RTD); and • The Ex-Post Imbalance Pricing Mode (EPIP). HTSO

14. The Day-Ahead Scheduling Mode (I) The Wholesale Energy Market is a day-ahead mandatory pool scheme that provides a day ahead price based upon the supply/demand balance. It ensures efficient short term dispatch taking into account: • generation unit constraints (technical minimum, ramp rate, etc.), • reserve requirements and • a simplified transmission system zonal constraint mechanism. HTSO

15. The Day-Ahead Scheduling Mode (II) The day-ahead procedure will produce a single SMP (System Marginal Price in €/MWh) for each settlement period (1 hour) and a 24 hour production schedule for each unit and each settlement period in MWh. The solution of the day-ahead procedure is based on the co-optimization of the Energy Offers (Energy Market) and Reserve Offers (Balancing Market) in order to satisfy the energy balance and reserve requirements. HTSO

16. The Day-Ahead Scheduling Mode (III) • Offers will be firm at the day-ahead market. The generators must maintain their availability as declared. Changes in availability will result in an exposure to the Ex-post Imbalance Settlement Price. • Demand declared by suppliers will also be firm and deviations will be liable for settlement at the Ex-post Imbalance Settlement Price. • During the Day Ahead Settlement, generators will be paid at the day-ahead SMP for their scheduled generation. • Suppliers will pay the day ahead SMP for their declared load. HTSO

17. The Dispatch Scheduling Mode In the period between the day-ahead stage and the real time dispatch (the operational timescale), the HTSO will always try to keep the system in balance by: • receiving re-declarations from producers when there has been a change in the availability of their units; • responding to other changes in the system such as variation in demand or modifications to international flows; • adjusting unit commitment and scheduling to reflect the above changes and to face possible inter-zonal transmission system constraints; and • using ancillary services (primary, secondary and tertiary reserve) according to the day-ahead schedule, in real time, to keep the system in balance. HTSO

18. The Ex-post Imbalance Settlement • At the Ex-post Imbalance Settlement stage, real system demand, balanced by the real production of the units is used to determine the Ex-post Imbalance Settlement Price (ex-post SMP). • Imbalances are specified at a unit level for producers to ensure an accurate allocation of deviations between the day ahead and actual dispatch. HTSO

19. INTERCONNECTION ACCESS RIGHTS • Suppliers are allowed to import, export and transit energy • Producers are allowed to export energy • Eligible customers have the right to import energy for their own consumption • Suppliers, Producers and Eligible Customers exercise their access rights through submission of offers for inclusion to Day Ahead Schedule HTSO

20. Interconnection transmission capacity • HTSO determines in cooperation with neighbouring TSOs the: • interconnection transmission capacity for each or group of interconnection lines • transmission reliability margin • net transmission capacity and also the: • long-term committed transmission capacity • available transmission capacity separately for energy Imports and Exports. HTSO

21. Long term allocation of Interconnections capacity • allocation on a long term basis of up to 1 year • HTSO conducts explicit auctions at regular intervals for each or group of interconnection lines (terms of auction, available transmission capacity zones, threshold for bid price) • classification of bids in descending order • auction price equals the offer price of the first MW not selected – zero auction price in case of satisfaction of all bidders requests for transmission capacity • payment by the auction winners of auction price irrespectively of using their attributed capacity HTSO

22. HTSO