Market Coupling: Progress with coupling FUI and CWE region Charlotte Ramsay Ofgem

1. Market Coupling: Progress with coupling FUI and CWE region Charlotte Ramsay Ofgem 16th June 2010

2. Overview • Drivers for Market Coupling • Target model for Day Ahead Timeframe • Progress with CWE and North West Region • Coupling FUI and CWE/NW Region • GB and Ireland • BritNed and IFA • Next steps • Other considerations for implementing market coupling • Two power exchanges in GB • Firmness • Charging

3. Drivers for Market Coupling • Moving towards a single market for electricity • Efficient use of available capacity on all borders • Maximisation of capacity available on all borders • Legal Requirements: • CMGs require market based capacity allocation methods • Under the 3rd package: • Capacity allocation models may become mandatory through the Framework Guideline/Network code process • Regional approach to cross-border capacity allocation • For FUI • Britned’sexemption requires day-ahead implicit auctions

4. European Target Model Already in place in TLC and NordPool Soon to be in place across CWE and ultimately the North West Region …

5. NW region and “enduring solution” Completion of CWE, and coupling to EMCC / Nordics Proposed roll out of Market Coupling

6. INTER-REGIONAL SOLUTIONS? PX initiative: PRICE COUPLING OF REGIONS* Markets initially included in PCR - 2860 TWh Markets which showed interest to join Markets that could join next as part of an agreed European roadmap *Source: Europex slides from the 18th Florence Forum

7. Other considerations for FUI-NW Region Market Coupling Input from Ofgem Consultation: • Two power exchanges in GB • Not a material issue • Firmness • Support for firmness, but diverse views how it is applied • Diverse views on risk sharing between traders, TSO/IC owners and consumers • Diverging views on adopting a common approach to firmness • Charging • Many respondents highlighted potential distorting impact of TRIAD / Transmission charges • Review underway coordinated by Ofgem and National Grid

8. Coupling FUI and CWE / NW region • Irish Market (SEM) design issues • GB to couple first – Ireland to follow • BritNed Interconnector comes online in Q1 2011 • Exemption decision condition = implicit auctions in day ahead • BritNed needs a market coupling solution in Q1 2011 • GB coupling options • Price coupling on both BritNed and IFA (enduring solution) • Price coupling on BritNed and IFA to follow (spur solution) • Timing for roll out of the “enduring solution” • Commitment from NW region TSOs to deliver in 2011, but not in time for BritNed • Next steps • Roadmap to enduring solution for NW Region (NW TSO group) • BritNed develop spur solution (in line with roadmap)

10. 2.2 Approach to Firmness ? Common for all ICs?C/B from changing our approach Who pays/risk sharing • TSOs/IC owners in better position to bear risks(AEP,ConsumerFocus,EON, Statoil ASA, IPR) • TSOs to share the risk and face equal exposure (NG,IPR) • NG: Firmness capped (110% of initial price paid) or pass through cost to TSOs revenues & end consumers • Also in favour of cost socialisation: Eirgrid, Moyle Vs no cost socialisation (consumer focus) • Moyle: currently IFA & Moyle earn nothing in the event of outage, sufficient incentive to maximise capacity. Could still work if the costs of physical firmness were socialised. • If firm IC was required then firmness of transmission system would be necessary (Moyle) • Some recognize the higher costs for DC lines (Statnett) and for IFA in particular (RTE, NG, Eirgrid) Common approach for all ICs? • Some support for harmonisation of firmness rules and for common approach for all ICs (RTE, Britned-as long as their business model is protected-, EON-financial firmness-, Centrica, Statoil ASA, RWE) • Consumer Focus: degree of latitude could improve investor confidence • EDF: Not one policy for firmness, case by case approach ; competition law can be used when restricting IC capacity so no need for regulation