Italy-France Cross-border Intraday: Technical feasibility study

CSE SG Group meetingRome, 15 May 2012

Agenda

• Background• High level requirements• IT requirements• Clearing and Financial settlement

• Interim solution: TSOs (TERNA-RTE) are going to activate an explicit intraday auction to allocate the XB transmission capacity remaining to previous auction sessions.

•Current Italian and French intraday markets

• Target model on cross-borders trading in respect of ACER’s Framework Guidelines on Capacity Allocation and Congestion Management

•Preference for implicit continuous trading•Embedding a criteria for the pricing of the XB ID allocated capacity

EPEX Spot and GME carried a study to analyze possible solutions and features to connect France and Italy ID markets with a continuous trading mechanism

BackgroundNo intraday tool currently in place on the Italian-French border

Italian intraday market French intraday market

Implicit auctions:2 auctions in D-1 2 auctions in D

Continuous trading

Agenda

• Background• High level requirements• IT requirements• Clearing and Financial settlement

High level requirements

• Before gate closure of Italian IDM Auctions, • Cross-border trades for corresponding hours are transferred into the Italian auction • French-Italian cross-border order book is closed for hours which cannot be traded in a later

Italian MI auction

• GME is counterpart for Italian bids; ECC (EPEX CCP) is counterpart for French bids; GME and ECC manage the settlement of the XB trades

• OTC cross-border implementation subject to a common position from both regulators

Italian intraday market French intraday market 4 Implicit auctions:Mandatory for participants to be balanced in the Italian ID market

Continuous trading

Continuous cross-border trading, taking into account available cross border capacities

Intraday Cross Border trading system(SOB)

CMM

Italian Members

EPEX members GME

OTC ?Italian intraday

auction

TSO

TSO

Capacity information

Capa

city

in

form

ation

Capa

city

in

form

ation

Bids Bids

Bids

Order registration

Ord

er

regi

stra

tion

Continuous XB platform linked with Italian implicit auctions

Process: Italian bids transfered into MI auctions• Italian bids matched in the cross-border intraday market are transferred into the

subsequent MI auction as bids and offers according to the following criteria:• Purchasing bids in the cross border market are transferred into the MI auction as selling offers

(and vice versa)• Bids and offers are located in the virtual France zone of the Italian MI auction• Price at which the matched order in the cross border market is transferred in the in the MI

auction is either:• freely set by the market participant• set as market price (zero for selling offers and no indication of price for purchasing bids)• set equal to the price of the matched order in the cross-border market

• In case the bids/offers transferred to the Italian MI auction is not matched (lack of liquidity or not competitive price) the Italian market participant is unbalanced in the Italian market

• As currently happens to Yearly, Monthly and Daily PTRs’ holders that nominate cross-border flow and are unable to sell/buy energy on the Italian day-ahead market

• Firmness of the cross border nomination is independent from the local nomination process and in any case ensured

Price limits

• Italian MI auction and in the French ID market have different price limits: • 0 €/MWh; 3.000 €/MWh in the Italian MI market• -9.999 €/MWh; +9.999 €/MWh in the French ID market

• Suggestions:1. Restrictive: Adoption of different price limits for Italian and French market participants in

the cross-border market without allowing cross-border matching, in case prices on French side exceed Italian price limits (Italian participants are prohibited to buy and sell at negative price and at prices over 3000€/MWh in the XB ID market)

2. Less restrictive: Italian participants can be allowed to buy and sell at negative price and at prices over 3000€/MWh in the XB ID market

• Price limits of Italian MI auctions would not be changed• Impact on definition of price to which XB ID trades are transferred into Italian ID

auction, as described in slide 7

Timeframe French-Italian Xborder continuous trading

15hD-1

Order submission and matching

7h30 - x

French Intraday continuous

Italian-French Intraday Cross-border continuous Order submission and

matching

11h30 - x

Xborder trading closed for H13-H16

Italian Intraday 4 Mi

auctions

Timeframe issues

• Under current EPEX SPOT and GME MI timing, only delivery hours from the 13th to the 24th would be tradable on a continuous cross border intra-day

• Overlap between delivery hours in MI auctions. For example, MI3 regards delivery hours from the 13th to the 24th hour, and MI4 regards delivery hours from the 17th to the 24th hour.

• To be decided whether FR-IT intraday trades sent to GME MI auctions are: • all the recent trades on the continuous platform not sent yet in a previous MI auction, or• only the trades regarding the hours for which trading is closed, e.g. delivery hours from

the 13th to the 16th hours at the MI3 auction

Italian virtual zones• France is a virtual zone of the Italian market• France is directly connected to North zone with an infinite ATC • Only PTRs’ holders are allowed to place their bids in the France zone• France virtual zone is always cleared with the same zonal price as the North one and the ATC can

never get congested

• France and North zones, in the Italian market, can be considered as a unique zone, from a market perspectives (prices, competition among market players)

• Connection with Southern zones with France: Italian importers locate their bids in the French virtual zone. These bids are matched with other Italian bids, located in all Italian zones, subject to the market splitting mechanism, respecting Italian internal congestion (ATC)

Agenda

• Background• High level requirements• IT requirements• Clearing and Financial settlement

IT requirements

• Shared Order Books /Congestion Management Module System (SOB/CMM) in order to allow that, provided that there is available capacity:

• Order books have to be updated simultaneously according to the capacity values sent to the SOB/CMM

• Bids submitted to one local order book are simultaneously shown on the other order books provided they are compatible with the updated values of XB capacity

• There is a perfect synchronization of all order books• Cross matching of bids submitted to different order books is supported• Time stamp of the bids is similar (crucial to correctly manage priority of bids with same

price)

Market ASell

Market BBuy Sell

S:50MW@75€

P:30MW@60€

P:25MW@65€

P:45MW@60€ S:20MW@80€

P:25MW@65€

S:25MW@70€ P:50MW@70€

S:20MW@80€

Buy

60ATC

S:35MW@75€

S:25MW@70€P:50MW@70€

• With 60 MW capacity from A to B

• 60 MW cheapest sell orders in A are shown in B

• 60 MW most expensive buy orders in B are shown in A

• Both order books would be hosted in the same platform:

Agenda

• Background• High level requirements• IT requirements• Clearing and Financial settlement

Hypothesis: GME is connected to the SOB through an API, like a “broker”

Hub ITHub FR

Buyer BECCFinancial settlement of

the energy

NominationsSeller A

Buyer B

Seller A

Capa. FR-IT

500 € M+1

TSO A TSO B

ECC

A B“A sells to B”

A B“B sells to A”

“Nomination”

Energy shipping

Buy

Purchase

500 € J+1

Sell

Import

Capacity Platform

GME

EPEX trading system

TradingBuyer B

SOBSeller A

10 MWh @ 50 €

GME 500 €

Export

RTE Terna

Expo

rt

Import

Sell

Financial settlement cycled of GME and

EPEX CCP have to be harmonized

GME

Thank you for your attention