The Market Coupling Experience

in Europe

Jean-François CONIL-LACOSTECEO Powernext SACEO EPEX Spot SE

APEX 2008 ConferenceAPEX 2008 Conference

Session 1 - Part 3: European Markets Situation

Sydney – October 13, 2008

Experience #1: Trilateral Market Coupling (TLC)

Trilateral Market Coupling (TLC) - Project History

3

What?Creation of a Belgian Spot Exchange: Belpex

Trilateral Market Coupling between France, Belgium and the Netherlands to

Improve cross-border market integration

Improve liquidity on BELPEX

How?International cooperation

3 TSOs: RTE (France), ELIA (Belgium), Tennet (The Netherlands)

2 Power Exchanges: Powernext (France), APX (The Netherlands)

Project force mainly at APX and Powernext

Common vision of the 3 TSOs and 2 PXs

One multilateral arrangement

Principles, objectives of market coupling

Roles and responsibilities, main flows

Contractual scheme and governance structure

Arrangements between Exchanges

Provide algorithms and systems

Operate Market Coupling

Arrangements between TSOs

Calculate and Publish Capacity

Ship the Cross-Border Flow

Share congestion revenues

Ensure firmness

Local arrangements TSO-Exchange

“Participation” of the TSO on the Exchange

Provide/ receive ATCs

Issue/ accept Results

TLC - A Decentralised Contractual Approach

TLC - Algorithm

PortfolioAllocator

Po

wern

ex

t

NEC Creator

Portfolioallocator

ATCs submitted by TSO’s

MarketResults

Marketresults

Marketresults

Be

lpe

x

Block Orders

Divisible Orders

NEC Creator

Block Orders

Divisible Orders

Block Selector

Market Coupling Algorithm

1

Po

wern

ex

tB

elp

ex

AP

X

Block Selector

Iterative process between Coordination Module and Block Selectors

AP

X

NEC Creator

Block Orders

Divisible Orders

Block Selector

1

Portfolioallocator3

1

CoordinationModule

PRICES

NBV

2

2

1

3 Outputs: prices and net positions

Inputs: orders & ATC

PortfolioAllocator

Po

wern

ex

t

NEC Creator

Portfolioallocator

ATCs submitted by TSO’s

MarketResults

Marketresults

Marketresults

Be

lpe

x

Block Orders

Divisible Orders

NEC Creator

Block Orders

Divisible Orders

Block Selector

Market Coupling Algorithm

1

Po

wern

ex

tB

elp

ex

AP

X

Block Selector

Iterative process between Coordination Module and Block Selectors

AP

X

NEC Creator

Block Orders

Divisible Orders

Block Selector

1

Portfolioallocator3

1

CoordinationModule

PRICES

NBV

2

2

1

3 Outputs: prices and net positions

Inputs: orders & ATC

CMFO (Coordination Module Functional Operator)

NEC : Net Export Curves

NBV : Net Block Volume

Weekly standard deviation of MC prices

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

26/1

0/20

06

02/1

1/20

06

09/1

1/20

06

16/1

1/20

06

23/1

1/20

06

30/1

1/20

06

07/1

2/20

06

14/1

2/20

06

21/1

2/20

06

28/1

2/20

06

04/0

1/20

07

€

NL

F

Avr NL

Avr F

B

Avr B

TLC & Price Convergence cont.

Border Belgian-French border

 

Belgian-

Dutch

border

Constrained Unconstrained

Constrained F ≠ B ≠ NL   F = B ≠ NL

Unconstraine

d

  F ≠ B = NL   F = B = NL

TLC & Price Convergence in September 2008

0.0 % 12.2 %

8.8 % 79.0 %

Experience #2: Central Western Europe Market Coupling

What is the CWE project?

Goal : couple the day-ahead markets of Germany, Benelux and France using a flow-based approach

Strong political support : Memorandum of Understanding signed on 6 June 2007 by Ministries, Regulators, TSOs, PXs and Market Participants

11 project partners: 7 TSOs and 4 PXs

PlanningDesign phase almost achievedImplementation phase Q4 2008 and 2009 Target launch date: end of 2009

Price coupling solution as in TLC

Important increase of regional social welfare expectedTotal budget in the range of € 25 million

CWE Project Organisation – Design Phase 2007-2008

JOINT STEERING COMMITTEE: All Partners / Co-Chaired by TSO/PX

JOINT PROJECT BOARD : All Partners / Chaired by Project Manager

Workstream Algorithm Design

Workstream Market Design

Workstream Technical

Workstream Legal & Governance

Workstream Regulatory

Subproject TSO – Flow Based Model

Coordination Team : Project Manager + Workstream Leaders + Subproject Leaders

Workstream Communication

CWE – Main Achievements in 2008

Finalisation of Design Phase, except for

Some governance issues

Enhanced ATC methodology and congestion revenue sharing

Delivery of:

Orientation Study in February 2008

Progress report in April 2008

Implementation Study in August 2008*

Expert meetings:

March 10 with regulators

April 28 with market parties*

*Documents available at www.powernext.fr*Documents available at www.powernext.fr

Experience #3: Merger of Spot Activities of Powernext and EEX into EPEX Spot SE

EPEX Spot - Implementation

Establishment of Spot Trading SE (EPEX Spot SE) with registered offices in Paris as of 30 September 2008

Powernext and EEX will integrate their entire spot trading activities in power under the umbrella of the newly established company by the end of the year

Both partners hold 50 percent of the shares in the SE

EPEX Spot – Benefits of the Cooperation

More liquidity, making the market more attractive for participants

Transparent and reliable wholesale price formation mechanism

Standardisation & harmonisation of the trading and clearing processes

Geographically, the cooperation will include Germany, France, Austria and Switzerland, which together cover more than one third of the European consumption of electricity

Best practice in transparency and surveillance standards

Highly effective clearing and risk management services

… and more effective governance & implementation of Market Coupling / Splitting projects!

…and in the next years?

What Experiences in other European Regions?

Region DA Congestion Management

Nordic Market splitting

ATC

Central West Europe

Price coupling / Market splitting

ATC / Flow-based

Mibel Market splitting

ATC

All Island Market n/a: real time market

Central East Europe Co-ordinated explicit auctions

ATC (Flow-based)

South East Europe Projects

Price coupling / Market splitting

ATC / Flow-based

Baltic n.a.

Italy Internal market splitting

GB n/a: single hub

Coupling CWE and the Nordic Area next?

EMCC Initiative: partial coupling started on September 29, 2008

Coupling between the Nordic area and Germany

Different kind of cooperation between TSOs and PXs compared to TLC (volume coupling)

Some technical issues during the first days of operation

Discussions about a sustainable coupling solution have started

A cross-regional technical study is being performed and should deliver first results early 2009

Coupling CWE & Nordic & MIBEL after that?

Politically, this would represent over 2/3 of the European power market in terms of electricity consumption

A large market extending from Portugal to Finland!

By then, Nordic, MIBEL and CWE might have key common features

“internal” market splitting in each of the 3 regions

transmission capacities between regions of similar range 2 GW+ DC&AC but no loop flows

From a 3 country-based approach in 2006 to a 3 region-based approach similar to the successful “good old TLC”?

Efficient dispatch of transactionsFull grid capacity use

Fair access to marketsNon-transaction based: the capacity is implicitly used by transactions that value it most

Reduction of opportunities for exercise of market power

Easy access to marketsDaily operations are simplified, while, there is no change to the participants bidding habits and conditions on the Exchanges

Operational risk is removed

Efficient price signallingThe implicit congestion cost is equal to the price-difference between the two relevant markets

Liquidity

… and at the same time it strongly facilitates the political goal of creating a single power market for Europe!

Market Coupling is in the scope of Exchanges’ functions…

Thank you for your attention!

jf.conil-lacoste@powernext.fr