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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
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 %
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
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!
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…