Presentation at the 17th German Norwegian Energy Forum in Berlin 2013

1. European Market Integration and Next Steps
German Norwegian Energy Forum
Enno Böttcher
Berlin, 24.10.2013

2. Agenda
A: Market coupling as a means for European integration
B: How does market coupling work?
C: How will the European market develop?
D: European Market Coupling Company – EMCC
© EMCC GmbH, 24 October 2013
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3. Supply and demand need to be balanced – also across borders
In Germany, production is decentralising.
The interaction between supply, demand, transmission
and distribution is becoming more and
more complex.
hydro
production
On a European scale, this is even more complex:
- differing types of production
- varying demand
- bottlenecks on cross-border cables
industry
biomass
nuclear
plant
transformer
station
wind
turbine
households &
commerce
grey scale: production
coal-fired
station
solar
panels
blue: consumption
European
transmission
network
Cross-border high-voltage interconnectors
(schematic representation)
© EMCC GmbH, 24 October 2013
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4. Market coupling is a system-wide optimisation of prices and flows
The EU enforced regional coupling initiatives in 2003
EC regulation 1228/2003 (714/2009):
Efficient usage of cross-border
capacities by the introduction of
coordinated, day-ahead, market-based
mechanisms such as explicit and implicit
auctions.
Enabling buyers and sellers on power
exchanges to get automatic access to
cross-border energy trade without having
to acquire the corresponding
transmission capacity.
Market coupling increases social economic welfare by a system-wide optimisation of
prices and cross-border flows.
© EMCC GmbH, 24 October 2013
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5. The European market coupling landscape developed since 2003
Explicit auction
•
exists on several cross-border interconnectors
(capacity and electricity have to be purchased in two
separate steps)
Implicit auction
• Price splitting – in Nordic countries
• Price coupling in complete Central
Western European region (“CWE”)
• Interim Tight Volume Coupling (“ITVC”)
between the Nordic- and CWE regional
electricity markets since 9.11.10
• Price coupling in
 Italy – Slovenia
 Spain – Portugal
 Czech Rep. – Slovakia – Hungary
Embedded solutions (e.g. BritNed)
ITVC
Various projects in Europe, different state of development
© EMCC GmbH, 24 October 2013
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6. Agenda
A: Market coupling as a means for European integration
B: How does market coupling work?
C: How will the European market develop?
D: European Market Coupling Company – EMCC
© EMCC GmbH, 24 October 2013
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7. Efficient use of interconnectors by buying low and selling high
General principle
low price
Economic welfare
price
EUR/MWh
Buyers’ gain for this MWh:
The difference between the market
price and the bid price
buy
Supply
4
1
3
2
sell
high price
MCP market
clearing price
Demand
1
2
3
4
quantity
MWh
Sellers’ gain for this MWh:
The difference between the market
price and the offer price
1 MWh
DK1:
Denmark West - Germany
Kontek: Denmark East - Germany
Baltic Cable: Sweden - Germany
NorNed: Norway - the Netherlands
© EMCC GmbH, 24 October 2013
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8. The benefit of market coupling is price convergence between markets
• EMCC buys electricity in a low-price area with low demand
and sells it in a high-price are with high demand.
 Supply and demand are balanced across borders, prices
converge.
• EMCC carries out a price calculation. Afterwards, the power
exchanges (PXs) calculate their prices.
 The price calculation of EMCC and the PXs is very well
aligned.
 Adverse flows are seldom
(they occur due to minimal price deviations or ramping).
Optimising economic welfare by balancing supply and
demand on interconnectors
supply
demand
© EMCC GmbH, 24 October 2013
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9. EMCC is the link in the NWE day-ahead market
EMCC runs Interim Tight Volume Coupling (ITVC), i.e.
combines NORDIC price splitting with CWE price coupling:
NO4
SE1
Roles in the ITVC setup:
1. TSOs send available capacities to
EMCC
NO3
NO1
2. PXs aggregate local bids and provide
them to EMCC (anonymized OBK)
SE3
EST
DK1A
LV
SE4
LT
DK1
4. EMCC submits cross-border flow bids
to PXs (market coupling order, MCO)
6. PXs publish prices and carry out
settlement and clearing with traders and
non-clearing members
FI
NO2
3. EMCC calculates “global” prices and
flows (23 price areas / 32 interconnectors)
5. PXs calculate “local” prices and flows
SE2
NO5
DK2
ERI
LRI
LRE
LBI
LBE
PL
NL
BE
GE/A
T
FR
7. EMCC carries out congestion rent
distribution, scheduling and balancing
and provides PXs and clearing houses
with sufficient liquidity positions
TSO task, PX task, EMCC task
interconnector
© EMCC GmbH, 24 October 2013
ITVC interconnector
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10. Benefits of market coupling = better utilisation, correct flows
Implicit auction results (DK-SE-NO-NL-GE)
Explicit auction results (DK-GE)
2.000
price spread
NL/GE DK/SE/NO2
price spread DK GE
1.500
1.000
500
MWh
price spread
DK/SE/NO2 NL/GE
ramping
ramping
€/MWh
€/MWh
-30
-20
-10
0
10
-500
-1.000
20
30
40
flow GE/NL
 DK/SE/NO
0
flow GE  DK
-40
MWh
flow DK/SE/NO
 GE/NL
flow DK GE
price spread GE DK
ramping
ramping
-1.500
right quadrant
wrong quadrant
DK1
DK2
Baltic Cable
NorNed
Left: explicit results from December and January 2009 (29.12.08 – 31.01.2009)
Right: implicit results from 9 November 2010 to 31 May 2011; NorNed from 12 January 2011
© EMCC GmbH, 24 October 2013
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11. The prices between Germany and the Nordic areas have converged
weekly averages Jan 2012 - Oct 2013
120,00
GE
DK1
DK2
SE
NO2
100,00
EUR/MWh
80,00
60,00
40,00
20,00
0,00
1
11
21
31
41
51
© EMCC GmbH, 24 October 2013
61
71
81
91
weeks
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12. ITVC market coupling has many advantages
Serving social economic welfare
• Optimal utilisation of cross border capacities means significant reduction of economic losses
• Simultaneous handling of electricity trading and capacity allocation means lower transaction costs and
equal opportunities for all market participants
High-quality solution
• Inter-regional coupling mirrors local and regional solutions effectively
• High quality of algorithm, good daily performance of the coupling
Transparency
• Algorithms used to calculate prices* and flows are described and published on EMCC’s webpage
• Daily procedures and the timeline of operations are described and published on EMCC’s webpage
Cost-efficiency
• Low service fees (cost-based pricing)
Trustful governance model
• EMCC is regulated as a public service function, serving social economic welfare
• Clearly defined roles and responsibilities between PXs, TSOs and EMCC
* EMCC does not publish prices
© EMCC GmbH, 24 October 2013
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13. Agenda
A: Market coupling as a means for European integration
B: How does market coupling work?
C: How will the European market develop?
D: European Market Coupling Company – EMCC
© EMCC GmbH, 24 October 2013
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14. Many parties are involved in achieving the overall target
SPOT
EXCHANGES
FUTURES
EXCHANGES
CLEARING
HOUSES
TRADERS
TSOs
MARKET
COUPLING
POWER
BROKERS
REGULATORS
CONSUMERS
GENERATORS
© EMCC GmbH, 24 October 2013
GOVERNMENTS
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15. Despite ITVC’s advantages, a new system will start in November ‘13
1
1
4
4
4
2
1
2
1
2
3
PCR will introduce flow-based market
coupling in a second step after the
launch (in 2014)
3
2
4
4
Within the region, local rules, products,
times and constraints need to be further
aligned
The development should consider factors
such as grid loss compensation, e.g. grid
tariffs, deadband or ramping and
harmonised gate closure times
Price Coupling of Regions was
developed by NWE PXs and TSOs; it will
go live on 26 November 2013
3
Further coordination between the
regional markets and other market
coupling initiatives
Regenerative generation capacities, e.g. off-shore wind or solar production, need to be integrated
into all electricity markets
© EMCC GmbH, 24 October 2013
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16. Challenges for future market integration (1/2)
Capacities:
•
Intraday markets partially transnational  low liquidity, high volatility
•
Balance energy and reserve capacity markets on national basis  national and transnational
bottlenecks remain, especially as decentralised renewable generation increases
 International coordination and joint planning of infrastructure are a top necessity
 The development of infrastructure needs to be aligned with market-based models
 The list of 250 infrastructure projects (Projects of Common Interest PoCI) by DG Energy is a good
starting point, however
Legislation and responsibilities:
•
Germany proclaims the “Energiewende” (energy transition) and other countries follow similar aims –
a European concept is missing
•
In Germany, legislation and responsibilities are split between two Ministries (Economics and
Environment), several public authorities, the Regulator Bundesnetzagentur and regional cartel offices
 More planning reliability and investment security are needed
 Harmonisation between EU, national and local authorities of neighbouring countries is essential
© EMCC GmbH, 24 October 2013
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17. Challenges for future market integration (2/2)
Integrated Electricity Market (IEM):
•
Flexibility is needed to incorporate and represent different states of development in different member
states
•
Entrance barriers for other countries are high and need to be reduced (e.g. when will other countries be
ready to take part in a flow-based system?)  are infringement packages efficient?
•
Clear unbundling between monopoly and competitive market service functions has to be ensured
 The IEM needs to be non-discriminatory and transparent, stable, independent and credible –
not only for day-ahead, but also for intraday, balancing, reserve capacity markets of any kind of
generation, storage and demand side response
© EMCC GmbH, 24 October 2013
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18. Agenda
A: Market coupling as a means for European integration
B: How does market coupling work?
C: How will the European market develop?
D: European Market Coupling Company – EMCC
© EMCC GmbH, 24 October 2013
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19. Governance structure of EMCC
Governance
Setup and Figures
08/08: EMCC is approved by EC DG Competition;
complying with requirements of Regulation
1228/2003 and 714/2009
08/08: EMCC GmbH is founded by Energinet.DK,
NPS, EEX, E.ON Netz and Vattenfall
Transmission
PXs
PXs
40%
40%
PXs, 5
5 PXs
TSOs
TSOs
60%
60%
General Assembly
05/10: start of market coupling for Baltic Cable
11/10: launch of ITVC: Nordic-CWE market coupling
ITVC Steering Comittee
EMCC
The company is registered as ordinary trader at
PXs (non-clearing member)
11/09: launch of EMCC market coupling system for
DK1 & DK2
11
TSOs,
TSOs
11
Contracts
Capacity Holders
Power Exchanges
Available Capacity
Agreements
Order Books / X-border
flow bid Agreements
EMCC
01/11: start of market coupling for NorNed
09/12: The owners resolve to close down the company
after the transition from volume to price
coupling in NWE
Balancing Agreements
Cash Management &
Collateral Agreements
TSOs
Clearing Banks
© EMCC GmbH, 24 October 2013
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20. Results of from a small service provider with 6 employees
Sales
Purchase
Congestion Rent
Volume
© EMCC GmbH, 24 October 2013
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21. Contact
European Market Coupling Company GmbH
Enno Böttcher
Managing Director
Hopfenmarkt 31, D-20457 Hamburg
www.marketcoupling.com
+49 40 369 054 60
eb@marketcoupling.com
© EMCC GmbH, 24 October 2013
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22. Types and functioning of Market Coupling
Market coupling (general term for volume and price coupling)
• Market coupling takes place between several price areas with several exchanges
• The optimal electricity flow between two areas is calculated by taking into account the available transfer
capacity (ATC) and anonymous order books (OBK) for the two areas
• Optimal means the electricity flows according to price signals – from low-price area into high-price area
Price splitting
• Market splitting takes place between several price areas with only one exchange
• Example: Nord Pool Spot in the Nordic countries
Price coupling
• Price coupling between different countries allows creating a single exchange zone as the pricing
authority does not remain with single exchanges
• Example: CWE market coupling
Volume coupling
• Prices and flows are determined by an auction reflecting all bidding areas. An auction office publishes
flows on interconnectors while the pricing authority remains with the exchanges
• Example: ITVC market coupling
© EMCC GmbH, 24 October 2013
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23. Day-ahead market coupling follows a complex operational procedure
Capacity holders
•
•
•
•
•
•
•
•
•
•
•
50Hertz
Amprion
Baltic Cable
EnBW
Energinet.dk
Elia
Fingrid
RTE
Statnett
Svenska Kraftnät
TenneT
bids
congestion rent
financial
settlement
Power exchanges
•
•
•
•
APX-ENDEX
Belpex
EPEX Spot
Nord Pool Spot
service fee
info
webpage 1)
publication
ATC
before 10:00 10:00
order books
• EMCC
schedules
gate closure
ATCs from
TSOs/CASC2)/
NPS
Calculation
ATC
sending MC bids to
PXs
start market coupling
calculation
anonymized OBKs
from PXs
12:00
at 12:10
PXs trade
confirmation
NPS market
cross-border flow
price publication
publication
CWE PXs market
price publication
at 12:15
at 12:45
1) EMCC publishes ATC und cross-border flows („CBF“) for 4 interconnectors.
© EMCC GmbH, 24 October 2013
2) CASC is a TSO service provider
schedules
thereafter
at 12:45 before 14:00
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