model Rogner hotel, Tirana 21 April 2016 Nord Pool Consulting- - - PowerPoint PPT Presentation

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Albanian market model

Rogner hotel, Tirana 21 April 2016

Nord Pool Consulting- 2016. Confidential

• Implementation of the Southern African Power Pool
• Start of service power exchanges in Croatia and Bulgaria
• Setting up a national power exchange in India
• Implementing a Wholesale Market Opening for SEE (South East

Europe)

• High level design for the Albanian Power Exchange
• Author of “Power to the People”

Profile Hans-Arild Bredesen

Hans-Arild has more than 20 years of experience from international projects in the energy sector based on his work with the Nord Pool model

Consultant Education and Experience Selected Project References Hans-Arild Bredesen BSc in Computer Science from Høgskolen I Østfold, Norway Involved in the electricity deregulation process since 1992. Technical project manager for the market systems at Nord Pool Product manager for wholesale energy market participant systems for the Nordic market. Wide international experience from key roles in the development of strategies for trading, scheduling and settlement systems for PXs and TSOs in California, Ireland, India, Romania, Turkey, Ukraine, Southern Africa and South-east Europe.

CEO, Nord Pool Consulting Mobile: + 47 90 70 43 80 E-mail hans-arild.bredesen@npspot.com

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Nord Pool's role in the market

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 To provide liquid, efficient and secure power markets to our customers  To provide accurate information to the whole market, ensuring transparency  To provide equal access to market for everyone wanting to trade power  To be the counterparty for all trades; guaranteeing settlement and delivery

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Our role

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Stakeholders

 Owned by Nordic and Baltic transmission system operators  Regulated by Norwegian Water Resources and Energy Directorate (NVE)

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Statnett – Norway – 28.2% Elering – Estonia – 2% Svenska Kraftnät – Sweden – 28.2% Litgrid – Lithuania – 2% Energinet – Denmark – 18.8% AST – Latvia – 2% Fingrid – Finland – 18.8%

Membership statistics

 Nord Pool has altogether approximately 380 members  Majority of the members are Clients:

– Participants: 40% (149) – Client representatives: 2% (6) – Client: 59% (222)

 Currently 19 different countries represented through members  High level of versatility in terms of the type of market participants:

– End consumers, producers, retailers, brokers – Starts ups and very large utilities – Industrial companies, municipalities, service providers, etc.

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UK ESTONIA LATVIA LITHUANIA SWEDEN FINLAND DENMARK NORWAY GERMANY 15 25 123 84 61 13 14 12 17 15

members from other countries

Source: Nord Pool 14th March 2016

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Our history

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1991 1993 1996 1998 1999 2000 2002 2008 2010 2010 2012 2013 2014 2014 2014 2015 2016

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Europe’s leading power market

Nordic/Baltic and UK – day-ahead and intraday German market – intraday Serviced markets

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Nominated NEMO in Austria, France, Germany and the Netherlands.

Roles of different parties in Nordic

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TSO*

Bilateral sales Balancing market Generation schedules Physical sales

Consumers Producers

ATC Results Reference price Financial hedging Financial hedging Physical purchases Balancing market Generation schedules

TSO*

Imbalance settlement Imbalance settlement

* Svenska kraftnät, Statnett, Fingrid, Energinet, Elering, Litgrid, AST

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The Nord Pool model for trading power

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Financial market

Hedging of sell/buy price in advance

Day Ahead market (Elspot)

Hourly price formation for the following day

Intraday market (Elbas)

Continuous trading 24/7, new transmission capacity opens after the publication Day-ahead prices

Balancing markets

Intra-hour market for maintaining the power balance

Imbalance settlement

Post-hour settlement of deliveries between market participants

Physical delivery Nord Pool AS Financial market Financial settlement Nasdaq Reference price (system price)

Time

10 years 24 hours Intraday

TSOs Elspot Elbas

Balancing market

• Imb. settl.

Physical delivery Financial settlement

Intrahour 1,5 months

Physical delivery

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Nordic consumption vs. Elspot volumes traded

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European Day-ahead market

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European target model

​The European target model shall ensure the completion of the EU Internal Energy Market for electricity. Guidance and standards for each timeframe: Day Ahead (DA), Intra- Day (ID), Balancing and Forward Market. ​A fair and transparent day-ahead power price is an key factor for the models success. ​Price Coupling of Regions (PCR)

• The initiative of 7 Power Exchanges to develop a single

price coupling solution, launched Feb 2014

• EUPHEMIA algorithm

​Multi-Regional Coupling (MRC)

• Coupling of regions and efficient management of available

transmission capacities between areas and countries

• Implicit capacity allocation

​Cross Border Intraday Trading (XBID) ​The integrated European electricity market is expected to increase liquidity, efficiency, social welfare and transparency

• f prices and flows.

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UK ESTONIA LATVIA LITHUANIA PORTUGAL SWEDEN FINLAND SPAIN ITALY AUSTRIA POLAND DENMARK NORWAY NETHER- LAND GERMANY LUXEMBOURG BELGIUM FRANCE RUSSIA SWITZERLAND BELARUS NORTHERN IRELAND IRELAND HUNGARY SLOVAKIA CZECH REPUBLIC CROATIA TURKEY MONTE- NEGRO KOSOVO BOSNIEN & HERZEGOVINA SERBIA MOLDOVA ROMANIA UKRAINE ALBANIA MAKEDONIA BULGARIA GREECE SLOVENIA

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Day Ahead price formation in practice

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S U P P L Y D E M A N D TRANSMISSION CAPACITY

Available Transmission Capacity (ATC):

• Existing interconnectors
• Unavailability of interconnectors (faults, etc.)

Factors affecting the supply for electricity:

• Fixed costs of production
• Variable costs of production
• Plant startup and shutdown costs
• CO2 allowance prices
• Weather
• Hydro situation

Factors affecting the demand for electricity:

• Retail volumes and delivery
• bligations:
• Weather
• Open deliveries, etc.
• Industrial consumers:
• Fixed costs
• Variable costs
• Startup and shutdown costs
• Flexibility of processes

Price [EUR/MWh] Volume [MWh]

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Supply side and marginal cost

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Marginal cost Volume

Hydro power Nuclear power CHP Coal condensing power Oil condensing power Gas turbines

Demand curve

New RES

Supply curve

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Settlement and clearing is an important part of a market

A B C E D

Bilateral trading without netting

C A E B D

Trading with several counterparties

Nord Pool A C E B D

Bilateral trading with netting Several counterparties and transactions

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One transaction for each counterparty Always only one counterparty!

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Establishment of the APE – a Project update

 Albanian power sector will be increasingly exposed to spot

markets surrounding Albania:

• Italy, Hungary, Slovenia, Bulgaria, Greece and Romania has

already established power exchanges (Day-Ahead Markets)

• Croatia and Serbia have also launched power in February.
• Montenegro has expressed interest in the Albanian market,

even though the link to the Serbian power exchange might be their most likely route

• Macedonia has just released a pre-feasibility study on

regional market integration

• Strong interconnections in the region. The subsea cable from

Montenegro to Italy will change the power flows in the region – the value of flexible hydro power will increase.

 Albania can take advantage of its location and unique

hydro power assets and should use opportunity to take lead position in development of the regional power market

 By developing a Day-Ahead market, the Albanian power

sector will unlock the value of its flexible hydro plants and ensure an appropriate market design

Albania is at a Crossroad – Strongly Interconnected Region with Many Emerging Day-Ahead Markets

SEE countries with established Day- Ahead Markets SEE countries taking active steps to establish Day- Ahead Markets:  Hungary  Italy  Romania  Greece  Bulgaria  Slovenia  Serbia  Kosovo  Montenegro  (Macedonia) Markets will be interconnected through Market Coupling

Serbia PX

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Nord Pool Consulting- 2016. Confidential

Summary of the financial implications (1)

​Albania is dependent on imports due to the hydrology

– This has nothing to do with the establishment of the market

​Albania seems to pay a high price for imports

– High risk premiums added to the import price – and “flat” prices over the day – A short term hourly market with faster settlement and a PX acting as a Central Counter Party (CCP) will address this – It will also allow for a more optimal use of the internal resources (save water and import base load during night, use water in daytime and reduce imports)

​The model foresee a “zero-sum game” for Albania – BUT

– The variations per year will be huge due to hydrology – A “fund” could be established to even out this for the sector – This is in-line with the WB assessment as discussed in their report

​A competitive market will help to unlock the real value for the Albanian power sector and reduce the import bill

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Nord Pool Consulting- 2016. Confidential

Need Hourly Price Signals to Optimize Hydropower Plants with Reservoirs

​Managing price and inflow risk is key for economic dispatch of hydro plants with reservoirs (i.e. Fierze, Koman, Vau Dejes, Banja and Moglice) ​Large variations in generation despite significant storage capacity;  Need for continual adjustment of production relative to actual inflows  Need for recurrent balancing of generation

• vs. contracts

 Need an efficient and non-discriminant balancing mechanism ​Without these basic market features, utilization of hydropower in Albania will not be optimized and result in too expensive import

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20 40 60 80 100 120 140 160 180 200 220 240

Series 001 Series 002 Series 003 Series 004 Series 005 Series 006 Series 007 Series 008 Series 009 Series 010 Series 011 Series 012 Series 013 Series 014 Series 015 Series 016 Series 017 Series 018 Series 019 Series 020 Series 021 Series 022 Series 023 Series 024 Series 025 Series 026 Series 027 Series 028 Series 029 Series 030 Series 031 Series 032 Series 033 Series 034 Series 035 Series 036 Series 037 Series 038 Series 039 Series 040 Aver.

Total Hydro Generation Drin River (GWh/Week)

40 Representative Inflow Scenarios

Nord Pool Consulting- 2016. Confidential

Net Import Albania 2017 (GWh/year)

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​With or without a Day-Ahead market, Albanian imports are deemed to vary a lot as long as generation is 100% based on hydropower ​In the simulations, annual net import 2017 range from -750 GWh (i.e. net export) to 4000 GWh net import ​Net import 2017 during average hydrological conditions is 1473 GWh

1473

• 2,000
• 1,000

1,000 2,000 3,000 4,000 5,000

Total Annual Net Import Albania (GWh)

32 Representative Inflow Scenarios

Nord Pool Consulting- 2016. Confidential

60,5 63,6 51,5 51,7

10 20 30 40 50 60 70

2011 2012 2013 2014

Romania Hungary Greece Albania Import

Albania Seems to Pay Very High Prices for Electricity Imports with the Current Trading Regime

​The figure shows average import prices Albania compared to average off-peak prices in the Day-Ahead markets in Romania, Hungary and Greece. ​As Albania should mainly import off-peak energy, current import prices seem very high compared to off-peak prices in the neighbouring spot markets. ​With import averaging ~25% of demand, Albania could benefit from an improved exchange regime

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Average Off-Peak Spot Prices (EUR/MWh)

Nord Pool Consulting- 2016. Confidential

Simulated Spot Prices Albania Range Between Spot Prices in Hungary (HUPX) and the Greek Pool (LAGIE)

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EUR/MWh Week 2014 2015 2016 2017 2018

Cable between Montenegro - Italy

Mean Price Albania

History Simulations

Nord Pool Consulting- 2016. Confidential

Summary of the financial implications (2)

​The modelling shows that no changes are required to end-user tariffs

– The modelling shows that the current tariff regime can be maintained – Will require a CfD between KESH and OSHEE – but as the market opens – it can be abolished. – The Albanian power sector is not “missing money” – the distribution will be the key

​The key stakeholders will not be harmed with a competitive market

– OST will in any scenario be fine – KESH and OSHEE will have to have a CfD to essentially transfer money from KESH to OSHEE to cover for the higher market prices compared to regulated tariff – We suggest this to be a direct CfD between the two – potentially a PSO – A fund – either separate or kept within one of the parties – must be in place to manage variations in hydrology – at least as a temporary measure until full market opening – As the market opens for more consumer groups, the need for the CfD and fund will be reduced – If a modest tariff increase can be allowed, the need for the CfD and fund might be reduced (or removed)

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Nord Pool Consulting- 2016. Confidential

New project – same regime

​The second phase is done through an IFC Balkan fund ​Change is mainly due to procurement rules for the Norwegian MFA ​Open procurement process – we were able to secure this in competition with 5 other pre-qualified bidders Same project – just a small update in the Project Governance Group (IFC in) Formal kick-off yesterday New “push” forward by MEI

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Project organisation

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Project Manager

(Nord Pool Consulting) Energy Community Secretariat (Facilitator) Albanian Government Beneficiaries: MIE PMO Work Stream 1 Technical assistance Work Stream 2 Detailed Design Work Stream 3 Legal - Secondary

Legislation and Regulations

IFC Norwegian Ministry of Foreign Affairs (Project Sponsor) Steering Committee

Regulator (ERE), TSO (OST) KESH, OSHEE, Devoll, Small Hydros, Traders’ reps. World Bank: USAIAD, KFW

Project Governance Group

Work Stream 4 Implementation

High level plan

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NPC Plan for APE implementation

Months M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 No PROJECT PLAN 1 PROJECT MANAGEMENT 2 TECHNICAL ASSISTANCE 3 TA-WS 6: Market coupling and regional cooperation 4 TA-WS 7: Market surveillance and transparency 5 TA-WS 8: Market simulations 6 TA-WS 9: Future extensions of the market model 7 SUPPORT FOR SECONDARY LEGISLATION 8 Write-up of draft required changes 9 Workshop 3: Finalisation of list of required rules and regulations 10 Assistance in final legal drafting 11 Workshop 4: Final versions ready 12 DESIGN 13 Design the exchange organisation 14 Design Products and Draft Market Rules 15 Training of staff, including workshops during the project 16 Market organisation etc., Operational training (for 1st line support) 17 Operational training (for local operations) 18 MARKET SYSTEM READINESS 19 Adaptation of DAM system, operational procedures 20 Adaptation/establishment of Settlement and Clearing + master data 21 Testing of the markets (50% of the adaptations) 22 Commissioning and Go-live (incl. participants dry run)

Initial Day-Ahead Market in Albania

Efficient Wholesale Market

(Bid-based)

Retail Market

KESH Devoll

Import/Export Montenegro Import/Export Greece Import/Export Kosovo

Day-Ahead Market

(Hourly Spot Prices)

Hydro Offers Hydro Offers

Captive Consumers (OSHEE) Eligible Consumers

(Industrials, Commercial and Aggregators)

Transitional Regime

IPPs

Offers

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Nord Pool Consulting- 2016. Confidential

Hans-Arild Bredesen CEO, Nord Pool Consulting

Email: Hans-Arild.Bredesen@nordpoolgroup.com