Price Coupling Regions (PCR) Initiative Information Workshop on - - PowerPoint PPT Presentation

Information Workshop on Emerging Electricity Target Models Dundalk, 3 June 2011 Andrew Claxton - Business Services Director APX-ENDEX

Price Coupling Regions (PCR) Initiative

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Market coupling concept Price Coupling of Regions (PCR) Prospects for the North West Europe region and SEM Intraday

Topics

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European Day-Ahead Target Model

Target model for day-ahead spot market acknowledged by all stakeholders: European-wide single price coupling Price coupling is a way of linking separate day-ahead (auction-style) spot markets using cross-border transmission capacity; hourly settlement periods An “Implicit solution”: allocate access to cross-border transmission via energy markets (“explicit auctions” sell transmission capacity separately) Price coupling is a form of market coupling where prices and flows are determined together (“volume coupling” only determines flows, prices then set locally) Successful regional solutions have demonstrated clear benefits of price coupling Target: create one single solution across European connected electricity system

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Spot Market Area A

Quantity Price

Spot Market Area B Isolated area price difference

Isolated spot markets

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Spot Market Area A

Quantity Price

Spot Market Area B Coupled area price difference Import volume Export volume

Impact of cross-border flows

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Spot Market Area A

Quantity Price

Spot Market Area B Price convergence Import volume Export volume

More flow eliminates price differences

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Spot Market Area A

Quantity Price

Spot Market Area B Price convergence Import volume Export volume

More flow eliminates price differences

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Overall Process

Post Coupling Coupling Pre Coupling

• TSOs calculate firm

DA capacity (including UIOSI of forward rights)

• PXs receive orders

from market parties

• PXs jointly calculate

prices and net import/export positions of each hub

• Welfare

maximisation

• Price differences

where there is congestion*

• Shipping:
• Schedule and

nominate cross- border flows

• Settle exports and

imports on relevant exchange; any gain (“congestion revenue”) to TSOs

• PXs nominate and clear

local market trades

* also if adjustments for losses and flow related charges (e.g., BSUoS)

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Removes unnecessary risks of trading short-term transmission capacity and energy separately Guarantees optimal utilisation of transmission capacity Less prone to market abuse since capacity cannot be hoarded All market participants benefit from cross-border capacity Encourages growth of liquid, robust spot markets (e.g. Belgium, Finland)

• Optimal use of capacity
• Single price (when there

is sufficient capacity)*

Advantages of Price Coupling

* in absence of adjustments for losses and flow related charges (e.g., BSUoS)

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REGIONAL IMPLICIT AUCTIONS CWE Price coupling Austria AT price coupled to GE/CWE (no congestion) BritNed GB price coupled to NL/CWE Nordic + Estonia Price coupling, also Poland via Swepol ITVC Volume coupling CWE - Nordic Italy - Slovenia Price coupling Mibel Price coupling Czech - Slovak Price coupling

Current Status

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Wrong direction

Hourly Capacity Utilisation - Explicit

Wrong direction

CAPACITY UTILISATION A to B B to A 100% 0% 100% PRICE DIFFERENCE A = B A << B A >> B

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Hourly Capacity Utilisation - Coupled

Optimal utilisation (same price unless congested) CAPACITY UTILISATION A to B B to A 100% 0% 100% PRICE DIFFERENCE A = B A << B A >> B

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TLC market coupling

Capacity Utilisation: NL-BE Example

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Trilateral Market Coupling: Price Convergence

Hourly price difference FR-NL, €/MWh

1% 61% 70% 9% 4% 2% 51% 23% 14% 39% 12% 14%

Nov '05 - Nov '06 Nov '06 - Nov '07 Nov '07 - Nov '08

>= € 10,00 < € 10,00 < € 1,00 < € 0,05

Pre TLC With TLC market coupling

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NL BE FR GE

Single CWE price area 66% of hours since start to end Q1

Hourly Price Convergence - CWE

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BritNed ‘Embedded Solution’

A price coupling solution linking GB to CWE and Nordic (via ITVC), but without impacting the CWE or ITVC arrangements Involves embedding the GB market as orders within the Dutch day- ahead auction order book, taking into account currency, losses, flow related charges and ATC Dutch order book used in ITVC/CWE as normal

GB NL DE FR BE NO DEN SW

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BritNed deadband due to losses and charges

Economically optimal solution addresses BritNed marginal costs:

• Flow-related tariffs - i.e.,

BSUoS

• Cable losses and GB

system losses Deadband depends on value

• f losses and BSUoS –

typically about €3/MWh No flow if price difference less than deadband; no full price convergence NL-GB “Deadband”

• 100%
• 50%

0% 50% 100%

• €20.00
• €10.00

€0.00 €10.00 €20.00 €30.00

Price difference (GB - NL) Usage of BritNed capacity (NL - GB)

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Overview Day-Ahead Target Model

Regional Capacity Calculation Coordinated Matching Single Algorithm Cross Border Shipping, Revenue Distribution

Order Books Results Prices, net positions ATC

• r FB

Post-Coupling Functions Pre-Coupling Functions TSO responsibility Coupling: Matching & Allocation Joint PX responsibility, must meet TSO requirements regarding capacity allocation Regional Capacity Calculation Regional Capacity Calculation Regional Capacity Calculation Local Markets PX responsibility Local Market Operation Local Market Operation Local Market Operation Local Market Operation Cross Border Shipping, Revenue Distribution Cross Border Shipping, Revenue Distribution Cross Border Shipping, Revenue Distribution

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Markets that could join next as part of an agreed European roadmap

Development of the Price Coupling of Regions (PCR) Initiative

Markets either associate members of PCR or in the process of joining PCR Markets initially included in PCR - 2860 TWh

Supported by Europex

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PCR Initiative

PCR project, supported by Europex

• six core members (Nord Pool Spot, APX-Endex, Belpex, EPEX,

GME and OMEL)

• associate members (OTE, EXAA, HUPX, OPCOM, Polpx, BSP)

Committed to delivering single European coordinated matching function for market coupling (algorithm, systems and procedures) Support parallel regional implementations of PCR, with subsequent joining/extension of regions Adoption of PCR algorithm for NWE requires validation with respect to TSOs 3rd package obligations on capacity allocation. In order to move forward:

• Functional validation by TSOs under coordination of ENTSO-E
• Work within existing governance arrangements as starting point,

but with a view to the future Governance Guideline

• Local arrangement of funding

NRAs need to endorse this validation in a timely manner; could take the form of, e.g. a “commitment letter” signed by all NRAs

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IN scope and OUT of scope of PCR

21 Establish Core PCR Infrastructure Setup Joint algorithm, systems, communications Operational procedures, agreements Implementation: area 1 Testing, trial Local agreements Local Systems, procédures Approvals Approvals Interregional implementation Implementation: area 2 Testing, trial Local agreements Local Systems, procédures

Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Design Implementation

In Scope of PCR: Common algorithm, core systems and procedures, joint PX governance NOT In PCR Scope: local governance arrangements, local nominations, shipping, clearing & settlement, …

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PCR Initiative: Current Status

Nearing end of design phase

• Starting point algorithm selected
• Cosmos (as used in CWE) chosen following extensive

assessment of alternatives

• Next stage is development of full PCR Algorithm

prototype, able to support known requirements

• Decentralised solution design chosen
• High level architecture and procedures largely completed

(normal and fallback scenarios)

• Specification of systems starting
• Joint PX agreements nearing finalisation: co-ownership of

algorithm; enduring co-operation agreement Funding commitments needed soon to enable next phase to start without delay

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1b 2b, 9b

TSO IT Systems TSO IT Systems

7b,8c,11a 12b 13a 13b 2a, 9a,11b 1a 12a 1a

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PCR Algorithm

4b PCR Matcher

• perator

PX member PX member

PX Environment PCR Systems Current PX Systems TSO IT Systems

2b, 9b 7b, 8c, 11a 12a

PCR Matcher

6a 4a, 6b

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4b 6c 14a 3c

OPERATOR

PCR Broker

3a,8a,10a 14b 2a, 9a,11b

PCR Algorithm

3b, 7a, 8b, 9c, 10b 12b 1a

PCR Broker

3a,8a,10a

PX IT System PX Trading System

6b 14a 14b 1a 12a

MASTER

PCR Broker

3a,8a,10a PCR Broker

• perator

1b 12b PX member PCR Matcher

• perator

PCR Algorithm

4b 6a

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4a, 6b

PCR Matcher

3c 6c 7b, 8c. 11a 2b, 9b,

PX IT System PX Trading System

2a, 9a,11b

TSO IT Systems PX IT System PX Trading System

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Preliminary Roadmap

2011 2012 2013 2014 2015 NE CWE FUI SWE CSE BS CEE SEE

ES SE, NO, DK, FI PO CWE AT CWE AT GB (BritNed) ES, LI SE, NO, DK, FI PO BS SE, NO, DK, FI, CWE GB PO, AT SWE IT, SLO CZ, SK BS SE, NO, DK, FI, CWE GB SWE PO, AT BS SE, NO, DK, FI CWE GB SWE CSE CEE

Volume Coupling

All regions

Open planning issues: CEE, SEE, Ireland (SEM), CH and the joining of SWE to the other Regions

SWE ready to join other Regions

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The NWE Project

• The NWE day ahead project is initiated by

ENTSOE – Regional Group North West Europe (NWE)

• Targeted at the introduction of Single Price Market Coupling in the 10 NWE

countries by the end of 2012

• Introduction of Flow Based in CWE planned for 2013

 Target Model reached in NWE in 2013

• As a first step, existing pre- and post-coupling structures shall be used

where available. Processes have to be re-assessed

• The current algorithms shall be replaced by a single new algorithm
• The PCR algorithm is positively received and could deliver the allocation

service provided meets the public service requirements of TSOs (efficiency, regulation)

• Regular high level meetings with NWE PXs have been held for alignment;

initiation terms for a common TSO/PX coupling project are under discussion

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Including SEM in PCR/NWE

SEM not currently represented in PCR or NWE projects

• Perceived as incompatible: mandatory pool (hence highly

complex bids; closely regulated)

• Currently an “open question”

Broadly two options:

• Significant change to SEM: separate day-ahead, intraday

and balancing markets; single, firm day-ahead price Note: Spanish and Italian markets may be interesting examples

• Work around with existing SEM – e.g., CfD day-ahead

market coupled to NWE:

• CfD settled against a single hourly reference price in

SEM (buyers and sellers trade at same CfD price)

• Shipper has firm access to interconnector capacity and

firm right to buy/sell coupled volume on SEM at the reference price

• Coupling can accommodate losses, BSUoS

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Intraday

Target model is continuous implicit market by 2014

• Capacity automatically allocated via energy trades (can trade with
• rders in other markets if capacity is available)
• A “Shared Order Book” (SOB) allowing automatic matching

between orders on different exchanges in different countries

• Hourly, block and “sophisticated” (allowing technical bid

parameters) orders Interim solution for NWE by 2012

• SOB
• OTC access, which may also be used by PXs (where approved by

regulators)

• Slow progress to date due to lack of consensus between PXs,

TSOs, market parties…… Interim solution may require some simplification for GB – e.g.:

• Currency: trade in Euros
• Losses, BSUoS: trade a virtual GB hub in NL and FR; trader

responsible for losses, BSUoS Application to SEM?

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