Price Coupling Regions (PCR) Initiative Information Workshop on Emerging Electricity Target Models Dundalk, 3 June 2011 Andrew Claxton - Business Services Director APX-ENDEX
Topics Market coupling concept Price Coupling of Regions (PCR) Prospects for the North West Europe region and SEM Intraday 2
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 3
Isolated spot markets Spot Market Spot Market Area A Area B Isolated area price difference Price Quantity 4
Impact of cross-border flows Spot Market Spot Market Area A Area B Coupled area price difference Price Export volume Import volume Quantity 5
More flow eliminates price differences Spot Market Spot Market Area A Area B Price convergence Price Export volume Import volume Quantity 6
More flow eliminates price differences Spot Market Spot Market Area A Area B Price convergence Price Export volume Import volume Quantity 7
Overall Process Pre Coupling Coupling Post Coupling • TSOs calculate firm • PXs jointly calculate • Shipping: DA capacity prices and net • Schedule and (including UIOSI of import/export nominate cross- forward rights) positions of each hub border flows • PXs receive orders • Welfare • Settle exports and from market parties maximisation imports on relevant • Price differences exchange; any gain (“congestion where there is revenue”) to TSOs congestion* • PXs nominate and clear local market trades * also if adjustments for losses and flow related charges (e.g., BSUoS) 8
Advantages of Price Coupling Removes unnecessary risks of trading short-term transmission capacity and energy separately Guarantees optimal utilisation of transmission capacity • Optimal use of capacity Less prone to market abuse since • Single price (when there capacity cannot be hoarded is sufficient capacity)* All market participants benefit from cross-border capacity Encourages growth of liquid, robust spot markets (e.g. Belgium, Finland) * in absence of adjustments for losses and flow related charges (e.g., BSUoS) 9
Current Status 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 10
Hourly Capacity Utilisation - Explicit 100% Wrong direction CAPACITY UTILISATION A to B 0% B to A Wrong direction 100% A >> B A = B A << B PRICE DIFFERENCE 11
Hourly Capacity Utilisation - Coupled Optimal utilisation (same price unless congested) 100% CAPACITY UTILISATION A to B 0% B to A 100% A >> B A = B A << B PRICE DIFFERENCE 12
Capacity Utilisation: NL-BE Example TLC market coupling 13
Trilateral Market Coupling: Price Convergence Hourly price difference FR-NL, € /MWh Pre TLC With TLC market coupling 12% 14% 39% 14% 23% 2% >= € 10,00 4% < € 10,00 < € 1,00 < € 0,05 51% 70% 61% 9% 1% Nov '05 - Nov '06 Nov '06 - Nov '07 Nov '07 - Nov '08 14 14
Hourly Price Convergence - CWE NL BE GE FR Single CWE price area 66% of hours since start to end Q1 15
BritNed ‘Embedded Solution’ NO A price coupling solution linking GB to CWE and Nordic (via ITVC), but without impacting the CWE or ITVC arrangements GB NL DEN SW Involves embedding the GB market as orders within the Dutch day- ahead auction order book, taking BE DE into account currency, losses, flow related charges and ATC Dutch order book used in FR ITVC/CWE as normal 16
BritNed deadband due to losses and charges “Deadband” Economically optimal solution Usage of BritNed capacity (NL - GB) 100% addresses BritNed marginal costs: • Flow-related tariffs - i.e., 50% BSUoS • Cable losses and GB system losses 0% Deadband depends on value of losses and BSUoS – typically about € 3/MWh -50% No flow if price difference less than deadband; no full -100% price convergence NL-GB -€20.00 -€10.00 €0.00 €10.00 €20.00 €30.00 Price difference (GB - NL) 17
Overview Day-Ahead Target Model Pre-Coupling Coupling: Local Markets Functions Matching & Allocation PX responsibility TSO responsibility Joint PX responsibility, must meet TSO requirements regarding capacity allocation Order Coordinated Books Regional Capacity Matching Local Market Regional Capacity Local Market Calculation Operation Regional Capacity Local Market Calculation Operation Regional Local Market Calculation Single Operation ATC Capacity Operation or FB Prices, Algorithm Calculation net positions Results Cross Border Post-Coupling Cross Border Shipping, Cross Border Functions Shipping, Cross Border Revenue Shipping, Revenue Shipping, Distribution Revenue Distribution Revenue Distribution 18 Distribution
Development of the Price Coupling of Regions (PCR) Initiative Markets initially included in PCR - 2860 TWh Supported by Europex Markets either associate members of PCR or in the process of joining PCR Markets that could join next as part of an agreed European roadmap 19
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 20
IN scope and OUT of scope of PCR In Scope of PCR : Common algorithm, core systems and procedures, joint PX governance Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Establish Core PCR Infrastructure Setup Joint algorithm, systems, communications Operational procedures, agreements Design Implementation Implementation: area 1 Approvals Local agreements Local Systems, procédures Testing, trial Approvals Implementation: area 2 Local agreements Local Systems, procédures Testing, trial Interregional implementation NOT In PCR Scope: local governance arrangements, local nominations, shipping, clearing & settlement, … 21 21
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 22
2a, 9a,11b 5 1a PX IT System TSO IT PCR Algorithm Systems 14a 12b 5 4a, 6b 6a 4b PX Trading 12a PCR Algorithm 14b System PCR Matcher TSO IT Systems 1a 4b PCR Matcher 7b, 2b, PX member 3a,8a,10a operator 8c, 1b 6c 12b 3c 9b 3a,8a,10a 11a PCR Broker 2a, 9a,11b OPERATOR PX IT System PCR Broker 2b, 9b 13a 3b, 7a, 8b, 9c, 10b PX Trading 7b,8c,11a System 13b 3a,8a,10a PCR Broker 12a 1a operator PCR Broker MASTER 7b, 2b, 3c 6c 2a, 9a,11b 8c. 9b, 11a 4a, 6b PX IT System 1b TSO IT PCR Matcher Systems PX member 14a 12b 5 6b 4b 6a PX Trading 1a 14b PCR Algorithm PX Environment System 12a Current PX Systems PCR PX member Matcher PCR Systems operator 23 TSO IT Systems
Preliminary Roadmap 2011 2012 2013 2014 2015 BS BS BS All regions BS ES, LI SE, NO, DK, SE, NO, SE, NO, DK, FI ES SE, NO, DK, FI FI, DK, FI, CWE NE SE, NO, DK, FI PO CWE CWE GB PO GB GB SWE Volume Coupling PO, AT SWE CSE PO, AT CEE CWE CWE CWE AT AT FUI GB (BritNed) SWE ready to join other SWE SWE Regions CSE IT, SLO CEE CZ, SK SEE Open planning issues: CEE, SEE, Ireland (SEM), CH and the joining of SWE to the other Regions 24 24 page page
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