EMCC - European market integration and next steps - Enno Böttcher


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

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EMCC - European market integration and next steps - Enno Böttcher

  1. 1. European Market Integration and Next Steps German Norwegian Energy Forum Enno Böttcher Berlin, 24.10.2013
  2. 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 2
  3. 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 3
  4. 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 4
  5. 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 5
  6. 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 6
  7. 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 7
  8. 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 8
  9. 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 9
  10. 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 10
  11. 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 11
  12. 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 12
  13. 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 13
  15. 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 15
  16. 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 16
  17. 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 17
  18. 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 18
  19. 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 19
  20. 20. Results of from a small service provider with 6 employees Sales Purchase Congestion Rent Volume © EMCC GmbH, 24 October 2013 20
  21. 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 21
  22. 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 22
  23. 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 23