anre romanian electricity and heat regulatory authority transition steps in the energy sector ion...

ANRERomanian Electricity and Heat Regulatory Authority

TRANSITION STEPS IN THE ENERGY SECTOR

ION LUNGU

PRESIDENT OF ANRE


KEY PRINCIPLES OF THE ROMANIAN ENERGY POLICY

creating an electricity market based on transparency, fairness and non-discrimination;

establishing a regulator to regulate monopolies (where they remain), and to foster competition;

unbundling the activities of generation, transmission, distribution and supply;

gradual introduction of competition in generation and supply; licensing the new market participants; non-discriminatory, regulated access for third parties to the

electricity network


GENERAL RULES FOR THE ORGANIZATION OF THE ELECTRICITY SECTOR

• Electricity Law 318/2003

• Government Decisions regarding the restructuring of electricity sector


INSTALLED POWER GENERATION 17.9GW

CONSUMERS - 8537476

Total overhead transmission lines – 8 800 kmSubstations – 76; Power transformers - 207

RESERVE MARGIN 2003 = 46,9 %(Available capacity – Peak demand/Available capacity)

TYPE OF FUELS USED FOR ELECTRICITY GENERATION IN 2003

GENERATORS PARTICIPATION TO ELECTRICITY GENERATION IN 2003

Total distribution lines – 310127 kmSubstations – 1296


EVOLUTION OF ELECTRICITY GENERATION


Government Decision no. 365/1998

RENEL

Nuclearelectrica

Govora Romag

CONELElectrica

Hidroelectrica

Termoelectrica

RENEL

FROM AN INTEGRATED MONOPOLY TO A COMPETITIVE ELECTRICITY MARKET (1)


Government Decision no. 627/2000

Nuclearelectrica

Govora Romag

Electrica

Hidroelectrica

Termoelectrica

Transelectrica

OPCOM


Nuclearelectrica

Govora Romag

CONELElectrica

Hidroelectrica

Termoelectrica



RENEL

S53S9 S10 S11

D_S1

D_S2 D_S3 D_S8

Transelectrica

Nuclearelectrica

Hidroelectrica

T2 T3 T4 T5 T6T1

Transmission and system operator Market operator

8 Distribution and supply companies

(two of them will be privatized in the second quarter of 2004)

45 Suppliers

Almost 20 municipal CoGen producers and IPP’s, other producers

Hydro Producer

Nuclear producer

7 Thermal producers T7


DISTRIBUTION SYSTEM OPERATOR function fulfilled by the 8 distribution and supply companies created

following the restructuring of SC Electrica SA

MARKET OPENING – 40%

ACCESS TO THE NETWORK - REGULATED

GENERATION - the construction of new capacities for electricity generation, cogeneration, transmission and distribution and the refurbishment of the existing ones are subject to authorisation

TRANSMISSION SYSTEM OPERATOR function fulfilled by CN Transelectrica SA, member of UCTE from May 2003

MARKET OPERATOR function fulfilled by CN Transelectrica SA’ subsidiary SC OPCOM SA

The restructuring process and the development of the regulatory framework followed the European Directive provisions:


May 8, 2003 – UCTE membership

Fully unbundling - independent TSO company ( legal, management, ownership)

Neutral toward electricity market arrangements (not allowed to be involved in electricity business)

Technical Grid Code in line with UCTE Operation Handbook

Cross border capacity over 15 % - complying with Barcelona target

- full responsibility for the Power System security of Supply

- no major incidents since unbundling (2000); facing very tough operational conditions in 2003 (severe drawn, NPP outage)

TRANSMISSION SYSTEM OPERATOR


PRIVATIZATION OF THE ENERGY SECTOR - the most important target of the Romanian Government

ELECTRICITY DISTRIBUTION

• Electrica Dobrogea and Electrica BanatFinalization of the negotiation and signature of the contract: end of June 2004

• Electrica Moldova and OlteniaReceiving letters of interest from investors: 31 May 2004Short listing of the investors: 30 June 2004

• Continuation of the privatization for 4 distribution companiesN.B. Transparency of the process based on the by the public tender procedures

Basic principles, the investors have to comply:

•Full compliance with EU Directives•Non discriminatory access to the grid based on regulated tariffs•Investors will operate based on clear regulatory framework published by A.N.R.E.•Opening of the market is mandatory •Legal unbundling of the supply from distribution by 2007


POWER GENERATION

• Promotion of two green field projects by private equity participation with a total capacity of about 500 MW

- Selection of the investors: June 2004• Promotion of the privatization on the lignite based on energy

complexes:- Turceni – negotiation with the 5 candidates and selection of the

qualified bidder till the end of 2004;- Rovinari and Craiova Isalnita – selection of the consultant till the

end of September 2004• Hydro power generation: Equity participation in more than 100

small hydropower generation with a total production of 300 – 400 GWh. Process has started for the first group

Privatization will continue based on a monthly fixed schedule till the end of 2004


ANRE - public institution under the co-ordination of the Prime Minister

Mission - to create and implement fair and independent regulations to ensure an efficient, transparent and stable functioning of the electricity and heat sector and markets while protecting the interests of consumers

Appointment Power - President and Vice President of ANRE are appointed by the Prime Minister for 5 years, upon proposal of the Minister. The Commissioners are appointed for 5 years by the Minister.

Financing - sources outside the state budget covered from license and authorization fees and contributions paid by sector companies.


THE MAIN FUNCTIONS OF ANRE AS A REGULATORY BODY

Issue and withdraw authorizations and licenses Regulate the access to the T & D grids Draw up the pricing methodology and set the tariffs and prices for

the activities with monopoly characteristic Issue technical and commercial regulations, supervise the

functioning of market mechanisms Pre-contractual disputes resolution Protect the interests of investors and energy end-users


ORDERS AND DECISIONS ISSUED BETWEEN 1999-2003

-There were cases when several licenses or authorisations were granted, withdrawn or modified through a decision. - The number of orders and decisions diminished in 2002 due to the take over by ANRSC of a part of ANRE activity.

Orders and decisions on: Year Total

1999 2000 2001 2002 2003

1 Licenses, permits and authorisations

7 156 262 243 157 825

2 Commercial regulations19 50 19 28

23139

3 Resolution of pre-contractual disputes - 32 83 38

28 181

4 Prices and tariffs4 509 821 567 199

2100

5 Technical regulations 10 11 7 4 10 42

6 Other regulations regarding the electricity and heat sector and the in-house organisation of ANRE 44 121 92 104 113 474

7 Total 84 879 1284 984 530 3761


THE MAIN SECTOR REGULATIONS ISSUED BY ANRE

Wholesale Electricity Market Commercial Code Network Codes (Grid Code, Distribution Code)Metering CodesTechnical and commercial regulations Tariffs methodologiesAuthorizations and licensesRules regarding the connection to the networks

based on the Romanian legislation and the Aquis Communautaire for the electricity sector provisions


The objectivity and transparency of the regulatory process is ensured by:

permanent consultations with the parties involved by means of surveys, public and bilateral discussions as well as through mediation meetings to accommodate divergent viewpoints,

the ANRE’s orders and decisions may be appealed in Court within 30 days from the notification of the parties or, if of general interest, from the date of their publication in the Romanian Official Monitor

the annual reports regarding ANRE’s activity and budget

the regulator’s code of ethics


AUTHORIZATIONS AND LICENSES

licenses:

authorisations: 22 establishment authorizations and 5 operation permits 365 operation authorizations

No. Type of license 1999 2000 2001 2002 2003

Electricity Heat Electricity Heat Electricity Heat Electricity Heat Electricity Heat

1 Generation 3 - 10 48 4 95 19 37 7 2

2 Transmission 1 - 1 6 - 1 - 1 - 1

3 Dispatch&

Market operation1 - 1 - 1 - - - - -

4 Ancillary services - - - - 1 - - - 1 -

5 Distribution 1 - 4 23 1 33 10 14 5 3

6 Supply 1 - 14 49 13 91 30 31 18 1

7 TOTAL 7 - 30 126 20 220 59 83 31 7


WHOLESALE TRADING ARRANGEMENTS

Generating Companies

Eligible Consumers

TRANSELECTRICA Transmission System

Operator

Electricity Suppliers

Captive Consumers

Import/Export

Import/Export

LEGEND:

Power Purchasing Contracts

Transmission & System Services Contracts

Ancillary Services Purchasing ContractsPower Purchasing over the Spot Market Distribution Contracts

ELECTRICADistribution & Supply

Companies

The Spot Market

Operator (OPCOM)


Portfolio contracts for the sale and purchase of electricity, with set quantities and regulated prices

Long term must run/PPA contract for the sale and purchase of electricity, with regulated prices (Nuclearelectrica)

Framework contracts for electricity purchase from independent power producers and autoproducers

Framework transmission contracts, ancillary service provision contracts and market administration

Framework distribution contracts Framework supply contracts.

Bilateral contracts for the

sale and purchase of electricity between the market participants, with negotiated quantities and prices

The day-ahead market to ensure a balance between contracted quantities and actual consumption.

TRADING ARANGEMENTS ON:

CAPTIVE MARKET COMPETITIVE MARKET


Electricity market opening degree


CONTRACTS ON WHOLESALE ELECTRICITY MARKET – 2003


Transelectrica responsible for transmission and system operation service (TSO)

Transmission network is robust and well developed No congestion due to sufficient transmission capacity

and severe reduction of industrial consumption during the last decade

REGULATED TRANSMISSION TARIFFS (1)


REGULATED TRANSMISSION TARIFFS (2)

14 zonal tariffs with two components:

• injection component

• extraction component

Transmission charge is USD 5.0/MWh on average and does not depend on the electric paths and distances

Nodal pricing

REI-DIMO network reduction technique

Based on SRMC including losses and congestion to establish efficient price signals


REGULATED DISTRIBUTION TARIFFS

5 different tariffs for the use of: 110 kV network MV network LV network 110 kV/MV transformers MV/LV transformers

Distribution charge does not depend on the electric paths and distances

Rate of return regulation


ELECTRICITY - AVERAGE PRICES PER ACTIVITIES


STRUCTURE OF ELECTRICITY AVERAGE PRICE TO END-USERS


35.2

69.7

76.3

42.5

82.6

52.5

94.6

0

10

20

30

40

50

60

70

80

90

100

2001 2002 2003 2004 2005 2006 2007Year

EVOLUTION OF AVERAGE ELECTRICITY PRICES TO CAPTIVE END-USERS DURING 2001-2007- USD/M Wh -


AVERAGE ELECTRICITY TARIFFS (EXCLUDING TAXES)


Consumer protection

Ensured through: License conditions requesting the holder to be responsible to provide

dependable services Monitoring of license holders by enforcing a standard content for the Annual

Activity Report and Financial Reports submitted by companies to ANRE on a yearly basis

Market mechanisms to prohibit deceptive and anti-competitive market practices Solving pre-contractual disputes in the sector and between suppliers and

consumers Monitoring compliance of suppliers with the guaranteed performance standards Information and counseling for consumers in order to be able to make

appropriate choices.


EVOLUTIONS ON MEDIUM AND LONG TERM

Bilateral contracts market with self-scheduling of generators, supplemented by a voluntary power exchange (day-ahead market) and a balancing market.

Physical Notifications

by unit

BILATERAL CONTRACTS DAY AHEAD ON THE DAY SETTLEMENT

System Operator

Balancing

Market

MP

P

Q

SS SS

GG GG

Q

Day Ahead Market

Simple Bids

Simple Bids

Firm Volumes by Company

Simple bids by unit

Metered Volume

s

Meter

data

Imbalance

volumes by

company

Adjustments to Day Ahead schedule

BM Volumes

Market Operator

Market Operator

G- generators

S - suppliers


Principle of the Day Ahead Market

• all generators and suppliers (consumers) submit bids for the amount of energy they are willing to produce (consume) for a certain price in each hour (trading participants may also submit export and import offers)

• the market clearing price is set as the intersection between the supply and demand curve

• bidding on portfolio/company basis

•generators decide themselves how to allocate total production on individual generation units, physical notifications to System Operator

•establishment of balance responsible parties

Bilateral contracts


Principle of Balancing Market (BM)

TSO contracts reserves before day ahead (on a company basis)

the balancing market starts on the day ahead, following the acceptance of physical notifications by the TSO

the BM operates on a unit basis, producers have to offer all remaining capacities (price, quantity)

all accepted offers establish an obligation for the unit to deliver the corresponding type and amount of balancing energy


Allocation of cross-border interconnection capacity

Technical interconnection capacity (ATC) established by TSO

Commercial allocation through auctions: yearly, monthly, daily

Use it or lose it principle.

The mechanism should be agreed with neighboring countries.


Market Operator

Auction Participants

BalancingMarket

Participants

BRP

SettlementAdministrator

TSO

Trading Participants

Scheduling& imbalances

Ancillaryservices

BalancingMarket

DAM

Cross-Bordercapacities

Determine &publish ATC

Offer

Offer

Operate

Auctioncapacities

SettleMarketsplitting

Physical notifications(for DAM)

Submit physical notifications

Pay for imbalances

Settle

Offer

Determine needsUse for systemoperation

Check and approve

Determine needs and procure

Participants to the new trading platform


Evolutions of transmission and distribution price control

Transmission price control

• Revenue cap regulation in order to improve efficiency and increase incentives •Transmission connection service (i.e. connection charges) regulated as excluded service and not part of the caps •Transmission caps supplemented by quality monitoring

Distribution price control

Tariff-basket approach Multi-variant network tariffs with multinomial parameters • Regulatory period’s length: 3 years• Building blocks approach• Real, risk-adjusted pre-tax WACC• Price control supplemented by quality regulation

anre romanian electricity and heat regulatory authority transition steps in the energy sector ion...

Documents

anre romanian electricity

electricity network

competitive electricity

romanian energy policy

market operator function

distribution companies

clear regulatory framework

activities of generation