The European Electricity Market Integration and some Thoughts on Gas Markets

Market Coupling and Ways Forward

Lene Sonne

Vice President, Market

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Agenda

The Vision

Status of market coupling projects

Possible ways forward

EMCC: an overarching mechanism: First of its kind

Integrating gas markets

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Vision for European Electricity Markets

Effective utilization of the existing power system

Merit order activation of generators despite geographical location

Implicit auctions:

most efficient allocation method

should be applied at all congestion points

Energy bid/offer information and cross border capacity

PEX-TSO coordination

Socio-Economics

Basic Requirements:

Single European Market: Transparent and Liquid Market,

Free trade across all National Borders

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Status of existing Regional Markets

Regions/Markets Current Status SpectrumType of Market

Coupling

Nordic OperationalIntraregional price

settingMarket splitting

Spain-Portugal OperationalIntraregional price

settingMarket splitting

FR-BE_NE operationalIntraregional price

settingMarket coupling

Nordic- Germany (EMCC)

Planned Q2 2008Inter-regional flow

settingMarket coupling

FR-BE-NE-DE(CWE) Planned Q1 2009Intraregional price

settingMarket coupling

Center Eastern Europe Operational Intraregional Coordinated explicit

auctions

The first Inter-regional Coupling

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EMCC and Tasks

Nord Pool Spot

EEX

Germany FI,DK,SE,NO

EMCCCentral coordination Entity

Calculate local market prices

Settlement ETC..

EMCC - European Market Coupling Company , private limited company (GmbH)

TSO and PEXs equal Shareholders

EMCC is located in Hamburg

Set the correct flows

Collect congestion revenue

Publish and maintain information ETC…

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Possible ways Forward

Several regional/local solutions

Extremely important to coordinate these solutions

How:

1. Selecting compatible regions for further integration

2. An overarching mechanism to coordinate regions

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Selecting Compatible Regions for Further Integration

Condition:

- Efficient exchange on both sides of the congestion point

Analyze Potential benefit compared to challenges of integration:

Potential benefits: secure right direction of flow on interconnections

Sufficient size of cross border capacity

Challenges of integration: Number of stakeholders, difficulties of multilateral agreements

Necessary market harmonization

A gradual process that eventually extends to a Pan-European solution

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Overarching Mechanism to Coordinate Regions: less need for full harmonization

MS (Nord Pool

Overarching MechanimsEMCC+

MC (CWE)

PEX 2PEX 1

Price area Price area

Market Coupling

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Governance of the Market Coupling Process

Several stakeholders involved: high level of governance challenges

Stepwise harmonization considered to be the best option

Need for regulatory guidelines: Indicate best practice for market coupling

Require commitment from all stakeholders

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Integrating gas markets

The development of the gas market has been lagging behind compared to the electricity market.

An integrated and well functioning market for gas must be the final goal.

The EU Electricity & Gas markets 3rd legislative package

A vision to make the internal gas market work.

Same development for gas and electricity?

In principle yes, but differences must be recognised.

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Evolution of Gas and Electricity Markets

FCFSPro Rata

Explicit auctions

Implicit auctions

Socio-economic efficiency

Before Liberalization

Power sector?

Gas Sector?

Gas Sector?

Time

The evolutionary path for gas might be different from electricity

However, the final goal must be an efficient integrated European gas market

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Steps to be taken

Transparent prices Clear trend - gas exchanges are being established around Europe

Further step:

Short-run:

increase utilisation of capacity

cooperation between TSOs to harmonize capacity products

Medium-run: explicit capacity auctions

Long-run: market coupling between existing gas exchanges

An integrated market for gas is possible – but some serious challenges must to be solved.

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