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Market Opening Experience. Agenda - Introduction - Market Opening Experiences - Conclusions for Turkey. Why reform Electricity Supply Systems? Often heard “reasons”.

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Market Opening Experience

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Market opening experience l.jpg

Market Opening Experience


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Agenda- Introduction- Market Opening Experiences- Conclusions for Turkey


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Why reform Electricity Supply Systems?

Often heard “reasons”

Our electricity supply reform aims at introducing competition and private ownership into the former vertically integrated electricity supply system. This introduction shall improve supply quality and ensure lowest possible prices for our consumers.

Mismanagement, corruption and wrong investments shall be corrected.

We are following the EU: Deregulation, unbundling and electricity markets with competition


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In a competitive environment generation and consumption will use the resources more correctly and thus increase the efficiency in the sector

In a competitive environment retail business will focus on cost reduction and thus increase the efficiency in the sector

The commodity electricity should be traded in line with other commodities like oil, gold, wheat, coffee, cotton

The market price for electricity should be used for investment calculations and decisions, not “plans” set up by a monopolist for his supply area (plans backed up by cost recovery)

The deregulation facilitates the cooperation between all available resources (instead of local/national you will facilitate regional/international optimization and cooperation)

Why Electricity Supply System Reforms?

Some good reasons


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Nordic?

England & Wales?

Germany?

France?

California?

Brazil?

Australia?

Russia?

Etc.?

Electricity Supply System Reforms

Where can we see the success?

What does success mean?

What shall we look for?


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The first electricity supply systems where established (as monopolies) as early as the beginning of the last century

It took us 90 years to recognize that they were not efficient enough!

We will first be able to judge the last decades reforms in some 20/40/60 years!

Electricity Supply System Reforms

Let us be honest!


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We are replacing the old:

local monopoly supply areas with vertically integrated supply company – collective balance responsibility by local supply monopoly – technical models dispatching generation – estimates for future consumption are used for developing plans for future capacity investments – full cost recovery in order to meet the demand

increasing supply costs, difficult regulation, no transparencyand sub-optimization

Electricity Supply System Reforms

The basics


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With the new:

competition in generation and supply – regulated grids and system operation – market price dispatching generation and consumption – individual balance responsibility supported by real-time balancing activity of SO – investments in capacity left to anyone (public and private) wanting to invest capital

increasing supply efficiency, achieving full transparencyand a maximum degree of optimization

Electricity Supply System Reforms

The basics


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Objectives, Instruments and MechanismsTurkey is reforming the electricity supply system by replacing the old monopoly with well designed instruments and mechanisms – goal is to achieve the objectives

The objectives should be kept in mind so that the success can be measured (are the mechanisms working and are the instruments good enough)

The overall objective is a correct market pricecombined with a well designed framework, which has to secure that the mechanisms are enabled to work

Electricity Supply System Reforms

What secures a success in Turkey?


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Instruments

Regulation–sets the framework for the market

DAM–pre-balances Turkey a day ahead on an hourly basis–determines the energy price leading to the balance

BPM–provides reserves for balancing the system in real-time;–determines the SO’s costs for balancing the system

Market Splitting–prices surplus and deficit areas correctly–reduces the flow between congested areas

AMR–determines the imbalance settlement volumes

SS–cash-settles DAM, BPM and Imbalances

Mechanisms

Competition–regulates the profit of the competitive part of the electricity supply business (generators, retailers, eligible consumers–facilitates efficiency improvements and optimization

Price–The price mechanism is the most important mechanism for generation, demand side and investments

BR–Balance Responsibility forces each Balance Responsible to balance his physical with his contractual position and leads toa more or less total system balance

Turkish Electricity Market

Explanation of instruments and mechanisms


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Turkish Electricity Market

Market Opening Experience

In some years you will be able to talk about your Market Opening Experience

Until then you will be able to monitor the success by looking at the market price and analyzing whether the mechanisms are working or not


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Agenda- Introduction- Market Opening Experiences- Conclusions for Turkey


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It functions as designed!

Bad designs have resulted in fatal market collapses (California, England & Wales Pool, etc.)

Good designs have resulted in increased efficiency and correct investments/desinvestments

Market Opening Experience

Overall Experience


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Objective is to “slowly and smoothly” transfer the system from the old to the new

Pro:The participants can prepare themselves in a more or less controlled environment

Con:The mechanisms are only partially enabled to work

Market Opening Experience

Transitional Phase


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What does Transitional Phase mean?-number of eligible participants increases step-by-step-“markets” are released gradually and/or modified during the period

Experiences from Transitional Phases:-many have gradually increased the number of eligible consumers (size-dependent), almost all of these had to shorten the planned transitional period, i.e. to release the consumers earlier than planned -many have chosen to release markets imediately in t0 instead of in phases t1, t2 , t3 ...-transitional phases show a tendency of being modified as they are ongoing ... the mechanisms are enabled to work earlier as planned

Market Opening Experience

Transitional Phase


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Why a Transitional Phase?Turkey needs to prepare:- companies have to grow into their new roles and responsibilities- infrastructure has to be modified- know-how and knowledge has to be expanded

For you the most important development during this phaseBalance Responsibility will gradually be introduced to more and more participants and the settlement of imbalances will gradually be expanded to reach the desired final design of Imbalance Management

Market Opening Experience

Transitional Phase in Turkey


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Definition-A Balance Responsible has to purchase what it will consume or sell what it will produce in advance of the hour of generation/consumption-The purchase/sell has to be completed before the official deadline for trading (submission of generation schedules), i.e. a day ahead of the next 24 hours of a day’s operation-Any imbalance between contracted and metered volumes will be settled with the Imbalance Price

Why?-If each Balance Responsible is in a pre-balance a day-ahead the system is also in a pre-balance a day-ahead-Thus the SO can concentrate on unexpected imbalances in real-time (should not be more than max 3-4% of the consumption)

Market Opening Experience

Balance Responsibility


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General Experience-System Operators always have feared this transfer of responsibility (they have feared too large imbalance volumes in real-time operations)-Many SOs tried to set very high Imbalance Prices to facilitate the balancing efforts, but the result was instead a market disablement due to nobody wanting to be BR-Reasonable Imbalance Prices have shown to be enough facilitation-A clear demand in the regulation (you shall trade into balance, otherwise you risk the loss of your license) and intensive training has shown to be enough

Your next taskHow to estimate tomorrow’s consumption/generation/commitment best possible?

SuggestionCooperate! Use experience, know-how and knowledge from mature markets!

Market Opening Experience

Experiences with Balance Responsibility


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Agenda- Introduction- Market Opening Experiences- Conclusions for Turkey


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Get prepared ASAP-Handling of Balance Responsibility-Risk Management and Portfolio Management-Enable your organization to react fast on changes/modification(things can change or be modified sooner as stated in the plans!)

RegulationYou will have a more developed regulation – the transfer from the existing to the new will be finalized end of next year (from T-BSR and DAS over DAS/BPM to DAM, BPM, SS, AMR, the BSR)You should communicate to the rest of the world that this regulation has come to stay!

RecommendationDo not try to find the negative sides of the changes … the changes will come anyway … and you will have lost time!Please remember: We are all working for a better and more efficient Turkish Electricity Market.

Conclusions

What do the experiences learn us?


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