Regional Market Integration in the CEE Region

1. Regional Market Integration in the CEE Region Tahir Kapetanovic Director Electricity, E-Control

2. Highlights • Priorities for the integration of the CEE electricity market(s): Why.What.When • Congestion management • Market entry barriers and remedies • Regulatory gap and how to bridge it • Future prospects and expectations from the "3rd Package"

3. Highlights • Priorities for the integration of the CEE electricity market(s): Why.What.When • Cogestion management • Market entry barriers and remedies • Regulatory gap and how to bridge it • Future prospects and expectations from the "3rd Package"

4. ERGEG Electricity Regional Initiative and CEE • An intermediate step towards really integrated, common European market • CEE Region: the „electrical heart of Europe“ • Diversity of the CEE markets‘ characteristics: • Maturity • Size • Liquidity • History, • etc.

5. Poland Germany Czech Republic Slovakia Austria Hungary Slovenia CEE Facts & Figures

6. CEE Facts & Figures Generation shares (EC SI 2006)

7. Poland Germany Czech Republic Slovakia Austria Hungary Slovenia CEE Facts & Figures (cont‘d)

8. Poland Germany Czech Republic Slovakia Austria Hungary Slovenia CEE Facts & Figures (cont‘d)

9. Correlation EEX/EXAA: 0,94 EEX/CZ: 0,544 EXAA/CZ: 0,545 Poland Germany Czech Republic Slovakia Austria Hungary Slovenia CEE Facts & Figures (cont‘d)

10. ERGEG ERI CEE PrioritiesWhy. • Interconnections and efficient congestion management are a key precondition for any cross-border market „to happen“ • Transparency helps to: • lower market entry barriers, • reduce the risk for non-incumbents, • lower prices for customers in a sustainable manner • Coherent regulatory competences and framework • Remove barriers for new entry (and foster competition …) • Balancing is the key - although not the biggest - segment of electricity market to be integrated across the borders • For market integration, market design(s) must be coherent too

11. .When Congestion management Transparency short-term 2008/2009 Market entry barriers Regulatory competences long-term 2010 and beyond ERGEG ERI CEE PrioritiesWhy.What Congestion Management Transparency Market entry barriers Regulatory competences Balancing markets integration Market design issues

12. Highlights • Priorities for the integration of the CEE electricity market(s): Why.What.When • Congestion management • Market entry barriers and remedies • Regulatory gap and how to bridge it • Future prospects and expectations from the "3rd Package"

13. EU Priority Interconnection Plan of 10. January 2007, http://ec.europa.eu/energy/energy_policy/doc/11_priority_interconnection_plan_en.pdf

14. Interconnections in the CEE Region Out of the 32 electricity grid priority projects in the EU 15 projects are in Central Europe !!!

15. Congestion Management • Objective (CM Guidelines): flow-based capacity calculation as the basis for the common and coordinated capacity allocation • „Best effort“ approach: start with explicit allocation, move towards implicit ASAP (depends on „availability“ of price) • Auction Office is an important organisational & functional step

16. Congestion Management (cont‘d) • Working groups by the TSOs • Flow based capacity calculation • Coordinated Auction • Operation of the system commited for January 2009 • Challenge: incentives to effectively support market integration • Cooperation & coordination is crucial

17. Congestion Management (cont‘d)(actual project plan, see also CM IG reports at www.ergeg.org)

18. Congestion Management – Auction Office • First EU-wide AO established in CEE in July 2008 (Freising, Germany) • Facts and figures • Each TSO has equal shares in the new company • AO has full legal rights (not subsidiary of a TSO) • General Manager assigned (must not come from the country where AO is located) • Notification to the competition authorities in Germany & Poland • Framework review by regulators after the CM IG on 09. May 2008 (auction rules, governance issues, contracts & agreements, etc.)

19. Congestion Management – Work in Progress • Finalization and implementation of the capacity calculation solution (grid model, border-areas, timeframes, information exchange, etc.) • Maximum wellfare criteria  „maximum flows“ • Comparison of flow-based vs. NTC • a tricky and somewhat awkward task • Consentec: Implementation Group on 16. September 2008 • Test calculations to follow, involving also market participants • IT tender for software

20. Highlights • Priorities for the integration of the CEE electricity market(s): Why.What.When • Congestion management • Market entry barriers and remedies • Regulatory gap and how to bridge it • Future prospects and expectations from the "3rd Package"

21. CEE Market Entry Barriers* • Most significant wholesale market obstacles • Bureaucratic licensing procedures • Lack of appropriate market places and/or their ineffective operation • Insufficient coordination (of TSOs, regulators, etc.) • All stakeholders committed to remove those obstacles • Practical, solution-oriented approach with roadmap since 2007 • Retail market barriers to be addressed at a later stage * See also CEE ERI Stakeholder Group meetings at (www.ergeg.org)

22. CEE Market Entry Barriers – some Details • Network access administration and bureaucratic formalities(license and subsidiary requirements, language barriers, contract volume charges, bank guarantees, etc) • Market fragmentation and regulatory divergence(different levels of unbundling, different national support schemes for renewables, various national ways of implementing electricity disclosure, different CHP-support schemes,non-harmonized capacity payments, diverging white certificates approach) • Market structure and timetable for the trading day(unsynchronized timelines for day-ahead activities, nominations and biddings, no intraday cross-border market, non-harmonized cross-border capacities allocation) • Divergent IT platforms and data delivery

23. Key Improvements to be Achieved • Abolish all licence requirements for wholesale trading • Simplify transaction procedures by harmonizing operational platforms and scheduling processes • Standard contracts to facilitate financial trading • Reduce credit risk by encouraging effective clearing solutions • Resolve problems related to scheduling • Further details on CEE countries: • EFET presentation at the 2nd CEE Stakeholders Group on 22. June 2006 • (http://www.ergeg.org/portal/page/portal/ERGEG_HOME/ERGEG_RI/ERI/Central- • East/Meetings/SG%20Meetings/2nd_CEE_SG/CEE%20obstacles%20Vienna%20June%2006.pdf) • PWC public domain Study • (http://www.pwc.com)

24. Highlights • Priorities for the integration of the CEE electricity market(s): Why.What.When • Congeston management • Market entry barriers and remedies • Regulatory gap and how to bridge it • Future prospects and expectations from the "3rd Package"

25. CEE Regulatory Competences • Legal implementation of the EU Directives, regulatory models and competences differ in the CEE countries • In order to remove undesired impacts on the market functioning and evolution (e.g. in cross-border issues) better coherence and compatibility of regulatory competences is needed • Member States‘ representatives informed at the 2nd CEE Mini Forum / Stakeholders Group 06/2006 • Dedicated Implementation Group with CEE Regulators and Member States‘ representatives to address this issue (initially planned for 2008 …) • Detailed benchmark of the CEE regulatory competences in the cross-border issues in 2007

26. Highlights • Priorities for the integration of the CEE electricity market(s): Why.What.When • Congestion management • Market entry barriers and remedies • Regulatory gap and how to bridge it • Future prospects and expectations from the "3rd Package"

27. Challenges & Opportunities • Complete the Internal Electricity Market meeting the targets of EFFICIENCY, SECURITY, SUSTAINABILIY (INFRASTRUCTURE !) • Bring together diverging national priorities through the stepwise REGIONAL INTEGRATION • CEE is the heart of electrical Europe and will remain at the FOREFRONT OF ELECTRICITY SUPPLY EVOLUTION

28. „3rd Package“ Expectations • Effective (ownership) unbundling of the grid operators … for non-discrimination and … security of supply (no grid ownership for owners of market operations) • Cooperation and coordination of the grid operators … in operational security aspects … in definition, implementation and supervision of standards … in activities supporting the market • Legally binding framework for and implementation of the adequate transparency and information management to … lower market entry barriers … reduce the risk for non incumbents … help lower prices for customers in a sustainable way

29. „3rd Package“ Expectations (cont‘d) Legally defined and empowered EU regulators to be charged with: … the approval of EU security standards … the approval of EU operating standards … the approval of investment plans at the EU-level … the approval of cost allocation methodologies for cross-border investments … the approval of binding guidelines for areas defined by legislation … enforcement powers including the power to impose solutions on the EU network organisations … providing advice to the European Commission on regulatory and market issues

30. Information: www.ergeg.org ERI  CEE

31. Thank you for your attention ! Tahir Kapetanovic Director Electricity Energie-Control GmbH Austrian Energy Regulatory Authority Rudolfsplatz 13a, A-1010 Vienna, Austria Tel: +43-1-24724-500 tahir.kapetanovic@e-control.at www.e-control.at

32. About us:Structure of Regulation in Austria Federal Ministry of Economics and Labour Advisory Council for Electricity Energie-Control Commission Energie-Control GmbH Supervisory Board Energie-Control GmbH (Regulator) Electricity Market

33. About us:Energie-Control Commission Setup: • An independent body not bound by any order and chaired by a judge of the supreme court, with 2 further members and 3 deputy members • Decisions require unanimity for validity • In the own matter the first and last instance, otherwise processing appeals that may be raised against the decisions of the Energie-Control GmbH • The affairs of the Energie-Control Commission are managed by Energie-Control GmbH Key functions: • Approving the grid operators‘ general terms and conditions • Determining tariffs for system use and other tariffs pursuant to section 25 of the Electricity Act • Ruling on the justification of refusal of grid access • Settling disputes: (i) between market participants, (ii) involving settlement of unbalances

34. About us:Energie-Control GmbH Setup: • A private non-profit company, established with the purpose of performing regulatory tasks in the electricity and natural gas sector, owned by the Austrian state, with share capital 3,7 Mio. €, located in Vienna • Chairman: Mr. Walter Boltz • Departments/Divisions: Administration, Electricity, Gas, International Affairs, IT, Legal, Regulation & Competition, Renewables, Retail Customers, Tariffs Key functions: • Creation of framework conditions • Market monitoring and supervision • Settlement of disputes, organisational aspects of balance payments between the system operators • Execution of provisions on stranded costs • Statistical work • Crisis prevention & emergency energy management

35. About us:find more at www.e-control.at