Gent Summer School: Electricity Markets & Trading

1. Gent Summer School: Electricity Markets & Trading Gregory Michiels

2. EDF LUMINUS: 1st CHALLENGER IN ELECTRICITY PRODUCTION IN BELGIUM • 1,950 MW installed capacity (beginning 2013) • 10 % of the Belgian electricity • production capacity • 73 MW hydro-electric energy • 3.8 % of our energy mix • 117 MW wind energy • 6 % of our energy mix • 418 MW nuclear • participations • 21.4 % of our energy mix • 1,342 MW gas power • plants • 68.8 % of our energy mix

3. 1st CHALLENGER IN GAS AND ELECTRICITY SUPPLY • 1,700,000 access points • 30,000,000 MWh sold • Market share of 20%

4. SHAREHOLDERS June 2009EDF announces its intent to buy Centrica’s 51% November 2009Approval by the European Commission 12/11 Closing 51% shares 26/11Minority shareholders sale option 8 June 2010Publilum and VEH sell half of their shares, Dexia sells all  participation EDF in SPE: 63.5% 22 November 2011The company name is EDF Luminus

5. Optimisation versus Trading • Trader • Creates a position • Objective is to make money from this position when market conditions change • = speculation Asset Optimiser Manages a portfolio of assets (power plants, contracts, retail portfolio,…) Objective is to control physical and financial risks and maximising margins = hedging Both actors sell and buy in the wholesale markets to achieve their objectives, thus creating a liquid market

6. Timeline of activities of anassetoptimiser Intraday [D] Respondtolatestunanticipated changes in the portfolio Send re-nominationsto TSO Sale/purchase operations on the intraday market From 3 yearsto 1 monthahead of implementation date [D] Forecast of the medium-term supply/demandbalance Scheduling of power plant maintenance Sale/purchase operations on the forward markets Day Ahead [D-1] Create operating schedulefor the power plants Balancingsupplyanddemand on the Day-Ahead market (DAM) Sendnominationsto TSO 1 Monthahead of implemenation date [D] Refine the supply/demandbalanceto more accurate weatherforecastsand availability of power plants Sale/purchase operations on the forward markets

7. OTC marketsand power exchanges

8. Forward and spot prices

9. Price Drivers

10. Price Residential demand Peak units Commercial demand Hydro reservoir Industrial demand CCGT Exports Coal Nuclear Renewables Imports Power DAH priceformation: supply/demandbalance

11. The make or buydecision Heat Power Power Plant Fuel CO2

12. Interaction hedging - dispatching  DAH dispatchdecisionisindependentfromhedgingdecision in the forwardmarkets

13. Capacity mix Europe

14. CWE Market Coupling Launched on 9 November 2010 Cooperation of Transmission System Operators (TSOs) and power exchanges (PXs) coupling the Belgian, Dutch, French and German electricity markets Provides for the implicit cross-border capacity allocation and matching of orders of the involved PXs, resulting in the optimal allocation of available day ahead cross-border capacity and price convergence between day ahead wholesale electricity markets across this region

15. CWE market results3 Aug 2013

16. CWE market result 23 August 2014

17. Convergence of CWE prices: are we on a copperplate?

18. Forward markets: OTC

19. Imbalancemarkets

20. Levers for the TSO to manage the country balance AUTOMATIC 30sec <15min 15min MANUAL

21. Balancing: how does it work?

22. Imbalanceprices sunnyday Cold eveningpeak

23. Delta between DAH prices and imbalance prices D D-1

24. Demand side management

25. Transparency Post trade transparency for energy markets through ACER Trade data reporting to ACER Public transparency of fundamental data / inside information and their reporting to ACER Applies to all gas, power and transportation contracts and markets Market Integrity Market manipulation prohibitions Insider dealing prohibitions Applies to underlying physical power, gas and transport contracts and markets Market Regulation • Prohibition of market manipulation and trading on the basis of ‘insider information’ • Market monitoring by ACER

26. THANK YOU !QUESTIONS & ANSWERS