2 nd Stakeholder Group Meeting 14 November 2006

1. France-UK-Ireland REM – Analysis of interconnector flows Michel Massoni – Director of the Electrical Grid Access Commission de Régulation de l’Energie 2nd Stakeholder Group Meeting 14 November 2006

2. Hourly nominations (MWh) Max export capacity - Max import capacity from B to A from A to B 0 Max export capacity 0 - Max import capacity from B to A from A to B Hourly nominations (MWh) 0 Max export capacity from A to B - Max import capacity from B to A Hourly nominations (MWh) Stylised perfect use of an interconnection If market players make perfect arbitrages, then • nominations in the direction of the price differential should be maximal • nominations in the opposite direction of the price differential should not occur

3. Present use of IFA (1 / 4) Two approaches with pros and cons for leading this analysis:

4. from GB to F from F to GB Present use of IFA (2 / 4) Daily approach

5. from GB to F from F to GB from F to GB from GB to F Present use of IFA (3 / 4) Hourly approach

6. Present use of IFA (4 / 4) Whatever the approach, two facts are observed : • Significant nominations occur in the non rational direction (inconsistent with price differential) • during 74 % of the time with the daily approach • during 41 % of the time with the hourly approach • When nominations are rational (consistent with price differential), IFA is not fully used • during 76 % of the time with the daily approach • during 66 % of the time with the hourly approach

7. Conclusion (1 / 3) These inefficiencies do not depend on the type of analysis (hourly / daily) • How can they be explained? • Differences of market structure which prevents a better arbitrage on IFA? • Imperfections in the design of auction rules? • If so, to what extent could the current IFA auction rules be improved? • Daily auctions on an hourly basis (or at least, peak / off-peak basis) • Use It Or Lose It • Netting • Specific Intraday allocation mechanisms

8. Conclusion (2 / 3) Within the framework of other ERIs, important changes are foreseen: • Harmonization and improvement of auction rules for periodical capacities (Central-Western region) • Implicit daily auctions implemented with Belgium and the Netherlands, and in project with Norway and Spain and under discussion with Germany and Italy • Flow-based allocation method expected for the 1st January 2007 in the Central-Eastern region and in discussion on the Central-Western region • An ELBAS type platform for intraday in place in the Northern region and expected (end of 2007) on the Central-Western region One year ago IFA was fairly ahead of other interconnections. What about the near future?

9. Conclusion (3 / 3) There is a shared aim to increase interconnection capacity: • How building new lines could be justified if an efficient use of existing capacity cannot be demonstrated ? • Building new lines is a lengthy process • Meanwhile short term improvements of the methods and procedures are the only solution to improve the current use of existing interconnectors