The future of Power Industry & Prospects of Regional Energy Trading Dr AnastasiosGaris Chairman & CEO LAGIE 29 April2014 Electricity Market Operator S.A. – LAGIE SA
The European Electricity has been under pressure for the last few years, as depicted by the major Utilities financial performance Key forces impacting the industry • Economic austerity adversely impacting electricity demand • RES significant penetration driving out conventional capacity and reducing wholesale prices • Retail prices increasing due to higher taxes and levies (primarily to cover RES costs) • Relatively low coal prices driving natural gas generation capacity to extremely low levels (stranded assets in some companies) Electricity Market Operator S.A. – LAGIE SA
The European Commission has embraced the problem and issued new Guidelines to be valid from July 2014 to the end of 2020 Issued Guidelines • Gradual introduction of Market based mechanisms for RES • “it is time for RES to join the Market” (A. Almunia) • Gradual introduction of competitive bidding processes (pilot 2015-16) and replacement of FITs by feed-in premiums for some plants • Promoting competitiveness of European industry • Reducing the burden for a limited number of energy intensive sectors defined for the whole EU (e.g. Metals. Paper, chemicals, etc.) • Supporting cross-border energy infrastructure to further the Single European Energy Market • Focusing on projects that improve cross-border energy flows in less developed regions • Permit aid to secure adequate electricity generation • Encourage producers to build new capacity or prevent them from shutting down existing plants or to reward consumers to reduce consumption in peak hours “The Problem” and “The Premise” • The remarkable growth of renewable energy over recent years, partly induced by public support, • has helped to make progress on environmental objectives but has also caused serious market distortions and increasing costs to customers • The Commission has reflected this in the new guidelines, which will be valid from 1 July 2014 until the end of 2020 Electricity Market Operator S.A. – LAGIE SA
EUROPEX wellcomes the new Guideline which could potentially facilitate an effective integration of RES in the EU electricity market Power Exchanges and Trading platforms in Europe EUROPEX support for the Guidelines • European solution regarding support for RES would further boost their development as well as diminish the impact of non-market based factors onto the electricity price. • The main issues of current support schemes stem from the distortions they cause in the Market. These problems will be reduced by the Guidelines requirements regarding direct market participation, balancing responsibilities and reducing incentives to sell at negative prices. • Already implemented market coupling projects harmonising power trading, increasing volatility, and increasing capability to cope with the intermittent nature of RES EUROPEX is a not-for-profit Association of European Energy Exchanges representing the interests of exchange-based wholesale electricity, gas and environmental markets with regard to developments of the European regulatory framework for wholesale energy trading and provides a discussion platform at European level. Electricity Market Operator S.A. – LAGIE SA
The European Power Exchanges (PXs) offer a wide variety of products to their customers to enhance market visibility and efficiency Example: ITALY GME’s mission is to organize and economically manage the Electricity Market fostering competition between producers, as well as economically manage an adequate availability of reserve capacity, under principles of neutrality, transparency and objectivity GME POWER (IPEX) ENVIRONMENT GAS • Day-ahead Market • Intraday Market • OTC contracts platform • Forward Market • Derivatives • Green certifictes Market • Guarantees of Origin • Efficiency Credits Market • Emissions Allowances Market • Green Certificates OTC registration platform • Italian Gas Market • Day-ahead & Intraday Gas Markets • Forward Gas Market • Long term brokering platform or compulsory sale of imports and royalties • Gas balancing platform Spot Market • Italy achieved in 2011 its coupling with the Slovenian market (price coupling) for trans border trading • GME has agreed with EEX to use GME’s SMP as Index in EEXs derivatives business in Italy • RES is operated by GSE. GME plays no part in RES • GME is owned 100% by the State but its legal/operational model resembles that of private companies Electricity Market Operator S.A. – LAGIE SA
The trend in PXsindustry structure is consolidation whilst growing in scale and products bandwidth to enhance liquidity and risk mitigation (eex/epex as an example covering nine EU countries with plans to grow further) Structure of the German EEX PX (spot and derivatives arm) PX industry structure strategic direction • PXs tend to offer paper and spot (derivatives/physical) trading products and perform the Clearing/Settlement tasks primarily under their own umbrella. • The margins for energy trading are relatively low and would probably reduce further as the markets mature with time. It is most probable that energy derivatives trading across Europe would be operated by a few large companies who would provide the necessary liquidity for risk management. • The entry of mega US energy traders and risk managers in Europe such as ICE, CMX and Nasdaq, would speed up the industry consolidation. It is unlikely that Local derivatives players will survive. • Clearing and Settlement activities, whilst today offer higher margins, will probably go the same way. • Spot energy trading would require local presence, although (through Coupling PCR) in some cases would be subsidiaries of regional PXs. • Banks and Stock Exchanges have not made a mark in energy trading as the volumes are very small compared to that of stocks and interest markets. In the future, and when the volumes increase, they might try to enter the Derivatives energy markets as they do not have capability in Spot. They have no capability on the physical/spot energy markets. Bodies and Supervision for EEX Electricity Market Operator S.A. – LAGIE SA
As another important step towards an effective integration of EU markets, EUROPEX has announced the full coupling between NEW and SWE regions by 14th May 2014 Μη σύγκλιση των τιμών μεταξύ Γαλλίας και Γερμανίας. NWE Project: Coupling of CWE, Scandinavia, Baltic Region and GB NWE and CWE are coupled since Feb. 2014 SWE (France, Spain, Portugal) coupling until mid 2014 • Price Coupling of Regions (PCR) is an important step for the implementation of the internal energy markets in EU, to be accomplished by end 2014 through day-ahead and intra-day market solutions • PCR optimises the use of cross-border capacities delivering signals for a more effective use of investment in the Power sector across Europe leading to: • Increased liquidity • Decreased volatility • Drive for optimising buyers and sellers surplus across all involved markets • The coupling of NWE with SWE will cover 17 EU countries accounting for some 75% of the EU power market Electricity Market Operator S.A. – LAGIE SA
Despite the Market coupling in NEW/CWE and the consolidation of PXs across Europe, wholesale prices are not converging as yet Μη σύγκλιση των τιμών μεταξύ Γαλλίας και Γερμανίας. Εξέλιξη ΟΤΣ σε Γαλλία και Γερμανία (2011-2014) • Η μη σύγκλιση των τιμών οφείλεται κυρίως στη μεγάλη διείσδυση των ΑΠΕ στη Γερμανία. Αυτό είχε ως αποτέλεσμα τις εξαγωγές ενέργειας από την Γερμανία προς την Γαλλία. Έτσι οι μέσες τιμές ενέργειας στα έτη 2012-2014 είναι μικρότερες στη Γερμανία από τις αντίστοιχες της Γαλλίας. • Το Market Coupling επιτυγχάνει βέλτιστη χρήση των διασυνδέσεων και του ευρωπαϊκού κοινωνικού πλεονάσματος. • Θα υπάρξει απόλυτη ταύτιση των τιμών μεταξύ δύο περιοχών που είναι συζευγμένες μόνο στην περίπτωση μη συμφόρησης των διασυνδέσεων. Κάτι τέτοιο μπορεί να επιτευχθεί μόνο με τη κατασκευή νέων διασυνδέσεων. Electricity Market Operator S.A. – LAGIE SA
In Greece, the Electricity industry has also significant structural challenges • Economic recession has stalled electricity consumption • The whole electricity Market is subsidised at various degrees • Drive to meet EU 2020 targets has resulted in expensive and uncontrollable RES growth with adverse effects in the RES industry liquidity as well as in the whole electricity industry structure • Wholesale prices are kept at relatively low levels and display erratic behaviour • Retail prices are rising (primarily due to extra taxes and levies) but the overall cost structure across the industry value chain has to be altered to allow full competition at the retail side • Generation appears to be in oversupply whilst RES capacity continuous to increase • The conventional generation sector industry structure excebits imbalances between the participants in terms of size, cost and fuel mix Electricity Market Operator S.A. – LAGIE SA
We are experiencing significant structural changes in the Greek Electricity market as RES changing the dynamics of the market Ετήσια παραγωγή ενέργειας (TWh) ανά καύσιμο – 2011, 2012, 2013 Η σημαντική διείσδυση νέων σταθμών ΑΠΕ που μπαίνουν στο σύστημα κατά προτεραιότητα και σε υψηλές εγγυημένες τιμές είχε σαν αποτέλεσμα την αύξηση του κόστους ηλεκτροπαραγωγής Πηγή : ΛΑΓΗΕ / ΑΔΜΗΕ, ΜΗΝΙΑΙΑ ΔΕΛΤΙΑ ΕΝΕΡΓΕΙΑΣ, Ιανουάριος 2014 Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε.
In the first quarter 2014 the SMP increased by some 50% from last year primarily due to the abolition of the 30% rule on thermal unit offers Παραγωγή ενέργειας (TWh) ανά καύσιμο – Q1.2013 vs. Q1.2014 Η λήψη Ρυθμιστικών Μέτρων (κατάργηση κανόνα 30%) είχε ως αποτέλεσμα τησημαντική αύξηση της ΟΤΣ και των καθαρών εισαγωγών (διασύνδεση Ιταλίας εκτός) Πηγή : ΛΑΓΗΕ / ΑΔΜΗΕ, ΜΗΝΙΑΙΑ ΔΕΛΤΙΑ ΕΝΕΡΓΕΙΑΣ, Μάρτιος 2014 Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε.
There is trend of declining SMPs since 2011 primarily due to the RES growth and the full participation of CCGTs using the 30% rule Μέση Ημερήσια ΟΤΣ και ΟΤΑ (2011,2012,2013) Κατάργηση Κανόνα 30% Προβλήματα Τροφοδοσίας Φ.Α. Υψηλή Υδραυλικότητα Κατάργηση Προσαύξησης 10% ΜΑΜΚ Η αύξηση της ΟΤΣ που παρατηρείται από τα μέσα του 2013 οφείλεται στην κατάργηση της προσαύξησης του 10% του Μηχανισμού Ανάκτησης Μεταβλητού Κόστους Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε. Πηγή : Μηνιαίο Δελτίο Συστήματος Συναλλαγών ΗΕΠ, Δεκ.2013
The increase in RES penetration is challenging the current operation of the system and influences the SMP level during the day Example: 30/3/2014 Electricity Market Operator S.A. – LAGIE SA
The RES deficit accelerated in the last few years, but could be reduced by year end following recent legislation • The Accounting deficit should be eliminated by end 2014, following the implementation of the recent legislation • On the 28th April the Cash deficit (including that of Accounting) was at around 780 €Μ • There have to be mechanisms in place to ensure that following the “New Deal” reduced FITs, a sustained liquidity of the RES market across the technologies and topographies Εξέλιξη σωρευτικού λογιστικού ελλείμματος 2002-2013 (€ εκατ.) Πλεόνασμα (€ εκατ.) Ο ρυθμός αύξησης των πόρων τα τελευταία χρόνια δεν είναι ικανός για να καλύψει τις αντίστοιχες δαπάνες με αποτέλεσμα τη σημαντική διεύρυνση του ελλείμματος από το 2010 και εφεξής Έλλειμμα (€ εκατ.) - • Τα έτη 2010-2012 σημειώθηκε σταθερή αύξηση του ελλείμματος • Παρά την είσοδο πολλών νέων έργωνστις αρχές 2013, το ΥΠΕΚΑ δεν προέβλεψε ώστε τα έσοδα του Ε.Λ. να επαρκούν για τα απαιτούμενα έξοδα και να διασφαλιστούν οι νέες επενδύσεις ΑΠΕ Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε.
Going forward, the Participants in the Greek electricity industry must focus on “Fixing the Basics” sooner rather than later Some the Basics that we must focus on • Building the Engine for the Wholesale Market reforms • Reforming the industry structure to enable healthy competition • Managing the RES growth • Releasing the capability in LAGIE Electricity Market Operator S.A. – LAGIE SA
Design and implement the “Engine” for the Target Model Initial thoughts for the Greek Wholesale Electricity Market design • Hybrid approach [voluntary pool and bilateral markets] (operated by LAGIE) • Forward national market (operated by LAGIE) • gradual increase of maximum allowed bilateral contracts (OTC) • Forward cross-border market (operated by ADMIE) • Day-ahead market compatible with the PCR (operated by LAGIE) • Intra-day continuous trading (operated by LAGIE) • Centralized balancing market (operated by ADMIE) • Responsibility for RES imbalances to ADMIE Electricity Market Operator S.A. – LAGIE SA
Greece is expected to enter Market Coupling within the CSE region and from there to the whole EU power markets EU Commission has been decided to start a cooperation for elaborating a design for a day ahead market coupling on Italian borders using PCR. A Cooperation agreement for a Design Phase was signed end of 2012 between the following parties : Coupling advantages to Greece • Increase of market liquidity • Decrease of price volatility in the wholesale market • Optimal use of the interconnections • Leverage existing technical and processes architecture as already in use by the other PCR PXs On TSO side: ADMIE, APG ELES RTE Swissgrid TERNA On Power exchange side: BSP Southpool EPEX Spot EXAA GME LAGIE Electricity Market Operator S.A. – LAGIE SA
NOME type auctions, due to start 9/2014, would allow retailers competitive access to the Market • Introduction of NOME-type auctions of part of the incumbent PPC (Public Power Corporation) baseload capacity (PPC owns at the moment 98% of the supply market), to create new suppliers. • NOME stands for “Nouvelle Organisation du Marché de l'Electricité”. It is a transitional reform of the electricity market. • Eligible participants in NOME-type auction are limited to generators and suppliers. • Ensuring that implementation of NOME-type products is compatible and coherent with the privatization process of PPC and the creation of small PPC. • The NOME auctions and products will remain until the Greek electricity retail markets are fully competitive. The creation of a fully operational small PPC will constitute a necessary milestone in this regard. • To bring competition in the supply side of the electricity market, the auctioning of PPC capacity (NOME) would be brought ahead and started on September 2014. Electricity Market Operator S.A. – LAGIE SA
RES penetration has to be prudent ensuring cost effective operation of the Market whilst measures are taken to eliminate current deficits Key RES messages • The State has passed legislation to eliminate the accounting RES deficit by end 2014 by reducing FITs and introducing “credit options” to existing RES investments • It has also set some targets for RES growth over the next few years per different technology • The key driver now is to ensure liquidity in the market by eliminating the deficits asap • To fully alleviate the current cash deficit and avoid build up of further deficits in the future, the State has to consider setting yearly budget (not just MW) targets for RES investments making sure that the funds would be available for the required compensation • Planning the gradual penetration of RES, the State should also consider the effects of increasing RES production in the SMP and the overall cost of production as RES “must run” would take out lignite generation • The State would moreover prepare for implementation of the new EU Guidelines for new RES investments “to join the Market” Electricity Market Operator S.A. – LAGIE SA
Releasing the capability in LAGIE Electricity Market Operator S.A. – LAGIE SA
Apply yourself. Get all the “education” you can, but then , by God, do something. Do not just stand there, Make it Happen Lee Iaccoca Electricity Market Operator S.A. – LAGIE SA