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FUI electricity region: Which kind of market integration are we looking for?

FUI electricity region: Which kind of market integration are we looking for?. CRE SG FUI – 4 July 2008. Background. Objectives of the ERI process: Regional market integration as a first step towards a single integrated market Obstacles towards regional market integration:

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FUI electricity region: Which kind of market integration are we looking for?

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  1. FUI electricity region:Which kind of market integration are we looking for? CRE SG FUI – 4 July 2008

  2. Background • Objectives of the ERI process: • Regional market integration as a first step towards a single integrated market • Obstacles towards regional market integration: • Volunteering-based process • Lack of incentives for TSOs • Lack of human and financial resources • Differences of market designs • Regulatory gap • Despite these numerous obstacles, a growing consensus, at European level, towards target congestion management methods • Towards a harmonized set of auction rules and interfaces for long term cross-border rights • Towards an implicit allocation method for the day-ahead timeframe • Towards an implicit and continuous trading platform for the intraday timeframe

  3. Obstacles towards “regional” market integration in FUI region • Three very different market designs : SEM, NETA, French market • Specificity regarding the status of « interconnectors » in the FUI region: • Is Moyle an interconnector? • Is the Irish North-South line an interconnector? • Separation between NGIL/NGT for IFA  From UK side, IFA is operated as a merchant line, that is the cost for the cable is covered by the IFA users (no part of the cost is included in the calculation of UK grid tariffs) • Consequences for the development of cross-border trade? • Consequences on the OFGEM’s role once the interconnector license has been granted?  Consequences on the regulatory gap?

  4. Status on ongoing projects on IFA • Improvement and “Harmonization” of explicit auction rules • Some expected progress: compliance with EC regulation, hourly product, marginal price, firm deadline for nomination, UIOSI, etc. • But some concerns in terms of efficiency and harmonization: • Purpose of developing a specific interface for one single interconnector? • Purpose of implementing an intraday explicit auction? • Purpose of implementing secondary capacity market in intraday? • Purpose of implementing UIOSI between day-ahead and intraday? • Why is the firmness of nominations not implemented? • Why should technical losses keep on being paid in nature? • Development of cross-border balancing exchanges • An excellent and ambitious project • Nevertheless, several concerns regarding the fee NGIL intends to apply for each MWh traded on IFA: • It is a clear obstacle to the development of cross-border balancing trade  2.51£/MWh! • What is the logic behind? To remunerate the cable?  IFA cannot be a merchant line! • How is this fee determined? By whom? Who is approving this fee? Appendix

  5. Next steps for “regional” market integration ? • To which extent do we want to harmonize explicit auction rules with the Continental European ones ? • What are the obstacles to guarantee physical firmness for nominations? • What are the obstacles to internalize the treatment of losses? • When will we start discussion on market coupling? • CRE’s report on interconnector use and management assesses the economical benefit of developing market coupling on IFA at 57M€ in 2007! • When will we start discussion on implicit continuous intraday trading? • Is the implicit continuous intraday trading (a priori free) compatible with the particular status of IFA? • When will we discuss new cross-border investment? • Do we have to rely only on merchant investors to build new lines? Appendix Appendix

  6. Annexes

  7. Use in the opposite direction and under- use of daily capacities in 2007 Source: CRE’s report on use and management of French interconnections in 2007

  8. Loss in social welfare due to the absence of implicit mechanism in day-ahead back to presentation Source: CRE’s report on use and management of French interconnections in 2007

  9. Congestion income on French borders back to presentation * Auctions were held on half capacity only in 2006 Source: CRE’s report on use and management of French interconnections in 2007

  10. back to presentation Cross-border balancing Unusedinterconnection capacity available for balancing exchanges, in 2007 Source: CRE’s report on use and management of French interconnections in 2007

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