POWER MARKETS HOPES & CONCERNS OPCOM Romanian market operator

1. POWER MARKETS HOPES & CONCERNS OPCOM Romanian market operator

2. FIVE YEARS ACTING AS A DRIVING FORCE IN THE NATIONAL FRAMEWORK Turning now the Face to the Future 2000 – 2005

3. Unbundling: generation, transmission, distribution, retailers, operators: transmission&system, distribution, metering,market, Spot Market launch before privatization • Stages of the • liberalizationprocess: • Unbundling, big generation • companies splitted or forced to • divest; distribution splitting • Privatization; • Consolidation, vertical integration • through mergers and acquisitions; Increasing opening degree After 1990, the consumption declined in Romania: excess of capacity was encouraging the competition Romanian Way realistic vision about “after unbundling” Impact on participants’ number, liquidity, competition, price

4. developing markets Forecast, scheduling, ancillary services, Long term contracted Electricity passing daily through the market …. • This was OPCOM • until now: • Since June, 2005 • OPCOM is dealing with Main Roles of a Power Exchange: • To provide a reliable reference price for other physical and financial markets; • To support the reliable generation schedule making. • For a marketplace to face the challenges of the liberalization process is a “never ending story”: Each stage is rising different problems. • The Marketplace has to prospect these challenges, correctly appraise • the impact, cooperate with and ask for support of the regulator. Participants number

5. Different Markets and Related Products for Different Time Delivery Power Market: The Multi-Market Concept Administrated by Transelectrica Balancing market, Imbalances, Ancillary Services Market DAM • Bilateral Contracts’ Market: • OTCs • PX traded Administrated by OPCOM negotiation / auction auction day ahead bidding, years, monthsday ahead(D-1)real time (D) to protect against to limit the imbalances to correctly recompensate the real price liquidity to undertake the opportunities time balance contribution, to penalize imbalances voluntary marketsvoluntary marketmandatory market OPCOM’s Additional Products and Services Settlement Agent Green Certificate Market Operator

6. LIQUIDITY and ELECTRICITY PRICING First Eight Months New DAM Operation in OPCOM By the end of 2005 two new other products: BCCM, GCCV 30 June – 28 February

7. ELECTRICITY PRICING In present, OPCOM is operating three centralized electricity markets, therefore establishing related prices through specific mechanisms. DAY AHEAD MARKET 30 June 2005 Winners: the market price is better than the offered one CLOSED AUCTIONS Losers: Something has to be changed Efficiency? Bid Strategy? Sponsored by EC, WB, Transelectrica GREEN CERTIFICATE MARKET 16 November 2005 Inside development If equal, together selected for a new round selected as winner Buy Offer n Buy Offer n+1 BILATERAL CONTRACTS MARKET 8 December 2005 Buy Offer i Buy Offer 2 PUBLIC AUCTION Buy Offer 1 Sell Offer Sponsored by EC, Co-financing OPCOM

8. Number of the registered participants Question: HOW MUCH IS INTERESTING THE DAM ? Active participants’ number Number of participants concluding transactions Conclusion: Active participants’ number in bidding increased every month.

9. TRADED VOLUMES EVOLUTION August July September 281,030.852 MWh October 288,426.939 MWh November

10. Question: WHAT ABOUT CONCENTRATION? Sellers July August September October Buyers Variable volumes as monthly trend and daily/hourly fluctuation, demonstrating the undertaking of random opportunities, depending on early contracted volumes facing less predictable demand or unexpected outages. Reasonable concentration during normal periods. September 281,030.852 MWh October February November December January 288,426.939 MWh November

11. Question: THE PRICE: HOW MUCH VOLATILE, WHAT ABOUT TRAND OR CYCLIC BEHAVIOUR? PRICE EVOLUTION Average Market Clearing Price Average Market Clearing Price Less depending on gas prices, not so high as Dutch, English, Spanish or Italian prices, not all time so low as Nordic or East European prices, influenced more by the balance between demand and generation, by the plenty presence or lack of water.

12. NORDPOOL APX-Group EEX PPX PowerNext OTE EXXA OPCOM Borzen OMEL GME EUROPEAN POSITION After the First Eight Months New DAM Operation 30 June – 28 February

13. NOVEMBER (5) Average traded volumes Question: How much liquid? In Europe placed where? Spot market quota Conclusion: OPCOMfifth place as quota and volume, after Nord Pool, EEX, APX and Powernext, sixth place as price, in February Note: To calculate spot trades share, the hourly avg. consumption registered in 2004 was taken into consideration. Consequently, if the consumption increased in 2005, the real quotas are less than presented ones.

14. European spot prices July 2005 – February 2006

15. Opcom, a permanent presence in European Press 6.21%

16. REGIONAL TARGETS After Five Years in the Center of the Wholesale Market and Eight Months New Mechanisms for National and Regional Spot Trading Focusing on regional trading interest collecting 2000 - 2005

17. What European Commission is expecting from the power exchanges? Bruxelles, 01.03. 2004, DG TREN Strategy Paper Medium Term Vision for the Internal Energy Market “Power Exchanges are also likely to have a key role in developing the Single European Electricity market by providing transparent, non-discriminatory access to electricity trading in the European Union, insuring the proper functioning of electricity markets.” “It is expected that Power Exchanges will harmonize trading arrangements so as to facilitate the final single electricity market objective.”

18. What European Commission and Athens Forum are expecting from OPCOM? Bruxelles, 05 December 2005, DG TREN/C2/MS South East Electricity Market options paper,v.4 Document presented in the framework of the seventh Athens forum (Belgrade, nov.2005), by undertaking the conclusions of the first Athens mini forum (Athens, 6-7 oct.2005) “Power exchanges in the region together with Europex will work on introducing bilateral trading clearing for the whole region (action Borzen, OPCOM and EuroPex).” “SEE: Power exchanges in the region together with Europex will work on establishing a spot market for all zones in the region (action Borzen, OPCOM and EuroPex).” “Power exchanges will study organizing an intra-day market on a regional basis (action Borzen, OPCOM together with EuroPex).”

19. power markets across the borders Regional targets: World Bank proposal: “ support a phased approach to market opening, starting with trading based on bilateral contracts and TPA, moving to a more sophisticated model only after the institutional framework is sufficiently developed; • The bilateral contract market needs: • Reliable interconnection capacity market-based • allocated (long, medium term): • explicit auctions (SETSO TF dry run project) • Transparent price signal and short term efficient allocation • (spot markets providing implicit auctions: Borzen, OPCOM • proposals). Spot market: Only a piece in a puzzle. But to fix the margins is essential.

20. Regional targets: How is the country? The Romanian Power Market, since July 1th, 2005: 16.5 % Regulated 83.5 % Competitive Who are we? / Oil Current OPCOM voluntary markets: zonal based spot trading system, financial market system being implemented, settlement services, organization in place. 71 DAM participants, signatories of the Agreement, registered at OPCOM in February 28th, 2006, with average daily participation of more than 30 of them. - Supported by national stakeholders. - Encouraged by existing and potential market participants. - Sponsored by regional donors. - Advised by experienced international consultants. - Best suppliers IT trading platforms based. The DAM market first period (1 July 2005– 28 February 2006) results: 6.55% market share (av.394 MWh/h) Average price: 36.43 Euro/MWh

21. Regional targets: Where are we intending to go? • Basis • World Bank Athens process’ approach: phased development • Nord Pool historical evolution as extending trading area from pair of countries to • all Scandinavian area • ECSEE real framework: different stages of liberalization, PXs & TSOs ongoing • projects as implicit and explicit capacity auction development • Congestion management mechanisms as joint ETSO – EuroPEX development • and documents issued by EuroPEX dedicated SEE • European mini fora conclusions • European PX’s experience in making steps towards IEM • Firm liquidity brought by large Romanian electricity market and important DAM • share succeeded in present

22. Regional targets: Where are we intending to go? • Main Issues • Phased development from national PX to cluster (sub-regional), • passing from neighboring countries approach stage. • Market splitting in cluster as reliable congestion management method. Similar evolution of Borzen • will support envisaged sub- regions market coupling. • Borzen and OPCOM can equally but specifically focus on SEE market connection with the SEE • neighboring countries’ markets (Austria, Italy and Greece, Hungary, Moldova, Turkey or Ukraine). • An open ownership structure intending to bring trust, neutrality and transparency. • The incipient national market operators inside TSO’s can play a further role within internal structure • of a regional spot power exchange commonly owned, based on a decentralized organization. • Regional stakeholders can participate in spot market design performance based on trading simulator. • Started as bilateral market, the emerging SEE regional market will initially introduce the explicit • auctions as bilateral trading support. • The phased approach will enable a soft landing of implicit auctions, based on agreement with TSOs to • share the cross-border capacity between explicit and implicit auctions increasing in time the implicit • auctions dedicated one.

23. Regional targets: OPCOM initiative: The Project. • The Romanian stakeholders involved in Athens Forum process (MEC, ANRE, Transelectrica, OPCOM) have to proceed towards ECSEE Treaty provisions implementation. • Needed changes in primary and secondary legislation shall be analyzed in order to allow the regional regulatory framework harmonization. • Once completed by OPCOM under the international consultancy and agreed by stakeholders, the Romanian strategy to support the regional spot market development by involving national power exchange will become the road map of activities to be initiated, fulfilled and … finalized. • The stakeholders representatives will coherently sustain the OPCOM initiative related development and promotion actions. • The process of financing, contracting and implementing for the specific project dedicated regional power exchange implementation will be correlated with predictable events and ECSEE treaty milestones. • Needed decisions will be taken in order to settle the regional power exchange ownership structure aimed to ensure the ECSEE treaty signatory countries’ trust.

24. Regional targets: • There is enough room for two cooperating PXs in the region. • Successful, established spot marketplaces as Borzen and OPCOM: the most powerful driving force for markets development in SEE region, to provide transparently reference price for wholesale trade in the region. • Lack of evident benefits (discovery of trade opportunities and electricity prices) will not be replaced by political decisions. • Lack of political decision in ensuring the liberalization and market rules harmonization will jeopardize the process’ pace. • Lack of cooperation and agreements of the power exchanges with the TSOs and between each country TSO and the Regulatory Authority will transform the projects into a “simple computer game”. OPCOM initiative: Conclusions

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