BSEC, Bucharest, 3-5 April, 2006

1. Towards a pan-European Energy Market: Challenges for the SEE &Black Sea Regions Dr. Michael Thomadakis Greek Regulatory Authority for Energy BSEC, Bucharest, 3-5 April, 2006

2. Recent developments in the EU (1)… • Second legislative package: • Directives 54/2003/EC & 55/2003/EC • Regulation 1228/03 on electricity (and the accompanying “Commitology” Procedure) • Regulation 1775/05 on gas • DG TREN 2005 Report on the (rather poor) progress achieved in the development of the EU Internal Energy Market • DG COMP Sector Inquiry

3. Recent developments in the EU (2)… • Green Paper: • Focus is given to the acceleration of the IEM Process • Interconnectors • Energy Efficiency • External Energy Policy (SEE, Black Sea, Caspian region, North Africa, Middle East) • ERGEG Regional Initiatives: • 7 Regions for Electricity (already launched) • 5 Regions for Gas (to be launched very soon)

4. Recent developments in the EU (3)… • What are the main concerns: • Security of supply still remains the main pillar • Competitiveness • Environment & Consumer’s protection • Regional market integration has been recognized as an essential instrument for enhancing security of supply and achieving the EU-IEM • Growing dependence on energy imports (especially for gas) is a crucial element • Investments on generation (electricity) but also on transmission capacity will play a crucial role. This is even more important (and much more difficult) for the neighboring to the EU regions

5. EU and its neighbours… Source: EC

6. UK, Nordic, Irish, Iberian : Lessons learned • Market design is a choice between convergence or compatibility. Single Market Design is the best option • Regional market must have certain key features: • Clear and unified arrangements for interactions in transmission • Transmission issues must be addressed to achieve competitive wholesale arrangements • Governance of reform and the involvement of central actors is vital: • Strong government support • Strong cooperation between regulators and TSO/MO • Time consuming process, even for advanced market places

7. The Energy Community (of SEE) Process… • Following the two Athens MoU (2002 and 2003), a legally binding Treaty for the establishment of the Energy Community in South East Europe has been signed (October 2005) between EU and the SEE countries • The Treaty, still to be ratified, will come into force (hopefully) by the end of 2006 • The Treaty signals a new energy era: • Currently for SEE but, probably in the immediate future, for the broader region: Black Sea, Caspian, (Middle East, North Africa?)

8. The main Benefits and Objectives of the ECSEE • Optimize energy market and infrastructure developments over the broader scale of an integrated market (rather than at the level of each country) • Attract Investment in Power generation and Transmission by providing a stable regulatory and market environment in a broader single energy market. Facilitate foreign capital inflow also for the privatization process. • Comply with the vision of future integration into the European Union and as a first step develop an integrated regional energy market ready to join the Internal Energy Market of the EU • Enhance Security of Supply, deliver energy service with improved quality and reliability, preserve economic competitiveness and affordability for consumers, comply with environmental strategy of the EU • Establish an infrastructure and market-based link between Western Consumers and Eastern Resources and set up of a SEE Energy Hub

9. The EC(SEE) Treaty (1) • Main provisions: • Expansion of the aquis communnautaire on energy, environment and competition to the SEE region • Provision for measures which may go beyond the aquis communnautaire: • Single mechanism for the cross-border transmission of electricity and gas • Security of Supply • Provision of energy to citizens • Harmonization and compatibility of market designs, mutual recognition of licenses • Renewables

10. The EC(SEE) Treaty (2) • Main provisions (cont.): • Creation of a Single energy market: • Removal of customs and duties on energy between EU and SEE • Regulation of exports and imports from/to third countries • Mutual assistance in the case of disruption

11. The EC(SEE) Treaty (3) • Institutional building: • Ministerial Council: • Policy guidelines, Measures delegation of specific tasks to the PHLG, ECRB and Secretariat • Permanent High Level Group (PHLG): • Support the work of Ministerial Council • Take Measures when empowered by the MC • Take Procedural Acts

12. The EC(SEE) Treaty (4) • Institutional building (cont.): • Regulatory Board (ECRB): • Advise the MC and the PHLG on the details of statutory, technical and regulatory rules; • Take Measures, if so empowered by the MC; • Issue recommendations on cross-border disputes; • Take Procedural Acts • Secretariat • Overall administrative support, monitoring implementation and report; • Coordinate Donors’ activities with the EC • Fora (one for electricity -Athens, one for Gas)

13. Pan-European IEM: Initial Steps (1)… • Electricity: • A cross-border trading mechanism has been established among the 27 European countries in the West • A similar mechanism has also been established in the SEE region. A coordinated effort is currently underway for the merger of the two mechanisms: a small but important barrier to trade will have been removed from almost 35 European borders • UCTE is performing a study for the synchronization of the electricity networks in Ukraine, Russia and Turkey to the western European ones • Coordinated cross-border capacity allocation mechanisms are already either investigated or implemented in almost all European regions (including SEE) • Coordinated electricity market arrangements are also under serious elaboration • Considerations on region-wide Generation and Transmission Capacity Support Mechanisms are becoming more mature

14. Pan-European IEM: Initial Steps (2)… Gas: Source: EC

15. Pan- European IEM: What is next? • Bold steps will be required: • Strong political support and collaboration • Stronger co-ordination of national Institutions: • TSOs (grid access, capacity allocation, real time operation of the grids) • Regulators (market rules, market monitoring, dispute settlement) • Convergence of national market designs and market rules, • Sufficient transmission capacity available to market participants • Is there going to be a new energy deal?

16. Thank you… RAE 69 Panepistimiou & Eolou 105 64 Athens, Greece Tel: +30210 3727400 Fax: +30210 3255460 e-mail : info@rae.gr www.rae.gr Dr. Michael Thomadakis Vice Chairman thom@rae.gr Tel: +30 210 3727465 (direct)