COMMENTS TO THE SOUTH-WEST EUROPE ELECTRICITY REGIONAL

ENERGY MARKET

Draft detailed action plan version 1, 22 June 2007

AGENDA

• MIBEL, Results since July 1-2007

• Comments to the south-west Europe electricity regional energy market

• INTRADAY Market Coupling / Continuous trading Proposal

MIBEL. Results since July 1 2007

MIBEL, Since July 1 2007

• Market Splitting in the Day ahead and in the 6 intraday market sessions Different prices for the Spanish and Portuguese systems in case of

congestions Similar to other market splitting implementations

• Unilateral market splitting in the other borders continue operational In the French Interconnection, participants with acquired rights have

priority All agents from the other systems pay/receive the Spanish price

• Intraday market coupling works as day ahead market coupling but in an adjustment mode over the day ahead plus bilateral contracts results

MIBEL results since July 1 2007

MIBEL results since July 1 2007

MIBEL results since July 1 2007

PERÍODO DEL 01/06/2007 AL 19/07/2007

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

1601

/06/

07

03/0

6/07

05/0

6/07

07/0

6/07

09/0

6/07

11/0

6/07

13/0

6/07

15/0

6/07

17/0

6/07

19/0

6/07

21/0

6/07

23/0

6/07

25/0

6/07

27/0

6/07

29/0

6/07

01/0

7/07

03/0

7/07

05/0

7/07

07/0

7/07

09/0

7/07

11/0

7/07

13/0

7/07

15/0

7/07

17/0

7/07

19/0

7/07

Fechas

cEur/kWh

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

1.100.000

1.200.000

1.300.000

1.400.000

MWh

Precio máximo MIBEL

Precio medio aritmético sistema eléctrico portugués

Precio medio aritméticosistema eléctrico español

Precio mínimo MIBEL

Energía casada en el mercado diario

Energía casada en el mercado diario + Ejecutada en bilaterales físicos

Precio medio aritmético de la energía en el mercado diario de electricidad Periodo Precio España Precio Portugal 01/06/2007 19/07/2007 3,768 cEur/kWh 4,890 cEur/kWh

MIBEL results since July 1 2007

MIBEL results since July 1 2007

MIBEL results since July 1 2007

MIBEL results since July 1 2007

MIBEL results since July 1 2007

COMMENTS TO THE SOUTH-WEST EUROPE ELECTRICITY REGIONAL ENERGY MARKET.

point 3.

Comments to point 3.III.4

• Intraday explicit capacity auctions of OPTIONS to use the cross border capacity is not a good solution The intraday time frame makes them very difficult to manage by

agents and SO Although the integration of intraday explicit auctions with MIBEL

intraday market coupling is working it is not widely use by agents Implicit auctions are more adequate for intraday markets also. Increasing the number of intraday explicit auction sessions will

aggravate the operational problems instead of solving them

• ELBAS is not a “mechanism”, it is a market operated by a market operator

• To study the proposal for integrating the CW REM target market with the current MIBEL intraday auction markets. They are compatible and can coexist without any problem

Comments to point 3.III.5

• Under the current situation in Central Europe, the coupling of the MIBEL market should be made with the TLC market rather than with France, as stated in 3.III.5

• Similar solution as the one that will be given to the TLC-Nordpool coupling

COMMENTS TO THE SOUTH-WEST EUROPE ELECTRICITY REGIONAL ENERGY MARKET.

point 4.1

Comments to point 4.1

• The commercial capacity increase between the Iberian Peninsula and France is very important in order to close the gap between the MIBEL electricity prices and the Central Europe prices

• The interconnection needs, status and actions to be taken are well defined while the paper presents the situation in an undefined situation

• The actions should go in the direction of supporting the currently established steps rather than initiating a parallel process

COMMENTS TO THE SOUTH-WEST EUROPE ELECTRICITY REGIONAL ENERGY MARKET.

point 4.2

Comments to point 4.2

• The actions to implement the transparency requirements in the SW REM need to include the market operator, and should not be based only on SO as indicate don the last paragraph of point 4.2.

SO should publish the information of the process that they manage

MO should publish the information of the markets that they manage

COMMENTS TO THE SOUTH-WEST EUROPE ELECTRICITY REGIONAL ENERGY MARKET.

point 4.3

Comments to point 4.3 (I)

• The steps mentioned at the beginning of point 4.3 are very reasonable, but the deliverables do not follow the steps in some cases.

• Deliverable III.1 enquires when the activation of redispatching costs is coordinated between

both TSO’s when, in our opinion, there should not be relation between the redispatching costs of one system and the other, since theses redispatchs should be combined with the rest of internal problems, and all of them solved together, leading to totally unrelated costs.

Capacity allocation to different time frames should not be related to capacity calculation.

• Deliverable III.2 Implementation of “use-it-or-sell-it” mechanism is already part of the phase

3 agreement and this is what should be implemented as soon as possible. Under this deliverable the creation of balancing perimeters in Spain is

mentioned.• The way in which the Spanish system handles deviations right now (a single

perimeter managed by an independent SO) is, in our view, better for promoting the entrance of new agents and to decrease market power exercise possibilities.

• This is an internal subject that is unrelated with cross-border trade

Comments to point 4.3 (II)

• Deliverable III.3 The deliverable should be a clear route towards implementing phase

3 of the regulators agreement. The initial phase of coordintaing the market closing hours is obvious and does not mean any progress towards the real integration.

If no clear view of how to achieve phase 3 is foreseen, alternatives measures should be taken going back to the initial steps of the process

• Deliverable III.4 Instead of trying to improve the current intraday explicit auctuions

of options over the capacity, an implicit intraday market coupling solution, combined with a continuous “first come first served” procedure for the last hours should be investigated.

Implementing intraday markets is referred in this deliverable as a TSO business when, at least in Iberia, it is a Power Exchange market, carried out under the limitations impose by the TSOs).

Comments to point 4.3 (III)

• Deliverable III.5 Cross border balancing markets should be implemented as the last

resort for solving problems after the cross border intraday markets are fully operational

INTRADAY Market Coupling / Continuous trading Proposal

Description

• The proposal is to run six times a day (one every four hours as an example) auction intraday markets based on market splitting/coupling to deal with cross-border congestions, trading all the hours remaining of the day ahead, and to allocate spare cross-border capacity, for the hours where there will not be another auction intraday market running, in a continuous intraday market that allocates the cross-border capacity on a coordinated “first come first served basis”.

Day-Ahead Market Result

Intraday auction Market Result

First come first served allocation results

MARKET ORGANIZATION

DAY-AHEAD MARKET

+ Market Splitting/Coupling

6 INTRADAY MARKETS

LAST HOURS INTRADAY ALLOCATION

Market Splitting/Coupling

+

INTRADAY FIRST COME FIRST SERVED CONTINUOUS

COORDINATED ALLOCATION

AUCTION MARKETS RESULTS

EXAMPLE OF FIRST AUCTION INTRADAY TIMING

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00

FIRST INTRADAY MARKET

BID RECEPTION STARTS

HOURS NEGOTIATED

First Intraday Auction Market (28 Hours)BID RECEPTION FINISHES

EXAMPLE OF FIRST COME FIRST SERVED ALLOCATION OPEN HOURS PRIOR TO THE FIRST

INTRADAY AUCTION MARKET

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00

FIRST COME FIRST SERVED PERIOD (representing hours after 16 hours)

HOURS AVAILABLE FOR FIRST

COME FIRST SERVED

CONTINUOUS COORDINATED

ALLOCATION

EXAMPLE OF FIRST COME FIRST SERVED ALLOCATION OPEN HOURS AFTER TO THE FIRST

INTRADAY AUCTION MARKET

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00

FIRST COME FIRST SERVED PERIOD

HOURS AVAILABLE FOR FIRST

COME FIRST SERVED

CONTINUOUS COORDINATED

ALLOCATION

EXAMPLE OF SIX AUCTION INTRADAY NEGOTIATING HOURS

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00

Intraday 6 (9 h.)

Intraday 5 (13 h.)

Second intraday market 2 (24 hours)

First intraday market (28 hours)

Third intraday market (20 h.)

Intraday 4 (17 hours)

Justification (I)

• Some systems have a very important percentage of thermal units and, for them, in order to start a unit during the day they need a reasonable assurance that they are going to obtain a viable schedule for the unit.

• The new Combined Cycle Gas Units, among other characteristics, have a fast startup time (in the order of one to two hours) which makes them very adequate to solve intraday energy needs of other participants.

• Wind power production is becoming more and more important in many systems and the wind predictions are much more accurate closer to real time. For this kind of energy having liquid intraday markets is very important to update (buy or sell) the whole hourly remaining schedule for the wind farm at a market price.

Justification (II)

• While the day-ahead cross border congestion direction on a border in a very significant number of hours goes in the same direction as the explicitly auctioned capacity rights, and other forms of price risk coverage, intraday normally responds to new system or participant problems, like thermal plant failures, general mistakes in temperature predictions, mistakes or updates in wind predictions, etc.. therefore it can need flows in any direction. Day-ahead coupling mechanism will normally leave fully occupied the interconnections in the “predicted” economic direction, leaving the full capacity, and the netted capacity, in the other direction free to solve intraday participant’s needs that require it.

• The commercial capacity published by the system operators prior to day ahead, without a precise knowledge of the power plant schedules, could possibly be improved after the day-ahead results are available since then they can rerun the security packages with totally precise data. The new capacity can be incorporated to the intraday markets.

Justification (III)

• After a number of years of discussions, the “First come first served” method of allocating the cross border capacity in the day-ahead horizon, has been abandoned. For intraday trading it seems to be a better proposal to use the market splitting/coupling also for some auction sessions during the day, and to leave the “First come first served” method of allocating capacity for the last hours, where coordinating different systems could be impractical.

• The liquidity in the experiences of continuous intraday markets with “first come first served” cross-border allocation seems to be bigger in the hours closer the negotiating moment, with this proposal we can obtain the advantages of both kinds of markets, a market splitting/coupling solution for hours not so close to real time and a continuous intraday market, trading closer to real time (next 4-6 hours).

Justification (IV)

- The auction intraday markets can be introduced gradually. The number of sessions does not need to start being six, or any number, the method can start with a couple of sessions and add later more intraday auction sessions, according to participants needs.

Operation (I)

• The matching mechanism will work essentially in the same way as the day-ahead market, including the splitting/coupling mechanism.

• Since the market is closer to real time than the day-ahead market, and taking into account the possible needs of the participants, it could be advisable to offer the bidders a more complete set of complex or block conditions to be used in their bids.

Operation (II)

• It is possible for the same participant to send selling and buying bids for the same intraday session, if the session is cheap, he will buy, and if it is expensive he will sell (very useful for hydro participants)

• In order to be compatible with the secure operation of the system, and depending on the different systems characteristics, the possibility of accepting, prior to receiving the bids for the intraday session from the participants, limitations to bidders, or groups of bidders, from the system operator will improve the acceptance by system operators of the auction intraday markets. This is a real problem and if it is not handled in the market there will be a mechanism or procedure established by the system operator to solve the situation.