emcc - european market integration and next steps - enno böttcher
DESCRIPTION
Presentation at the 17th German Norwegian Energy Forum in Berlin 2013TRANSCRIPT
European Market Integration and Next Steps
German Norwegian Energy Forum
Enno Böttcher
Berlin, 24.10.2013
2 © EMCC GmbH, 24 October 2013
Agenda
B: How does market coupling work?
C: How will the European market develop?
A: Market coupling as a means for European integration
D: European Market Coupling Company – EMCC
3 © EMCC GmbH, 24 October 2013
biomass
households & commerce
transformer station wind
turbine coal-fired
station
nuclear plant
industry
solar panels
European transmission
network
In Germany, production is decentralising.
The interaction between supply, demand, transmission
and distribution is becoming more and
more complex.
hydro production
grey scale: production blue: consumption
Supply and demand need to be balanced – also across borders
On a European scale, this is even more complex:
- differing types of production
- varying demand
- bottlenecks on cross-border cables
Cross-border high-voltage interconnectors (schematic representation)
4 © EMCC GmbH, 24 October 2013
Market coupling is a system-wide optimisation of prices and flows
EC regulation 1228/2003 (714/2009):
Efficient usage of cross-border
capacities by the introduction of
coordinated, day-ahead, market-based
mechanisms such as explicit and implicit
auctions.
Enabling buyers and sellers on power
exchanges to get automatic access to
cross-border energy trade without having
to acquire the corresponding
transmission capacity.
The EU enforced regional coupling initiatives in 2003
Market coupling increases social economic welfare by a system-wide optimisation of
prices and cross-border flows.
5 © EMCC GmbH, 24 October 2013
Explicit auction
• exists on several cross-border interconnectors
(capacity and electricity have to be purchased in two
separate steps)
Implicit auction
• Price splitting – in Nordic countries
• Price coupling in complete Central
Western European region (“CWE”)
• Interim Tight Volume Coupling (“ITVC”)
between the Nordic- and CWE regional
electricity markets since 9.11.10
• Price coupling in
Italy – Slovenia
Spain – Portugal
Czech Rep. – Slovakia – Hungary
Embedded solutions (e.g. BritNed)
Various projects in Europe, different state of development ITVC
The European market coupling landscape developed since 2003
6 © EMCC GmbH, 24 October 2013
Agenda
B: How does market coupling work?
C: How will the European market develop?
A: Market coupling as a means for European integration
D: European Market Coupling Company – EMCC
7 © EMCC GmbH, 24 October 2013
Efficient use of interconnectors by buying low and selling high
1 DK1: Denmark West - Germany 2 Kontek: Denmark East - Germany 3 Baltic Cable: Sweden - Germany 4 NorNed: Norway - the Netherlands
high price
sell 1
2 3 4
low price
buy
General principle
quantity
MWh
price
EUR/MWh
1 MWh
Buyers’ gain for this MWh: The difference between the market price and the bid price
Sellers’ gain for this MWh: The difference between the market price and the offer price
Demand
Supply
MCP market clearing price
Economic welfare
8 © EMCC GmbH, 24 October 2013
The benefit of market coupling is price convergence between markets
supply demand
Optimising economic welfare by balancing supply and
demand on interconnectors
• EMCC buys electricity in a low-price area with low demand
and sells it in a high-price are with high demand.
Supply and demand are balanced across borders, prices
converge.
• EMCC carries out a price calculation. Afterwards, the power
exchanges (PXs) calculate their prices.
The price calculation of EMCC and the PXs is very well
aligned.
Adverse flows are seldom
(they occur due to minimal price deviations or ramping).
9 © EMCC GmbH, 24 October 2013
DK1A SE4
DK1 DK2
NO1
NO3
NO4 SE1
FI
NO2
GE/A
T
NO5
EST ERI
LRI
NL
PL
SE2
SE3
FR
BE
7. EMCC carries out congestion rent
distribution, scheduling and balancing
and provides PXs and clearing houses
with sufficient liquidity positions
TSO task, PX task, EMCC task interconnector ITVC interconnector
EMCC runs Interim Tight Volume Coupling (ITVC), i.e.
combines NORDIC price splitting with CWE price coupling:
Roles in the ITVC setup:
1.TSOs send available capacities to
EMCC
2. PXs aggregate local bids and provide
them to EMCC (anonymized OBK)
3. EMCC calculates “global” prices and
flows (23 price areas / 32 interconnectors)
4. EMCC submits cross-border flow bids
to PXs (market coupling order, MCO)
5. PXs calculate “local” prices and flows
6. PXs publish prices and carry out
settlement and clearing with traders and
non-clearing members
EMCC is the link in the NWE day-ahead market
LV
LT
LRE
LBI
LBE
10 © EMCC GmbH, 24 October 2013
Benefits of market coupling = better utilisation, correct flows
Explicit auction results (DK-GE)
right quadrant
wrong quadrant
DK1 DK2 Baltic Cable NorNed
-1.500
-1.000
-500
0
500
1.000
1.500
2.000
-40 -30 -20 -10 0 10 20 30 40
MWh
flo
w D
K
GE
flo
w G
E
DK
€/MWh
price spread GE DK price spread DK GE
Left: explicit results from December and January 2009 (29.12.08 – 31.01.2009)
Right: implicit results from 9 November 2010 to 31 May 2011; NorNed from 12 January 2011
Implicit auction results (DK-SE-NO-NL-GE)
€/MWh
flo
w D
K/S
E/N
O
G
E/N
L
flo
w G
E/N
L
D
K/S
E/N
O
price spread
NL/GE DK/SE/NO2
price spread
DK/SE/NO2 NL/GE MWh
ramping
ramping
ramping
ramping
11 © EMCC GmbH, 24 October 2013
The prices between Germany and the Nordic areas have converged
0,00
20,00
40,00
60,00
80,00
100,00
120,00
1 11 21 31 41 51 61 71 81 91
EU
R/M
Wh
weekly averages Jan 2012 - Oct 2013
GE
DK1
DK2
SE
NO2
weeks
12 © EMCC GmbH, 24 October 2013
ITVC market coupling has many advantages
Serving social economic welfare
• Optimal utilisation of cross border capacities means significant reduction of economic losses
• Simultaneous handling of electricity trading and capacity allocation means lower transaction costs and
equal opportunities for all market participants
High-quality solution
• Inter-regional coupling mirrors local and regional solutions effectively
• High quality of algorithm, good daily performance of the coupling
Transparency
• Algorithms used to calculate prices* and flows are described and published on EMCC’s webpage
• Daily procedures and the timeline of operations are described and published on EMCC’s webpage
Cost-efficiency
• Low service fees (cost-based pricing)
Trustful governance model
• EMCC is regulated as a public service function, serving social economic welfare
• Clearly defined roles and responsibilities between PXs, TSOs and EMCC
* EMCC does not publish prices
13 © EMCC GmbH, 24 October 2013
Agenda
B: How does market coupling work?
C: How will the European market develop?
A: Market coupling as a means for European integration
D: European Market Coupling Company – EMCC
14 © EMCC GmbH, 24 October 2013
TRADERS
Many parties are involved in achieving the overall target
MARKET
COUPLING TSOs
CONSUMERS GENERATORS
GOVERNMENTS
REGULATORS
SPOT
EXCHANGES FUTURES
EXCHANGES CLEARING
HOUSES
POWER
BROKERS
15 © EMCC GmbH, 24 October 2013
Despite ITVC’s advantages, a new system will start in November ‘13
2 2 Further coordination between the
regional markets and other market
coupling initiatives
3 3
3 3
2 2 1 1
Within the region, local rules, products,
times and constraints need to be further
aligned
The development should consider factors
such as grid loss compensation, e.g. grid
tariffs, deadband or ramping and
harmonised gate closure times 1 1
1 1
Regenerative generation capacities, e.g. off-shore wind or solar production, need to be integrated
into all electricity markets
4 4
4 4 4 4 4 4
4 4
3 3
1 1
2 2
Price Coupling of Regions was
developed by NWE PXs and TSOs; it will
go live on 26 November 2013
PCR will introduce flow-based market
coupling in a second step after the
launch (in 2014)
2 2
16 © EMCC GmbH, 24 October 2013
Challenges for future market integration (1/2)
Capacities:
• Intraday markets partially transnational low liquidity, high volatility
• Balance energy and reserve capacity markets on national basis national and transnational
bottlenecks remain, especially as decentralised renewable generation increases
International coordination and joint planning of infrastructure are a top necessity
The development of infrastructure needs to be aligned with market-based models
The list of 250 infrastructure projects (Projects of Common Interest PoCI) by DG Energy is a good
starting point, however
Legislation and responsibilities:
• Germany proclaims the “Energiewende” (energy transition) and other countries follow similar aims –
a European concept is missing
• In Germany, legislation and responsibilities are split between two Ministries (Economics and
Environment), several public authorities, the Regulator Bundesnetzagentur and regional cartel offices
More planning reliability and investment security are needed
Harmonisation between EU, national and local authorities of neighbouring countries is essential
17 © EMCC GmbH, 24 October 2013
Challenges for future market integration (2/2)
Integrated Electricity Market (IEM):
• Flexibility is needed to incorporate and represent different states of development in different member
states
• Entrance barriers for other countries are high and need to be reduced (e.g. when will other countries be
ready to take part in a flow-based system?) are infringement packages efficient?
• Clear unbundling between monopoly and competitive market service functions has to be ensured
The IEM needs to be non-discriminatory and transparent, stable, independent and credible –
not only for day-ahead, but also for intraday, balancing, reserve capacity markets of any kind of
generation, storage and demand side response
18 © EMCC GmbH, 24 October 2013
Agenda
B: How does market coupling work?
C: How will the European market develop?
A: Market coupling as a means for European integration
D: European Market Coupling Company – EMCC
19 © EMCC GmbH, 24 October 2013
Governance structure of EMCC
08/08: EMCC is approved by EC DG Competition;
complying with requirements of Regulation
1228/2003 and 714/2009
08/08: EMCC GmbH is founded by Energinet.DK,
NPS, EEX, E.ON Netz and Vattenfall
Transmission
The company is registered as ordinary trader at
PXs (non-clearing member)
11/09: launch of EMCC market coupling system for
DK1 & DK2
05/10: start of market coupling for Baltic Cable
11/10: launch of ITVC: Nordic-CWE market coupling
01/11: start of market coupling for NorNed
09/12: The owners resolve to close down the company
after the transition from volume to price
coupling in NWE
Setup and Figures
TSOs 60%
PXs 40%
TSOs, 11
PXs, 5
ITVC Steering Comittee
Governance
EMCC
General Assembly
PXs
40% TSOs
60%
5 PXs
11 TSOs
TSOs
Capacity Holders
Clearing Banks
Power Exchanges
EMCC
Balancing Agreements Cash Management &
Collateral Agreements
Order Books / X-border
flow bid Agreements
Available Capacity
Agreements
Contracts
20 © EMCC GmbH, 24 October 2013
Results of from a small service provider with 6 employees
Sales Purchase Congestion Rent Volume
21 © EMCC GmbH, 24 October 2013
Contact
European Market Coupling Company GmbH
Enno Böttcher
Managing Director
Hopfenmarkt 31, D-20457 Hamburg
www.marketcoupling.com
+49 40 369 054 60
22 © EMCC GmbH, 24 October 2013
Types and functioning of Market Coupling
Market coupling (general term for volume and price coupling)
• Market coupling takes place between several price areas with several exchanges
• The optimal electricity flow between two areas is calculated by taking into account the available transfer
capacity (ATC) and anonymous order books (OBK) for the two areas
• Optimal means the electricity flows according to price signals – from low-price area into high-price area
Price splitting
• Market splitting takes place between several price areas with only one exchange
• Example: Nord Pool Spot in the Nordic countries
Price coupling
• Price coupling between different countries allows creating a single exchange zone as the pricing
authority does not remain with single exchanges
• Example: CWE market coupling
Volume coupling
• Prices and flows are determined by an auction reflecting all bidding areas. An auction office publishes
flows on interconnectors while the pricing authority remains with the exchanges
• Example: ITVC market coupling
23 © EMCC GmbH, 24 October 2013
Capacity holders
• 50Hertz
• Amprion
• Baltic Cable
• EnBW
• Energinet.dk
• Elia
• Fingrid
• RTE
• Statnett
• Svenska Kraftnät
• TenneT
Power exchanges
• APX-ENDEX
• Belpex
• EPEX Spot
• Nord Pool Spot
Calculation
• EMCC
webpage 1)
ATC
schedules
congestion rent
service fee
order books
bids
financial
settlement
info
ATCs from
TSOs/CASC2)/
NPS
publication
ATC
gate closure
anonymized OBKs
from PXs
start market coupling
calculation
sending MC bids to
PXs
CWE PXs market
price publication
NPS market
price publication
PXs trade
confirmation
cross-border flow
publication
schedules
12:00 10:00 at 12:10 at 12:15 before 10:00 before 14:00 at 12:45 at 12:45 thereafter
1) EMCC publishes ATC und cross-border flows („CBF“) for 4 interconnectors.
2) CASC is a TSO service provider
Day-ahead market coupling follows a complex operational procedure