Gent Summer School:

Electricity Markets &

Trading

Gregory Michiels

27 August 2013

2

EDF LUMINUS: 1st CHALLENGER IN

ELECTRICITY PRODUCTION IN BELGIUM 1,950 MW installed capacity (beginning 2013)

10 % of the Belgian electricity

production capacity

73 MW

hydro-electric energy 3.8 % of our energy mix

117 MW wind energy 6 % of our energy mix

418 MW nuclear

participations 21.4 % of our energy mix

1,342 MW gas power

plants 68.8 % of our energy mix

3

1st CHALLENGER IN GAS

AND ELECTRICITY SUPPLY

1,700,000 access points

30,000,000 MWh sold

Market share of 20%

4

SHAREHOLDERS

June 2009

EDF announces its intent to buy Centricas 51%

November 2009

Approval by the European Commission 12/11 Closing

51% shares 26/11

Minority shareholders sale option

8 June 2010

Publilum and VEH sell half of their shares, Dexia sells all

participation EDF in SPE: 63.5%

22 November 2011

The company name is EDF Luminus

5

Optimisation versus Trading

Asset Optimiser Manages a portfolio of assets

(power plants, contracts, retail

portfolio,)

Objective is to control physical

and financial risks and

maximising margins

= hedging

Trader Creates a position

Objective is to make money

from this position when market

conditions change

= speculation

Both actors sell and buy in the wholesale markets to

achieve their objectives, thus creating a liquid market

6

Timeline of activities of an asset optimiser

From 3 years to 1

month ahead of

implementation date

[D]

Forecast of the

medium-term

supply/demand

balance

Scheduling of

power plant

maintenance

Sale/purchase

operations on the

forward markets

1 Month ahead of

implemenation date

[D]

Refine the

supply/demand

balance to more

accurate weather

forecasts and

availability of

power plants

Sale/purchase

operations on the

forward markets

Day Ahead [D-1]

Create operating

schedule for the

power plants

Balancing supply

and demand on

the Day-Ahead

market (DAM)

Send nominations

to TSO

Intraday [D]

Respond to latest

unanticipated

changes in the

portfolio

Send re-

nominations to

TSO

Sale/purchase

operations on the

intraday market

7

OTC markets and power exchanges

8

Forward and spot prices

10

20

30

40

50

60

70

80

02

/01

/20

12

06

/02

/20

12

12

/03

/20

12

16

/04

/20

12

21

/05

/20

12

25

/06

/20

12

30

/07

/20

12

03

/09

/20

12

08

/10

/20

12

12

/11

/20

12

17

/12

/20

12

21

/01

/20

13

25

/02

/20

13

01

/04

/20

13

06

/05

/20

13

10

/06

/20

13

15

/07

/20

13

19

/08

/20

13

23

/09

/20

13

28

/10

/20

13

02

/12

/20

13

06

/01

/20

14

10

/02

/20

14

17

/03

/20

14

21

/04

/20

14

26

/05

/20

14

30

/06

/20

14

04

/08

/20

14

/M

Wh

weekly average spot prices

Belpex Apx Epex Spot France Epex Spot Germany

9

Price Drivers

10

DAH price formation: supply/demand balance

Power

Price

Industrial demand

Residential demand

Exports

Commercial demand

Nuclear

CCGT

Renewables

Coal

Peak u

nits

Imports

Hydro

reserv

oir

11

The make or buy decision

Fuel CO2 Power Plant

Heat

Power

12

Interaction hedging - dispatching

DAH dispatch decision is independent from hedging decision in

the forward markets

Situation A

Forward Market

CSS = 5/MWh

Hedged

Day-Ahead

CSS = 10/MWh

PP dispatched

Benefit

5/MWh

Situation B

Forward Market

CSS = 5/MWh

Hedged

Day-Ahead

CSS = 2/MWh

PP dispatched

Benefit

5/MWh

Situation C

Forward Market

CSS = 5/MWh

Hedged

Day-Ahead

CSS = -3/MWh

PP not dispatched

Benefit

8/MWh

Situation D

Forward Market

-3/MWh

Hedged

Day-Ahead

CSS = 3/MWh

PP dispatched

Benefit

3/MWh

13

Capacity mix Europe 2. Status of CWE-Nordic interregional coupling;

A first step: Interim Tight Volume Coupling (ITVC)

Interim Tight Volume Coupling (ITVC), based on EMCCs Nordic-German coupling, will provide tight

volume coupling between the future CWE market

coupling and NPS market splitting

ITVC will consider two regions with

o many market areas

o many interconnectors

o different market coupling schemes

The CWE-Nordic TSOs and PXs asked EMCC to develop the interim solution to couple the two regions

The project was launched in January

The project will be launched in two steps;

step 1 without the NorNed, step 2 with the NorNed

Costs are shared by all TSOs in both regions

14

CWE Market Coupling

Launched on 9 November 2010

Cooperation of Transmission System Operators (TSOs) and

power exchanges (PXs) coupling the Belgian, Dutch, French

and German electricity markets

Provides for the implicit cross-border capacity allocation and

matching of orders of the involved PXs, resulting in the optimal

allocation of available day ahead cross-border capacity and

price convergence between day ahead wholesale electricity

markets across this region

15

CWE market results 3 Aug 2013

16

CWE market result 23 August 2014

17

Convergence of CWE prices: are we on a copper

plate?

18

Forward markets: OTC

19

Imbalance markets

20

Levers for the TSO to manage the country balance

primary reserve

secondary reserve

tertiary reserve via generation units

tertiary reserve via sheddable customers

uncontracted reserve ('free bids')

reserve contracts with neighbouring system operators

AU

TO

MA

TIC

M

AN

UA

L

30sec

21

Balancing: how does it work?

Balancing = difference between production and consumption of the whole portfolio (metering)

1/4h Balancing obligation for each

BRP

Short position of BRP purchased at imbalance price -

Long position of BRP sold at imbalance price +

TSO takes care of the position of the country

High incentive for BRP to be balanced

Many opportunities for BRP

Imbalance price is equal to marginal price

activated by TSO

Differences (extra incentive) only if big imbalances

Imbalance price + and are equal most of

the time

22

Imbalance prices

NRV = Net Regulation Volume (=volume activated by Elia to restore the balance)

POS = Positive Imbalance price (what you get paid if you inject more than you consume)

NEG = Negative Imbalance price (what you pay if you consume more than what you inject)

sunny day Cold evening peak

Delta between DAH prices and imbalance prices

D-1 D

24

Demand side management

25

Market Regulation

Prohibition of market manipulation and trading on the basis of insider

information

Market monitoring by ACER

Market manipulation

prohibitions

Insider dealing

prohibitions

Market Integrity

Applies to underlying physical power, gas and

transport contracts and markets

Trade data

reporting to

ACER

Transparency

Post trade

transparency for

energy markets

through ACER

Public

transparency of

fundamental data

/ inside

information and

their reporting to

ACER

Applies to all gas, power and transportation contracts

and markets

THANK YOU !

QUESTIONS & ANSWERS