market restructuring, unbundling guaranteed payment of electricity trough central counterparty . 14...

www. erranet.org

Market restructuring,

unbundling

Rolands Irklis Chairman

Public Utilities Commission of Latvia

2 3rd Training Course: Electricity Markets

June 4 – June 8, 2018 • Nicosia, Cyprus

How it all started…

Where was the first commercial power plant?

Wall Street

New York

Please feel free to add your logo here!



Vertically integrated power companies - I



Vertically integrated power companies II

Disadvantages:

Higher costs because of inefficiencies

Lack of entrepreneurship spirit

Lower service quality

Increased bureaucracy

Lower flexibility to adopt new technologies



Competition in power sector

Generation Transmission Distribution Retail Customer

Competition possible

Competition possible

Competition possible for

some services

Flexibility services from

Consumers to DSO and TSO



Way towards competitive market

Monopoly Independent

power producers

Single buyer model with wholesale

competition

Full competition on wholesale

and retail levels



Independent power producers

Vertically integrated power company

(Generation,

Transmission,

Distribution)

IPP

IPP IPP

Customers

Tenders, competition, Procurement

Long term obligations



Single buyer model

Single buyer

Generation

Generation

Generation

Customers

T&D T&D



Efficiency trough competition



OTC versus Power Exchange

Properties Over the Counter Power Exchange

Anonymity No Yes

Counterparty Bilateral Central

Counterparty risk Yes No

Trading method Continuous Central auction



OTC or Bilateral contracts

Customized

• Respond to the requirements of counterparties

• Reduces basic risks

• Requirements of the parties may not be always compatible

Standardized

• Standard features and clauses

• Easier to negotiate

• Easier to trade in secondary market



Power exchange, system level benefits

Efficient merit order dispatch

Separation between generation and supply

Greater transparency in price setting

Easier entry of new market players – both in

generation and supply activity

Increased security of supply ( if overall

available generation capacity adequacy is

ensured)



Power exchange, participant benefits

Market place where electricity is available at

market price

Flexibility in generation and consumption

strategies

Guaranteed payment of electricity trough

central counterparty



Cross-border trade

Explicit auction is when the

transmission capacity on an

interconnector is auctioned to the

market separately and independently

from the marketplaces where electrical

energy is auctioned.

With implicit auction, the day-ahead

transmission capacity is used to

integrate the spot markets in the

different bidding areas in order to

maximize the overall social welfare in

both (or more) markets.



Reasoning behind EU electricity market liberalisation



Unbundling in EU power sector



Purpose of unbundling

Why

• If a single company operates a transmission network and generates and sells energy at the same time, it may have an incentive to obstruct competitors access to infrastructure. This prevents fair competition in the market and can lead to higher prices for consumers

Therefore

• The primary objective of the unbundling is to ensure independence of electricity transmission services from generation and supply in order to increase competition in energy markets



Options for unbundling

• No supply or generation company is allowed to hold majority share or control over the transmission system operator

Ownership Unbundling

• Energy supply or generation company still may have ownership of transmission system assets, but must leave the entire operation, maintenance and investment to an independent company

Independent System

Operator

• Energy supply or generation company may still own electricity TSO, but must do it trough an independent subsidiary

Independent Transmission

Operator



Ownership unbundling

TSO is owner of the

system

VIU is not owner of

the TSO

VIU do not have any

control over TSO

Vertically integrated utility

Transmission system operator



Independent system operator (ISO)

System operator is not system owner

• System owner or VIU shall not

be entitled to decide on

investments

• System owner shall cooperate

with ISO

• Legal unbundling of System

owner

Designation of an ISO

• Necessary human, technical,

physical and financial resources,

ability to ensure maintenance

and operation of the system,

collect tariff payments

• Outsourcing possible, but not

from VIU or System owner

Network owner


ISO



Independent transmission operator (ITO)

Vertically integrated utility still can own the

transmission system operator, but

appropriate independence should be

ensured:

ITO has all necessary resources and

assets

Independence of ITO regarding

corporate services

Separate corporate identity

Independence of staff and

management

Supervisory board

Strong independence regarding

investment planning

Strict regulation and permanent

monitoring by the regulator

ITO


«Ring-fence» to

ensure independence



Retail (supply) market opening

Effective and competitive retail market

possible when:

Active and transparent wholesale

market (preferably majority sales

trough PX)

Price hedging instruments for

wholesale market

Unbundled and independent

distribution system operator

Smart metering



Price hedging instruments

Financial instruments provided by

market facilitator (e.g. NASDAQ)

Long-term transmission rights

provided by TSO

Congestions on cross-border interconnectors can result in different prices therefore there should be instruments to hedge against those differences:



Unbundling of DSO

Legal unbundling

Management unbundling

Can stay within VIU

Certain level of independence have

to be ensured

Separate corporate identity

Market participants data security

Strong monitoring by the Regulator

Stronger independence if Full

Ownership unbundling

Small countries can consider TSO and

DSO as one company



Retail market products

Fixed price

Variable price linked to Day Ahead

hourly prices

Combination of Fixed Price and

Day Ahead hourly prices

Day Ahead hourly prices with

hedged value

Additional services (PV, storage,

smart homes, EV etc.)



Additional competitive services

Loss compensation

Energy imbalance

Frequency regulation

Reactive power

Emergency reserves



What next…

Source: I-Scoop.eu

W

THANK YOU

FOR YOUR ATTENTION!

3rd Training Course: Electricity Markets


Rolands Irklis

E-mail: [email protected]

Web: www.sprk.gov.lv

market restructuring, unbundling guaranteed payment of electricity trough central counterparty . 14...

Documents