on liberalised energy markets presentation for amcham jerzy majcher ph. d principal consultant ws...
TRANSCRIPT
On Liberalised Energy Markets
Presentation for AmCham
Jerzy Majcher Ph. DPrincipal ConsultantWS Atkins Polska Warsaw 10 of May 2006
Topics to be covered during the presentation
1. Liberalised markets - basic conditions
2. The physical system (electricity)Networks (tarification)ProductionShort term prices (spot)
Contract markets
3. European Energy MarketsCompetition Electricity vs Natural Gas
4. Polish introduction of liberalisation principles
I
1. Basic Conditions for an open Market
Liberalisation - Questions to be answered
Objectives - why do we liberalise?Economic theory
To what extent is theory theory applicable to the electricity sector? What about gas?
Regulatory framework - Is this necessary?
I
The European Union
A prerequisite is competition-Implication EU Directive 55/2003
I
Liberalisation - Objectives in Norway (1991)
Economic efficiency - not privatisation
new investmentsutilisation of invested capital in the industry
--> networks
--> production
This has formed the basis for the regulatory framework.
Perfect Competition - Basic ConditionsMany independent buyers and sellers of each item.
Every player in the market should have complete knowledge about prices and other matters that may influence their actions.
The producers must produce homogenous products.
No transaction costs.
Possible to establish new business.
Every player in the market must act in a rational way.
Players in the Market BrokersMarket Makers
Industrial and other large customers
Distributors (suppliers/retailers)
Generators
Smaller consumers (households)
Traders
Similarity:Similarity:Transport via networks Transport via networks
Difference:Difference:Gas can be stored - electricity not Gas can be stored - electricity not Different gas qualities - electricity is a Different gas qualities - electricity is a homogenous product homogenous product A few number of enterprises control the gas A few number of enterprises control the gas (production) resources - many producers of (production) resources - many producers of electricityelectricityElectricity must be centraly balanced in every Electricity must be centraly balanced in every timetime
Is it possible to establish a competitive gas Is it possible to establish a competitive gas market? market? Perhaps - presupposing a satisfactory Perhaps - presupposing a satisfactory regulatory framework and a strong regulatory regulatory framework and a strong regulatory body. body.
Gas vs. Electricity
Structure of the German Gas Industry
national production import
transportcompanies
regionalsuppliers
householdscommercialindustrypower plants
municipalsuppliers
(5+X)Ruhrgas ca. 2/3
(40)
(700)
market sharefinal
customers30 %
35 %
35 %
number ofcompanies
20% 80%
Germany - Status the Gas market
In the theory 100% open since August 2000. In reality it is very difficult for new players to serve customers seeking new suppliers. Some suppliers (new entrants) have managed to get though.
Regulatory framework: Die Verbändevereinbarung (Gas). Does not provide the necessary regulatory framework from the traders/new entrants point of view.
Problem(s):
Market structure (dominant players), long delivery chains, Take or Pay contracts. Oil price dependency in contracts. No independent regulatory body.
The customers expect lower prices, but are facing rather high prices due to the oil price dependency in the supply contracts.
ca. 900 communalutilities;
Structure of the German Electricity Industry
Distribution
Generation
< 4 Verbund companies
ca. 70 regional utilities
80%11% 9%
36% 33%31%
Generators
Distribution
End Users
Transmission
(grid company)
= Physical energy flow = Financial agreements
Exchange
Spot
Contract
Regulator
ISO
Balancingpower
Structure of electricity sector
An open Market demandsPolitical acceptance
Separation between monopoly and competitive activities
Definition of players responsibilities, especially concerning system operation (SO)-
Definition of the Regulator’s role - that is a system of rules, guidelines and licences
What is Market Power?
One or more players can influence the prices
Can be perfectly legal, but abuse of market power would normally be considered as illegal
Access to Market InformationTo reduce market power - Equal access to public information for all players in the market is absolutely necessary. This should include: use of interconnectors (hourly flow), maintenance plans generators above a certain size, possible congestions etc.But, must be a balance between company secrets and the players need for informationUnbalanced access to information gives an inefficient and unfair market
Nord Pool offers access to a database with info.
The Norpool networkThe Norpool network::
observed physical bottlenecks
LPXEEX
= power exchanges
GAS Pipelines
Transport costs (tarification) Transport costs (tarification) Theory and ExperienceTheory and Experience
1.1. NTPA vs. RTPA. NTPA vs. RTPA.
2.2. TRANSACTION based vs. NON TRANSACTION TRANSACTION based vs. NON TRANSACTION based tariffs.based tariffs.
3.3. Cost reflective tariffs. What do we mean by this? Cost reflective tariffs. What do we mean by this?
4.4. Cost of transport (according to the theory) Cost of transport (according to the theory) = short term = short term value of marginal losses + cost of bottleneck. value of marginal losses + cost of bottleneck. Challenge: How to deal with the fixed costs.Challenge: How to deal with the fixed costs.
5.5. Only a NON-transaction based tariff can facilitate trade Only a NON-transaction based tariff can facilitate trade and ensure liquid and competitive markets!and ensure liquid and competitive markets!
6.6. Solution: Point - tariff / nodal price reflecting the short Solution: Point - tariff / nodal price reflecting the short run marginal costrun marginal cost
Optimal Transmission Pricing - Optimal Transmission Pricing - TheoryTheory
0
10
20
30
40
50
60
70
1 2 3 4 5 6 7 8 9 10 11
Price/cost
MW
Price / cost = short-run marginal cost
Covered by fixed element in the tariff
P1
P2
Average cost
Demand
Short-run marginal costsystem with surplus capacity
Long-run marginal cost
The Point Tariff PrincipleThe Point Tariff Principle
1.1. Both consumers (exit/L) and generators (entry/G) Both consumers (exit/L) and generators (entry/G) must pay for the use of the network. must pay for the use of the network.
2.2. The exit/entry fees refer to the point of connection. The exit/entry fees refer to the point of connection. The fees give access to the whole (interconnected) The fees give access to the whole (interconnected) network (electricity market).network (electricity market).
3.3. The exit/entry fees shall The exit/entry fees shall notnot be related to the contract be related to the contract path. Basis for billing is the physical energy flow path. Basis for billing is the physical energy flow measured at the point of connection. measured at the point of connection.
4.4. The exit/entry fees shall reflect the system load flow - The exit/entry fees shall reflect the system load flow - that is marginal losses shall be included in the tariffs. that is marginal losses shall be included in the tariffs.
5.5. Discrimination against customers is not allowed. Discrimination against customers is not allowed.
Transport of electricity - integrated systems
Generator Generator
Consumer
Generator, Generator
Consumer
Consumer
ConsumerConsumer Consumer
Consumer
Load flow/energy flow, point of connection
Main grid (200-400 kV) country 1
Lokal network Lokal network Lokal network Lokal network
Regional network Regional network
Generator
Consumer
Consumer Consumerr
Main grid (200-400 kV)country n
Regional network Lokal networkRegional network
BottleneckTransit fee?
Tariffication - Status 2001Tariffication - Status 2001
“Point” tariffs
introduced exit :
exit + entry :
TPA possible :
..Network Congestions Network Congestions
(Bottleneck)(Bottleneck)
How do we solve the capacity problem?How do we solve the capacity problem?
1.1.Basically there are two different models:Basically there are two different models:
Counter purchase (actively using the power stations), Counter purchase (actively using the power stations),
oror
2.2.Price differences between spot areas (Norwegian Price differences between spot areas (Norwegian
solution), called “market splitting”solution), called “market splitting”
Example: Spot prices Scandinavia Example: Spot prices Scandinavia 27.11.200127.11.2001 Stunde Oslo Kr.sand Bergen Tr.heim Tromsø Finland Sweden DK-West DK-East System
1 170.24 170.24 170.24 170.24 170.24 170.24 170.24 170.24 170.24 170.242 166.75 166.75 166.75 166.75 166.75 166.75 166.75 166.75 166.75 166.753 165.75 165.75 165.75 165.75 165.75 165.75 165.75 165.75 165.75 165.754 166.17 166.17 166.17 166.17 166.17 166.17 166.17 166.17 166.17 166.175 167.65 167.65 167.65 167.65 167.65 167.65 167.65 167.65 167.65 167.656 173.55 173.55 173.55 170.59 170.59 173.55 173.55 173.55 173.55 173.407 180.97 180.97 180.97 173.39 173.39 182.95 182.95 180.97 182.95 181.458 200.04 200.04 200.04 181.87 181.87 212.43 212.43 212.43 312.33 201.929 229.24 229.24 229.24 185.63 185.63 229.24 229.24 229.24 308.30 220.2910 203.28 203.28 203.28 192.54 192.54 203.28 203.28 203.28 203.28 204.0211 197.48 197.48 197.48 189.65 189.65 197.48 197.48 197.48 197.48 198.1612 193.48 193.48 193.48 193.48 193.48 193.48 193.48 193.48 193.48 194.3413 189.74 189.74 189.74 189.74 189.74 189.74 189.74 189.74 189.74 190.2314 189.15 189.15 189.15 189.15 189.15 189.15 189.15 189.15 189.15 189.6115 189.23 189.23 189.23 189.23 189.23 189.23 189.23 189.23 189.23 189.6816 189.78 189.78 189.78 189.50 189.50 190.42 190.42 189.78 190.42 190.5617 195.85 195.85 195.85 188.64 188.64 211.47 211.47 195.85 416.75 199.9318 200.65 200.65 200.65 187.12 187.12 201.13 201.13 200.65 432.19 200.8019 193.92 193.92 193.92 184.93 184.93 193.92 193.92 193.92 359.22 192.5420 188.10 188.10 188.10 184.17 184.17 188.10 188.10 188.10 188.10 187.4021 180.04 180.04 180.04 180.04 180.04 180.04 180.04 180.04 180.04 180.0422 178.16 178.16 178.16 178.16 178.16 178.16 178.16 178.16 178.16 178.1623 174.74 174.74 174.74 173.27 173.27 174.74 174.74 174.74 174.74 174.6724 169.06 169.06 169.06 169.06 169.06 169.06 169.06 169.06 169.06 169.06
..
European Electricity Prices 8.08.2000
Source: Heren Report
Gielda Energii SA (average price) 25,55
Installed production capacity i Nordic countries 1995
0
5000
10000
15000
20000
25000
30000
35000
Norway Sweden Denmark Finland
Wind
Gasturb.
Back-pres.
Oil/coal-fired
Nuclear
Hydro
MW
2.2 2.2 ProductionProduction
0
100
200
300
400
500
600
B D E F GR I L NL A P CH
Consumption
Production
TWh/Jahr
Electricity production and consumption, UCTE 1999
2.2 Production
Principle for price calculation- Short term prices
Price
Balance
Supply Demand
Marginal production costs, Nordic countries Marginal production costs, Nordic countries 19971997
05
101520253035404550
50 100
150
200
250
300
350
400
Øre/kWh
TWh/year
Hydro NuclearCoal fired
Oil fired
Gas turbines
Consumption
Sweden - Marginal Production Costs1997Sweden - Marginal Production Costs1997
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180
Possible production per year - TWh
øre/kWh
Hydro power
NuclearCHP Industry
CHP District heating
Oil fired
Gas turbines
Max hydro prod. : 79 TWhMin. hydro prod. : 52 TWh
Finland - Marginal Production Costs 1997Finland - Marginal Production Costs 1997
0
10
20
30
40
50
60
0 10 20 30 40 50 60 70 80 90 100
Possible production per year- TWh
øre/kWh
Hydro Nuclear
CHP IndustryCHP District heating
Oil fired
Gas turbinesMax. hydro prod. : 10,1 TWhMin. hydro prod. : 15,9 TWh
Denmark (Elsam) - Marginal Production Denmark (Elsam) - Marginal Production Costs1997Costs1997
0
5
10
15
20
25
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28
Possible production per year - TWh
øre/kWh
Coal base load1
Coalbase load 2
Coal medium load
CHP District heating
Coal base load 3
Oil fired
Germany - Load Profile (Consumption)Germany - Load Profile (Consumption)
30
40
50
60
70
80
0 4 8 12 16 20 24 h
Dezember 1999August 1999
GW
Demand Electric Energy in GermanyDemand Electric Energy in Germany
-
10
20
30
40
50
60
70
80
90
Di 04.12.01 Mi 05.12.01 Do 06.12.01 Fr 07.12.01 Sa 08.12.01 So 09.12.01 Mo 10.12.01
Prognose Ist-Zahlen
weekend
Exchange with the Neighbouring Countries
SDK
PL
CZ
ACH
F
L
NL
99
1953
612
5211
9088
480
4203
17159
639Stromaustausch Deutschlands mit den Nachbarländern 1999 in GWh
Germany‘s interchange of electricity with
neighbouring countries 1999 in
GWh
Summe Importe: 40409 GWh
Summe Exporte: 39444 GWh
Sum of imports: 40409 GWh
Sum of exports: 39444 GWh
Factors that may influence Supply Factors that may influence Supply (Production) and Demand (Consumption) - 1(Production) and Demand (Consumption) - 1
1. Maintenance periods2. Failures (outages)3. Water reservoirs, rivers4. Fuel costs5. Exports and imports
1. Start and stop costs2. River temperature (cooling)3. etc.
Production:Production:
Factors that may influence Supply Factors that may influence Supply (Production) and Demand (Consumption) - 2(Production) and Demand (Consumption) - 2
1. Time of day2. Working days3. Vacation/weekends4. Trade conditions
(economy)5. Weather
Demand:Demand:
1.Access to the networks (network availability)
2.Access costs3.The market development
the last days (prices)4.Trading strategy
Supply and demandSupply and demand::
..
0
10
20
30
40
50
60
70
80
90
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
DM/MWh
Norway - Historic Spot PricesNorway - Historic Spot Prices
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
Liefe
rtag
Mi,
31.0
3.99
Fr, 2
3.04
.99
So, 1
6.05
.99
Di, 0
8.06
.99
Do, 0
1.07
.99
Sa, 2
4.07
.99
Mo,
16.
08.9
9
Mi,
08.0
9.99
Fr, 0
1.10
.99
So, 2
4.10
.99
Di, 1
6.11
.99
Do, 0
9.12
.99
Sa. 0
1. Ja
n
Mo.
24.
Jan
Mi.
16. F
eb
Fr. 1
0. M
rz
So. 0
2. A
pr
Di. 2
5. A
pr
Do. 1
8. M
ai
Sa. 1
0. Ju
n
Mo.
03.
Jul
Mi.
26. J
ul
Fr. 1
8. A
ug
So. 1
0. S
ep
Di. 0
3. O
kt
Do. 2
6. O
kt
Sa. 1
8. N
ov
Mo.
11.
Dez
Mi.
03. J
an
DM/MWh
Cepi Base (ab 1.1.2001: GPI Base) Cepi Peak (ab 1.1.2001 GPI Peak)
SWEP Nordpool
*
* gleitender Durchschnitt (5 Tage)
OsternPfingsten
Hohes Wasserangebot in Skandinavien
Kaltes Wetter in Deutschland
Verlängerte Revision des KKW Grafenrheinfeld
Anstieg Primärenergiepreise
Sinkende Temperaturen
Weihnachten
Entwicklung der internationalen Energie-handelspreise
Spotpreise 1997 (Einstündige) Nord Pool (Norwegen/Schweden)
0
5
10
15
20
25
30
35
40
45
50
22.j
un
23.j
un
24.j
un
25.j
un
26.j
un
27.j
un
28.j
un
DM/MWh
Spot Prices Norway 1997 (Hydro Power Spot Prices Norway 1997 (Hydro Power System)System)
0
5
10
15
20
25
30
35
40
45
50
22.j
un
23.j
un
24.j
un
25.j
un
26.j
un
27.j
un
28.j
un
DM/MWh
Spot Prices UK 1997 (Thermal System)Spot Prices UK 1997 (Thermal System)
Spot Prices in Germany - Daily AverageSpot Prices in Germany - Daily Average
LPX-BASE
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
15.06.00 15.08.00 15.10.00 15.12.00 15.02.01 15.04.01 15.06.01 15.08.01 15.10.01 15.12.01 15.02.02 15.04.02
Eu
ro/M
Wh
Comparing different SystemsComparing different Systems
Hydro power Thermal power
Significant price changes from season to season
Normally not significant changes from season to season
Minor changes within 24 hours
Significant changes within 24 hours
Metered
0
2
4
6
8
10
12
1 5 9 13 17 21
Spot trade
Bilateral trade
Sale to System Operator
Purchase from System Operator
Organising the trade in spot, regulating and contract markets
Price
Hour
Scandinavia
Trade volume of energy on SPOT and Futures markets
0
10
20
30
40
50
60
Styczeń Marzec Maj Lipiec Wrzesień
FUTURES
SPOT
2002
TWh
Prices EEX 14.06.04r
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
lata
lata
EU
RO
/MW
h
Pasmo
szczyt
2005 2006 2007 2008 2009 2010
Price forecast 2005 – Futures marketBase loadPeak load
2006 2007 2008 2009 2010
CO2 Raported Volumes & Values, 2004-2005 2004 2005 Mt Eur-Million Mt Eur,Million
EU ETS-Total OTC+Exchange Bilateral
17 9,7 7,3
127 N/A N/A
362 262 100
7 218 5 400 1 818
CDM 60 188 397 1 984 CDM (2nd) 0 0 4 50 JI 9 27 28 96 Other 7,9 34 7,8 52 Total 94 377 799 9 401 Source: Point Carbon
ETS market- in EU
Price changes after ETS implementation in EU
SPOT Electricity Prices Going Up ….(Eur/MWh)
Market 2004 2005 Change in SPOT Price
%Change
Germany (EEX)
28,5 46,0 17,5 61,4
Nordic (NordPool)
28,9 29,3 0,4 1,4
Spain (Omel) 27,9 53,6 25,7 92,1
The Netherlandes (APX)
31,6 52,4 20,8 65,8
Austria (EXAA)
28,1 46,7 18,6 66,1
France (Powernext)
28,7 46,6 17,9 58,2
Average 29,0 45,7 16,8 57,6
Source: Point Carbon, The numbers for Spain and Netherlandes are taken from Montel
Retail prices on Germany Market –household Retail prices on Germany Market –household with consumption 3500kWh/y –Monthly feewith consumption 3500kWh/y –Monthly fee
0
5
10
15
20
25
30
35
40
45
50
1998 1999 2000 2001 2002 2003
Podatki i opłaty
Wytwarzanie, przesył i rozdział
49,95Eu
37,6Eu
25,05
40,63Eu
49,93Eu
20,18
29,75
Opłata za energetykę odnawialnąEnergię w skojarzeniuPodatkiKoncesjeOpłatyVAT
ok.0%
+63%
-21%
Mini-Forums/Regions
Central Eastern Europe
Co-ordinated auctions in region CEE
Separated Auctions
2004 2005 2006
Co-ordinated auctions
TF SoS 3 TSOsCEE Mini-ForumTF CA, TF CCF
5 TSOs 8 TSOs ?
2007
LPXEEX LPXLPX
Trans-granicznepołączeniaelektroenergetyczne wEuropie
Interconnections of power systems in Europe with other systems
8760
t[ h ]
Za łożenia: - roczny koszt 1 M W m ocy osiągalne j 200 tys. zł - średn i koszt zm ienny energ ii elektryczne j w prowadzonej do sieci 70 zł/MW h - zapotrzebow anie pokrywane przez jednakowe jednostki wytwórcze pracujące z rocznym czasem wykorzystania m ocy osiągalnej
E [M W h]P [M W -h]
750050004500300015001000750
0
24 000D - Zapotrzebowanie pokrywane przez jednostki wytwórcze o średnim czasie wykorzystania m ocy osiągalne j około 750 h/rok
C - Zapotrzebowanie pokrywane przez jednostki wytwórcze o średnim czasie wykorzystania m ocy osiągalne j około 1 500 h/rok
B - Zapotrzebowanie pokrywane przez jednostki wytwórcze o średnim czasie wykorzystania m ocy osiągalne j około 4 500 h/rok
A - Zapotrzebowanie pokrywane przez jednostki wytwórcze o średnim czasie wykorzystania m ocy osiągalne j około 7 500 h/rok
D
C
B
A
A: K = ( 200 000 / 7 500 ) + 70 97 zł / M W h
B: K = ( 200 000 / 4 500 ) + 70 114.5 zł / M W h
C: K = ( 200 000 / 1 500 ) + 70 203 zł / MW h
D: K = ( 200 000 / 750 ) + 70 337 zł / MW h
CA
CA
CA
CA
II STREFAszczyt popołudniowy
I STR EFAszczyt przedpołudniowy
III STREFApozostałe godziny
LZ LZX, XI, XII, I, II, III
Zim a (Z)IV, V, VI,V II, V III, IX
Lato (L)
Structure of tariff – sezonal, zone prices
Prognoza cen w Polsce
0,0
20,0
40,0
60,0
80,0
100,0
120,0
140,0
160,0
180,0
200,0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Lata
zł/M
Wh
2005 2010 2020
Ceny nowych jednostek wytwórczych
Ceny wynikające z krótkookresowych kosztów krańcowych
Prognoza cen rynkowych
Price forecast in Poland, withought import and ETS influence
How will be customers structure after liberalisation?
Full liberalisation on 1 july 2007 !!!
•14,2M additional customers legitimated to TPA
•4,7 M households with demand less than 1000kWh/y•How many balancing groups will be set up? Whot kinde of relationships will they establish with distributors? Will it be complementary activity or sharp competition?
•How to assure on-time measures of energy? Will be set up a new group of – Measurement Operator?
•How to cover on-time measurement costs, or how to improve demand forecast?
Hase the liberalisation process meet objectives in Europe?•Is it more safety? What about black outs?
•Is it more efficiet sector? Benefits are consumed by fiscal (tax) systems.
•Is energy cheaper for end users?
Thank you for your attention
AmCham
Jerzy Majcher Ph. DPrincipal ConsultantWS Atkins [email protected]:+48(0)607-461-270 Warsaw 10 of May 2006