Draft Framework Guidelines on Capacity Allocation and Congestion

Draft Framework Guidelines on Capacity Allocation and Congestion Management Florence Forum 13 December 2010 Alain Marien ENM TF co-chair

Context • 17 th Florence Forum of December 2009 : • Presentation of the Project Coordination Group (PCG) Target Model on Congestion Management • Creation of the “Ad Hoc Advisory Group” AHAG to assist ERGEG and set up of three implementation projects • Day-ahead and Governance, Intraday and Capacity Calculation • end-March 2010, Commission invites ERGEG to draft a FG on CACM • A specific project team created inside ERGEG ENM TF to draft the Initial Impact Assessment (IIA) and the draft Framework Guideline (FG) • Workshop organised 18 October 2010 • Public consultation on the draft FG closed on 10 November 2010 XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 2

Problem identification • Primary problem to be addressed: the inefficient and suboptimal use of transmission network capacity between and within the control areas • Current CACM methods have not enabled market liquidity and formation of reliable prices in day-ahead & forward electricity markets • Strong adverse incentives for the TSOs to underestimate commercial available capacity have been created • CACM methods do not sufficiently account for large-scale variable generation (e. g. taking into account loop flows) XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 3

Objectives • Overarching objective: an optimal use of power generation plants and transmission across Europe • Sub-objectives: 1. Optimal Use of Transmission Capacity 2. Reliable Prices and Liquidity in the Day-Ahead Market 3. Efficient Forward Electricity Market 4. Efficient Intraday Market XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 4

Policy options • Capacity Calculation: • CACM network code(s) shall foresee that TSOs define and implement either Flow-Based or ATC method • Zone delimitation: • A zone: • = a bidding area, • Objective: overall market efficiency, taking into account network topology • Should contribute towards correct price signals • Zone delimitation: proposed by TSOs, reviewed by NRAs XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 5

Policy options • Capacity allocation methods for the day-ahead market: • CACM network code(s) shall foresee that: • TSOs, in cooperation with PXs, implement capacity allocation on the basis of implicit auctions via a single price coupling algorithm which determines at the same time the volumes and prices in all relevant zones • Capacity allocation methods for the forward market: • CACM network code(s) shall foresee that: • the options for enabling risk hedging for cross-border trading are Financial Transmission Rights (FTR) or Physical Transmission Rights (PTR) with UIOSI (Use-It-Or-Sell-It) • unless appropriate cross-border financial hedging instruments are offered in liquid financial markets. XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 6

Policy options • Capacity allocation methods for the intraday market: • CACM network code(s) shall foresee: • The evolution of continuous implicit trading, including reliable pricing of intraday transmission capacity reflecting congestion (i. e. in case of scarce of capacity). • This should include automatic matching and appropriate block bids and sophisticated products where needed • When there is sufficient liquidity, implicit auctions may be implemented. • In case of coexistence of both solutions, they should be coordinated. • ERGEG plans to develop the ID method more prescriptively when finalising the CACM FGL XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 7

Next steps • Public consultation – first comments: • Zone definition: size (small, large, homogenous), transition process, liquidity, impact on other zones, assessment of benefits • Intraday: recalculation of transmission capacities, OTC issue and single access point to the CMM, absence of discrimination, importance of price signal, obligatory use • Long-term transmission rights: existence confirmed everywhere, length, volume calculated by TSOs, • Interim solutions: necessary, not delay the target model, if well explained • December 2010: • evaluation of responses (24 + 2 confidential) to the consultation document • and new draft of the FG • ERGEG approval: early 2011 XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 8

Thank you for your attention! www. energy-regulators. eu XVIII 2010 19 th. Florence. Forum, 10 -11 13 -14 June December 9