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Agenda

Belpex project and market coupling APEX Conference Seoul, 30 October 2006 B. den Ouden, CEO APX Group. Agenda. Development APX Belpex and Trilateral market Coupling Multilateral European perspective . 1999: Amsterdam Power Exchange. 2003: APX UK (power), EnMO (gas). 2004: UKPX (power).

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Agenda

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  1. Belpex project and market couplingAPEX ConferenceSeoul, 30 October 2006B. den Ouden, CEO APX Group

  2. Agenda • Development APX • Belpex and Trilateral market Coupling • Multilateral European perspective

  3. 1999: Amsterdam Power Exchange • 2003: APX UK (power), EnMO (gas) • 2004: UKPX (power) • 2004: Re-branding • 2005: APX Gas ZEE, APX Gas NL Building the APX Group

  4. Demand Supply Price clearing price Quantity tradedvolume Auctioned day-ahead market • Double-sided auction system • Hourly day-ahead contracts (MWh) • Physical delivery • Central counter party: APX • Equilibrium price for each hour (Euro/MWh) • Hourly volumes/pricespublished

  5. Volumes Dutch Power Spot Market2000-2006Average MWh/day and % of end delivery % 24 22 20 18 16 14 12 10 8 6 4 2 0

  6. Instrument Open (€) High (€) Low (€) Close (€) Volume (MW) NL BASE 13OCT06 52.50 52.50 52.50 - 50.0 Instrument Open (€) High (€) Low (€) Close (€) Volume (MW) 13OCT06 - PTE 62 68.00 68.00 68.00 - 15.0 13OCT06 - PTE 63 68.00 68.00 68.00 - 15.0 13OCT06 - PTE 64 68.00 68.00 68.00 - 25.0 13OCT06 - PTE 81 69.00 69.00 69.00 - 35.0 13OCT06 - PTE 82 67.00 69.00 67.00 69.00 40.0 13OCT06 - PTE 83 67.00 69.00 67.00 69.00 40.0 13OCT06 - PTE 84 65.00 65.00 65.00 65.00 20.0 13OCT06 - PTE 96 36.00 36.00 36.00 36.00 25.0 14OCT06 - PTE 01 37.00 37.00 37.00 37.00 50.0 14OCT06 - PTE 02 37.00 37.00 37.00 37.00 30.0 Development of intra-day market • Regulator roadmap promoting intra-day cross-border market. An international intra-day market would be the best solution • As APX Eurolight trading system allows fast implementation and members support this: • APX has started up national market, precursor to international • Willingness to develop this further with international partners APX Power NL Strips - Last update: 09:15 - 12th October 2006 APX Power NL Intraday - Last update: 18:15 - 13th October 2006

  7. Market transparency • Report EC competition highlights market information • Information e.g. on maintenance and outages of power plants, is needed, especially for non-incumbent players or investors. • A good system of market information for power, gas, emissions is needed. APX supports and facilitates initiatives Availability information Published bid curves

  8. Participants per market (2002) Participants per market (Sept 2005) Electricity markets Gas markets

  9. Product Volumes APX Group, MWh/day

  10. Corporate APX Group: • 5 markets…………  • ~ 120 members • Profitable Traded: • ~ 150 TWh of energy/year • ~ 4 billion Euro/year + Service for Climex Alliance * Service for Belpex

  11. Agenda • Development APX • Belpex and Trilateral market Coupling • Multilateral European perspective

  12. Market Coupling: integration of European power market Europe’s ambition: one common power market • Not enough transmission capacity • Price harmonization not possible: • Local markets Fragmented market! How to optimize limited transmission capacity? • Market-based • Explicit auction • Implicit auction (= market coupling): • Nordic Model • Decentralized

  13. Trilateral Market Coupling APX-Belpex-Powernext • Market coupling for daily allocated capacitybetween 3 countries: Trilateral Market Coupling • Monthly and yearly auctions remain • Co-operation project : • Exchanges and TSO’s; APX/Powernext • Services to Belpex • Belpex exchange: jointly owned 60% Elia, 10% TenneT-APX-RTE-Powernext • Testing of Market Coupling system: good results • Launch Nov 2006 • Regulators decision TenneT APX Bel pex Elia Power next RTE

  14. Disadvantages: • Additional daily risk • “Hoarding” capacity • Adverse scheduling • Incomplete use • Market fragmentation Market coupling: 1. Situation with daily explicit auction Price/ Auction revenue Explicit auction of transmission capacity Spot market area A Spot market area B Demand incl exports Price ? Maximum im/export Supply incl imports Quantity Quantity

  15. Market coupling: 2. Replacement by daily implicit auction Advantages: • Removal of daily risk • No adverse scheduling • All capacity 100% used Price difference /Auction revenue Explicit auction of transmission capacity Spot market area A Spot market area B Maximum exports Price Maximum im/export Maximum imports Quantity Quantity

  16. Market coupling: 3. Situation without congestion Advantages: • Markjets merge • No fragmentation • European market No congestion: Equal price Explicit auction of transmission capacity Spot market area A Spot market area B Optimal exports Price Maximum im/export Optimal imports Quantity Quantity

  17. The benefits of implicit auction (market coupling) From 2-step process: 1) capacity auction 2) spot market, Now 1-step process: spot markets & integrated cross-border auction • All local players play internationally; better liquidity, transparency When there are transmission constraints: • Capacity always used to the maximum, most optimal way • Guaranteed 100% use it or lose it + netting of im/exports When there is no real constraint: • Market coupling unifies markets / prices • For x % of time, markets merge:  “part time copper plate” • Integrated European electricity market

  18. Illustration of potential: unused and adversely scheduled capacity 2005 Incomplete use of Transmission capacity Adverse flow 42% of all hours Hourly transit flow nominations NL F as % of available transit capacity, versus price differential

  19. Decentralized market coupling:influence of im- and export on individual area prices Area B Area A Price Price demand export demand supply supply import Quantity Quantity

  20. Isolated price Y Decentralized market coupling: 2 countries Elasticity curves • Depicting price influence of potential im/exports • Each exchange produces hourly curves • zero import price is based on area bids like today, price dependency curve is based on the same in case of additional imports and exports Area Prices price of area Y Isolated price X price of area X 0 Exports Imports

  21. Constrained case: • Limited transmission capacity • Prices for areas differ: set at max. im/exports; congestion revenue Available transmission capacity Available transmission capacity Unconstrained case: • Enough transmission capacity • Price for both areas identical: enough capacity to set price at intersection of curves Area price Y Area price X Area price X = Area price Y Situations: unconstrained/constrained Area Prices price of area Y 0 Flow YX Flow X Y

  22. System development • Current APX and Powernext systems for spot market • Prototype for 2 markets • Prototype for 3 markets (somewhat more complicated)  Trilateral market coupling development • Joint development of APX and Powernext: central coupling module, local modules, iteration rules • Calculation for each hour: straightforward, no iterations • Calculation with multi-hour blocks: iteration needed • Development for X markets: underway • Multilateral market Coupling (MLC) • European development

  23. Implementing a decentralised technical approach BELPEX POWERNEXT Same as Belpex APX Same as Belpex Schedule Bids 2 3a 3b Portfolio allocator Nec creator Block selector 5 Coordination Module 4 TSO Iterative and decentralized, yet: Efficient: costs within limits Fast : results within minutes Right : converging iterations Reliable: allocate within ATC’s Available Transmission Capacity ATC 1

  24. Market Coupling Daily Process • Harmonised deadline for order submission: 11:00am • Target time to publish results: 11:30am (latest 11:45am) Available Transmission Capacities published Intermediary Results sent to local Exchanges systems Results ready Initial Data sent by each Exchange to the CM Deadline for order submission Results published 10:00 11:00 11:25 11:10 11:20 11:45 Consistency checks Iterative calculations Final calculations Order book closure and Initial calculations

  25. One multilateral arrangement • Principles, objectives of market coupling • Roles and responsibilities, main flows • Contractual scheme and governance structure • Arrangements between Exchanges • Provide algorithms and systems • Operate Market Coupling • Arrangements between TSOs • Calculate and Publish Capacity • Ship the Cross-Border Flow • Share congestion revenues • Ensure firmness • Local arrangements TSO-Exchange • Provide/ receive ATCs • Issue/ accept Results Contractual approach

  26. F ≠ B ≠ NL F = B ≠ NL F ≠ B = NL F = B = NL Result TLC (Trilateral Market Coupling) region: countries become price zonesOutcome depends on market forces, transmission constraints: Latest news On 27 October 2006, the three regulators from the three countries approved this. Start of trading according to this coupling is scheduled for 21 November 2005

  27. Agenda • Development APX • Belpex and Trilateral market Coupling • Multilateral European perspective

  28. From Trilateral to Multilateral solution Statnett Nord pool TLC: NL-B-France NorNed cable APX, Nord Pool, TSO’s Co-operation with Belgian, French partners Further extension possible TenneT APX Bel- pex Elia Power next RTE

  29. Linking two regions • NorNed cable links two regions, already internally coupled: • TLC region Netherlands, Belgium, France • Nordic region Norway, Sweden, Finland, Denmark • Steering committee established: • 4 exchanges APX, Belpex, Nord Pool, Powernext • 4 TSO’s Elia, RTE, Statnett, TenneT • Aim at an enduring solution with European scope • Possible interim solution for live-date of cable October 2007

  30. Develop an enduring solution Enduring solution: • MMC = Multilateral Market Coupling • Optimize Nordic and TLC region • “Open solution, other interested parties will be invited to contribute as the project progresses” * • E.g. Spain, UK, Germany, Poland, Baltic countries, others • Able of coupling many regions • Flow-based, able to handle loop flows * Paper by Statnett, TenneT, Elia, RTE, Nord Pool Spot, APX, Belpex and Powernext presented at the “mini-forum” organised by the regulators on the central North-West European electricity market, 20 June 2006

  31. Open system, more possibilities • Parties committed to facilitating the addition of further areas to the approach, open to any other new partners (Iberian peninsula, Italy, UK/ireland, Germany, Central Europe, Eastern Europe) • Fits with “Regional Markets” approach as foreseen by European Commission, European Regulatory Forum

  32. Central European model: mix of daily and long-term • Explicit auction for monthly/yearly capacity • Daily capacity auction, explicit or implicit (=market coupling) • Both physical and financial cross-border contracts : Re-trading / settlement should be possible • Submit long-term capacity for re-auctioning, getting implicit auction value • “Use it or sell it” • Use physical right as a Financial Transmission Right (FTR) Implicit + Implicit Physical scheduling Daily Monthly and Yearly Implicit Explicit Voluntary: Resubmit for Implicit or Schedule it physically Auctioned Scheduled Mix of implicit and explicit auctions Scandinavian model: only daily cross-border • No auction of long-term capacity • All capacity daily allocated in market “splitting” • Long-term contracts are financial All Daily capacity Implicit Auction

  33. From ATC’s to PDTF’s Currently: Available Transmission Capacities (ATC) • Calculation for each border • Sub-optimal Towards PTDF’s: • Physical electrical flow paths taken into account • Maximises use of capacity but • Meshing makes more difficultthe carving up explicit/implicit • Need for Long-term Financial Transmission Rights + • Daily settlement in flow-based implicit auction between PX’s • Roles of TSO’s and Power exchanges Interconnector Single pricearea 33

  34. Summary North West European market is integrating fast • First step: Belpex + coupling France – Belgium – NetherlandsTrilateral Market Coupling (TLC) • Based on intensive co-operation between exchanges, TSO’s • Due to start soon • Next step: NorNed cable: connect TLC and Nordic regionsTowards an enduring an Multilateral system Towards a enduring European, flow-based solution • Open and accessible system, suitable for more countries • Other exchanges/countries invited to comment and contribute A VITAL LINK IN ENERGY TRADING

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