Transcript European Integration

EuroPEX
Using implicit auctions by power
exchanges to manage cross-border
congestions:
Decentralized Market Coupling
B. den Ouden, President of Europex
APEx Annual Conference 2003
Cartagena de Indias, Colombia, 14 october 2003
EuroPEX
CONTENT

Europex members

Implicit auctions

The benefit for trading

The benefit for Europe

The decentralized market coupling model

Step by step approach
Pagina 2
EuroPEX
EuroPEX
Backgrounds:
 Looking after PX
interests
 EU policy
 EuLocal taxation /
policies
New lines:
 Slow
 Huge investment
Nord Pool
APX UK
APX
EEX
Powernext
Allocation of limited
transmission capacity
Pagina 3
Borzen
GME
OMEL
Opcom
EuroPEX
Some congested borders in Europe
Reasons:
 National policies in the
past
 Fuel decisions
 Local taxation / policies
Nord Pool
New lines:
 Slow, huge investment
APX UK
Fragmented market!
 Important: method of
allocation of limited
transmission capacity
Pagina 4
APX
EEX
Powernext
Borzen
GME
OMEL
Opcom
EuroPEX
Cross-border allocation methods


(New lines)
Non-market based:
– First come first serve
– Pro rate curtailing

Market based:
– Explicit autioning
– Implicit auctioning , market splitting/coupling

Counterbuying, compensating re-dispatch
Pagina 5
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Non-market based methods


Stable when no congestion or non-competition
Unstable when there is a real value and full
competition

First come first serve: fax run in the opening
seconds

Pro rata: gaming for ever-bigger subscription
volumes
Pagina 6
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Market based methods


Attribute an economical value to the good being
limitedly available: transmission capacity
Explicit auctioning:
Explicit
auction
transmission
capacity
Cap.
price
Maximum
im/export
Pagina 7
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Explicit auctioning

Creates stability

Drawbacks:
–
–
–
–
–
Risky
Suitable for bigger players
No contribution to liquidity on either side
No “netting” of im & exports
Creates a barrier even at times when there is no
congestion!
– Leads to a fragmented European market
Pagina 8
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Explicit auctions of transmission capacity
Auction
revenue
Explicit
auction
transmission
capacity
Spot market
Area A
Maximom
export
Spot market
Area B
Price
Cap.
price
?
Maximum
im/export
Maximum
import
Pagina 9
Quantity
Quantity
Implicit auctioning (market coupling)
EuroPEX
Full transparency in constraint management
Area price difference

One-step
process

No difference
between auction
price and area
price difference

Price
Maximum
capacity
Spot Market
Area A
Spot Market
Area B
Δ
Stimulates
liquidity in each
area
Maximum
capacity
Pagina 10
Quantity
Quantity
Implicit auctioning (market coupling):
EuroPEX
Full area integration when no constraint
One price for both areas

Areas merge at
that moment

Trade barriers
completely gone

Liquidity shared
Price
Allocated
capacity
Pagina 11
Spot Market
Area A
Quantity
Allocated
capacity
Spot Market
Area B
Quantity
EuroPEX
The benefit for trading

One-step process, ease of access

Priority on interconnectors based on price

Interconnector schedules based on area price difference

Hedging instruments

All local players also play internationally

Encourages liquidity and transparency
……thereby mitigating market power abuse
Pagina 12
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The benefit for Europe

European market fragmented by constraints

Market coupling directly unifies markets whenever there is
no constraint

So, for x % or the time, markets will be unified.

Then, by other methods (e.g. additional transmission
capacity) this x% percentage can be raised gradually.

Contributes to the establishment of the internal European
electricity market
Pagina 13
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The decentralized model : objectives
Economic efficiency
- price-based priority
- no possible trades left on the table
- reflect actual generation and load
realities (e.g., block bids)
Promoting of effective
competition
- low entry barriers
- level playing field (e.g., bilaterals)
Transparency
- information: sufficient and reliable
- rule based: stable and auditable
Maximising available capacity
and capacity use
- efficient allowance for loop flows
- netting of counterflows
- reselling of forward rights
Use of congestion revenues
- for others to determine
Pagina 14
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Decentralized model: overview

Each exchange to receive its area-based bids

Exchanges exchanging bid – based information

Adapting exchange price in each area:
– Unconstrained: prices equal
– Constrained: prices are set with maximum im/export

Iteration process for blocks

Local scheduling and balancing
Pagina 15
Decentralised Market Coupling (DMC)EuroPEX
–1
TSOs to publish available capacity and power transfer
distribution factors (PTDFs)

Power exchanges (PXs) gather bids & offers in their area

Then calculate ‘net export curve’ showing impact of export
(and import) volumes on hourly area price

PXs calculate optimal use of network across DMC region

Includes bilateral bids who pay (or counter-flows receive)
price difference between areas
Pagina 16
Decentralised Market Coupling (DMC)EuroPEX
–2
PXs repeat process to accommodate block bids (several
iterations, or a sequential process in some regions)

PXs notify and settle all area commitments (including
cross-border bilaterals)

Deviations handled by local area imbalance arrangements
More details: see Europex paper as submitted
Pagina 17
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Influence of im/exports on area prices
(more details: see Europex paper at www.europex.org)
area A
area B
Price
Price
demand
Isolated price
demand
supply
Isolated price
supply
Spot market volume
Pagina 18
Spot market volume
Features of Decentralized Market
Coupling
EuroPEX

Enables coupling of multiple areas together with efficient
allowance for loop flows on meshed networks

Supports block bids and other local market requirements

Supports bilateral contracts and netting of counterflows

Requires only limited harmonization of market rules, and
no change to local notification/imbalance arrangements

Provides open and fair market access with no additional
barriers beyond existing local PX requirements

Transparent, rule based, auditable methodology
Pagina 19
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Key Points (1)

All physical capacity and PTDFs to be made available in
the day-ahead implicit auction

Physical capacity must be firm and published prior to PX
bid submission to ensure orderly and efficient market
– TSOs to make allowance for unplanned events/outages
– Regulatory issue: maximize capacity (DMC can contribute
to reducing TSOs’ exposure to loop flow uncertainty)

Optimize the use of the physical network and maximize
liquidity (+reliable reference prices)
– hedge forward price risk with financial products
– phase out explicit auctions of physical transmission rights
– handle adjustments in intra-day markets
Pagina 20
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Key Points (2)

Owners of long-term capacity rights can, in effect, sell
them by offering to schedule a counterflow. Historical
long-term contracts could be converted into financial
transmission rights

Rules and procedures will need defining for each ‘cluster’
of markets, plus some harmonization of market rules will
be necessary - possibly could be overseen by a regional
group comprising regulators, TSOs, PXs and participants

PXs will need to meet certain requirements - e.g.,
membership requirements, information publishing, audit,
disputes procedures
Pagina 21
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Step by step approach
Implicit auctioning between
exchanges: step by step
process

1. Bilateral pilots at several
places in Europe

2. Regional developments

3. European integration
Manageable learning curve
Pagina 22
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Summary

Directly a partial (x %) integration of markets

Local Players co-acting on European scale

Better liquidity and transparency

Mitigation of market power abuse

Step-by-step process, practical solution

Incremental learning curve
Pagina 23
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Supplementary material
Area A
Price
Area B
Price
PB
P*B
P*A
PA
Import
Pagina 24
Q*A
Export
Import
Q*B
Export