1 HELLENIC TRANSMISSION SYSTEM OPERATOR THE NEW MARKET MODEL AND GRID CODE IN GREECE Dr. Evangelos Lekatsas Chairman of the Board of Directors, HTSO Bucharest.

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HELLENIC TRANSMISSION SYSTEM OPERATORHELLENIC TRANSMISSION SYSTEM OPERATOR

THE NEW MARKET MODEL THE NEW MARKET MODEL AND GRID CODE AND GRID CODE

IN GREECEIN GREECE

Dr. Evangelos LekatsasDr. Evangelos LekatsasChairman of the Board of Directors, HTSOChairman of the Board of Directors, HTSO

Bucharest 3-5 April, 2006.Bucharest 3-5 April, 2006.HTSO

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INTRODUCTIONINTRODUCTION

The scope of this presentation is two-fold:The scope of this presentation is two-fold:

to provide a brief and comprehensive outline of the to provide a brief and comprehensive outline of the

conceptual design of the basic building blocks of the conceptual design of the basic building blocks of the

Greek Electricity Market Model that was introduced with Greek Electricity Market Model that was introduced with

Law 2773/99, as amended by Laws 3175/2003 and Law 2773/99, as amended by Laws 3175/2003 and

3426/2005, and specified in detail by the New Code in May 3426/2005, and specified in detail by the New Code in May

2005, and2005, and

to describe the recent decisions taken to increase the to describe the recent decisions taken to increase the

capacity of the interconnections with neighboring capacity of the interconnections with neighboring

countries, thus enhancing competition. countries, thus enhancing competition.

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THE LEGAL FRAMEWORK (I)THE LEGAL FRAMEWORK (I) All non-residential electricity consumers on the All non-residential electricity consumers on the

interconnected system are Eligible Customers interconnected system are Eligible Customers (60.1%)(60.1%)

As of July 1As of July 1stst, 2007 all consumers are defined as , 2007 all consumers are defined as Eligible CustomersEligible Customers

Free access of Producers, Suppliers and Free access of Producers, Suppliers and Customers to the Transmission System in a Customers to the Transmission System in a transparent, economic, direct and non- transparent, economic, direct and non- discriminatory waydiscriminatory way

Secure the adequacy and reliability of the System Secure the adequacy and reliability of the System to cover the demand (in short and long run) to cover the demand (in short and long run)

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THE LEGAL FRAMEWORK (II)THE LEGAL FRAMEWORK (II) Organize and Operate the Market ensuring its Organize and Operate the Market ensuring its

economic functioning with prices reflecting the economic functioning with prices reflecting the cost of electricity delivered.cost of electricity delivered.

Organize and regulate the access to Transmission Organize and regulate the access to Transmission and Distribution Grids.and Distribution Grids.

Establish the legal and operational unbundling of Establish the legal and operational unbundling of both the TSO and the DSO from Production and both the TSO and the DSO from Production and Supply.Supply.

Reinforces the role of the HTSO (Planning, Reinforces the role of the HTSO (Planning, expanding, enhancing and modernizing the expanding, enhancing and modernizing the System) System)

Increases the Competencies of the Regulator , etc. Increases the Competencies of the Regulator , etc.

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The New Market ModelThe New Market Model

The new model consists of two markets:The new model consists of two markets:

A Capacity Assurance A Capacity Assurance

Market.Market.

A Wholesale Energy Market.A Wholesale Energy Market.

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Market ParticipantsMarket Participants ProducersProducers, , i.e. production license holders having i.e. production license holders having

Generation Units registered with the Generating Unit Generation Units registered with the Generating Unit

Register;Register;

SuppliersSuppliers, , i.e. supply license holders; who have the i.e. supply license holders; who have the

right to buy, import, export, transit, sell or resell right to buy, import, export, transit, sell or resell

electric energy to End Users or other Suppliers.electric energy to End Users or other Suppliers.

Self-Supplying CustomersSelf-Supplying Customers i.e. Eligible Customers i.e. Eligible Customers

who have the right either to import or to buy energy who have the right either to import or to buy energy

through the Energy Transactions System (Wholesale through the Energy Transactions System (Wholesale

Energy Market) for their own exclusive use. Energy Market) for their own exclusive use. HTSO

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The Capacity Assurance Market The Capacity Assurance Market

The The Capacity Assurance MarketCapacity Assurance Market is subdivided is subdivided

into two main parts:into two main parts:

A A free approachfree approach mechanism, designed to ensure mechanism, designed to ensure

the on-going entry of new capacity into the the on-going entry of new capacity into the

market in line with the continual growth in market in line with the continual growth in

demand expected over time; anddemand expected over time; and

An An ad hocad hoc mechanism, designed to encourage mechanism, designed to encourage

new entrants to commit to the commissioning of new entrants to commit to the commissioning of

new plants in an appropriate time.new plants in an appropriate time.HTSO

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The free approach mechanismThe free approach mechanismis based on contracts for power between suppliers is based on contracts for power between suppliers

and producers. and producers.

SuppliersSuppliers are obliged to secure Capacity are obliged to secure Capacity

Availability Agreements with Producers sufficient to Availability Agreements with Producers sufficient to

meet their expected load, plus a prescribed security meet their expected load, plus a prescribed security

excess Capacity Margin. excess Capacity Margin.

Producers,Producers, in order to enter into C.A. Agreements in order to enter into C.A. Agreements

with suppliers, are obliged to have sufficient with suppliers, are obliged to have sufficient

Capacity Availability Certificates or Capacity Availability Certificates or CACsCACs by by

commissioning new generators to deliver the commissioning new generators to deliver the

contracted power.contracted power.HTSO

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CAPACITY AVAILABILITY CERTIFICATES CAPACITY AVAILABILITY CERTIFICATES (CACs)(CACs)

CACs represent a promise to maintain a certain level of

technical availability of the generation unit in the future

One CAC, having a written form, refers to capacity of 1 MW with a Reference Period of 1 year

by submitting the CAC to the Register the production

license holder accepts:

• expressly and unreservedly all CAC terms including

terms of the proposed Capacity Availability Agreement

(CAA) to be subsequently concluded with a supplier

•to keep in an equitable manner the promises included in all CACs referring to the same generation unit and having the same Reference PeriodHTSO

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The ad hoc approach mechanismThe ad hoc approach mechanismThe ad hoc approach mechanism is introduced, as a The ad hoc approach mechanism is introduced, as a

transitional phase, in order to face urgent requirements for transitional phase, in order to face urgent requirements for

new capacity. The HTSO, rather than relying on suppliers to new capacity. The HTSO, rather than relying on suppliers to

conclude contracts with producers (new generators), acts as conclude contracts with producers (new generators), acts as

an intermediary between the producers with new generators an intermediary between the producers with new generators

and the existing/new suppliers by launching a and the existing/new suppliers by launching a Call for Call for

TendersTenders. The Tender is awarded to the producer who offers a . The Tender is awarded to the producer who offers a

part of his issued CACs to HTSO asking, in return, the part of his issued CACs to HTSO asking, in return, the

minimum annual guarantied amountminimum annual guarantied amount of money per MW of the of money per MW of the

new generator he will build. It is hoped that this mechanism new generator he will build. It is hoped that this mechanism

gives gives adequate incentives to producers to build new adequate incentives to producers to build new

generating units and makes their projects bankable.generating units and makes their projects bankable.

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CAPACITY ADEQUACY MECHANISMCAPACITY ADEQUACY MECHANISM in the framework of the approved long term energy planning:

• the HTSO carries out a special study entitled “Capacity

Adequacy Study” for the adequacy of system power capacity and adequate reserve margins, which is approved by the Ministry of Development following opinion of RAE • this study determines the total power capacity up to which the HTSO is permitted to conclude Capacity Availability Agreements after conduct of auction• for the first implementation of this capacity adequacy mechanism (up to 2010) the upper capacity limit is put at 900 MW and this could be increased by 400 MW in maximum.

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AUCTIONS FOR CONCLUSION OF AUCTIONS FOR CONCLUSION OF CAPACITY AVAILABILITY AGREEMENTSCAPACITY AVAILABILITY AGREEMENTS

Subject and scope of auctions for the conclusion of CAAs up to 900 MW

provide investors with guarantee for revenues required to cover a part of the investment cost of their new generation units –provide revenues security corresponding to partial coverage of a producer license holder to recover a part of the investment cost of the unit through conclusion of CAAs and the Economic Agreement for Revenues Guarantee (EARG) contracted with HTSO

the HTSO will ensure that the counterparts will obtain, after subtraction of all relevant operational costs, net residual at least equal to their offer assuming keeping of EARG terms

the maximum amount guaranteed by HTSO is the outcome of relevant study carried out by RAE

the minimum annual amount of guaranteed revenues by the HTSO will remain constant throughout the guarantee period, subject to be decreased, according to the terms of EARGHTSO

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The Wholesale Energy MarketThe Wholesale Energy Market

The The Wholesale Energy MarketWholesale Energy Market comprises four comprises four Function Modes:Function Modes:

The The Day-Ahead SchedulingDay-Ahead Scheduling Mode (DAS); Mode (DAS);

The The Day-Ahead/Intra-Day Dispatch Day-Ahead/Intra-Day Dispatch

SchedulingScheduling Mode (DS); Mode (DS);

The The Real-Time DispatchReal-Time Dispatch Mode (RTD); and Mode (RTD); and

The The Ex-Post IEx-Post Immbalance Pricingbalance Pricing Mode (EPIP). Mode (EPIP).HTSO

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The Day-Ahead Scheduling Mode (I)The Day-Ahead Scheduling Mode (I)The The Wholesale Energy MarketWholesale Energy Market is a day-ahead is a day-ahead

mandatory pool scheme that provides a day ahead mandatory pool scheme that provides a day ahead

price based upon the supply/demand balance. It price based upon the supply/demand balance. It

ensures efficient short term dispatch taking into ensures efficient short term dispatch taking into

account: account:

generation unit constraints (technical minimum, generation unit constraints (technical minimum,

ramp rate, etc.), ramp rate, etc.),

reserve requirements and reserve requirements and

a simplified transmission system a simplified transmission system zonalzonal constraint constraint

mechanism.mechanism. HTSO

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The Day-Ahead Scheduling Mode (II)The Day-Ahead Scheduling Mode (II)

The day-ahead procedure will produce a single SMP The day-ahead procedure will produce a single SMP

((System Marginal PriceSystem Marginal Price in €/MWh) for each in €/MWh) for each

settlement period (1 hour) and a 24 hour production settlement period (1 hour) and a 24 hour production

schedule for each unit and each settlement period in schedule for each unit and each settlement period in

MWh.MWh.

The solution of the day-ahead procedure is based The solution of the day-ahead procedure is based

on the co-optimization of the on the co-optimization of the Energy OffersEnergy Offers (Energy (Energy

Market) and Market) and Reserve OffersReserve Offers (Balancing Market) in (Balancing Market) in

order to satisfy the energy balance and reserve order to satisfy the energy balance and reserve

requirements.requirements.HTSO

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The Day-Ahead Scheduling Mode (III)The Day-Ahead Scheduling Mode (III)OffersOffers will be firm at the day-ahead market. The generators will be firm at the day-ahead market. The generators

must maintain their availability as declared. Changes in must maintain their availability as declared. Changes in

availability will result in an exposure to the availability will result in an exposure to the Ex-post Ex-post

Imbalance Settlement Price. Imbalance Settlement Price.

DemandDemand declared by suppliers will also be firm and declared by suppliers will also be firm and

deviations will be liable for settlement at the deviations will be liable for settlement at the Ex-post Ex-post

Imbalance Settlement PriceImbalance Settlement Price..

During the Day Ahead Settlement, generators will be paid at During the Day Ahead Settlement, generators will be paid at

the the day-ahead SMPday-ahead SMP for their scheduled generation. for their scheduled generation.

Suppliers will pay the Suppliers will pay the day ahead SMPday ahead SMP for their declared load. for their declared load.

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The The Dispatch Scheduling ModeDispatch Scheduling Mode In the period between the day-ahead stage and the real time In the period between the day-ahead stage and the real time dispatch (the operational timescale), the HTSO will always try dispatch (the operational timescale), the HTSO will always try to keep the system in balance by:to keep the system in balance by:receiving receiving re-declarations re-declarations from producers when there has from producers when there has been a change in the availability of their units; been a change in the availability of their units; responding to other responding to other changeschanges in the system such as variation in the system such as variation in demand or modifications to international flows; in demand or modifications to international flows; adjusting adjusting unit commitmentunit commitment and scheduling to reflect the and scheduling to reflect the above changes and to face possible inter-zonal transmission above changes and to face possible inter-zonal transmission system constraints; and system constraints; and using using ancillary servicesancillary services (primary, secondary and tertiary (primary, secondary and tertiary reserve) according to the day-ahead schedule, in real time, to reserve) according to the day-ahead schedule, in real time, to keep the system in balance.keep the system in balance.

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The Ex-post Imbalance SettlementThe Ex-post Imbalance Settlement

At the Ex-post Imbalance Settlement stage, real At the Ex-post Imbalance Settlement stage, real

system demand, balanced by the real production of system demand, balanced by the real production of

the units is used to determine the the units is used to determine the Ex-post Ex-post

Imbalance Settlement PriceImbalance Settlement Price (ex-post SMP). (ex-post SMP).

Imbalances are specified at a unit level for Imbalances are specified at a unit level for

producers to ensure an accurate allocation of producers to ensure an accurate allocation of

deviations between the deviations between the day aheadday ahead and and actual actual

dispatch.dispatch.

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INTERCONNECTION ACCESS RIGHTSINTERCONNECTION ACCESS RIGHTS

• Suppliers are allowed to import, export and transit energy

• Producers are allowed to export energy

• Eligible customers have the right to import energy for their own consumption

Suppliers, Producers and Eligible Customers exercise

their access rights through submission of offers for

inclusion to Day Ahead Schedule

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Interconnection transmission capacityInterconnection transmission capacityHTSO determines in cooperation with neighbouring TSOs the:

interconnection transmission capacity for each or group of interconnection lines

transmission reliability margin net transmission capacity

and also the:

long-term committed transmission capacity available transmission capacity separately for energy Imports and Exports.

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Long term allocation of Interconnections capacityLong term allocation of Interconnections capacity

• allocation on a long term basis of up to 1 year

• HTSO conducts explicit auctions at regular intervals for each or group of interconnection lines (terms of auction, available transmission capacity zones, threshold for bid price)

• classification of bids in descending order

• auction price equals the offer price of the first MW not selected – zero auction price in case of satisfaction of all bidders requests for transmission capacity

• payment by the auction winners of auction price irrespectively of using their attributed capacity

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