Market Coupling: Progress with coupling FUI and CWE region Charlotte Ramsay Ofgem 16 th June 2010.

Market Coupling:Progress with coupling FUI and CWE

region

Charlotte RamsayOfgem

16th June 2010

Overview

– Drivers for Market Coupling– Target model for Day Ahead Timeframe– Progress with CWE and North West Region– Coupling FUI and CWE/NW Region

• GB and Ireland• BritNed and IFA• Next steps

– Other considerations for implementing market coupling• Two power exchanges in GB• Firmness• Charging

Drivers for Market Coupling

• Moving towards a single market for electricity• Efficient use of available capacity on all borders• Maximisation of capacity available on all borders• Legal Requirements:

– CMGs require market based capacity allocation methods – Under the 3rd package:

• Capacity allocation models may become mandatory through the Framework Guideline/Network code process

• Regional approach to cross-border capacity allocation• For FUI

– Britned’s exemption requires day-ahead implicit auctions

Models Main Features

Forward Market • TSOs sell forward capacity • Options: physical or financial reservation for day

ahead• Harmonised terms

Day-ahead capacity allocation

• Single Price Coupling across Europe:o Single matching algorithmo Common market rules

Intra-day capacity allocation

• Regional: implicit continuous or implicit auction• Inter-regional: implicit continuous.

Balancing • TSO-TSO with Common Merit Order

Capacity Calculation • Improved coordination amongst TSOs• Coordinated redispatch• Move to flow based

Already in place in TLC and NordPool Soon to be in place across CWE and ultimately the North West Region …

European Target Model

Proposed roll out of Market Coupling

Completion of CWE, and coupling to EMCC / Nordics

NW region and “enduring solution”

INTER-REGIONAL SOLUTIONS?

Markets that could join next as part of an agreed European roadmap

Markets which showed interest to join

Markets initially included in PCR - 2860 TWh

*Source: Europex slides from the 18th Florence Forum

PX initiative:

PRICE COUPLING OF REGIONS*

Other considerations for FUI-NW Region Market Coupling

Input from Ofgem Consultation:• Two power exchanges in GB

– Not a material issue• Firmness

– Support for firmness, but diverse views how it is applied– Diverse views on risk sharing between traders, TSO/IC owners

and consumers– Diverging views on adopting a common approach to firmness

• Charging– Many respondents highlighted potential distorting impact of

TRIAD / Transmission charges– Review underway coordinated by Ofgem and National Grid

Coupling FUI and CWE / NW region• Irish Market (SEM) design issues

– GB to couple first – Ireland to follow• BritNed Interconnector comes online in Q1 2011

– Exemption decision condition = implicit auctions in day ahead– BritNed needs a market coupling solution in Q1 2011

• GB coupling options– Price coupling on both BritNed and IFA (enduring solution)– Price coupling on BritNed and IFA to follow (spur solution)

• Timing for roll out of the “enduring solution”– Commitment from NW region TSOs to deliver in 2011, but not

in time for BritNed • Next steps

– Roadmap to enduring solution for NW Region (NW TSO group)– BritNed develop spur solution (in line with roadmap)

2.2 Approach to Firmness ? Common for all ICs?C/B from changing our approach

Who pays/risk sharing • TSOs/IC owners in better position to bear risks(AEP,Consumer Focus,EON, Statoil ASA, IPR)• TSOs to share the risk and face equal exposure (NG,IPR)• NG: Firmness capped (110% of initial price paid) or pass through cost to TSOs revenues & end

consumers • Also in favour of cost socialisation: Eirgrid, Moyle Vs no cost socialisation (consumer focus)• Moyle: currently IFA & Moyle earn nothing in the event of outage, sufficient incentive to

maximise capacity. Could still work if the costs of physical firmness were socialised.• If firm IC was required then firmness of transmission system would be necessary (Moyle)• Some recognize the higher costs for DC lines (Statnett) and for IFA in particular (RTE, NG,

Eirgrid)Common approach for all ICs?• Some support for harmonisation of firmness rules and for common approach for all ICs (RTE,

Britned-as long as their business model is protected-, EON-financial firmness-, Centrica, Statoil ASA, RWE)

• Consumer Focus: degree of latitude could improve investor confidence• EDF: Not one policy for firmness, case by case approach ; competition law can be used when

restricting IC capacity so no need for regulation