Gent Summer School:
Electricity Markets &
Trading
Gregory Michiels
27 August 2013
EDF LUMINUS: 1st CHALLENGER IN
ELECTRICITY PRODUCTION IN BELGIUM
1,950 MW installed capacity (beginning 2013)
10 % of the Belgian electricity
production capacity
73 MW
hydro-electric energy
3.8 % of our energy mix
117 MW wind energy
6 % of our energy mix
418 MW nuclear
participations
21.4 % of our energy mix
1,342 MW gas power
plants
68.8 % of our energy mix
2
1st CHALLENGER IN GAS
AND ELECTRICITY SUPPLY
1,700,000 access points
30,000,000 MWh sold
Market share of 20%
3
SHAREHOLDERS
June 2009
EDF announces its intent to buy Centrica’s 51%
November 2009
Approval by the European Commission 12/11 Closing
51% shares 26/11
Minority shareholders sale option
8 June 2010
Publilum and VEH sell half of their shares, Dexia sells all
 participation EDF in SPE: 63.5%
22 November 2011
The company name is EDF Luminus
4
Optimisation versus Trading
Asset Optimiser
Trader
• Manages a portfolio of assets
(power plants, contracts, retail
portfolio,…)
• Objective is to control physical
and
financial
risks
and
maximising margins
= speculation
• Creates a position
• Objective is to make money
from this position when market
conditions change
= hedging
Both actors sell and buy in the wholesale markets to
achieve their objectives, thus creating a liquid market
5
Timeline of activities of an asset optimiser
From 3 years to 1
month ahead of
implementation date
[D]
• Forecast of the
medium-term
supply/demand
balance
• Scheduling of
power plant
maintenance
• Sale/purchase
operations on the
forward markets
1 Month ahead of
implemenation date
[D]
• Refine the
supply/demand
balance to more
accurate weather
forecasts and
availability of
power plants
• Sale/purchase
operations on the
forward markets
Day Ahead [D-1]
• Create operating
schedule for the
power plants
• Balancing supply
and demand on
the Day-Ahead
market (DAM)
• Send nominations
to TSO
6
Intraday [D]
• Respond to latest
unanticipated
changes in the
portfolio
• Send renominations to
TSO
• Sale/purchase
operations on the
intraday market
OTC markets and power exchanges
7
02/01/2012
06/02/2012
12/03/2012
16/04/2012
21/05/2012
25/06/2012
30/07/2012
03/09/2012
08/10/2012
12/11/2012
17/12/2012
21/01/2013
25/02/2013
01/04/2013
06/05/2013
10/06/2013
15/07/2013
19/08/2013
23/09/2013
28/10/2013
02/12/2013
06/01/2014
10/02/2014
17/03/2014
21/04/2014
26/05/2014
30/06/2014
04/08/2014
€/MWh
Forward and spot prices
weekly average spot prices
80
70
60
50
40
30
20
10
Belpex
Apx
Epex Spot France
Epex Spot Germany
8
Price Drivers
9
DAH price formation: supply/demand balance
Commercial
demand
Industrial
demand
CCGT
Exports
Nuclear
Imports
Peak units
Residential
demand
Hydro reservoir
Price
Coal
Renewables
Power
10
The make or buy decision
Heat
Power
Fuel
Power Plant
CO2
11
Interaction hedging - dispatching

Situation
A
Forward Market
Day-Ahead
Benefit
• CSS = 5€/MWh
• Hedged
• CSS = 10€/MWh
• PP dispatched
• 5€/MWh
Situation
B
Forward Market
Day-Ahead
Benefit
• CSS = 5€/MWh
• Hedged
• CSS = 2€/MWh
• PP dispatched
• 5€/MWh
Situation
C
Forward Market
Day-Ahead
Benefit
• CSS = 5€/MWh
• Hedged
• CSS = -3€/MWh
• PP not
dispatched
• 8€/MWh
Situation
D
Forward Market
Day-Ahead
Benefit
• -3€/MWh
• Hedged
• CSS = 3€/MWh
• PP dispatched
• 3€/MWh
DAH dispatch decision is independent from hedging decision in
12
the forward markets
Capacity mix Europe
2. Status of CWE-Nordic interregion
A first step: Interim Tight Volume Co
• Inte
EM
vol
cou
• ITV
om
om
od
• Th
de
• Th
• Th
ste
• Co
13
CWE Market Coupling
• Launched on 9 November 2010
• Cooperation of Transmission System Operators (TSOs) and
power exchanges (PXs) coupling the Belgian, Dutch, French
and German electricity markets
• Provides for the implicit cross-border capacity allocation and
matching of orders of the involved PXs, resulting in the optimal
allocation of available day ahead cross-border capacity and
price convergence between day ahead wholesale electricity
markets across this region
14
CWE market results 3 Aug 2013
15
CWE market result 23 August 2014
16
Convergence of CWE prices: are we on a copper
plate?
17
Forward markets: OTC
18
Imbalance markets
19
30sec
<15min
AUTOMATIC
Levers for the TSO to manage the country balance
primary reserve
secondary reserve
tertiary reserve via
generation units
MANUAL
15min
tertiary reserve via
sheddable
customers
uncontracted
reserve ('free bids')
reserve contracts
with neighbouring
system operators
20
Balancing: how does it work?
1/4h Balancing
obligation for each
BRP
• Balancing = difference between production and
consumption of the whole portfolio (metering)
TSO takes care of the
position of the country
• Short position of BRP purchased at imbalance price • Long position of BRP sold at imbalance price +
Imbalance price is
equal to marginal price
activated by TSO
• High incentive for BRP to be balanced
• Many opportunities for BRP
Imbalance price + and
– are equal most of
the time
• Differences (extra incentive) only if big imbalances
21
Imbalance prices
sunny day
Cold evening peak
NRV = Net Regulation Volume (=volume activated by Elia to restore the balance)
POS = Positive Imbalance price (what you get paid if you inject more than you consume)
NEG = Negative Imbalance price (what you pay if you consume more than what you inject)
22
Delta between DAH prices and imbalance prices
D
D-1
Demand side management
24
Market Regulation


Prohibition of market manipulation and trading on the basis of ‘insider
information’
Market monitoring by ACER
Transparency
Market Integrity
Market manipulation
prohibitions
Insider dealing
prohibitions
Applies to underlying physical power, gas and
transport contracts and markets
Post trade
transparency for
energy markets
through ACER
Trade data
reporting to
ACER
Public
transparency of
fundamental data
/ inside
information and
their reporting to
ACER
Applies to all gas, power and transportation contracts
and markets
25
THANK YOU !
QUESTIONS & ANSWERS