Market Coupling from Market Participant´s Perspective
AFEER Workshop „The Energy Market Coupling“
Bucuresti, June 26th, 2013
Ludek Horn
CEZ, a. s., Trading, Front Office Head
MARKET PARTICIPANTS HAVE DIFFERENT INTERESTS
End consumers want to cover their expected consumption for minimum price
Consumer
c
Example of off-take diagram
Power Exchanges and Broker Platforms have similar function as traders
Import
Trader 2
Trader 1
Power Exchange
Export
Traders match contradictory interests of consumers end producers by means of taking open positions
Generator 1
Generator 2
Example of annual availability
Generators want to maximize income from utilization of availability
1
HOW MARKET COUPLING COUPLES ALREADY COUPLED
MARKETS?
You already know…
 Market Coupling combine demand and supply curves of spot

exchanges of coupled markets.
Market Coupling is based on the implicit allocation of cross border
capacities by TSO to spot exchanges
Merit Order trhu A
€/MWh
Merit Order trhu B
€/MWh
Cross Border Capacity MW
MW
WHAT MARKET COUPLING BRINGS
And what takes away…
Before…
TSO allocates cross border capacity
to market participants in Day-1„for
tomorrow“ in the auction
Market participant based on
allocated cross border capacity
performs export or import
(scheduling…)
Market participants move power
across borders
„Explicit“ allocation of cross border capacities
I
After...
TSO allocates the same cross border
capacity to spot exchanges in Day-1„for
tomorrow“
Spot exchanges based on bids and asks
for electricity perform export or import
(shipping…)
Spot exchanges move power across
borders
„Implicit“ allocation of cross border capacities
Note: Market participants continue moving power cross border based on annual or monthly capacities
WHAT MARKET COUPLING BRINGS
And what takes away…
II
Elimination of an explicit cross border capacity allocation leeds to:
• Decrease of spot trader´s headache (but also elimination of cross border trading…)
• Reduction of market participants operational risk
• Elimination of gaming potential of explicit allocation
• Elimination of spot exchange gate closure sequence problem (having closure at the same
•
time)
Harmonization of spot market rules
•
•
•
•
Substantial increase of spot market liquidity (and thus to more robust price index)
Decrease of price spreads between coupled markets
Decrease of volatility of coupled markets
Power flows from the cheaper market to the mor expensive market (not all the time with FB)
Overall increase of market efficiency
4
DO NOT BELIEVE IN MARKET COUPLING MYTHS!
There are 3 myths…
True or false: Market Coupling increases price of electricity.
False, because Market Coupling does not come out of the blue – there is a cross border
trading before market coupling. In case the cross border capacity is the same in both cases,
the prices will be almost the same, just small change because of decreased price spread.
True or false: Market Coupling means the same price in coupled markets.
False, the same price in coupled markets is rather an exception than a rule. It happens
usually when markets have similar power plant portfolio and/or very high cross border
capacity.
True or false: TSOs lose their income from cross border capacity auctions.
False, TSOs´ income is the spread between electricity prices and is approximately the
same as income from explicit auctions, just slightly decreased because of the spread
decrease.
5
EFFET ON LIQUIDITY
Example: CZ-SK Market Coupling
 Efektivnější/intenzivnejší využití přeshraniční kapacity
 Obecný nárůst obchodovaných objemů
 Relativní snížení cenového rozdílu mezi trhy
Market Coupling mezi
CZ-DK launched on
Sep 1st, 2009
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
CEZ VIEV ON MC DEVELOPMENT IN CEE/SEE
CZ-SK-HU MC operational since September 11th, 2011
• good experience so far (higher liquidity, lower spreads)
• coupling calculated in PCS infrastructure (Cosmos) somewhere in Paris/Leipzig = NWE ready
• Poland and Romania recently expressed serious interest to join
• extension by PL and RO based on Cosmos or Euphemia
Final MC integration of CEE with NWE seems to get stuck
• blind insistence on the CEE NRA Joint Declaration (MC+FB at the same time)
• no progress in the project (TSOs waiting for NRAs decision)
• Austria yet to nominate NOME
• no clear leadership, no decisions (MoU not finalized)
• unwillingness even to discuss crucial issues
• timing dependent on NWE project progress
7
FLOW BASED ALOCATION AND MARKET COUPLING
Current status:
1.
FBA project in CEE is different from the CWE one and has
not been proven feasible yet.
2.
Problem with overlapping countries in different regions:
•
One country cannot be at the same time in two different MC
initiatives (splitting of liquidity and other inefficiencies) – i.e.
GE/AT in CWE, PL in NPS, SI with IT
•
NRAs treat borders in each region differently
It is not efficient and wise to create an independent CEE MC
solution
Feasible and preferred solution:
Add step by step CEE countries to the CWE ATC MC
Wait for Single Flow Based with CWE
8
QUESTION AND ANSWERS
Usefull links:
·
http://www.casc.eu/en/Resource-center/NWE
http://www.epexspot.com/en/market-coupling/documentation_nwe
http://apxgroup.com/services/market-coupling/nwe-price-coupling/
http://belpex.be/index.php?id=109
http://www.nordpoolspot.com/How-does-it-work/European-Integration/NWE/
THANK YOU FOR YOUR ATTENTION
ludek.horn@cez.cz
BACK UP
Finding NEMO for DE-AT price zone
Option 1 „ As it is“ (but the same gate closure…)
EXAA Austrian Market
EPEX Austrian Market
Virtual Hub Austria in Cosmos
Other AT borders with specific NTC
EXAA German Market
EPEX German Market
NTC = ∞
Virtual Hub Germany in Cosmos
Other DE borders with specific NTC
11
ELECTRICITY MARKET WORKS!
But is distorted by subsidies for RES
DESTRUCTING EFFECT OF RES ON WHOLESALE POWER PRICE
Market Concept Is Systematically Disrorted Due to Increasing Portion of
Subsidies to RES
Impact of Growing Generation from RES on Wholesale Power Price
Variable costs, €/MWh
Demand
 Supported RES
100
generation brings volatile
and less predictable
supply
Gas
Hard coal
Lignite
75
 The spot prices decline
(not the final price for the
consumer!) damages
non-RES generation
50
 One more negative
Nuclear
impact – lower utilization
of non-RES generation
25
RES
0
0
20
40
60
80
100
Available
Capacity (GW)
13