BritNed: Enabling Market Integration BritNed Seminar, London 27 January, 2011 Andrew Claxton APX-ENDEX
Implicit Auctions Annual Quarterly Monthly Daily Intra-day Implicit Auctions at day ahead First to launch Implicit Auctions on an interconnector to UK Facilitated by APX-ENDEX (under service contract awarded by BritNed following OJEU procurement in 2006) Minimum 30% of capacity reserved for Implicit trade at day-ahead; plus unused forward capacity rights (UIoSI); plus capacity in opposite direction of flows nominated forward capacity rights (netting)
What is Market Coupling? Market coupling is a way of linking separate day-ahead (auctionstyle) spot markets using cross-border transmission capacity It is an implicit auction meaning transmission capacity allocation is integrated with the energy market ( explicit auctions sell capacity separately) Price differences between each spot market are minimised, with a common price at times when there is sufficient capacity Capacity usage is optimised The optimal matching of energy bids and offers across the coupled markets, taking into account the available capacity
Market Coupling: Basic principle P ( / MWh) Market A (Export market) P ( / MWh) Market B (Import market) Purchase Purchase P B P A Sale Sale Q A Q (MWh) Q B Q (MWh) Isolated price Market A < isolated Price Market B Market A can export to market B (purchase- and sale curve shift)
Market Coupling: Basic principle P ( / MWh) Market A (Export market) P ( / MWh) Market B (Import market) Purchase Purchase* P B Purchase P B* P A* P A Sale Sale Sale * Q A Q A* Q (MWh) Q B Q B* Q (MWh) Isolated price Market A < isolated Price Market B Market A can export to market B (purchase- and sale curve shift)
Market Coupling: Basic principle P ( / MWh) Market A (Export market) P ( / MWh) Market B (Import market) Purchase Purchase * Purchase P B PA* P A* = P B* P A Sale Sale Sale * Q A Q A* Q Q (MWh) B* Q B Q (MWh) Isolated price Market A < isolated Price Market B Market A can export to market B (purchase- and sale curve shift) Prices market A and B converge till price market A = price market B
Current Situation REGIONAL IMPLICIT AUCTIONS CWE Nordic ITVC Price coupling, operated by APX- ENDEX, Belpex and EPEX Price coupling, operated by Nord Pool Spot ( market splitting ) Note: Poland market operated by PolPX Volume coupling on cables between all CWE and Nordic, operated by EMCC 7
Hourly price convergence Single CWE price area 57% of hours since start 81% 82% NL 0% 82% Pre CWE Post CWE Pre CWE Post CWE BE GE 77% 87% FR 0% 58% Pre CWE Post CWE Pre CWE Post CWE
Extension to GB over BritNed 1 April REGIONAL IMPLICIT AUCTIONS CWE Nordic ITVC Price coupling, operated by APX- ENDEX, Belpex and EPEX GB linked via BritNed Price coupling, operated by Nord Pool Spot ( market splitting ) Note: Poland market operated by POLPX Volume coupling on cables between all CWE and Nordic, operated by EMCC 9
Interim Embedded Solution A price coupling solution which links GB to CWE and Nordic (via ITVC), but can be delivered without changing the CWE or ITVC systems Involves embedding the GB market as orders within the Dutch day-ahead auction order set, taking into account currency, losses, flow related charges and ATC GB NL BE FR NO DEN DE SW
Market Coupling Process Participants submit orders (1100 UK) Publish prices and matched orders (~1145 UK) Adjust GB orders for losses, ATC, currency, BSUoS Add GB orders to NL; submit to EMCC Add NorNed orders to NL; submit to CWE Determine GB and NL matched orders and GB price EMCC: Calculate Nordic CWE flows in ITVC CWE: Calculate prices and flows in CWE
Benefits of UK-NL integration Links APX s UK day ahead auction market into wider CWE/Nordic liquidity: through the Netherlands also to Belgium, France, Germany, Nordic The CWE/Nordic effectively acts as a market maker to the UK day ahead market, providing increase competition/diversity in UK No currency exposure or exposure to interconnector outages UK market participants benefit from efficient use of cross-border capacity Price differences between national spot markets are minimised 4% %: Current spot market liquidities 10% 30% 10% 70% 30%
NL-GB Price Differential (Dayahead Baseload) Price differentials indicate value of the cable if arbitraging baseload prices Occasional periods of significant differences, but more recently difference is small and often below that required to recover flow related costs 160 140 120 100 80 60 40 20 0 Jan 2008 Sep 2010-20 Difference LEBA GB (Eur) APX NL
NL-GB Price Differential (Hourly) Significant value from optimisation of hourly price difference Example 19 May 2010, baseload price difference 0,39/MWh 80 70 60 50 Euro/MWh 40 30 20 10 0-10 1 3 5 7 9 11 13 15 17 19 21 23-20 GB minus NL UK Power Power NL
BritNed: A Very Special Case! NL is already part of CWE and ITVC coupling arrangements BritNed is not a typical TSO Interconnectors to GB are licenced separately by Ofgem: outside scope of national TSO licence/asset base Merchant interconnector exemption regarding use of profits, but still required to comply with Congestion Management Guidelines (and 3 rd Package from 2011) DC interconnector Transmission losses Technical ramping constraints No n-1 contingency GB rules for interconnectors are unusual: treated as a normal load or generator on the GB system Pay costs of GB balancing (BSUoS) looks like a flow-based tariff Pay GB system losses (but covered by ITC elsewhere in Europe!) Two PXs in GB GB market trades in, NL in
GB Regional Integration The FUI Regulatory Forum Stakeholder Group in 2009 called for price coupling of GB to CWE over IFA & BritNed by Jan 2011 Last year APX proposed a CWE extension solution to meet this goal CWE Coupling algorithm (COSMOS) already can handle BritNed & IFA coupling Proposed approach minimised impact on existing CWE procedures and governance However, lack of agreement among CWE parties on CWE extension (higher priority given to ITVC coupling to Nordic) Consequently APX and BritNed are proceeding with an alternative interim embedded solution: No impact on CWE systems and processes Compatible with ITVC Full integration of GB into CWE now the goal of TSOs NWE project (2012)
Implications for Trading Parties GB and NL traders bid into their local market GB and CWE auction times harmonised at 12:00 CET Pooling of GB and CWE/ITVC liquidity Trades automatically match across borders, if capacity available No need to purchase cross border capacity or be an interconnector party Implicit auction process is independent of any explicit forward capacity rights purchased
Thank you for your attention Making Markets Work Powering Europe s Future 18 Title of presentation - via page footer 2-2-2011