Industrial Energy Consumers Forum IEF Hungary

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Industrial Energy Consumers Forum (IEF) Hungary

• Electricity Market Liberalization
• in Hungary
• 10 September 2003, Prague

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IEF Industrial Energy Consumers Forum

• IEF a not-for-profit NGO
• Date of establishment March 2000
• Legal form association (of public interest)
• Scope of authority network energy (natural
  gas, heat electricity)
• Target group non-household sector

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Leading Members
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The Approach

• The Market Background
• The Electricity Act No. CX of 2001
• New Market Structure Mechanism

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1-1 Electricity flows (GWh in 2002)
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1-2 Physical Flows (GWh in 2002)
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1-3 Ownership Structure
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1-4 Consumers Expectations

• IEF Accenture market survey conducted in early
  2001
• 51 large electricity and/or natural gas consumer
• Sectors metallurgy, metall processing,
  chemical/pharma industry, food industry,
  transportation, packaging, building material,
  power plants, utilities, etc.
• (charts electricity on the left, NG on the right)

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1-4 Survey (1) Starting date
Consumers would like to see the earliest
possible date, which allows a well-based market
opening up.

• 1 January 2002 for electricity (with no
  reservation)
• the earliest date to achieve price advanteges
  and quality improvement

• 1 January 2002 for natural gas too (but
  following accelerated preparation)
• the earliest date to achieve improved quality
  and eventual price advanteges

• year beginning date, anyway

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1-4 Survey (2) Short-term electricity prices
Majority prognosticates price decrease between
0-15 on short-term.

• in real terms, incl. inflation, price rises for
  primary energy sources, and network fees
• more pessimistic, than the preliminary modelling
  suggested (15-40)

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1-4 Survey (3) Long-term energy prices
Uncertainty regarding the long-term prices.

• primary energy source prices and inflation in
  the background of increased price prognoses
• competitive market forces in the background of
  price decrease prognoses

• world market price trends in the background of
  increased price prognoses
• competitive market forces in the background of
  price decrease prognoses

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1-5 Industrial Electricity Prices (USD/MWh)
Source OECD-IEA, RAO UES
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2-1 Hungarian prelude to liberalization
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2-2 Act No. CX of 2001 on Electricity

• A framework law
• RTPA, ISO, HEO, dual market, balance groups,
  import limits
• Detailed rules in
• Eligible consumers
• Importing rules
• Stranded (transitional) costs
• Commercial Code ISO Code

Govt ministry orders
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2-3 Double Market Structure
Power Plants
Import
Marketable
Binded for Public Purposes
MVM as Public Wholesaler
Traders
Regional Public Electricity Suppliers
Protected/captive consumers
Eligible consumers
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3-1 Traders Their Backgrounds/Clients
Magyar Áramszolgáltató (RWE)
Mátra Power Plant
???
Áramkereskedelmi Kft (E.on Hungária)
Debrecen CCGT imports
MAL Rt, MOL Rt
D-Energia (EdF)
Budapesti Power Plant imports
???
MVM Partner (MVM)
Paks NP, Vértes Plant PPAs imports
GE Lighting
Entrade (ATEL)
Csepel Power Plant imports
BorsodChem
System Consulting
Ukrainian Contracts
MVM
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3-2 Import ATC (Q1-Q2 2003)
150 MW
150 MW
450 MW
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3-3 Domestic Capacities

• Limits to market opening
• Regulated generation prices till 2004
• Gridlocked PPA portfolio
• Import limitation (50) till EU-accession
• Potential import refusal ATC issues
• Fair competition rules and network access,
  without real supply choice ?
• Actually available 300 MW (from which
  competitive 200 MW)

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3-4 (Future) Capacities

• Import ATC auctions (by MAVIR ISO)
• Domestic capacities
• already marketable (partially competitive)
• renegotiated PPAs (hardly)
• MVM auction sales of unnecessary (for public
  purposes) power
• Capacities should catch-up with demand

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3-5 Demand Side

• Eligible consumers
• gt 6,5 GWh/year cca. 300 companies (33)
• gt 100 GWh/year 20 companies (20)
• gt 10 GWh/year 140 companies (10)

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3-6 Contracts

• Power (commodity) contracts
• non-scheduled full supply
• non-scheduled partial supplies
• schedule based
• Balance Group contract
• Network access usage contracts

• Switching 30 days termination notice until 1
  July 2003, then 6 months co-operative former
  suppliers

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3-7 Hungarian Co. considerations (1)
1/ Price Sensitivity 2/ Damage/risk
Sensitivity Maintaining Environmental issues
competitiveness Own plants Equipments
Supply/sales to customers
Price level Quality
3/ Client Service
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3-7 Hungarian Co. considerations (2)
Trading freedom
direct market access OTC, PX
portfolio management structured purchase of
partial quantities partial supply
contract full supply contract
Price uncertainties
Flexibility Risk Management
Dependence Rigid Prices
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3-8 Current Power Contracts (1)

• BorsodChem (700 GWh)
• IPP (40 MW) partial supply contracts with
  Entrade in February
• Hungarian Aluminium (750 GWh)
• two plants two contracts with E.on from March
• GE Lighting (180 GWh)
• full supply for 6 plants with MVM Partner from
  April
• Ózd Metallurgy (300 GWh) imports on its own
• 51 consumers, representing 5,7 TWh (18) on the
  market

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3-8 Current Power Contracts (2)

• Free market prices are 5-15 below the monopol
  prices (HUF 11-12)

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3-8 Summary

• Electricity Market in September 2003
• After the market opening up, but before the real
  competition yet

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