Title: APEX CONFERENCE 2004
1 APEX CONFERENCE 2004 October 11th - 12th 2004.
Leipzig
Session 1. Market Evolution. Main issues in
Europe. Main issues in the Spanish market and
cooperation with neighbouring market operators.
Mª Luisa Huidobro President CEO of OMEL
2CONTENT
- Recent evolution of the Spanish energy market.
- Spanish price convergence with other European
organized markets. - Main factors influencing market prices.
- Explicit auctions, market splitting and market
coupling. - Improving the market structure and security of
supply in electric systems. - The Iberian Market.
3- RECENT EVOLUTION OF THE SPANISH ENERGY MARKET.
4MAIN FIGURES OF THE SPANISH MARKET
- Daily market started operations on January 1998.
Intraday market started operations in April 1998. - Settlements of all markets and processes started
on January 1998. - Economic volume traded in 2003 8,185 million
euros. - Energy traded 228,571 GWh.
- Installed generation in the market 56,333 MW.
- 5,769,532 transactions where done last year.
- 92 companies act as purchasing agents on the
market, 12 of them are external agents and 78 are
independent resellers. - 86 companies act as producers, 12 of them are
external agents. - Domestic technical constraints are very reduced,
around 2,2 of the daily energy. - The market price is a reference for many
commercial transactions.
5MARKET AGENTS
6INVESTMENT PROCESS
PLANNING EVOLUTION
Planning 2002-2011
Currently
In Market ()
(MW)
(MW)
CCGT
14.800
7.289
49,25
100
COGENERATION
7.100
5.781
81,42
29
WIND ENERGY
13.000
6.400
49,23
3
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844,04
9SPANISH DAILY MARKET RESULTS
10FINAL PRICE
11ENERGY BY PRODUCTION TECHNOLOGY
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15- SPANISH PRICE CONVERGENCE WITH OTHER EUROPEAN
ORGANIZED MARKETS.
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17COMMERCIAL CAPACITY
Source REE July 2004
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21IMPORTS FROM PORTUGAL
22EXPORTS TO PORTUGAL
23IMPORTS FROM FRANCE
24EXPORTS TO FRANCE
25COMMERCIAL CAPACITY AND ENERGY TRADED
26COMMERCIAL CAPACITY AND ENERGY TRADED
27COMMERCIAL CAPACITY AND ENERGY TRADED
28COMMERCIAL CAPACITY AND ENERGY TRADED
29CAPACITY GENERATION RESERVE AND MARKET PRICES
- In the Spanish Market it exists a high inverse
correlation between market price evolution any
generation capacity reserve evolution. - Organised market prices strongly depends on the
relative scarcity of the commodity. - Demand for electricity also influences market
prices. - Fuel prices have had a lower influence on
electricity prices. - Looking at the evolution of the organised Market
European prices, it seems that the capacity
generation reserve has a greater influence on
price levels and on price volatility than fuel
prices.
30RECENT EVOLUTION OF THE ELECTRICITY PRICES IN
SPAIN
- Debate about the recent level and evolution of
the Spanish electricity prices in the organized
market. Daily market prices have followed an
stable path despite of the increase of fuels
prices (gas and coal). - Demand for electricity would have been higher if
- Export commercial capacity have not been limited
to 250 MW since April and - Lower prices under the above mentioned
circumstances would not have been different,
because - Capacity generation reserve is high because of
the new combined cycle gas plants. - Spanish prices are in line with the prices of the
European organized markets. If the Spanish prices
would have been higher, import would have
increase and if they have been lower, exports
would have been higher.
31INTERCONNECTION CAPACITY IN 2005 AACORDING TO THE
2003-2011 PLANNING
- INTERCONNECTION FUTURE WINTER COMMERCIAL
CAPACITY (MW) -
- With France 3,000 (Delayed)
- With Portugal 1,200
- With Morocco 900
- Total 5,100
- Source Spanish 2003-2011 Electricity and Gas
network planning
32- MAIN FACTORS INFLUENCING MARKET PRICES.
33MAIN FACTORS INFLUENCING INTERNATIONAL TRADE (I)
- Driven by relative price difference between
organised markets. - Available commercial capacity
- Always occupied in the right direction if the
congestions are solved by implicit auctions or
market coupling/splitting. - Non used when the price difference remains under
other methods to solve congestions. - Level of other generation components of the final
electricity price. - Deviation prices.
- Capacity payments.
- Ancillary services.
- Charges derived from explicit auctions when they
exist. - Barriers from regulation.
- The principle use it or loose it alone is
difficult to be applied in practice. - Characteristics and timing existing in the
procedures to communicate transactions to the
TSOs. - Level of charges derived from the tariffs for the
use of the distribution and transport networks.
34MARKET POWER AND CONGESTIONS.
- Market power can be exercised easier when
explicit auctions of the capacity are used. The
value of the non used commercial capacity is
higher than its value when it is totally used
form the point of view of a significant number of
market participants. - Implementing counter trading in the daily market.
A generator with several units can get an extra
payment for creating the congestion and for
solving it. - Not applying or considering final electricity
prices, which include ancillary services up to
meter readings, could facilitate market power
abuse at the side of the congested border where
they are higher. - Implementing a unit commitment optimization
method to solve domestic constraints. - Fixing reference costs caps for generation plants
regarding technical constraints procedure instead
of solving the problem will aggravate it, since
it will only establish a set of minimum prices. - Virtual power plant auctions can maintain the
market power of the owner of the physical
generation plants and distort market prices (the
minimum auction price will be the minimum price).
35STATEMENT INCLUDED IN THE LAST FLORENCE FORUM
CONCLUSIONS
- Director-General Lamoureux, whilst underlining
the progress that proper implementation of the
new package could potentially bring, pointed out
the currently persisting limitations of the
electricity market transposition of the new
directives in Member States is insufficient
market opening in Member States remain at the
moment still rather asymmetrical since the
market opening process started the degree of
concentration in the industry has consistently
increased and there is a clear risk that the
public will assimilate recent price increases in
electricity with this ongoing concentration
process infrastructure development is still not
satisfactory, despite the political objective of
the European Council, agreed in Barcelona in
2002, to have in each Member State an
interconnection capacity of at least 10 of the
generation capacity. In this context, the
Commission envisages to make the integration of
an electricity cable in railway or road tunnels a
condition for co financing of projects
comprising such tunnels under the transeuropean
networks programme for transport. - www.europa.eu.int
36- EXPLICIT AUCTIONS, MARKET SPLITTING AND MARKET
COUPLING
37COMPARISON BETWEEN EXPLICIT AUCTIONS AND A
FINANCIAL MARKET TO HEDGE THE PRICE DIFFERENCE (I)
- If there is a liquid spot energy market in the
countries of origin and destination of an
international physical bilateral contract, the
international physical energy contract is just a
price difference hedging. - If there are no liquid spot energy markets at
either end, since the electricity can not be
stored, and taking into account the structure of
the present electricity business on the EU
states, the liberalization progress will be very
complicated - Explicitly auctioning the rights over an
interconnection is equivalent to a financial
hedge over the price difference between the two
spot markets at both sides of the interconnection
38COMPARISON BETWEEN EXPLICIT AUCTIONS AND A
FINANCIAL MARKET TO HEDGE THE PRICE DIFFERENCE
(II)
- If the prerequisite of the existence of a liquid
spot market at each side of the interconnection
is not in place, assigning to an individual party
the rights to use the interconnection will
aggravate any existing market structure/power
problem that prevented the liquid spot market
price to be formed
39ROLE OF THE REGIONAL MARKETS (I)
- The Document of strategy of the European
Commission presented in the Florence Forum - Emphasizes, in the first place, the role that can
play the following regional markets - Iberian Peninsula, United Kingdom and Ireland,
Northern countries, Italy, Western Europe, East
Europe, Southeast Europe and Baltic Sea, as well
as the importance that these market will be
developed as a necessary step in the integration
process. - Development of the international interchanges.
- Improvement of the interconnections and reduction
of the market concentration. - To facilitate the consumers choice and to obtain
a universal service.
40COOPERATION BETWEEN ORGANIZED MARKETS
- Why a methodology of cooperation between
interconnected organized market ? - Maximum price convergence between all cooperating
markets in case of congestions - The energy flows from the low price area to the
high price area - Maximum use of the bottleneck capacity
- Equal price if there are no congestions
- Enlarge the relevant market and therefore
decreases the market power of the regional
participants - Is the only way to apply the use it or lose it
rule of the physical rights over the
interconnection capacities - Allows market bids and bilateral trades to
compete under the same conditions - Makes clear that, when liquid markets exist,
explicit auctions of the capacity are pure
financial hedging tools.
41- IMPROVING THE MARKET STRUCTURE AND SECURITY OF
SUPPLY IN ELECTRIC SYSTEMS
42FACTORS THAT IMPROVE THE MARKET STRUCTURE FROM
THE DEMAND SIDE
- Demand flexibility and efficient response to
prices by consumers. - The procedures for consumer protection regarding
information and guarantee to the exercise of a
right to change supplier. - A link must be created between wholesale
transactions and retail transactions. It
requires - The existence of prices formed on liquid public
organised markets - The accessibility to all forms of contracting to
all consumers, even to the organized market
(since it avoids the practice of excessive
retails margins in commercialization). - Effective conditions for non-discrimination to
any type of suppliers or retailers in the market
including the access to the international trades. - Total guarantee of access to the transportation
and distribution networks and effective right to
change of supplier for consumers.
43FACTORS THAT IMPROVE THE MARKET STRUCTURE FROM
THE PRODUCTION SIDE
- The elimination of entrance barriers for the
access to the production activity - Administrative or similar authorizations.
- Access to the networks.
- Existence of organized markets liquid and open to
the participation of any producer. - Progressively that the producer faces a flexible
demand. - The competition from the international trade
- Imports prevent excessive prices.
- The possibility of exporting at a competitive
market price stimulates the investment process in
the mid term. - A forward market accessible to any type of
producer can facilitate the entry to the market
of these agents.
44 45TOWARDS THE IBERIAN MARKET (I)
- Memorandum of understanding for the electricity
between Spain and Portugal (July 1998). - Removed of obstacles to electricity trade
- REN become external agent of the Spanish market
- Spanish electricity companies can sell
electricity in Portugal - Coordination between REE and REN as system
operators - In march 1999 a joined document is released
- The Iberian market protocol (November 2001).
- Guarantee of access to the OMI and to the
interconnections in conditions of equality and
freedom of contracting. - The OMI must open its capital to the
participation of Spanish and Portuguese
companies. - Performances of the OMI of strict impartiality.
- Amplification of the interconnections.
- Line Alqueba-Balboa (2004).
- Line Cartelle-Lindoso (2006).
- Reinforcement of the interconnection of the
Douro. - Increase of the transit capacity of the line
Cedillo-Oriol. - Harmonized technical procedures to operate the
system.
46TOWARDS THE IBERIAN MARKET (II)
- Conclusions of the Valencia Summit (April 2002)
- Spot market in Spain.
- Forward market in Portugal.
- Memorandum of Understanding signed in the
Figueira da Foz Summit (November 2003). - Principles for the Iberian Markets.
- International agreements to be subscribed on
January 2004. - Shareholding exchange between OMEL and OMIP of
10 of this respective social capital. - International Agreement on the Iberian Market
(January 2004) revised in October 2004 - First step Spot Market in Spain and Forward in
Portugal (July 2005) - Both markets are integrated in 2007
- Regulation harmonization including tariffs
structure