Wholesale markets (4)

1
Wholesale markets (4)

2
Wholesale markets (5)

• If transmission constraints occur (the quantity
  Q exceeds the transmission capacity of the grid)
  the market is segmented in different geographic
  markets (zonal markets) and prices are
  differentiated by area.
• Buyers pay the Single National Purchasing Price
  (PUN) a weighted average of the zonal prices

3
Wholesale markets (6)

Example average equilibrium prices and
quantities traded in February 2007 (GME, 2007).
4
Benefits from liberalization? Efficiency

5
Benefits from liberalization? Investments in
installed capacity

11.080 MW
2002 - 2006
45 in the Nord
SOURCE TERNA 2007
6
Benefits from liberalization? Market power

available capacity 2006
Production
FONTE Relazione annuale AEEG, 2007
7
Dispatching

8
Dispatching

• Terna Spa public company responsible for
  dispatching
• Terna ownes the transmission grid
• All the undertakings have to enter a contract
  with Terna for the dispatching service
• A specific market is run by Terna to balance the
  system after the MGP market is closed
• Prices in the balancing market are very high

9
Transmission and distribution

10
Transmission and distribution (1)

• These two services are natural monopolies
  transmission is done by Terna distribution is
  done by local distributors
• General principles (Law 481/95 and 290/03)
• price cap regulation
• price discrimination on geographic ground not
  allowed
• Price-cap applied only to opex
• Revaluation of invested capital
• Allowed return on invested capital based on long
  term risk-free rate
• profit sharing set at 50