EEX Stefan Niessen

Price zone linkage between Germany, Austria and Switzerland Brussels, May 27th 2003: 

Price zone linkage between Germany, Austria and Switzerland Brussels, May 27th 2003 Dr. Stefan Nießen Market Surveillance and Market Policy European Energy Exchange Tel.: 0049-341-2156-150 e-mail: stefan.niessen@eex.de

Introduction: 

Introduction Its business model forces an energy exchange to strive for further liberalization For an energy exchange the priorities are the following: 1. Increase the segment of the market with free access to a liberalized market 2. Increase the share of standardized products and organized markets in this segment 3. Increase the share of the individual exchange in these organized markets

Agenda: 

Agenda EEX corporate profile cross-border trading today cross-border trading through exchanges

EEX product portfolio: 

EEX product portfolio

Slide5: 

7 clearing banks (GCM) with high credit worthiness cover counterparty risk Trading participants deposit collaterals with GCM GCM trading participant GCM trading participant trading participant EEX AG acts as central counterparty contractual relation Clearing at EEX AG Clearinghouse

Slide6: 

„Cross border trading“ at EEX today 1 4 59 12 5 1 1 3 3 7 16 3 number of participants in respective country non-German participants contribute about 50% of spot trading volume physical delivery takes place in Germany only Our participants organize cross-border transfer themselves In April 2003 113 participants from 12 countries traded 38.4 TWh

Agenda: 

Agenda EEX corporate profile situation within the markets cross-border trading through exchanges

Slide8: 

Products to be considered Long-term contracts: standardized -> wholesale market (10% - 15% ?) full-service -> no wholesale market (85% - 90% ?) Day-ahead trading: exchange-based or OTC Intra-day trading: continuously or at pre-defined times Balance energy: minute reserve Control power: primary and secondary reserve increasing immediacy of impact on technical operation of transmission system

Slide9: 

Situation in Germany long-term: EEX-Futures Market, OTC-Trading day-ahead: no grid constraint restricting day-ahead trading across Germany no fee for crossing control area boundaries intra-day: ex-post schedule modification within control areas cross control area modifications between EnBW and RWE on 3 specific points in time per day balance energy and control power : procurement by each TSO predominantly from Germany-based power plants cross-border capacity allocation: explicit auctions at the borders to DK, NL, PL/CZ Vattenfall Europe e.on RWE EnBW

Slide10: 

Situation in Switzerland 7 integrated electric utilities own the high-voltage grid have access to cross-border capacity according to their ownership of cross-border transmission capacity have protected domestic markets day-ahead: 0.50 €/MWh cross-border ETSO fee day-ahead / intra-day / balance energy / control power : no formal competitive mechanisms cross-border capacity: factually no grid constraints restricting day-ahead trading across German border

Slide11: 

Situation in Austria VKW and TIWAG control areas are operated jointly with German TSOs => access to German market identical to Germany-based companies APG control area: day-ahead: no grid constraint restricting day-ahead trading across German border 0.50€/MWh ETSO fee for border crossing intra-day: no scheme for intra-day schedule modifications balance energy: no participation in German market control power: no participation in German market for control power D CH SLO I CZ SK H EnBW RWE E.ON EGL NOK CEPS MAVIR ELES GRTN APG TIWAG VKW

Slide12: 

Overview on national trading arrangements by product Germany Austria Switzerland Long-term contracts exchange OTC OTC OTC Day-ahead trading exchange exchange OTC OTC OTC Intra-day trading weak OTC weak OTC weak OTC Balance energy procurement APCS by indiv. TSO  integrated utility control power procurement APCS integrated utility by indiv. TSO  => real trading takes place only in long-term and day-ahead contracts => today only German and Austrian day-ahead prices are comparable based on publicly available price information

Prices for day-ahead products: 

Prices for day-ahead products price differences between Germany and Austria are comparatively small comparison with Swiss price index SWEP is difficult

day-ahead cross-border capacity: 

day-ahead cross-border capacity cross-border capacity Germany<->Austria and Germany<->Switzerland does factually not restrict day-ahead trading today capacity price for day-ahead cross-border capacity Germany<->Austria and Germany<->Switzerland is factually zero

Balance energy: 

Balance energy separate procurement of balance energy for Austria and indivdual German TSOs does not seem to be effective rough estimation of market potential: price differences multiplied with volumes procured by one German TSO currently ca. 100 mio € per month Due to differences in the allocation of power prices and energy prices the charges for balance power between APG and German TSOs is not really comparable, but if it was…

Agenda: 

Agenda EEX corporate profile situation within the markets cross-border trading through exchanges

Slide17: 

Hurdles for cross border trading Hurdles for cross-border market optimization today: Differences in schedule registration mechanisms, timing and format on both sides of the border e.g. 15-minute intervals in Germany, 1-hour intervals across the border Power exchanges use a range of different trading and clearing systems Cross-border “tariff” of 0.50 €/MWh Allocation of grid constraint capacity through explicit auctions - explicit auctions are not synchronized with respect to: timing, formats, regulations - double uncertainty for constraint capacity and market conditions

Slide18: 

Abolishment of hurdles for cross border trading: harmonization Schedule registration with TSOs Harmonization of mechanisms, timing and format for schedule registration Allocation of grid capacity Harmonization of mechanisms for capacity allocation: today e.g. implicit auctions in Scandinavia, explicit auctions in Germany Harmonization of mechanisms for explicit capacity allocation: timing, formats, regulations, admission, tools Power exchanges Harmonization of rules and regulations, admission processes, trading and clearing systems among the different European power exchanges.

Energy Exchanges Foster Competition on Electricity and Gas Markets: 

Energy Exchanges Foster Competition on Electricity and Gas Markets Transparency through publication of market data e.g. anybody who wants to know the electricty price for today or in three years time in Germany can consult EEX’s prices (www.eex.de). Fairness through state supervision Compliance with non-discriminatory and fair market rules is supervised by the state. Security through clear structures EEX brings legal certainty through market rules, financial security through clearing system and technical security through the clear structure of all processes. Market access Independently from a company’s size EEX provides a cost effective and uniform market access. Effort and risks of separate framework contracts with every single potential business partner can thus be avoided.

Slide20: 

Possible Contributions of Energy Exchanges to Further Liberalisation Intraday trading on exchanges In addition to the already successful day ahead trading intra-day trading across borders of control areas or even state border can contribute to increased flexibility thus freeing further capacities. Control power and balance energy trading on exchanges Bundling the procurement of primary-, secondary and minute reserve for several TSOs will increase the liquidity for these products and thus decrease grid charges. Management of grid constraints for TSOs by exchanges Exchanges could take care for capacity allocation and financial settlement of constraint capacity either by operating an explicit auction or through implicit market coupling.

International coupling of exchanges across grid constraints : 

International coupling of exchanges across grid constraints Cooperation among power exchanges utilization of compatible trading and settlement systems contracts for differences (“swaps”) between their spot indices joint multi-hub matching Competition between power exchanges if allocated cross-border capacity power exchanges could open hubs in other countries and offer cross border matching

Slide22: 

List of Wishes more transparency of electricity and gas markets transparency enhances trust in the market and thus liquidity EU directive on market abuse and insider trading does not cover commodity markets in contrary to other commodities (e.g. oil, metals) most market fundamentals for electricity and gas are within EU-jurisdiction equal treatment of physical forward and financial futures contracts if they serve the same purposes EU investment services directive so far only includes financial futures action against the practices of some companies to use minority shareholdings or clauses in full service contracts in order to prevent other companies from participating in the wholesale market

Slide23: 

Thank you for your attention