BSEC, Bucharest, 3-5 April, 2006Bucharest, 3-5 April, 2006

Towards a pan-European Energy Market:Towards a pan-European Energy Market:

Challenges for the SEE &Black Sea RegionsChallenges for the SEE &Black Sea Regions

Dr. Michael Thomadakis Dr. Michael Thomadakis

Greek Regulatory Authority for EnergyGreek Regulatory Authority for Energy

2

Recent developments in the EU (1)…Recent developments in the EU (1)… Second legislative packageSecond legislative package::

Directives 54/2003/EC & 55/2003/ECDirectives 54/2003/EC & 55/2003/EC Regulation 1228/03 on electricity (and the Regulation 1228/03 on electricity (and the

accompanying “Commitology” Procedure)accompanying “Commitology” Procedure) Regulation 1775/05 on gasRegulation 1775/05 on gas

● DG TREN 2005 ReportDG TREN 2005 Report on the (rather poor) on the (rather poor) progress achieved in the development of the EU progress achieved in the development of the EU Internal Energy MarketInternal Energy Market

● DG COMP Sector InquiryDG COMP Sector Inquiry

3

Recent developments in the EU (2)…Recent developments in the EU (2)… Green PaperGreen Paper::

Focus is given to the acceleration of the IEM ProcessFocus is given to the acceleration of the IEM Process InterconnectorsInterconnectors Energy EfficiencyEnergy Efficiency External Energy Policy (SEE, Black Sea, Caspian External Energy Policy (SEE, Black Sea, Caspian

region, North Africa, Middle East)region, North Africa, Middle East)

● ERGEG Regional Initiatives:ERGEG Regional Initiatives: 7 Regions for Electricity (already launched)7 Regions for Electricity (already launched)

5 Regions for Gas (to be launched very soon)5 Regions for Gas (to be launched very soon)

4

Recent developments in the EU (3)…Recent developments in the EU (3)… What are the main concernsWhat are the main concerns::

Security of supply still remains the main pillarSecurity of supply still remains the main pillar Competitiveness Competitiveness Environment & Consumer’s protectionEnvironment & Consumer’s protection Regional market integration has been recognized as an Regional market integration has been recognized as an

essential instrument for enhancing security of supply essential instrument for enhancing security of supply and achieving the EU-IEMand achieving the EU-IEM

Growing dependence on energy imports (especially Growing dependence on energy imports (especially for gas) is a crucial elementfor gas) is a crucial element

Investments on generation (electricity) but also on Investments on generation (electricity) but also on transmission capacity will play a crucial role. This is transmission capacity will play a crucial role. This is even more important (and much more difficult) for the even more important (and much more difficult) for the neighboring to the EU regionsneighboring to the EU regions

5

EU and its neighbours…EU and its neighbours…

EU 25IEM

Consumption

Energy Community

IEM Rules TPAElectricityElectricity

GasGas

OilOil

Energy Charterand/or

Bilateral Instruments

Investment andTransit Rules

RussiaRussiaCaspianCaspian

Middle EastMiddle EastNorth AfricaNorth Africa

Source: EC

6

UK, Nordic, Irish, Iberian : Lessons learnedUK, Nordic, Irish, Iberian : Lessons learned Market design is a choice between convergence or compatibility. Market design is a choice between convergence or compatibility.

Single Market Design is the best optionSingle Market Design is the best option

Regional market must have certain key features:Regional market must have certain key features:

Clear and unified arrangements for interactions in transmissionClear and unified arrangements for interactions in transmission

Transmission issues must be addressed to achieve competitive Transmission issues must be addressed to achieve competitive wholesale arrangementswholesale arrangements

• Governance of reform and the involvement of central actors is Governance of reform and the involvement of central actors is vital:vital:

Strong government supportStrong government support

Strong cooperation between regulators and TSO/MOStrong cooperation between regulators and TSO/MO

• Time consuming process, even for advanced market placesTime consuming process, even for advanced market places

7

The Energy Community (of SEE) Process…The Energy Community (of SEE) Process…

Following the two Athens MoU (2002 and 2003), a Following the two Athens MoU (2002 and 2003), a legally binding Treaty for the establishment of the legally binding Treaty for the establishment of the Energy Community in South East Europe has been Energy Community in South East Europe has been signed (October 2005) between EU and the SEE signed (October 2005) between EU and the SEE countriescountries

The Treaty, still to be ratified, will come into force The Treaty, still to be ratified, will come into force (hopefully) by the end of 2006(hopefully) by the end of 2006

The Treaty signals a The Treaty signals a new energy era:new energy era: Currently for SEE but, probably in the immediate future, Currently for SEE but, probably in the immediate future,

for the broader region: Black Sea, Caspian, (Middle East, for the broader region: Black Sea, Caspian, (Middle East, North Africa?)North Africa?)

8

The main Benefits and Objectives of the ECSEEThe main Benefits and Objectives of the ECSEE

Optimize energy market and infrastructure developments over the Optimize energy market and infrastructure developments over the broader scale of an integrated market (rather than at the level of each broader scale of an integrated market (rather than at the level of each country)country)

Attract Investment in Power generation and Transmission by Attract Investment in Power generation and Transmission by providing a stable regulatory and market environment in a broader providing a stable regulatory and market environment in a broader single energy market. Facilitate foreign capital inflow also for the single energy market. Facilitate foreign capital inflow also for the privatization process.privatization process.

Comply with the vision of future integration into the European Union Comply with the vision of future integration into the European Union and as a first step develop an integrated regional energy market ready and as a first step develop an integrated regional energy market ready to join the Internal Energy Market of the EUto join the Internal Energy Market of the EU

Enhance Security of Supply, deliver energy service with improved Enhance Security of Supply, deliver energy service with improved quality and reliability, preserve economic competitiveness and quality and reliability, preserve economic competitiveness and affordability for consumers, comply with environmental strategy of affordability for consumers, comply with environmental strategy of the EUthe EU

Establish an infrastructure and market-based link between Western Establish an infrastructure and market-based link between Western Consumers and Eastern Resources and set up of a SEE Energy HubConsumers and Eastern Resources and set up of a SEE Energy Hub

9

The EC(SEE) Treaty (1)The EC(SEE) Treaty (1) Main provisions:Main provisions:

Expansion of the aquis communnautaire on energy, Expansion of the aquis communnautaire on energy, environment and competition to the SEE regionenvironment and competition to the SEE region

Provision for measures which may go beyond the aquis Provision for measures which may go beyond the aquis communnautaire:communnautaire:

Single mechanism for the cross-border transmission of Single mechanism for the cross-border transmission of electricity and gaselectricity and gas

Security of SupplySecurity of Supply Provision of energy to citizensProvision of energy to citizens Harmonization and compatibility of market designs, Harmonization and compatibility of market designs,

mutual recognition of licensesmutual recognition of licenses RenewablesRenewables

10

The EC(SEE) Treaty (2)The EC(SEE) Treaty (2) Main provisions (cont.):Main provisions (cont.):

Creation of a Single energy market:Creation of a Single energy market: Removal of customs and duties on energy Removal of customs and duties on energy

between EU and SEEbetween EU and SEE Regulation of exports and imports from/to Regulation of exports and imports from/to

third countriesthird countries Mutual assistance in the case of disruptionMutual assistance in the case of disruption

11

The EC(SEE) Treaty (3)The EC(SEE) Treaty (3) Institutional building:Institutional building:

Ministerial Council:Ministerial Council: Policy guidelines, Measures delegation of specific Policy guidelines, Measures delegation of specific

tasks to the PHLG, ECRB and Secretariattasks to the PHLG, ECRB and Secretariat

Permanent High Level Group (PHLG):Permanent High Level Group (PHLG): Support the work of Ministerial CouncilSupport the work of Ministerial Council Take Measures when empowered by the MCTake Measures when empowered by the MC Take Procedural ActsTake Procedural Acts

12

The EC(SEE) Treaty (4)The EC(SEE) Treaty (4) Institutional building (cont.):Institutional building (cont.):

Regulatory Board (ECRB):Regulatory Board (ECRB): Advise the MC and the PHLG on the details of statutory, technical Advise the MC and the PHLG on the details of statutory, technical

and regulatory rules;and regulatory rules; Take Measures, if so empowered by the MC;Take Measures, if so empowered by the MC; Issue recommendations on cross-border disputes;Issue recommendations on cross-border disputes; Take Procedural ActsTake Procedural Acts

SecretariatSecretariat Overall administrative support, monitoring Overall administrative support, monitoring

implementation and report;implementation and report; Coordinate Donors’ activities with the ECCoordinate Donors’ activities with the EC

Fora (one for electricity -Athens, one for Gas)Fora (one for electricity -Athens, one for Gas)

13

Pan-European IEM: Initial Steps (1)…Pan-European IEM: Initial Steps (1)… Electricity:Electricity:

A cross-border trading mechanism has been established among the 27 A cross-border trading mechanism has been established among the 27 European countries in the WestEuropean countries in the West

A similar mechanism has also been established in the SEE region. A A similar mechanism has also been established in the SEE region. A coordinated effort is currently underway for the merger of the two coordinated effort is currently underway for the merger of the two mechanisms: a small but important barrier to trade will have been mechanisms: a small but important barrier to trade will have been removed from almost 35 European bordersremoved from almost 35 European borders

UCTE is performing a study for the synchronization of the electricity UCTE is performing a study for the synchronization of the electricity networks in Ukraine, Russia and Turkey to the western European onesnetworks in Ukraine, Russia and Turkey to the western European ones

Coordinated cross-border capacity allocation mechanisms are already Coordinated cross-border capacity allocation mechanisms are already either investigated or implemented in almost all European regions either investigated or implemented in almost all European regions (including SEE)(including SEE)

Coordinated electricity market arrangements are also under serious Coordinated electricity market arrangements are also under serious elaborationelaboration

Considerations on region-wide Generation and Transmission Capacity Considerations on region-wide Generation and Transmission Capacity Support Mechanisms are becoming more matureSupport Mechanisms are becoming more mature

14

Pan-European IEM: Initial Steps (2)…Pan-European IEM: Initial Steps (2)…EU Diversity of Supply Management?

(could this be a 2025 aspiration?)

10%10%

Russia

Caspian/Middle East

EU

Nth. African

LNG

Norway/Netherlands

10% = 83 bcma

4th Supply Corridor from 0 to 83 bcmarequires 4 - 20 bcmalines, capex ~ $15bn

10%

Existing infrastructure 4th Corridor requirement LNG requirement

LNG from 33to 83 bcma

27.5%

Blue Stream 16 bcma

Russia West 1&2 15 bcma

Ukraine 5 linesTotal 140 bcma

EuroPol 20 bcma

CAC 80 bcma- 5 lines

Norway lines 93 bcmaplus50 BcmaNetherlands supply

15%

2 lines total 31 bcmaexpansion +10 bcma

27.5%

EU Diversity of Supply Management?(could this be a 2020 aspiration?)

10-20%

10%

Russia

Caspian/Middle East

EU

Nth. African

LNG

Norway/Netherlands

4th Supply Corridor from 80 to 100 bcmarequires about 4 - 20 bcmalines (incl. LNG),

10-15%

Existing infrastructure 4th Corridor requirement LNG requirement

LNGto 100-150 bcma

27.5%

Blue Stream 16 bcma

Russia West 1&2 15 bcma

Ukraine 5 linesTotal 140 bcma

EuroPol 20 bcma

CAC 80 bcma- 5 lines

Norway lines 93 bcmaplus50 BcmaNetherlands supply

10-15%

2 lines total 31 bcmaexpansion +10 bcma

27.5%

Gas:

Source: EC

15

Pan- European IEM: What is next?Pan- European IEM: What is next? Bold steps will be required:Bold steps will be required:

Strong political support and collaborationStrong political support and collaboration Stronger co-ordination of national InstitutionsStronger co-ordination of national Institutions::

TSOs TSOs (grid access, capacity allocation, real time (grid access, capacity allocation, real time operation of the grids) operation of the grids)

RegulatorsRegulators (market rules, market monitoring, dispute (market rules, market monitoring, dispute settlement)settlement)

Convergence of national market designs and Convergence of national market designs and market rules,market rules,

Sufficient transmission capacity available to Sufficient transmission capacity available to market participantsmarket participants

Is there going to be a Is there going to be a new energy deal?new energy deal?

16

Thank you…Thank you…

RAERAE69 Panepistimiou & Eolou69 Panepistimiou & Eolou

105 64 105 64 Athens, GreeceAthens, GreeceTelTel: : +30+30 2210 372740010 3727400

FaxFax: : +30+30 2210 325546010 3255460ee--mailmail : : info@rae.gr

www.rae.gr

Dr. Michael ThomadakisDr. Michael ThomadakisVice ChairmanVice Chairmanthom@rae.gr

Tel: +30 210 3727465 (direct)Tel: +30 210 3727465 (direct)