ENTSOG & ENTSO-E information Session on the

Completion of the IEM

Konstantin Staschus (Secretary General, ENTSO-E) and

Vittorio Musazzi (General Manager, ENTSOG)

Moderator: Geoffrey Feasey 13 October 2014

Agenda

3

• Heterogeneous business (competition issues, supply dominance etc.)

• High level of market protection (entrance barriers)

• Substantial capacity congestion, in particular cross-border

• Different legislative environments

• Limited trading volumes

• Substantial price spreads between countries

• Lack of transparency

European Gas and Electricity Markets Few Years Ago

is to break down national barriers to gas and power trade, improving security of supply and forcing traditional incumbent national monopolies to face cross-border competition, thus improving choice and services for consumers. The ultimate goal is to have harmonized EU rules governing electricity and gas markets, creating a level playing field and allowing energy flows to be determined by supply and demand rather than local rules. Such “harmonized rules” are better known as Network Codes, that are currently drafted by ENTSOG and ENTSO-E based on framework guidelines coming from ACER. All of these organisations were established in 2009.

The Third Energy Package...

4

Production

Transmission

Distribution

Sales

Wholesale

potentially competitive functions

Functions constituting natural monopolies

The Transmission System Operators (TSOs) are - after unbundling - independent from production and distribution.

Why ENTSOs?

• IEM for gas and electricity requires harmonised rules and regulations also

requires more infrastructure:

• Some ENTSO-task related to that: Network Codes, Ten Year Network Development

Plans, Project of Common Interests (PCIs)...

• Transmission System Operators (TSOs) need to work together and the

cooperation is institutionalised in the form of the ENTSOs

• The ENTSOs act as competent interfaces on expert-level between European

energy policy and the more practical tasks. The highly qualified expertise from

the TSOs is best suited to ensure this interaction.

• 41 TSOs from 34 countries

• A trans-European network

• 532 million citizens served

• 1,004,062 MW net generation

capacity

• 307,503 Km of transmission lines

• 3,307 TWh/year consumption

• 387,251 GWh of electricity

exchanges between member TSOs

• Legal mandate Reg. (EC)714/2009

Introducing ENTSO-E European Network for Transmission System Operators for Electricity

7

• 44 Members – (3 Associated

Partners + 4 Observers)

• 26 Countries represented

• Total Natural Gas demand in

Europe: 460 bcm

• Gas Share of EU energy mix: 23 %

• High pressure pipeline network:

250,000 km

• Total power installed in all

compressor stations: 14,000 MW

• Direct employed staff: 51,000

• Legal mandate Reg. (EC)715/2009

Introducing ENTSOG European Network for Transmission System Operators for Gas

ENTSOG & ENTSO-E Information Session on the Completion of the IEM

Completing the European Gas Market

Vittorio Musazzi

ENTSOG – General Manager

13 October 2014

2

European Gas Transmission Network 2014

3

Gas and power markets have different characteristics:

• Gas: 90% of gas flows across international borders and connected markets • Power: mainly national markets with market coupling/price convergence • Transmission costs for gas is 10-20 times lower than for electricity

Dimensions of EU gas and electricity

Source: TYNDP ENTSO-E/ENTSOG

4

• Pan-European Network Codes cross-border/market integration issues

• Pan-European Ten-Year Network Development Plan (‘TYNDP’)

• Regular gas supply/demand outlooks on the European market

• Develop common operational tools (CNOTs): network security and reliability

• Providing information/data (Transparency Platform, maps)

ENTSOGs Tasks

Network Code development: 12 months

Preparatory work Project

planning

Prepare launch

document

Interactive draft code

development

Prepare final code

ACER review

Comitology Consultation

5

Network Codes 2016

Implementation 01.11.2015

Delayed

Implementation

2014 2015 2017

01.10.2015 01.10.2016

Endorsement

Q1/Q2 2016

Development Endorsement Implementation

01.10.2017 (tentative)

Development Endorsement Implementation

01.10.2017 (tentative)

CAM

Balancing

Inter-operability

Tariffs

Incremental

Capacity

CMP Transparency

Implementation

Implementation

Implementation of most CMP-rules : October 2013

Implementation Firm day-ahead Use-It-or-Loose-It

01.07.2016

End.

6

Start 30/11/13

Finish 31/12/14

January March May September November January

PHASE 1:

project plan &

launch

documentation

development 30/11/13 - 31/01/14

PHASE 2:

NC development 01/02/14 - 31/07/14

PHASE 3:

NC decision-making 01/08/14 - 31/12/14

draft PP

consultation 19/12/13 - 20/01/14

publish initial draft NC

for consultation 30/05/14

initial draft NC

consultation 30/05/14 - 30/07/14

refined draft NC to SSP 07/11/14 - 21/11/14

Deadline for ENTSOG

to submit NC and

accompanying document

to ACER 31/12/14

formal starting

date of NC process 01/01/14

kick-off WS 15/01/14

LD

Publication 22/01/14

PP

Publication 31/01/14

SJWS 1 11/02/14

SJWS 2 27/02/14

SJWS 3 14/03/14

SJWS 4 26/03/14

SJWS 5 09/04/14

consultation

workshop 25/06/14

refinement WS 24/09/14

NC supported by

stakeholders 21/11/14

NC supported by

ENTSOG 17/12/14

Tariff Network Code - Timeline

7

Tariff Network Code – Some of the Issues

Ex-post discount for interruptible

capacity

Providing improved price certainty before

the annual auction

Tariff Setting Year

Fixed versus floating price

Multipliers: ranges and safeguard

Cost allocation methodologies

8

Next Steps

7 November – launch Stakeholder Support process

31 December – deadline for ENTSOG to submit TAR NC to ACER

3 months – time for ACER to provide reasoned opinion to ENTSOG

Next steps depend on ACER review

TAR NC – implemented 24 months as from its entry into force

BAL – Implementation Status

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France Daily Monthly Quarterly Yearly

Netherlands Daily Monthly Quarterly Yearly

Belgium Daily Monthly Quarterly

Hungary & Romania

TBC

Italy Daily Monthly Interruptible

capacities

Denmark Daily Monthly Quarterly Yearly

Germany Daily Monthly Quarterly Yearly Austria

Daily Monthly Quarterly Yearly

VIP IBERICO Daily

Monthly Quarterly Yearly Interruptible

capacities

Poland • TBC

Czech Rep.

• TBC

VIP PIRINEOS Daily

Monthly Quarterly Yearly Interruptible

capacities

UK

• TBC

Ireland

• TBC

PRISMA

GSA

RBP

South CAM Roadmap (via PRISMA)

CAM Implementation Status

10

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What will Network Codes achieve? (1)

Goal Measure NC relation

More transparency

- Rules on information provision - Transparency Platform - Publication requirements

CMP, BAL CMP TAR

Reduce access barriers, improve competition

- Standardised network access via auctions - Reduction of contractual congestions - Reduction of physical congestions

CAM CMP INC

Reduce technical barriers

- Harmonised rules for TSO-TSO cooperation - Communication procedures, data exchange tools - Common set of units for communication - Handling of gas quality differences

INT

12

What will Network Codes achieve? (2)

Goal Measure NC relation

Improve short term liquidity

- Products for balancing energy

BAL

Connect markets

-Easier market merger through harmonised balancing regimes

-Hub-to-hub connection through bundled products -Incremental capacity procedures to cover market driven demand

BAL CAM INC

Harmonise legislation across EU

-Harmonised rules on congestion management and capacity allocation, transparency, balancing, interoperability and data exchange and tariff setting EASIER TO TRADE AND SUPPLY GAS IN EUROPE

ALL NC

13

European Gas Price Convergence

Progressing towards the new gas framework

transparency

congestion management and capacity allocation

balancing

interoperability

data exchange and settlement

tariffs

rules for trading

network connection

third-party access

operational procedures in an emergency

network security and reliability

energy efficiency

Priority setting Framework guideline Network code Comitology Implementation

... Need for new network codes ?

15

• The Gas Market structure is built into the 3rd Energy Package :

• the Entry-exit Model and the Network Codes on Congestion Management, Capacity Allocation, Balancing, Interoperability, Tariff Harmonization, Incremental Capacity etc.

• ACER’s present Gas Target Model contains indicative criteria for the functionality of market zones

• ACER has proposed a revision of the criteria => ENTSOG supports the aim to improve the criteria, but not the detailed and complicated way ACER has proposed

• ACER also propose to introduce consequences of non-fulfillment => ENTSOG supports to maintain the Gas Target Model as indicative criteria only.

Gas Target Model

Gas Market structure is a part of 3rd Energy Package => No need for an extra layer of regulation

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• Completion of IEM is well regulated by the 3rd Energy Package => High Priority to continued development and implementation of network codes

• New regulation should await assessment of the results of the existing regulation, including the network codes

• Energy infrastructure has long lead times depreciation periods => Need for clear long-term investment signals

• Investments to be considered from a systems perspective => Calls for overarching EU view on gas and power investments

• RES needs backup and flexibility => gas infrastructure (existing and new) is well positioned to supplement RES

Views from Gas Infrastructure Perspective

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The new Transparency Platform…

> launched 1st Oct 2014

> new tools and features

> new design and upgraded user friendliness

Transparency Platform 2.0

Highlights:

Improved data quality

Improved display of information

Graphical displays

Timestamps

Easy access to CMP data

Standard format of data

Link to ENTSOGs new

Transparency Platform :

https://transparency.entsog.eu/

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Contacts within ENTSOG

Vittorio Musazzi, General Manager, 02 894 5100

Jan Ingwersen, Market Area 02 894 5115

Olivier Lebois, System Development 02 894 5105

Panagiotis Panousos, System Operation 02 894 5106

Licia Aversano, Legal Adviser 02 894 5141

Armin Teichert, Communications Adviser 02 894 5140

Click for e-mail and further contact details

Thank You for Your Attention

ENTSOG -- European Network of Transmission System Operators for Gas Avenue de Cortenbergh 100, B-1000 Brussels

EML: WWW: www.entsog.eu

Vittorio Musazzi General Manager

info@entsog.eu

1

9

Completing the European Electricity Market13 October 2014

Zoltan Gyulay

Market Manager, ENTSO-E

Agenda

Introduction

Electricity Market target model

Target model achieved via Network Codes ...

… and their early implementation: Long Term and Day ahead market

Early implementation: Intraday and balancing market

Transparency

Challenges on the way to market integration – here: Denmark

Infrastructure

Outlook

16 October 2014

Introduction

After unbundling:• TSOs independent from

generation and distribution

TSOs responsible for: • maintaining security of the

system; • energy adequacy, considering

congestions

TSOs are the central and neutral party to evaluate developments and assess costs and benefits of changes to the electricity markets.

TSOs are the central and neutral party to evaluate developments and assess costs and benefits of changes to the electricity markets.

16 October 2014

• cannot be stored• flows via path of least

resistance • has a secondary nature

(no use in itself) • demand is inelastic• natural monopolies exist

Electricity

Well functioning electricity markets require:

16 October 2014

Liquid, efficient and complete marketplaces

Demand and supply responsiveness to

price

Equal access to essential facilities

(transmission / distribution network)

Transparency & equal access to market

information

Treatment of subsidies and environmental

controls so that they do not interfere with the

workings of the market

But: the market will not solve the energy mix or security of supply!

Electricity market design

Forward Market

Explicit auctions

Implicit auctions

Monthly auction

Yearly auction Physical fulfilment

IntradayImplicit Continuos Trading, Implicit Auction or “First-

come-first-served”

Coordination of interconnector

capacities(flow based or

ATC)

Day-AheadImplicit Allocation(Market Coupling)

Spot Market

16 October 2014

The electricity target model

3 ConnectionNetwork Codes 3 Market

Network Codes 4 OperationalNetwork Codes

set requirements for- Generators- Demand-side- HVDC connections

set market rules for- Day ahead/intraday & Capacity calculation- Long-term timeframes- System balancing

set common rules for- Assessing adequacy- Planning outages- System security- Emergency situations

Internal electricity market

… day-ahead market coupling…

…paving the way for offshore wind…

…regional security coordination initiatives…

Target model achieved via Network Codes ...

6 16 October 2014

SWE

… and their early implementation: Long Term and Day ahead market

SEM2016

SEE

2016

4M 2014

CEE2015

Day-ahead marketLong Term market

CASC & CAO

16 October 2014

Early implementation: Intraday and balancing market

1

2 33

4

4

5

6

78

99

4 4

8

8

9

5

5 5

55

Balancing marketIntraday Market

16 October 2014

Challenges on the way to market integration – here: Denmark

January 2014

62%

Flexibility in the electricity systemhourly dispatch 13 – 19 January 2014

Development of Wind Power and PVMW CapacityDemand

Share of Wind Power

16 October 2014

Infrastructure

Unprecedented size and pace of investment

Thus…“financeability” is at risk.

Therefore, regulatory frameworks should ensure the “financeability” of required investments and TSOs…

Otherwise, European energy policy goals are jeopardized.

Policy advice:• EU legislative framework should stimulate investment thereby fostering timely delivery of

European Energy policy goals • Stable and sufficiently investor friendly regulatory frameworks are needed to provide

access to capital to finance the expansion of the grids

Investments are a prerequisite to meet EU policy goals, however…

16 October 2014

Transparency Platform to go live 5 January 2015

Need for transparency in electricity markets

Central Information Transparency Platform provides data on:• Load• Generation• Transmission• Outage• Balancing

Commission Regulation

(EU) No 543/2013:

Publications become

compulsory

16 October 2014

Conclusions

A lot has already been achieved! But further work is needed to complete and complement the IEM

• Network Codes need to be adapted• Early implementation projects need to be supported• Consistency between national and EU legislation needed

TSOs are the central and neutral party to evaluate developments and assess costs and benefits of changes to the electricity markets

• … and thus to prepare the IEM for future challenges.

16 October 2014

Don’t hesitate contacting us for further information

Zoltan Gyulay, Market Manager (zgy@entsoe.eu) Robert Schroeder, System Development Manager (rsc@entsoe.eu)

Alexander Dusolt, Market Advisor (adu@entsoe.eu)Michael Mieszczanski, EU Affairs Advisor (mmi@entsoe.eu)