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European Electricity Markets Structure and Trading
Phase I: Retail Competition and Crossborder Mergers
Modelling and Managing Competitive Electricity Markets
30 September – 3 October 2003
John Bower
Europe I 2John Bower
Overview
European electricity market overview
The Directive and retail supply competition
Unresolved regulatory issues
BREAK
Transmission economics
Measuring market integration
Transmission pricing solutions
Case Study
Europe I 3John Bower
European electricity market overviewFour coordinated AC transmission grids linked by DC lines define market boundary….
TRANSMISSION SYSTEMS IN THE EUROPEAN ELECTRICITY MARKET
Source: UCTE
Europe I 4John Bower
European electricity market overview…. owned by 45 separate entities spread across 28 countries coordinated by ETSO
EUROPEAN TRANSMISSION SYSTEM OPERATORS (ETSO) MEMBERS
• TSOI, the association of TSOs in Ireland: Irish Republic (ESB), Northern Ireland, (NIE)
• UKTSOA, the United Kingdom TSO association:England & Wales (NGC), Scottish Power (S. Scotland), N. Scotland, (Scottish Hydro)
• NORDEL, the Nordic TSOs: Norway (Statnett), Sweden (Svenska Kraftnat), Finland (Fingrid), W. Denmark (Eltra), E. Denmark (Elkraft)
• UCTE, the Union for the Co ordination of Transmission of Electricity, association of TSOs of the Continental countries of Western and Central Europe: Belgium (Elia SA/NV), Germany (Bewag AG, Energie Baden Württemberg AG, E.On Netz GmbH, Hamburgische Electrizitäts-Werke AG, RWE Net AG, Vereinigte Energiewerke AG), Spain (Red Eléctrica de España S.A., France (EdF Gestionnaire du Réseau de Transport d´Electricité), Greece (Hellenic Transmission System Operator),Italy (Gestore della Rete di Transmissione Nazionale), Slovenia (Elektro Slovenija), Croatia (Hrvatska Elektroprivreda, FRJ, EP CG, Elektroprivreda Crne Gore, Elektroprivreda Srbije), FYROM (Elektrostopastvo na Makedonija), Bosnia –Herzegovina (Joint Power Coordination Center), Luxembourg (Compagnie Grand Ducale d'Electricité du Luxembourg), Netherlands, TenneT bv), Austria (Tiroler Wasserkraftwerke AG, Verbund - Austrian Power Grid, Vorarlberger Kraftwerke AG), Portugal (Rede Eléctrica Nacional, S.A.), Switzerland (Aare-Tessin Ltd. for Electricity, BKW FMB Energie AG / BKW FMB Energie S.A., Elektrizitäts-Gesellschaft Laufenburg Grid AG/ Electricité de, Laufenbourg Grid AG, S.A., Energie Ouest Suisse, Etrans Ltd., Nordostschweizerische Kraftwerke AG), Czech Republic (CEPS), Hungary (Magyar Villamos Müvek Rt.), Poland (Polskie Sieci Elektroenergetyczne SA), Slovak Republic(Slovenské Elektrárne, a.s., Prenosova sústava)
Europe I 5John Bower
European electricity market overviewMarket serves 460 million people with peak load of 400 GW using 2784TWh per year
EUROPEAN ELECTRICITY MARKET STATISTICS
Country Area Population
Installed Generation
CapacityMaximum
System LoadTotal Net
Generation
Pump Storage
ConsumptionTotal
Consumption Net Importskm2 million MW MW GWh GWh GWh GWh
Austria 83900 8.10 13517 7728 54068 1986 50718 -1364Belgium 30500 10.20 14088 12291 80162 1639 82851 4328Czech Republic 78866 10.30 13746 8744 67741 749 56974 -10018Denmark 43000 5.30 12544 6284 34230 2148 32748 666Finland 338000 5.20 16143 12700 67113 2901 76093 11881France 544000 58.60 108291 66863 503998 6604 427471 -69923Germany 357000 82.00 107769 74300 496588 5789 493953 3154Great Britain 243300 59.00 69866 51000 359637 3497 370312 14172Hungary 93030 10.10 7847 5543 32420 0 35858 3438Croatia 56538 4.70 3601 2430 9829 18 13763 3952Greece 132000 10.50 9401 7699 45208 585 44617 -6Ireland 70300 3.70 4165 21634 449 21283 98Italy 301300 57.60 65513 49019 262426 9177 297706 44457Luxembourg 2600 0.40 0 888 1145 1022 5834 5711Netherlands 41500 15.60 14210 12255 52910 0 71824 18914Norway 324000 4.50 27622 20420 137000 10256 107721 -19023Poland 120728 38.60 30135 21836 144681 2790 135517 -6374Portugal 92400 9.90 9784 6022 37573 560 37949 936Slovakia 48845 5.40 7832 4149 28718 392 25653 -2673Slovenia 20253 2.00 2400 1698 12529 0 11180 -1349Spain 504800 39.70 44921 32430 195372 4908 194905 4441Sweden 450000 8.90 32934 26000 139994 11707 132974 4687Switzerland 50000 8.90 14606 9027 65392 1974 56401 -7017Total 4026860 459.2 630935 439326 2850368 69151 2784305 3088
Europe I 6John Bower
SING
LE EN
ERG
Y M
AR
KET
The Directive and retail supply competitionNew EU Directives give all electric (gas) consumers right to choose supplier by 1 July 07
1985
SINGLEEUROPEAN
ACT
1990 1995 2000 2005
Transp-arency
Directive
TransitDirective
MAIN EU LEGISLATION ON SINGLE MARKET FOR ENERGY
Electricity
Directive
Gas
Directive
30% 33% 100%Electricity Consumption
20%Gas Consumption 28%
Electricity
Directive
II
Gas
Directive
II
100%
Europe I 7John Bower
The Directive and retail supply competition…. with energy market liberalisation also being driven by economic / technical pressures
FORCES FOR CHANGE IN CROSS-BORDER ELECTRICITY TRADE
IN
EUROPEAN ELECTRICITY
MARKET EVOLUTION
DEREGULATI
ONRI O
NALCI OTY
F
NATI
ELECTM
ARKETS
INCREASEDEFFICIENCY ANDREDUCED SCALE
OF POWERPLANT
CREASECD
SIZE OF D
TRANSMISSION
CABLES
INCREASPE
ED
SED AND
REDUCED COST
OF COMPUTING
DER F
EG NAU TI
O S ET
LATI
ON
O MNA
LG
AAR
KS
Europe I 8John Bower
The Directive and retail supply competitionThe Directive guarantees competition in supply with transmission / distribution access.
KEY PROVISIONS OF THE ELECTRICITY DIRECTIVE
• Unbundling of accounts– Prevents subsidisation and distortion of competition in vertically integrated firms
• Competition in construction and operation of new plant– Authorisation procedure allows market to determine investment criteria – Tendering procedure allows central planner to determine when/where to build capacity
• Open access to transmission (and distribution) networks– Independent Transmission System Operator (TSO) must be appointed– Tariffs for connection and carriage must be transparent and non-discriminatory– Reciprocity clause and system reliability issues allows countries to bar access
• Right of consumers to choose their supplier– Increasing number of consumers should be authorised to choose their suppliers
Europe I 9John Bower
The Directive and retail supply competitionAbout 70% of electricity retail market volume is now eligible for supply competition and…
PERCENTAGE OF ELECTRICITY CONSUMPTION ELIGIBLE TO CHOOSE SUPPLIER
Source: European Commission DG Energy and Transport
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
France
Greece
Denmark
Irelan
d
Italy
Portugal
Belgium
SpainLuxe
mbourgNeth
erlan
dsAustr
iaFinlan
dGerm
any
Norway
Sweden
Net
con
sum
ptio
n op
en to
sup
ply
com
petit
ion
2002
2005
Europe I 10John Bower
The Directive and retail supply competition…. about 80% of gas retail market volume.
PERCENTAGE OF GAS CONSUMPTION ELIGIBLE TO CHOOSE SUPPLIER
Source: European Commission DG Energy & Transport
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Portugal
France
Greece
Denmark
Sweden
Belgium
Netherl
ands
Luxembourg
Spain
Irelan
d
Italy
Austria
Finland
German
y
Net
con
sum
ptio
n op
en to
sup
ply
com
petit
ion
2002
2005
Europe I 11John Bower
Unresolved regulatory issuesIn reality State and Federal policy objectives are interdependent and often in conflict
LIBERALISATION CONFLICTS
• Security
– Concern about dependence on other countries for generation capacity– Concern about dependence on other countries for generation fuels– Concern about dependence on other countries for gas / electricity transmission routes
• Competition
– Conflict between capital market and public service obligations– Access rights to transmission/ distribution and pricing of transmission– Increasing industry concentration through mergers and acquisitions
• Environment
– EUETS (CO2) and LCPD (NOx, SOX, particulate) costs versus lower prices– Renewables versus Combined Cycle Gas Turbines (CCGT)– NIMBY delays on approval of transmission routes / generation site licences
Europe I 12John Bower
Unresolved regulatory issuesLiberalisation means wholesale / retail markets replace government control and ….
STRUCTURE OF A LIBERALISED ELECTRICTY MARKET
Generators
Transmission
Consumers
Suppliers
Distribution
RETAIL MARKET
WHOLESALE MARKET
Physical Electricity Flow
Contract Flow
Europe I 13John Bower
Unresolved regulatory issues…. with new entrants and increased efficiency reducing prices….
IMPACT OF LIBERALISATION IN ENGLAND & WALES 1990 - 2003
Oligopoly
RPI-X RPI-X
Generators
Transmission
Consumers0% / -17%
Suppliers
Distribution
RETAIL MARKET
-14%
WHOLESALE MARKET
Physical Electricity Flow
Competitive
MonopolyMonopoly
Contract Flow
Europe I 14John Bower
Unresolved regulatory issues…. but this outcome is not guaranteed and prices may rise instead.
ENGLAND & WALES ANNUAL ELECTRICITY PRICE HISTORY 1990 - 2003
Source: EIA
0.005.00
10.0015.0020.0025.0030.0035.0040.0045.0050.0055.0060.0065.0070.0075.0080.0085.0090.0095.00
1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03
Pric
e (£
/MW
h)
Retail Price (Household) Retail Price (L. Industry) Wholesale Price
Coal Marginal Cost CCGT Marginal Cost
Europe I 15John Bower
Unresolved regulatory issuesNational regulation is still required to create and maintain a competitive industry…
SHARE OF COAL GENERATION CAPACITY IN ENGLAND & WALES
Source: EIA
0%
20%
40%
60%
80%
100%
Apr-90
Oct-90
Apr-91
Oct-91
Apr-92
Oct-92
Apr-93
Oct-93
Apr-94
Oct-94
Apr-95
Oct-95
Apr-96
Oct-96
Apr-97
Oct-97
Apr-98
Oct-98
Apr-99
Oct-99
Apr-00
Oct-00
Apr-01
Oct-01
Shar
e of
Coa
l Gen
erat
ion
Cap
acity
NationalPowerBEGL
InternationalPowerInnogy
AES
TXU/Eastern
EdF
AEP
Edison
PowerGen
ScottishPowerALCAN
Europe I 16John Bower
Unresolved regulatory issues…. but many countries still pursue the ‘national champion’ objective….
EU GENERATION CAPACITY CONCENTRATION RATIO (3 FIRM) 2001
SOURCE: European Commission, Company Accounts, OIES estimates
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Gre
ece
Fran
ce
Irela
nd
Bel
gium
Port
ugal
Italy
Spai
n
Swed
en
Den
mar
k
Finl
and
Aus
tria
Net
herla
nds
Ger
man
y
Nor
way UK
Shar
e of
Tot
al N
et S
uppl
y (%
)
Europe I 17John Bower
Unresolved regulatory issues… and vertical integration between concentrated generation sector and monopoly ‘wires’
Control Areas of the German Transmission System Operators as at 1 Jan 2000
Control Areas of the German Transmission System Operators as at 1 Jan 2001
Source: Source: DVG (Deutsche Verbundbesellschaft) http://www.dvg-heidelberg.de/extern/DVG/res.nsf/files/Regelzonen2001-GB.pdf/$file/Regelzonen2001-GB.pdf
Europe I 18John Bower
Unresolved regulatory issuesCross-border mergers may now be preventing access to transmission / distribution ….
EUROPEAN INVESTMENTS OF EDF (APR 2002)
5
6,18
9
1 7,8,15
10, 11, 13
2, 143, 16, 17
4
12
1. Estag 25% 15. Bert 89%
2. Elcogas 29.1% 16. Italenergia 18%
3. ISE 30% 17. Montedison 97%
4. Pego 10% 18. ATEL 13%
5. Graningue 36%
6. Motor Colombus 20%
7. Edasz 29%
8. Demasz 50.0%
9. Ech 58%
10. London Elec. 100%
11. SWEB 100%
12. EnBW 34%
13. Seaboard 100%
14. Hidrocantabrico 59%
Europe I 19John Bower
Unresolved regulatory issues…. creating interlocking relationships make regulation of network effects very complex
CORPORATE LINKS BETWEEN SWEDISH, GERMAN, UK MARKETS (APR 2002)
Sydkraft
Vattenfall
PowerGen
HEW BEWAG VEAGEoN
E. Midlands
InnogyRWE
Thames Water
Europe I 20John Bower
Unresolved regulatory issuesAll national governments want to intervene to set national energy policy….
RECENT BRITISH ENERGY HEADLINES
28 Aug 02 British Energy drained by low prices-minister
01 Sep 02 British Energy ponders US sale
06 Sep 02 Nuclear firm British Energy begs for bailout
07 Sep 02 British Energy shares suspended as company warns of insolvency
08 Sep 02 Ministers offers £410 million loan to British Energy
09 Sep 02 British Energy falls almost 80 pct after LSE lifts trading curbs
26 Sep 02 Ministers extend loan to British Energy and increase it to £500
18 Sep 03 Government sets deadline on British Energy restructuring
22 Sep 03 Nuclear plants may get new lease of life
02 Oct 03 ??????
Europe I 21John Bower
Unresolved regulatory issues… usually under the guise of energy security…
GENERATION TECHNOLOGY CAPACITY SHARE IN ENGLAND & WALES (Apr 1990 – Mar 2004)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Apr-90
Oct-90
Apr-91
Oct-91
Apr-92
Oct-92
Apr-93
Oct-93
Apr-94
Oct-94
Apr-95
Oct-95
Apr-96
Oct-96
Apr-97
Oct-97
Apr-98
Oct-98
Apr-99
Oct-99
Apr-00
Oct-00
Apr-01
Oct-01
Apr-02
Oct-02
Apr-03
Oct-03
Cap
acity
Sha
re b
y Fu
el a
nd G
ener
atio
n Te
chno
logy
OCGT
Oil
Pump Store
Small Coal
Medium Coal
CCGT
Large Coal
Magnox
AGR/PWR
Hydro
Europe I 22John Bower
Unresolved regulatory issues…but is in conflict with the environmental objectives of EUETS and LCPD…
EU EMISSIONS TRADING SCHEME AND LARGE COMBUSTION PLANT DIRECTIVES
Precursor
2003 – 2004
National Plan
Formulation
Phase I
2005 – 2007
CO2 only
Allocation only
Phase II
2008 – 2012
CO2 + other gases
Allocation + Auctions
EU
Emissions Trading Scheme
Phase I
2004 – 2007
SOx, NOx, dust
ELV or NP
Derogation Phase
2008 – 2015
SOx, NOx, dust
ELV or 20k hr derogation
Precursor
2002 - 2003
National Plan
Formulation
EU
Large Combustion
Plant Directive
Source: EIA
Europe I 23John Bower
Unresolved regulatory issues…even the EU Renewables Directive 10% target by 2010 is really about energy security
EUROPEAN ELECTRICITY GENERATION OUTPUT 2000
Source: EIA
0
100
200
300
400
500
600
700
800
900
Rus
sia
Ger
man
yU
KIta
lyPo
land
Spai
nTu
rkey
Ukr
aine
Net
herla
nds
Cze
ch R
epub
licFr
ance
Gre
ece
Kaz
akhs
tan
Uzb
ekis
tan
Bel
gium
Rom
ania
Port
ugal
Den
mar
kB
elar
usFi
nlan
dIre
land
Hun
gary
Yugo
slav
iaB
ulga
riaA
zerb
aija
nA
ustr
iaTu
rkm
enis
tan
Slov
akia
Esto
nia
Mac
edon
ia, T
FYR
Bos
nia
and
HG
Swed
enC
roat
iaSl
oven
iaM
oldo
vaA
rmen
iaLi
thua
nia
Mal
taG
eorg
iaLa
tvia
Kyr
gyzs
tan
Switz
erla
ndO
ther
Nor
way
Tajik
ista
nA
lban
iaIc
elan
d
Ann
ual G
ener
atio
n O
utpu
t (TW
h)
Thermal Nuclear Hydro Geothermal and Other
Europe I 24John Bower
Unresolved regulatory issuesSome EU industrial price fell initially but beginning to rise now and a wide range persists….
EU ELECTRICITY PRICES FOR INDUSTRIAL CONSUMERS (Ex Tax) AT 1 JANUARY
Source: Eurostat
0
10
20
30
40
50
60
70
80
90
German
y
Austria
Portugal
Spain Italy UK
Belgium
Irelan
d
France
Greece
Netherl
and
LuxembourgDen
markFinlan
dSwed
enNorw
ayPr
ice
(Eur
o/M
Wh)
1997 2003
Europe I 25John Bower
Unresolved regulatory issues…. while household prices only fell a little overall and went up a lot in Scandinavia
EU ELECTRICITY PRICES FOR HOUSEHOLD CONSUMERS (Ex Tax) AT 1 JANUARY
Source: Eurostat
0
20
40
60
80
100
120
140
160
Italy
German
yPortu
galBelg
iumLuxe
mbourg
Austria
France
Spain UKNeth
erlan
d
Irelan
dGree
ceSwed
enNorw
ayFinlan
dDen
markPr
ice
(Eur
o/M
Wh)
1997 2003
Europe I 26John Bower
Speaker
John Bower is a Senior Research Fellow at the Oxford Institute for Energy Studies which is an independent research charity affiliated to Oxford University and dedicated to advanced research in the social science aspects of energy. John joined OIES in November 2001 and his research interest is in the emergence and evolution of integrated cross-border electricity and gas markets. Specifically; the development of efficient pricing and investment mechanisms for energy, transmission capacity, and emissions.
Before joining the OIES, John completed his PhD at London Business School and his previous career was in the commodity industry. His experience ranges from energy trading, at Marc Rich & Co, to risk management consultancy, with Coopers & Lybrand, advising commodity traders, producers and processors in base metal, precious metal, ‘softs’ and energy markets. Immediately prior to his PhD he was Global Controller Metals/Commodities at Deutsche Morgan Grenfell.
Oxford Institute for Energy Studies
57 Woodstock Road
Oxford OX2 6FA
United Kingdom
Telephone: +44 (0)1865 889 125
Facsimile: +44 (0)1865 310 527
Email: [email protected]
URL: http://www.oxfordenergy.org
