Gent Summer School: Electricity Markets & Trading

Gregory Michiels

27 August 2013

2

EDF LUMINUS: 1st CHALLENGER IN ELECTRICITY PRODUCTION IN BELGIUM1,950 MW installed capacity (beginning 2013)

10 % of the Belgian electricity production capacity

73 MW hydro-electric energy

3.8 % of our energy mix

117 MW wind energy 6 % of our energy mix

418 MW nuclear participations

21.4 % of our energy mix

1,342 MW gas power plants

68.8 % of our energy mix

3

1st CHALLENGER IN GAS AND ELECTRICITY SUPPLY

1,700,000 access points

30,000,000 MWh sold

Market share of 20%

4

SHAREHOLDERS

June 2009EDF announces its intent to buy Centrica’s 51%

November 2009Approval by the European Commission 12/11 Closing 51% shares 26/11Minority shareholders sale option

8 June 2010Publilum and VEH sell half of their shares, Dexia sells all participation EDF in SPE: 63.5%

22 November 2011The company name is EDF Luminus

5

Optimisation versus Trading

Asset Optimiser• Manages a portfolio of assets

(power plants, contracts, retail portfolio,…)

• Objective is to control physical and financial risks and maximising margins

= hedging

Trader• Creates a position • Objective is to make money

from this position when market conditions change

= speculation

Both actors sell and buy in the wholesale markets to achieve their objectives, thus creating a liquid market

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Timeline of activities of an asset optimiser

From 3 years to 1 month ahead of implementation date [D]• Forecast of the

medium-term supply/demand balance

• Scheduling of power plant maintenance

• Sale/purchase operations on the forward markets

1 Month ahead of implemenation date [D]• Refine the

supply/demand balance to more accurate weather forecasts and availability of power plants

• Sale/purchase operations on the forward markets

Day Ahead [D-1]• Create operating

schedule for the power plants

• Balancing supply and demand on the Day-Ahead market (DAM)

• Send nominations to TSO

Intraday [D]• Respond to latest

unanticipated changes in the portfolio

• Send re-nominations to TSO

• Sale/purchase operations on the intraday market

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OTC markets and power exchanges

8

Forward and spot prices

10

20

30

40

50

60

70

80

02/0

1/20

1206

/02/

2012

12/0

3/20

1216

/04/

2012

21/0

5/20

1225

/06/

2012

30/0

7/20

1203

/09/

2012

08/1

0/20

1212

/11/

2012

17/1

2/20

1221

/01/

2013

25/0

2/20

1301

/04/

2013

06/0

5/20

1310

/06/

2013

15/0

7/20

1319

/08/

2013

23/0

9/20

1328

/10/

2013

02/1

2/20

1306

/01/

2014

10/0

2/20

1417

/03/

2014

21/0

4/20

1426

/05/

2014

30/0

6/20

1404

/08/

2014

€/M

Wh

weekly average spot prices

Belpex Apx Epex Spot France Epex Spot Germany

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Price Drivers

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DAH price formation: supply/demand balance

Power

Price

Industrialdemand

Residential demand

Exports

Commercial demand

Nuclear

CCGT

Renewables

Coal

Peak u

nit

s

Imports Hydro

rese

rvoir

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The make or buy decision

Fuel CO2

Power Plant

Heat

Power

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Interaction hedging - dispatching

DAH dispatch decision is independent from hedging decision in the forward markets

Situation AForward Market• CSS = 5€/MWh• Hedged

Day-Ahead• CSS = 10€/MWh• PP dispatched

Benefit• 5€/MWh

Situation BForward Market• CSS = 5€/MWh• Hedged

Day-Ahead• CSS = 2€/MWh• PP dispatched

Benefit• 5€/MWh

Situation CForward Market• CSS = 5€/MWh• Hedged

Day-Ahead• CSS = -3€/MWh• PP not

dispatched

Benefit• 8€/MWh

Situation DForward Market• -3€/MWh• Hedged

Day-Ahead• CSS = 3€/MWh• PP dispatched

Benefit• 3€/MWh

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Capacity mix Europe

2. Status of CWE-Nordic interregional coupling;A first step: Interim Tight Volume Coupling (ITVC)

• Interim Tight Volume Coupling (ITVC), based on EMCC‘s Nordic-German coupling, will provide tight volume coupling between the future CWE market coupling and NPS market splitting

• ITVC will consider two regions with

o many market areas

o many interconnectors

o different market coupling schemes

• The CWE-Nordic TSOs and PXs asked EMCC to develop the interim solution to couple the two regions

• The project was launched in January

• The project will be launched in two steps;

step 1 without the NorNed, step 2 with the NorNed

• Costs are shared by all TSOs in both regions

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CWE Market Coupling

• Launched on 9 November 2010

• Cooperation of Transmission System Operators (TSOs) and

power exchanges (PXs) coupling the Belgian, Dutch, French

and German electricity markets

• Provides for the implicit cross-border capacity allocation and

matching of orders of the involved PXs, resulting in the optimal

allocation of available day ahead cross-border capacity and

price convergence between day ahead wholesale electricity

markets across this region

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CWE market results 3 Aug 2013

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CWE market result 23 August 2014

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Convergence of CWE prices: are we on a copper plate?

18

Forward markets: OTC

19

Imbalance markets

20

Levers for the TSO to manage the country balance

primary reserve

secondary reserve

tertiary reserve via generation units

tertiary reserve via sheddable customers

uncontracted reserve ('free bids')

reserve contracts with neighbouring system operators

AU

TO

MA

TIC

MA

NU

AL

30sec

<15min

15min

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Balancing: how does it work?

•Balancing = difference between production and consumption of the whole portfolio (metering)

1/4h Balancing obligation for each BRP

•Short position of BRP purchased at imbalance price -•Long position of BRP sold at imbalance price +

TSO takes care of the position of the country

•High incentive for BRP to be balanced•Many opportunities for BRP

Imbalance price is equal to marginal price activated by TSO

•Differences (extra incentive) only if big imbalances

Imbalance price + and – are equal most of the

time

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Imbalance prices

NRV = Net Regulation Volume (=volume activated by Elia to

restore the balance)POS = Positive Imbalance price (what you get paid if you inject

more than you consume)NEG = Negative Imbalance price (what you pay if you consume

more than what you inject)

sunny dayCold evening peak

Delta between DAH prices and imbalance prices

D-1D

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Demand side management

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Market Regulation

Prohibition of market manipulation and trading on the basis of ‘insider information’

Market monitoring by ACER

Market manipulation prohibitions

Insider dealing prohibitions

Market Integrity

Applies to underlying physical power, gas and transport contracts and markets

Trade data reporting to

ACER

Transparency

Post trade transparency for energy markets through ACER

Public transparency of

fundamental data / inside

information and their reporting to

ACER

Applies to all gas, power and transportation contracts and markets

THANK YOU !QUESTIONS & ANSWERS