Recent Trends in Energy Regulation

IEA-FTS of Russia Workshop on Global Energy Market ScenariosParis, 28 May 2009

Kieran McNamaraCountry Studies Division

Why Liberalise and/or Regulate?

Monopoly regulation- The theory

Regulation- the building blocks

Electricity Market Design

Market designs differ but all share common features;• Regulatory oversight• Network unbundling• Regulated third party access• Competitive generation and retail markets• Comprehensive trading arrangements • Demand participation• Consumer protection

What’s a generation market??• Get the structure tight first time

– Single buyer– Bilateral contracts market– Centralised Pool

• Net pool• Gross Pool

– Trading and Balancing Mechanisms– Capacity Schemes

What are ancillary services?• Ancillary Services are products, other than

energy, that are required to ensure the secure operation of the transmission system.– Operating reserve– Reactive power– Frequency control– System support– Black start

The Final Frontier- Competition in Supply to Domestic and Small Consumers

Electricity Market Design

• No short cuts, liberalisation is not a one off event

• Strong and sustained political commitment required – a long-term vision

• Thorough and extensive preparation required• Consultation with all stakeholders• Process of continuous evolution• No one there yet!

Issues - When to benchmark..• How to determine the maximum

allowable revenues ?• How to determine the tariffs that yield

these revenues?• Operating costs – asymmetry of

information• The benchmarking challenge

Issues - Licensing Market Players

• Generation, transmission, distribution, supply, metering• Potential market participants must demonstrate:

– Capital resources– Management and technical skills– Relevant environmental and planning consents– Relevant connection and use of system agreements – gas and

power systems – financial codes (T&S)

• Administrative burden should proportional• Right to appeal

The EU as a driver for change -

• Electricity and gas directives• Third energy package• Unbundling debate• Still a long way to go• Competition policy the real tool – it

delivers results

European Competition Policy

• 2005 Energy Sector Enquiry• Vigilant when controlling mergers• Controlling State aid to energy companies • Anti-trust activities• Challenges long-term supply contracts• May 2010 – E.ON settlement• Many other successes

European Regulatory Agencies

Climate change challenge

Source: OFGEM

Sustainability and Energy Security

Source: OFGEM

Recent Trends in Energy Regulation

IEA-FTS of Russia Workshop on Global Energy Market ScenariosParis, 28 May 2009

Kieran McNamaraCountry Studies Division