1. The Market Coupling Experience in Europe Jean-François CONIL-LACOSTE CEO Powernext SA CEO EPEX Spot SE APEX 2008 Conference Session 1 - Part 3: European Markets Situation Sydney – October 13, 2008

2. Experience #1: Trilateral Market Coupling (TLC)

3. Trilateral Market Coupling (TLC) - Project History 3 What? Creation of a Belgian Spot Exchange: Belpex Trilateral Market Coupling between France, Belgium and the Netherlands to Improve cross-border market integration Improve liquidity on BELPEX How? International cooperation 3 TSOs: RTE (France), ELIA (Belgium), Tennet (The Netherlands) 2 Power Exchanges: Powernext (France), APX (The Netherlands) Project force mainly at APX and Powernext Common vision of the 3 TSOs and 2 PXs

4. One multilateral arrangement Principles, objectives of market coupling Roles and responsibilities, main flows Contractual scheme and governance structure Arrangements between Exchanges Provide algorithms and systems Operate Market Coupling Arrangements between TSOs Calculate and Publish Capacity Ship the Cross-Border Flow Share congestion revenues Ensure firmness Local arrangements TSO-Exchange “Participation” of the TSO on the Exchange Provide/ receive ATCs Issue/ accept Results TLC - A Decentralised Contractual Approach

5. TLC - Algorithm CMFO (Coordination Module Functional Operator) NEC : Net Export Curves NBV : Net Block Volume

6. TLC & Price Convergence cont.

7. BorderBelgian-French border Belgian- Dutch border Constrained Unconstrained Constrained F ≠ B ≠ NL F = B ≠ NL Unconstrained F ≠ B = NL F = B = NL TLC & Price Convergence in September 2008 0.0 % 12.2 % 8.8 % 79.0 %

8. Experience #2: Central Western Europe Market Coupling

9. What is the CWE project? Goal : couple the day-ahead markets of Germany, Benelux and France using a flow-based approach Strong political support : Memorandum of Understanding signed on 6 June 2007 by Ministries, Regulators, TSOs, PXs and Market Participants 11 project partners: 7 TSOs and 4 PXs Planning Design phase almost achieved Implementation phase Q4 2008 and 2009 Target launch date: end of 2009 Price coupling solution as in TLC Important increase of regional social welfare expected Total budget in the range of € 25 million

10. CWE Project Organisation – Design Phase 2007-2008 JOINT STEERING COMMITTEE: All Partners / Co-Chaired by TSO/PX JOINT PROJECT BOARD : All Partners / Chaired by Project Manager Workstream Algorithm Design Workstream Market Design Workstream Technical Workstream Legal & Governance Workstream Regulatory Subproject TSO – Flow Based Model Coordination Team : Project Manager + Workstream Leaders + Subproject Leaders Workstream Communication

11. CWE – Main Achievements in 2008 Finalisation of Design Phase, except for Some governance issues Enhanced ATC methodology and congestion revenue sharing Delivery of: Orientation Study in February 2008 Progress report in April 2008 Implementation Study in August 2008* Expert meetings: March 10 with regulators April 28 with market parties* *Documents available at www.powernext.fr

12. Experience #3: Merger of Spot Activities of Powernext and EEX into EPEX Spot SE

13. EPEX Spot - Implementation Establishment of Spot Trading SE (EPEX Spot SE) with registered offices in Paris as of 30 September 2008 Powernext and EEX will integrate their entire spot trading activities in power under the umbrella of the newly established company by the end of the year Both partners hold 50 percent of the shares in the SE

14. EPEX Spot – Benefits of the Cooperation More liquidity, making the market more attractive for participants Transparent and reliable wholesale price formation mechanism Standardisation & harmonisation of the trading and clearing processes Geographically, the cooperation will include Germany, France, Austria and Switzerland, which together cover more than one third of the European consumption of electricity Best practice in transparency and surveillance standards Highly effective clearing and risk management services … and more effective governance & implementation of Market Coupling / Splitting projects!

15. …and in the next years?

16. What Experiences in other European Regions? RegionDA Congestion Management NordicMarket splitting ATC Central West EuropePrice coupling / Market splitting ATC / Flow-based MibelMarket splitting ATC All Island Marketn/a: real time market Central East EuropeCo-ordinated explicit auctions ATC (Flow-based) South East Europe Projects Price coupling / Market splitting ATC / Flow-based Balticn.a. ItalyInternal market splitting GBn/a: single hub

17. Coupling CWE and the Nordic Area next? EMCC Initiative: partial coupling started on September 29, 2008 Coupling between the Nordic area and Germany Different kind of cooperation between TSOs and PXs compared to TLC (volume coupling) Some technical issues during the first days of operation Discussions about a sustainable coupling solution have started A cross-regional technical study is being performed and should deliver first results early 2009

18. Coupling CWE & Nordic & MIBEL after that? Politically, this would represent over 2/3 of the European power market in terms of electricity consumption A large market extending from Portugal to Finland! By then, Nordic, MIBEL and CWE might have key common features “ internal ” market splitting in each of the 3 regions transmission capacities between regions of similar range 2 GW+ DC&AC but no loop flows From a 3 country-based approach in 2006 to a 3 region-based approach similar to the successful “ good old TLC ” ?

19. Efficient dispatch of transactions Full grid capacity use Fair access to markets Non-transaction based: the capacity is implicitly used by transactions that value it most Reduction of opportunities for exercise of market power Easy access to markets Daily operations are simplified, while, there is no change to the participants bidding habits and conditions on the Exchanges Operational risk is removed Efficient price signalling The implicit congestion cost is equal to the price-difference between the two relevant markets Liquidity … and at the same time it strongly facilitates the political goal of creating a single power market for Europe! Market Coupling is in the scope of Exchanges’ functions…

20. Thank you for your attention! jf.conil-lacoste@powernext.fr