1. Northern Europe Electricity Regional Initiative 5th Stakeholder Group Meeting Status of EMCC and CWE-Nordic Market Coupling Enno Böttcher Copenhagen 26 May 2010

2. 26.05.2010 5 th ERI SG Meeting 2 Agenda Development of interregional volume coupling Nordic - CWE About EMCC and the current market coupling business Conclusions and discussion

3. 26.05.2010 5 th ERI SG Meeting 3 Nordic-German tight volume coupling General principles: In a volume market coupling, the optimal net positions and thus the energy transfers between the considered market areas are determined by a system-wide maximisation of social economic welfare, i.e. the participants’ economic gains The calculated optimal energy transfers are transformed into price-independent bids and offers respectively The actual clearing of the market areas, i.e. determination of market clearing prices and decision on acceptance or rejection of orders, remains with the involved power exchanges EMCC is assigned to conduct interregional volume market coupling between the Nordic region and Central West Europe

4. 26.05.2010 5 th ERI SG Meeting 4 EMCC organisation The present allocation of shares is in principle based on the size of the end-user consumption in the relevant market: Scandinavia: 40 % Germany: 60 % EMCC was established in Hamburg in August 2008 Shareholders Tasks and setup Managing Director Market Coupling Office Communications IT Scheduling Accounting Legal Settlement Market Development front office back office

5. 26.05.2010 5 th ERI SG Meeting 5 EMCC`s current focus EMCC, its internal set-up and its IT system are designed to allow for the extension of its services to other interconnections and markets. DK1: Interconnector between DK West - Germany (950/1,500 MW) Capacity holder: transpower stromübertragungs gmbh, Energinet.dk DK2: KONTEK between DK East - Germany (550 MW) Capacity holder: Energinet.dk, Vattenfall AB, 50Hertz Transmission Baltic Cable between Sweden - Germany (600 MW) Capacity holder: E.ON Sverige, Statkraft NorNed between Norway - Netherlands (700 MW) Capacity holder: Statnett, TenneT 1 2 3 volume market coupling planned 1 2 3 4 4

6. 26.05.2010 5 th ERI SG Meeting 6 Daily business process Nordic-German market coupling anonymous OBK from PXs Capacity holders PXs service fee schedules congestion rent financial settlement 12:00 gate closure order books Info Traders calculation ATC 09:30 ATCs from TSOs per cable bids before 14:00 CBF publication, scheduling EPEX price publication by12:45 by 13:25 NPS price publication placing additional bids at the PXs by 12:30 by 12:10 start market coupling calculation PXs trade confirmation afterwards 10:00 publish ATC

7. 26.05.2010 5 th ERI SG Meeting 7 Nordic-German volume market coupling results Sum for the interconnectors DK1 and DK2 hoursCBFTurnover %MWh%€% CBF85.7%3,439,53690.0%51,394,20899.70% AF ≥ 0.20*3.3%130,5303.4%-146,012-0.28% AF < 0.20*11.0%250,8306.6%-12,042-0.02% Results overall ---3,820,896---51,236,154--- Cross-border flow Flows and turnover Results for 170 delivery days (9 th Nov. 09 - 30 th Apr. 2010; 4,080 hours traded) MWh €/MWh DK  GE GE  DK DK  GE GE  DK CBF: cross-border flow due to welfare criterion Turnover: calculated congestion revenue AF: adverse flow; * Euro/MWh

8. 26.05.2010 5 th ERI SG Meeting 8 Likelihood of adverse flows for interregional tight volume coupling The smaller the price difference the bigger the likelihood of adverse flows. DK1 DK2 average

9. 26.05.2010 5 th ERI SG Meeting 9 Agenda Development of interregional volume coupling Nordic - CWE About EMCC and the current market coupling business Conclusions and discussion

10. 26.05.2010 5 th ERI SG Meeting 10 Integrated European Market Long-term plan for the Integrated European Market (IEM) Glidepath analogy of DA roadmap

11. 26.05.2010 5 th ERI SG Meeting 11 A first step: Tight Volume Coupling for the CWE-Nordic region (TVC) Interim Tight Volume Coupling (TVC), based on EMCC‘s Nordic-German coupling, will provide tight volume coupling between the future CWE market coupling and NPS market splitting TVC will consider two regions with many market areas many interconnectors 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 Costs are shared by all TSOs in both regions

12. 26.05.2010 5 th ERI SG Meeting 12 The current solutions will be replaced by an interim solution Current day-ahead market Current solutions 1.Market splitting Nordic and Estonia (one PX) 2.Price coupling in the Netherlands, Belgium and France (TLC – 3 PXs) 3.Tight volume coupling between Denmark, Sweden and Germany through EMCC 4.Explicit auctions on other borders Interim day-ahead market Intermediate solution 1.Market splitting in the Nordic (NPS) 2.Price coupling in CWE 3.Tight volume coupling on all connections between the CWE and Nordic regions TLC CWE

13. 26.05.2010 5 th ERI SG Meeting 13 The interim solution concept was developed by all parties Setting of functional requirements for the interim solution (TSOs and PXs) EMCC was asked to establish tight volume coupling Definition & Initiation EMCC develops solution TSOs prepare for providing ATCs PXs prepare for providing order books Establishment of governance arrangements (TSOs and PXs) Solution Development EMCC operates tight volume market coupling PXs operate second step calculations Continuous work on making solution as tight as possible Operation 231 The interim solution establishes tight volume coupling on all interconnectors between the CWE and Nordic regions

14. 26.05.2010 5 th ERI SG Meeting 14 Established project organisation – interim tight volume coupling Joint PX-TSO Steering Committee Governance Technical & Business Process Working group E-Bridge Consulting Convenor: Christian Dobelke Deliverables: Interim Solution Committee (ISC) Interim Solution Agreement (ISA) Share option agreement Convenor: Enno Böttcher Deliverables: Technical solution, business processes and timing Coordinate fallback solutions Coordinate IT-enhancements to existing architecture Coordinate implementation, testing and migration of solution External project management Tasks: Assist steering committee and working groups Evaluate and integrate results of working groups Provide basics for decision-making to the steering committee

15. 26.05.2010 5 th ERI SG Meeting 15 Working group governance - interim governance solution 1.partly directly affected (capacity holders, e.g. Energinet), partly rather remotely affected (e.g. Fingrid) 2.partly long-time customers (e.g. transpower), partly new customers of EMCC (e.g. Statnett) 3.partly EMCC shareholders, mostly not How to grant sufficient influence for a large group of heterogeneous stakeholders ? 1.Contractual basis for ISC 2.Between all CWE/Nordic TSOs and PXs 3.Defining rights and obligations 4.Defining composition, decision making procedures and cost sharing in the ISC 5.Defining termination clauses (“EMCC interim coupling is not a vehicle towards price coupling with EMCC responsible for setting prices”) 6.Completed by sunset clause and share option in case of delayed enduring solution Interim solution agreement (ISA) 1.Effective control on actions of EMCC in the framework of interim coupling of CWE/Nordic 2.Overseeing the efficiency of service provided 3.Acceptance of design, development, operation 4.Exchange of information between involved parties and decide on joint communication to the market and to the regulators Interim solution committee (ISC)

16. 26.05.2010 5 th ERI SG Meeting 16 Interim solution agreement Common agreement between all CWE/ Nordic TSOs and PXs and EMCC (overall contractual basis for ITVC solution between CWE and Nordic) Share option agreement Common agreement between EMCC shareholders and new shareholders CWE/Nordic interim solution confidentiality agreement Common agreement between all CWE/ Nordic TSOs and PXs and EMCC (rgds. the use of confidential information) Confidentiality agreement - use of market data Common agreement between all CWE/ Nordic PXs and EMCC (regarding the use of confidential market data) Contractual framework of the two workgroups Cost share agreement Common agreement between all CWE/ Nordic TSOs and EMCC (principles of sharing costs among the TSOs) Cost recovery agreement Common agreement between EMCC and CWE/Nordic PXs PXs service agreement Common agreement between all CWE/ Nordic PXs and EMCC (regarding the services the PXs provide to EMCC) finalized ( ) ( ) in finalization ( )

17. 26.05.2010 5 th ERI SG Meeting 17 Working group technical and business processes - issues & solutions Technical and business process deliverables Objectives Develop and implement an Interim Tight Volume Coupling Solution between CWE and Nordic region for the interconnectors Baltic Cable, DK1, DK2 and NorNed in close cooperation with CWE-Nordic TSOs and PXs Management of cross-border flows, shipping and scheduling for the aforementioned interconnectors by EMCC Avoid market irritations which may occur from a “loose” sequential market coupling Tasks Development of technical solution and business process in line with the requirements/constraints of CWE-Nordic TSOs and PXs Development of a fallback solution and investigation of robust processes Improvement and harmonisation of extended day ahead processes to cover exceptional situations Coordinated migration of Interim Tight Volume Coupling Solution and CWE market launch

18. 26.05.2010 5 th ERI SG Meeting 18 Coordinated elaboration of regional market processes Start Step 1 Step 2 Decision Alternative 1Alternative 2 End yesno A coordinated process was initiated between all involved PXs, TSOs, EMCC and IT suppliers On 9 th February 2010, the 1st meeting of T&BP working group took place The business process for CWE-Nordic coupling including fixed timings is currently in final discussion and will be approved soon 2nd auction and special routines are included in the process It will be flexible in case of technical problems, i.e. the working group will also define fallback solutions Market participants will be informed in time All involved parties are involved in the development of sound processes that comply with national and regional rules and constraints.

19. 26.05.2010 5 th ERI SG Meeting 19 Price areas considered today and for CWE-Nordic SE SESAM FIN SESAM DK1 A SESAM SEA SESAM NO3 SESAM NO4 SESAM NO2 SESAM NO1 SESAM DK1 SESAM DK2 SESAM GE ETS 950/1500 550 600 AUT ETS EST SESAM NO5 SESAM R-im SESAM L-im SESAM L-ex SESAM Current EMCC market coupling (incl. Baltic Cable): EMCC calculates 17 price areas and flows on 22 interconnectors for the interregional tight volume coupling between Denmark, Sweden and Germany 700 including NorNed BE EL-S** FR ETS NL EL-S* Interim Phase Coupling for EMCC and CWE established interface development started

20. 26.05.2010 5 th ERI SG Meeting 20 Next steps Initial technical deliverables will be provided from June 2010, followed by an intensive testing period. Before the launch of the TVC solution a market validation test will be performed. The CWE-Nordic regulatory authorities are monitoring the interim TVC and CWE MC developments – the ISC reports directly to the regulators. All parties agree to start CWE with a tight volume coupling (TVC) with the Nordic market. All parties put their strongest efforts to ensure a start as close as possible to 7 th September 2010. The CWE-Nordic regulators invited the CWE-Nordic PXs, TSOs and EMCC to a meeting in Bonn on 7 th May 2010 in order to discuss the status of the TVC solution If it turns out in July 2010 that a timely start cannot be realised, all parties will decide on mitigating actions.

21. 26.05.2010 5 th ERI SG Meeting 21 Agenda Development of interregional volume coupling Nordic - CWE About EMCC and the current market coupling business Conclusions and discussion

22. 26.05.2010 5 th ERI SG Meeting 22 Tight volume coupling across the CWE and Nordic region More efficient use of cross border capacities, promotes cost efficiency, security of supply and inclusion of new renewable generation Enhanced transparency through joint solutions Cooperation and commitment of all involved stakeholders Process is monitored by the regulatory authorities A significant step towards the Integrated European Market CWE-MC

23. 26.05.2010 5 th ERI SG Meeting 23 Contact Enno Böttcher European Market Coupling Company GmbH Hopfenmarkt 31, D-20457 Hamburg Germany +49 40 369 054 60 eb@marketcoupling.com www.marketcoupling.com