1. IFIEC EUROPE 1 ERGEG Consultation 30 June 2005 - Brussels Industrial customer perspective Peter Claes President - IFIEC Europe

2. IFIEC EUROPE 2 Liberalization of Electricity market : OBJECTIVES Liberalization of production and supply  competition between producers and suppliers Regulation of networks  cost based; transparency, non-discriminatory

3. IFIEC EUROPE 3 Liberalization of Electricity market : CURRENT SITUATION ATC does not allow competition over the borders  TTC insufficient  NTC insufficient due to loop flows (base cases, lack of coordination)  Built-in priorities (historical contracts)  Allocation : no netting for Y, M, W – UIOLI, but no obligatory use  Lack of information exchange between TSO

4. IFIEC EUROPE 4 Economic consequences Interconnector capacity does not promote competition between generators but has become a purely financial product offering cash flow to TSO’s and traders Domination of local incumbants in “village markets” / No competition between producers Consolidation of price differentials between countries with risk of gaming

5. IFIEC EUROPE 5 SOLUTIONS  Back to Basics Back to base philosophy : Grid regulated / production and supply liberalised / promotion of competition Grids must serve the market, not make generators and traders rich(er) Industrial consumers : imports are the only “fast track” to the market / competition through new local production facilities may take several years (permit procedures, depreciation issue, balancing & back-up)

6. IFIEC EUROPE 6 SOLUTIONS : Long-term : EUROPE = ONE ZONE = Single price area one TSO = « EUROGRID » ASAP : Regions e.g.: Western Europe (BE, FR, DE) Any Region = ONE ZONE = Single price area / one TSO Without electrical borders Netting between Import – Export => Reduce flows on interconnectors Decongestion costs socialised NB: Neighbouring countries with similar production costs and possibility of real competition between producers

7. IFIEC EUROPE 7 Transitory regime ATC Invest in additional capacity (in selected areas) Limit impact of loop flows –coordination of base cases (common definitions and agreement) –impose formal limits for loop flows per border and per country End priority regimes (no discrimination) Netting of Y,M,W allocation - obligatory use

8. IFIEC EUROPE 8 Avoiding and Solving Congestion Market based allocation (auctioning) cannot work – no markets – insufficient capacity (Picasso effect) – grids are regulated  Reconsider regulation on CBT –Optimise Y, M, W capacities via coordinated re-dispatching –Allocation at cost plus (re-dispatching + administrative costs) –Avoid gaming through auctioning as bid (price differentials)

9. IFIEC EUROPE 9 Allocation method: an example...  A Creative allocation method (B-F) with maximisation of ATC –small size / multi round offers by players for limited volume (10-20 MW) –First round : capacity allocation at highest price offer of each bidder (as long as capacity is available) –price = bid price – average bid price + TSO’s costs; floor price = 0 –successive rounds with the same procedure (average changing at each round) –obligatory use for all –exclude gaming (one player by group of associated companies)

10. IFIEC EUROPE 10 Avoiding and Solving Congestion instead of Managing it = YOUR MISSION !