Win – Win Scenarios Nikolay Minkov March 10 th, 2009 Sheraton Hotel Balkan, Sofia Capital Weekly Conference on Energy Market Development Balancing Stakeholders' Interests in Energy Market Liberalization

2 Balancing Stakeholders' Interests... Bulgarian Experience  A Region in Transition  Unbundling Drivers  Market Stakeholders  Market Balancers  Demand-Siders  Challenges Ahead  Questions & Answers Capital Weekly Conference, Sofia, March 2009 Content

3 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 SEE: A Region in Transition  Moving to market economies  Transforming economic capacities  Mapping globalization to the region  Improving industrial competitiveness  Investing into old infrastructure  Establishing energy markets  Professionalizing services  Educating consumers  Integrating markets  Enlarging the EU

4 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 SEE: Energy Sector Dynamics  Energy extensive economies  Energy efficiency investments  Asset extensive infrastructure  Capital for rehabilitation needed  Environmental extensive industries  Invest into environment imperatives  Fast growing energy demand  New sources & generation capacities  Energy markets establishment  Invest into regulatory capacity

5 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Unbundling: Movers and Followers  Inspired by large energy consumers  Designed in academic labs  Promoted by the IFIs  Institutionalized by the EC  Introduced by parliaments  Supervised by governments  Administered by regulators  Monitored by watchdogs  but …  Driven by the energy industry

6 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Unbundling: Poetic Drama LORD BARDOLPH … “When we mean to build, We first survey the plot, then draw the model; And when we see the figure of the house, Then must we rate the cost of the erection, Which if we find out weighs ability, What do we then but draw anew the model In fewer offices, or at last desist. To build at all? Much more should we survey The plot of situation and the model, Consent upon a sure foundation, Question surveyors, know our own estate, How able such a work to undergo, To weigh against his opposite: or else We fortify in paper and in figures Using the names of men instead of men, Like one that draws the model of a house Beyond his power to build it: who, half-through, Gives o’er, and leaves his part-created cost A naked subject to the weeping clouds, And waste for churlish winter’s tyranny”. … William Shakespeare, Henry IV, Part 2, Act I, Scene III

7 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Unbundling: Bulgarian Experience  Step I: By Accounting  Step II: By Management  Step III: By Legal (Incorporation)  Step IV: By Ownership (Privatization)  Step V: By Services (Grid vs. Sales)  Step VI: Re-Bundling?...  European Directives … GenCos + TransCo + DisCos? New State-Own BG Energy Holding Group was established

8 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Stakeholders Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Markets in transition

9 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Stakeholders Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Fair Risk Allocation

10 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Stakeholders Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Fair Transparency

11 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Neighborhoods Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Commodities & Environmental Market Invest & Financial Services Market Assets & Engineering Services Market Legal Services Market

12 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Balancers Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof., Municipal & Consumer Assoc., Media, Academia, etc. Law Assemblers EC, Regional Agreements, National Parliaments Judge Processors Courts, Prosecutors, Attorneys, etc.

13 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Balancers Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof., Municipal & Consumer Assoc., Media, Academia, etc. Law Assemblers EC, Regional Agreements, National Parliaments Judge Processors Courts, Prosecutors, Attorneys, etc.

14 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Balancers Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof., Municipal & Consumer Assoc., Media, Academia, etc. Law Assemblers EC, Regional Agreements, National Parliaments Judge Processors Courts, Prosecutors, Attorneys, etc.

15 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Balancers Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof., Municipal & Consumer Assoc., Media, Academia, etc. Law Assemblers EC, Regional Agreements, National Parliaments Judge Processors Courts, Prosecutors, Attorneys, etc.

16 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Energy Market Balancers Energy Market Wholesale companies Transmission companies Supply companies Distribution companies Eligible consumers Residential consumers Generation companies Trading companies Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof., Municipal & Consumer Assoc., Media, Academia, etc. Law Assemblers EC, Regional Agreements, National Parliaments Judge Processors Courts, Prosecutors, Attorneys, etc.

17 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Demand-Siders  More active role into market liberalization  Competences to energy market design  Encourage their role in market monitoring  Invest into energy management solutions  Invest contrariwise to energy / env verticals  Association of their energy interests  European consolidation of associations

18 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Demand-Siders: Bulgarian Experience  Jul 2001 – start of market preparation  Jan 2002 – 1 st eligible customers meeting  Mar 2003 – bilateral market simulation  2003 – … – WG on market rules design …  Sep 2003 – 2 nd eligible customers meeting  Jul 2004 – market was opened (on paper)  Aug 2004 – 1 st bilateral contract signed  Jan 2005 – 1 st wave of contracts appeared  2005 – 07 – power traders appeared  Dec 2006 – BFIEC was established  Jan 2008 – design of balancing groups …

19 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Demand-Siders: Industry  Promoter of energy market liberalization  The most powerful stakeholder  Lack of active role nowadays  Picking-up the enterprise energy manager  Lack of associated capacity today  Encouragement of national associations  Regional consolidations of associations  European consolidation of associations Example < MKFIEC ?  IFIEC < EFIEC < SEEFIEC < BGFIEC

20 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Demand-Siders: Procurement Practice  Price, reliability and environment issues  Risk and rewards for eligible customers  Contractual formats and packaging  Factors to evaluate competing offers  Negotiations processes and practice  Scheduling and forecasting items  Balancing groups establishment  Lessons learned …

21 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Demand-Siders: BGFIEC … SEEFIEC ?  Association of power interests in BG industry  Too long preparatory works (3 years)  Lack of understanding market phenomena  The missed enterprise energy manager  Needs of lobbying capacity development  Needs of power sector transparency  Needs of market monitoring practice  Taking part into regulatory audits  Cross border power trade facilitation  Cross border exchange of experience  Cross border association of interests

22 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Demand-Siders: Commerce  Professionalizing facility managers  Investments into energy efficiency  Market recognition of facility managers  Regulatory recognition of facility managers  Energy training to facility managers  Lack of associated capacity today  Encouraging FMAs to energy contribution

23 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Demand-Siders: Residential  Smart Home solutions  Picking up the energy & utilities culture  Development of financing mechanisms  Association of residential energy services Example US Energy cooperatives Are located in 80% of the nation’s counties Are the largest electric utility network in the nation Total more than 930 local systems in 47 states Have 40 million member-owners Distribute power over 2.4 million miles of line Serve 75% of the U.S. land mass Own $97 billion in T&D and generation assets One of the US most recognized customer satisfaction measure

24 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Challenges Ahead  Regulatory options for dispute resolutions  Capacity building of National FIECs  More Nat FMA attention on energy market  Transport energy contribution to market dev  European models for retail associations  European umbrella for DS associations  DS contribution to market rules  DS support to contractual frameworks dev  DS support to regulatory process  DS support to infrastructure development  DS contribution into market transparency

25 Balancing Stakeholders' Interests... Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Capital Weekly Conference, Sofia, March 2009 Questions & Answers

Thank you for your attention! Nikolay Minkov Capital Weekly Conference on Energy Market Development March 10 th, 2009 Sheraton Hotel Balkan, Sofia