Ashgabat International Energy Charter Forum Integration of regional electricity markets Lessons learned from EU experience Sarin Abado, Austria Ashgabat International Energy Charter Forum 30-31 May 2017

Overview The making of a single EU electricity market Lessons Learned Conclusions

The making of a single EU electricity market

How it all started One of the first core objectives of the European project was the development of a common market Principle of 4 „freedoms“ - free movement of goods, services, people and capital Vision of eliminating barriers between member states and cross-border cooperation

Timeline Security of supply, competitiveness 2000 - today Three goals: 1990s Creation of the EU Growing importance of environment/renewables Gradual liberalisation of energy markets 1986 - 1992 Single market and liberalisation are discussed 1970 - 1986 A number of severe energy crises demand increased European cooperation and common policy measures 1951 - 1970 Start of European cooperation/integration based on post-war energy needs Security of supply, competitiveness Energy policy to become EU competence Sustainability

Why integrate markets? Higher efficiency power can be sourced from where it is cheapest to produce Higher efficiency larger systems are more robust and can accommodate more diverse energy mix (renewables) Increased power system security primary energy sources are more diversified Enhanced security of supply more choice for consumers / cheaper energy bills Increased competition

How we are getting there First Package (1990s) - Gradual introduction of competition - First unbundling requirements Second Package (2003) - Further unbundling - Third party access - Need for independent Regulators - Retail liberalisation Third Package (2009) - Definition of role of national regulatory authorities - Creation of ACER - Network codes ?

The main pillars of open markets Liberalization Unbundling 3rd Party Access Governing Institutions

Governance EU Institutions Florence Forum National Regulatory Authorities ERGEG ACER TSOs ENTSO-E

Regional Initiatives Launched in 2006 by the European Energy Regulators Rationale: create regional markets first before merging into one single market Integration of fragmented national electricity markets is an interim step on the way to the single market Europe is divided into 7 electricity regions and brings together all relevant market participants of each region

Regional Initiatives

Tools for linking infrastructure across regions EU-wide Ten Year Network Development Plan (TYNDP) Regional Investment Plans Identification of Projects of Common Interest (PCIs) Interconnection Targets

Making cross border trade a reality Legally binding EU-wide network codes to set the rules of the game Market coupling as the central tool to achieve market integration Net Transfer Capactiy versus Flow based market coupling Inter TSO compensation for cross border flows

Lessons Learned

Lessons Learned Market Liberalization is a prerequisite for market integration It doesn‘t happen over night Requires appropriate regulatory framework and strong enforcement

Lessons Learned Trial and Error is part of the game Several waves of reform are needed until it works Step-wise approach allowed for „learning by doing“

Lessons Learned Top-down and Bottom-up Strategies are both needed A regional „vision“ helps committing players to the joint project To move towards the fulfillment of common goals, well designed bottom-up initiatives are also needed

Lessons Learned A region-wide common regulatory framework is key A common market only works if all players adhere to the same rules of the game

Lessons Learned It‘s difficult without centralized governance institutions Someone needs to set the rules and oversee the developments centrally

Lessons Learned Enhanced Security of Supply is not the only benefit of a regional market Open markets and free cross border flows enhance competition, bring down prices, reduce losses and offer more choice for consumers

Consumers are important to make market integration work Lessons Learned Consumers are important to make market integration work Active consumers help fostering competitive markets Communication and consumers information is key from early on

Conclusions

Conclusions Market integration requires political will A top down vision and robust regulatory framework is needed Regional cooperation and governance are key in building regional markets The process takes time But customer benefits can be large and security of supply significantly enhanced

Thank you for your attention sarin.abado@e-control.at