CWE Flow Based Market Coupling Presentation of the project to the CSE IG Milano, 3 June 2008

Disclaimer Some elements of the following presentation are extracted from documents approved by the 11 CWE Project Parties. However, this presentation is made in the name of Powernext and RTE only, and does not commit the other CWE Project Parties. Furthermore, the following presentation is not a CWE project working paper, and presents only some facts and opinions on the CWE project.

Project organization – 1 Complex project 11 parties involved, many stakeholders Technical complexity of the project High range of expertise needed Different legal framework Professional project organisation and management is requirement for success Three phases Design phase until July 2008 Regulatory approval (2-3 months) Implementation phase (planning to be defined)

Project organization - 2 Meeting Monthly JOINT STEERING COMMITTEE: All Partners / Co-Chaired by TSO/PX Every 2 weeks JOINT PROJECT BOARD : All Partners / Chaired by Project Manager Coordination Team : Project Manager + Workstream Leaders + Subproject Leaders Communication Coordinator + Distribution list All Parties Weekly Workstream Legal & Governance Workstream Algorithm Design + Task forces when needed Workstream Market Design Workstream Technical Workstream Regulatory Workstream Communication Subproject TSO – Flow Based Model

Interaction with PLEF/REGs Purpose Inform regulators and other stakeholders on progress and solutions Facilitate regulatory approval procedure and market consultation Take into account REGs concerns Transparency, non-discrimination, risk of the exercise of market power Process Periodically regulators are informed on the progress and issues through PLEF or IG 4 reports during design phase Technical meetings when necessary (with regulators and/or market parties)

Deliverables to PLEF/REGs Orientation study Progress report Implementation study 31 Jan 30 april 30 July Network model Algorithm selection Governance Market design Algorithm design Tender initiated Implementation plan – estimated budget End of design Project plan 30 Nov Project organization Project deliverables

Technical Architecture Overview TSOs Back-end System: - Produces the internal grid analysis - Transfers the grid forecast to the FB System FB System: - Produces the Flow model parameters - Sends the Flow model parameters to the MC System and the TSOs back-end System MC System (CCU): built, operated and maintained by PXs - Runs the market coupling algorithm PXs Trading System: - Aggregates the order information - Transfers the aggregated order information to the MC System Bilateral Exchange System: - Calculates the cross-border flows schedules - Sends the cross-border flows schedules to the TSOs Back-end System Shipping agent: - Sells and buys energy on markets taking into account the results of the MC System - Collects the congestion revenue and sends it to CASC TSOs Back-end System Bilateral Exchange System FB System Shipping agent MC System (CCU) PXs Trading System

Legal & Governance Governance framework Set of arrangements to ensure that CWE market coupling is: Designed, built and operated to meet the needs Able to support extensions Governed by a combination of regulations, agreements, contracts, licences, shareholder agreements, procedures, etc

Design of the Market Coupling system WS Algorithm design MC system algorithm basis : 5 steps process Definition of requirements and evaluation criteria Inventory of technical options Evaluation of technical options and decision on algorithm basis (ongoing) Finalisation of the algorithm Full documentation WS Technical MC system design : IT specifications ongoing

Business processes WS Market design Description of business processes ongoing Decision on price / volume coupling taken Before the merge of the spot market of Powernext and EEX : Price coupling in TLC region + tight volume coupling from TLC to Germany After the merge : Price coupling on the whole region Fall back arrangements : Explicit auctions or Capacity distribution or Intraday TSO Sub Group Flow Based Implementation The FB prototype has been validated at the end of 2007

Conclusions and further impacts

CWE: a complex project Main constraints Technical and governance issues Very tight timeline Many resources involved Advancing… but heavy organisational constraints to deal with! Several requests for further extensions

Overview of the current European regional integration projects Many regional market systems projects are running in parallel: CWE has to deal with: flows from the Norned and the Britned cables and the EMCC project Ongoing discussions in the Central South but also in the South-West region Ongoing / Foreseeable regional integration projects

Integrating Spot power markets requires important resources and commitment from stakeholders Overlapping projects, while, in principle, one market area can participate in one implicit auction only Current discussion between CWE and EMCC / Norned participants illustrates the complexity of projects aiming at coupling already coupled or overlapping regions: Increasing number of parties, working on the consensus principle The variety of partners (commercial vs. regulated cost & revenues, private vs. public, supervised by different regulators, liquid vs. not yet liquid…) creates heterogeneous incentives Harmonization requirements (e.g. GCT, price boundaries…)

Going forward while managing the risks: How to proceed? - 1 Risks in launching different market integration projects in parallel : Risk of unmanageable overlapping integration projects Risk of inconsistency of the chosen interregional solutions regarding the other regional systems Risk of ill-designed interregional solution on the long-term Project complexity Incompatibility System quality problems

Going forward while managing the risks: How to proceed? - 2 Proposed methodology : Going further in the knowledge-sharing work regarding the features of local markets and the harmonization requirements for regional integration Keeping the CS IG informed on the CWE FBMC project Keeping the CS IG informed on the studies and the further developments made by GME on implicit auctions It is important to assess the possible modalities of coexistence of the CWE and CS regional initiatives.

Thank you for your attention!