Towards Regional Independent Operators – a main driver for successful market integration

Setting the scene 3 rd liberalisation package – 2 options proposed by the Commission: –Ownership Unbundling –National ISO model as second best solution Rationale: guarantee fair access to networks and remove discriminatory behaviour of vertically integrated companies BUT Ownership unbundling NOT conducive to market integration + 2 nd step needed to bring TSO activities together National ISO model not sufficient for market integration

Rationale for proposing a RIO Need to speed up market integration –To alleviate concerns of market concentration thereby increasing the number of market participants –To enhance price convergence –To reinforce trust in price formation and markets’ abilities to deliver –Etc. Close TSO cooperation needed for development towards an internal electricity market  RIO-model will drive market integration + solve the issue of fair access to networks

Tasks of a RIO – I Clear separation of the responsibilities of the RIO and the TSOs needed Access to the networks Day-ahead scheduling activities Calculation of grid capacity Procurement of balancing services Capacity allocation Secondary capacity markets Nomination of capacities Cross-border intra-day Invoicing for network usage

Tasks of a RIO – II Real-time operations Real-time system management Counter trading and redispatching Balancing of the grid System planning System adequacy report Investment plan Execution of investments = RIO to make a binding decision on the needs for additional capacity + set a timeframe for fulfilment by TSOs –TSOs obliged to fulfil capacity needs –Competent regulatory authority to approve decision

Remaining tasks for the asset owners (TSOs) Asset management as owner of the transmission assets Provide maximum availability of grid capacity (capacity adequacy) Execution of investments = Fulfilling the request for additional capacity (based on RIO’s binding decision on capacity needs) –For TSO to decide concrete technical investment project, i.e. how to practically fulfil the capacity needs, in close cooperation with the RIO Execution of maintenance work Provision of information to the RIO Tariff administration

Tasks and structure of the RIO

Governance and independence of the RIO – I Set-up of the RIO through legislation Independent Management of the RIO –Sole responsibility for day-to-day decision-making –Rules for management unbundling will apply Independent Supervisory Board –No conflict of interest with interests of RIO –Trustee organisation: correct balance to be found when appointing the trustees; no majority for any stakeholder group on regional level –Transparent decision-making process Advisory Committee(s) –To provide necessary technical input to the management of the RIO –Transparent decision-making process Supervision by the competent regulatory authorities on regional level

Governance and independence of the RIO – II Regulated organisation –Management incentives to achieve efficiency Separate accounting for different activities Remuneration of the expenses of the RIO via grid fees Liability: need for further discussion

Fair access to networks – I NOWWith RIO Generator 1Generator 2 TSO 1TSO 2 Regulator 1 Regulator 2 Access request by market participants owns Controls fair access Generator 1Generator 2 TSO 1TSO 2 Competent regulatory authority Access request by market participants owns RIO Controls fair access

Fair access to networks – II Fair access is guaranteed through strict governance rules for RIO (via independent management and independent supervisory board) Fair access also to be guaranteed through strict application of Directive 2003/54 –Effective and consistent implementation in Member States to be ensured –Rules for management unbundling to apply to Management of RIO –Supervision by competent regulatory authority Clear & transparent complaint mechanisms based on Directive 2003/54 Supervision by the competent regulatory authority

Regional market integration RIO to drive regional market integration  No geographical overlaps between RIOs, but responsibility for well-defined regional markets RIO should cover neighbouring TSOs Markets should not be split up but remain part of the same RIO Responsibility for inter-regional coordination Definition of regions: use EC Strategy Paper as a basis

Investments – Decision-making process RIO, with input of amongst others asset owners, carries out multi-annual regional adequacy analysis = basis for investment decisions –Optimisation of the regional grid RIO defines capacity needs which have to be fulfilled by the TSOs within a clear timeframe set by the RIO  –Approval by competent regulatory authority on regional level Leads to a concrete (technical) investment project decided by the asset owner (in close cooperation with RIO) –Obligation of the TSO to carry out investments which meet the capacity needs identified by the RIO (i.e. for TSO to decide how to practically meet the capacity needs) –Approval by competent regulatory authority on regional level

Investments – Decision-making principles Criteria in the decision-making process of the RIO Network situation in neighbouring areas Grid integrity Security of supply Value of enhanced system security and better system operation Socio-economic value of reduced generation costs for the region, taking account –Value of a better functioning market, e.g. price convergence and price correlation –Optimization of network losses Value of accommodating sustainable energy system changes Value of a more flexible network that can cope with changes in the market

Investments – Who pays for investments? Financing in general via network tariffs 2 ways to distribute the costs for investments: –New investment paid for by the customers benefiting from the investment OR –Socialisation of new investments to all customers of the region covered by the RIO Further discussion needed

Regulatory oversight Regional and ultimately European regulatory function to supervise RIO European mindset and mandate of (national) regulators needed as precondition Regional/European regulatory function to carry out the following tasks: –Approve the statutes of the RIO –Supervise network access to guarantee non-discriminatory access –Approve decisions on capacity needs and for the concrete investments –Approve the operational costs of the RIO –Ensure inter-regional cooperation of regulators responsible for different RIOs –Etc. A way to do it: create regional sub-committees within an ERGEG+ with active role of the Commission and clear fall-back powers