European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 105/03/2000 A Vision for the Regional Electricity Market in South East Europe Brendan Devlin Office Fax Electricity and Gas Unit DG Transport and Energy Unit C2

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 205/03/2000 Terms of Reference for the REM Regional Action Plan l Process: where we are at. l Invite your Comments l Commence procedure for award of contracts

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 305/03/2000 Context Achievement of REM by 2006 Achievement of EU Internal Energy Market

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 405/03/2000 Study Value Single Contractor, but substantial subcontracts given nature of Study

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 505/03/2000 Aims of Regional Action Plan 1) Provide a comprehensive legal basis for regional trade, involving energy sector regulation reform 2) Provide a systematic guide for infrastructure investments

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 605/03/2000 Legal Basis for REM Systematized and standardized basis for electricity trade 1)Regulation 2)Contracts 3)Dispute Settlement 4)Cross Border

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 705/03/2000 Legal Basis for REM 1)Regulation -TSOs -Regulation - of Grid but not of final tariffs -Tariffs = Cost recovery +/- Capital Costs + Risk Margin+ Profit -Unbundling

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 805/03/2000 Legal Basis for REM 2)Contracts -Standard contracts -Trading -Ancillary Services -Balancing -Pricing Methodologies : reasonably foreseeable

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 905/03/2000 Legal Basis for REM 3)Dispute Settlement -National -Regional -EU-Plus -Covers all issues including investment

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1005/03/2000 Harmonization -Legislative Review -Existing Situation

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1105/03/2000 Harmonization -Implications of Legislative Review -Comparative and intelligible Regulation

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1205/03/2000 Harmonization -Propose Common regional Framework -Not One Size Fits All - but EU Model with considerable latitude for national situation

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1305/03/2000 Harmonization -Minimum Legal Protections for Investments -Capital Recovery reflected in tariffs (Moldova is a good example of this) -Network Access for Generators

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1405/03/2000 Harmonization -Adoption Experience has shown that implementation is key EBRD Interaction with TOR I -Benchmarking -Peer Review

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1505/03/2000 Establishment of Regional Market -Facilitation of Trade - Contracts-standardized -Regional Dispatching Model - (new work programme ?) -Transmission Capacity - Transparency - Market Entry

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1605/03/2000 Transmission System Operators & Regulators - National TSOs + Regulators - New post EU Model - Regional TSO - Regulators

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1705/03/2000 Infrastructure Decision Making -ISG -6 monthly reporting -Contractor will create an objective basis for the donor community to make decisions -This will be done in co-ordination with Donors

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1805/03/2000 INFRASTRUCTURE Capital Optimization -Trading -Transmission interconnection -Capital Stock and Complementary -Hydro + base power -Pricing of capital stock

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 1905/03/2000 Infrastructure Prioritization -Overall -increase security of supply -least cost solutions -factual/objective criteria for prioritization

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2005/03/2000 Infrastructure Prioritization The Contractor will provide to the Commission, the REM MC and the ISG a six monthly report, that on the basis of objective and certifiable criteria, ranks suggested interconnection and distribution infrastructure investments.

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2105/03/2000 The basic criteria will be based on the following premises : -for transmission infrastructure, the infrastructure must contribute to least cost interconnection and also to installed capital optimisation; and

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2205/03/2000 -for distribution, entail the greatest level of service delivery to final customers; and -for both, entails high levels of uninterrupted service.

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2305/03/2000 Revenue Optimization -New work on this -Bills collection -Price signaling -Pricing of Efficiency

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2405/03/2000 Revenue Maximization -Increase tariffs Cost of capital + risk premium -Rejig the bell-jar

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2505/03/2000 REVENUE Tariff Reform -Pricing at present unrelated to cost Cost based pricing -PSOs to ease and sustain transition -Strategies to encourage efficiency and least-energy cost solutions

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2605/03/2000 TIMING Indigenous capital stock -Must become commercialized Must become optimized to regional market opportunities e.g. hydropower deployed as peak power generator -Baseload generation: common dispatching procedures -Must have regard to a form of environmental pricing

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2705/03/2000 TIMING Unbundling of accounts -Vertical electricity providers must be disagregated Unbundled accounts allow clear pricing -New entrants also can enter the -Regulated transmission (TSOs)

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2805/03/2000 TIMING -REM Legislative plan will put in place: -unbundled transmission -regulators or genesis of regulator -investment protection -What it cannot do is encourage private investment directly To do what we need -tariff reform -high levels of bills collection

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 2905/03/2000 Timeline - For broader sector reforms -both ToRs require the contractors to undertake a review of necessary reforms -We want to underline the need for a correct order of activity -Regulatory Framework & Marketization of Incumbents -Unbundling -Tariff Reform and Collection -Capital optimization by trading -Next steps : private investments and change to legal basis of generators

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 3005/03/2000 Public Service Obligations -Security of supply -Supply interruption -Vulnerable constituencies -Global PSOs

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 3105/03/2000 New Tasks for the Donor Community -Accelerate tariffs and payments reform and collection -Invest in human capital for regulators and rangers -Price energy efficiency-internalize the cost of inefficiency-which not only means increasing tariffs but incentivising energy saving at transmission and distribution levels -Emphasize PSOs

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 3205/03/2000 1)Operation of REM -Secretariat -REM MC Meetings -Ministerials

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 3305/03/2000 2)Operation of REM Mechanisms -Benchmarking -Peer Review -Comprehensive Legislative Programme [ToR 2]

European Commission Directorate-General for Energy and Transport REM-Regional Electricity Market in South East Europe n° 3405/03/2000 3)Operation of REM The Role of the Contractor -impediments to investment -information source -proposals to develop the REM