Draft Framework Guidelines on Capacity Allocation and Congestion Management Florence Forum 13 December 2010 Alain Marien ENM TF co-chair

2XVIII Florence Forum, June th Florence Forum, December Context 17 th Florence Forum of December 2009 : Presentation of the Project Coordination Group (PCG) Target Model on Congestion Management Creation of the “Ad Hoc Advisory Group” AHAG to assist ERGEG and set up of three implementation projects Day-ahead and Governance, Intraday and Capacity Calculation end-March 2010, Commission invites ERGEG to draft a FG on CACM A specific project team created inside ERGEG ENM TF to draft the Initial Impact Assessment (IIA) and the draft Framework Guideline (FG) Workshop organised 18 October 2010 Public consultation on the draft FG closed on 10 November 2010

3XVIII Florence Forum, June th Florence Forum, December Problem identification Primary problem to be addressed: the inefficient and sub- optimal use of transmission network capacity between and within the control areas Current CACM methods have not enabled market liquidity and formation of reliable prices in day-ahead & forward electricity markets Strong adverse incentives for the TSOs to underestimate commercial available capacity have been created CACM methods do not sufficiently account for large-scale variable generation (e.g. taking into account loop flows)

4XVIII Florence Forum, June th Florence Forum, December Objectives Overarching objective: an optimal use of power generation plants and transmission across Europe Sub-objectives: 1.Optimal Use of Transmission Capacity 2.Reliable Prices and Liquidity in the Day-Ahead Market 3.Efficient Forward Electricity Market 4.Efficient Intraday Market

5XVIII Florence Forum, June th Florence Forum, December Policy options Capacity Calculation: CACM network code(s) shall foresee that TSOs define and implement either Flow-Based or ATC method Zone delimitation: A zone: = a bidding area, Objective: overall market efficiency, taking into account network topology Should contribute towards correct price signals Zone delimitation: proposed by TSOs, reviewed by NRAs

6XVIII Florence Forum, June th Florence Forum, December Policy options Capacity allocation methods for the day-ahead market: CACM network code(s) shall foresee that: TSOs, in cooperation with PXs, implement capacity allocation on the basis of implicit auctions via a single price coupling algorithm which determines at the same time the volumes and prices in all relevant zones Capacity allocation methods for the forward market: CACM network code(s) shall foresee that: the options for enabling risk hedging for cross-border trading are Financial Transmission Rights (FTR) or Physical Transmission Rights (PTR) with UIOSI (Use-It-Or-Sell-It) unless appropriate cross-border financial hedging instruments are offered in liquid financial markets.

7XVIII Florence Forum, June th Florence Forum, December Policy options Capacity allocation methods for the intraday market: CACM network code(s) shall foresee: The evolution of continuous implicit trading, including reliable pricing of intraday transmission capacity reflecting congestion (i.e. in case of scarce of capacity). This should include automatic matching and appropriate block bids and sophisticated products where needed When there is sufficient liquidity, implicit auctions may be implemented. In case of coexistence of both solutions, they should be coordinated. ERGEG plans to develop the ID method more prescriptively when finalising the CACM FGL

8XVIII Florence Forum, June th Florence Forum, December Next steps Public consultation – first comments: Zone definition: size (small, large, homogenous), transition process, liquidity, impact on other zones, assessment of benefits Intraday: recalculation of transmission capacities, OTC issue and single access point to the CMM, absence of discrimination, importance of price signal, obligatory use Long-term transmission rights: existence confirmed everywhere, length, volume calculated by TSOs, Interim solutions: necessary, not delay the target model, if well explained December 2010: evaluation of responses ( confidential) to the consultation document and new draft of the FG ERGEG approval: early 2011

9XVIII Florence Forum, June th Florence Forum, December Thank you for your attention!