1. Presented by: Wojciech Cetnarski – Vice President of Izba Energetyki Przemysłowej i Odbiorców Energii (Association of Industrial Power and Energy Consumers) For AEM / SVSE Conference in Praha, 14-15 September 2005 Energy Market in Poland From the Point of View of Large Consumers

2. Prepared by : IEP Poland, www.iep.org.pl 2 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Presentation Outline Introduction of IEP Outline of Polish Energy Market –Generation / consumption / distribution –Regulation –Sales and Prices Main Issues From Industrial Consumer Point of view –System inefficiencies –TPA implementation / barriers –Tax policy

3. Prepared by : IEP Poland, www.iep.org.pl 3 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Introduction of IEP IEP has been created in 1998 The mission of IEP is to represent and defend the interest of industrial energy consumers in confront with: –Generators/distributors lobbies –Government institution / bodies –Regulatory Office (URE) IEP is composed currently of 72 members, of which 41 members belong to the Large Energy Consumers Section IEP actively co-operates with main Industry Associations in Poland, such as, chemical, steel, mining, pulp&paper, glass In 2005 IEP applied to become the member of IFIEC Europe

4. Prepared by : IEP Poland, www.iep.org.pl 4 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Outline of Polish Energy Market 20 condensing power plants (5 on lignite), privatized – 5 32 CHP Plants (non industrial), privatized – 18 Source: ARE Statistics of Polish Power Industry 2004

5. Prepared by : IEP Poland, www.iep.org.pl 5 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Outline of Polish Energy Market Source: ARE Statistics of Polish Power Industry 2004

6. Prepared by : IEP Poland, www.iep.org.pl 6 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Outline of Polish Energy Market 2004 deliveries for the end-users:106 189 GWh 2004 sale to end-users: 97 760 GWh Source: ARE Statistics of Polish Power Industry 2004

7. Prepared by : IEP Poland, www.iep.org.pl 7 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Outline of Polish Energy Market Cross-border electricity trade in 2004 Source: ARE Statistics of Polish Power Industry 2004

8. Prepared by : IEP Poland, www.iep.org.pl 8 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Outline of Polish Energy Market In 2004 there was 164 Power Autoproducers in Poland (industrial power plants), while in 2003 - 169 Source: ARE Statistics of Polish Power Industry 2004

9. Prepared by : IEP Poland, www.iep.org.pl 9 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Outline of Polish Energy Market Distribution system in Poland is consists of over 555.000 km of power lines and 227.000 transformers (HV,MV,LV) Sectors structure is composed of: –PSE Operator – exist from July 1st, 2004, (state owned) responsible for the HV transmission system operations and balancing (400, 220 kV) –Polish Power Grid Company – PSE (state owned), responsible for Lon Term PPA fulfilment and cross-border trade –Historically – 33 local distribution companies (of which 2 have been privatized), now divided into 6 regional groups – final division and composition still not agreed Source: TOE TPA Report 2004

10. Prepared by : IEP Poland, www.iep.org.pl 10 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 The foundation act for Polish Energy Market is the Energy Law of April 10, 1997 (26 changes till now). EL includes all form of energy carriers (electricity, heat, gas, fuels) and assumes creation of liberal, open and competitive energy market, with some regulated areas: –where the natural monopoly system exist (transmission and distribution), and –where energy is delivered to retail customers EL requires legal split between trading and distribution services activities, even within the same company Implementation of the EL and regulatory duties are executed by the independent Regulatory Office (URE), using as the tools: –Concessions –Decisions –Tariffs By-laws to EL are issued by Ministry of Economy Regulations

11. Prepared by : IEP Poland, www.iep.org.pl 11 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Sales and Prices Electricity sale structure reflects the changes of the Polish Energy Market Still over 40% of electricity is traded under the long term PPA (KDT) by PSE Distribution companies are forced to reduce the trade volumes in favour of TPA customers, trading companies and Pool Source: ARE Statistics of Polish Power Industry 2004

12. Prepared by : IEP Poland, www.iep.org.pl 12 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Sales and Prices Summary of average wholesale (PolPX) and retail prices 2003-2005: Centrel (PL, CZ, SL, HU) Source: DG Energy and Transport QUARTERLY REVIEW OF EUROPEAN ELECTRICITY AND GAS PRICES

13. Prepared by : IEP Poland, www.iep.org.pl 13 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Sales and Prices Competitive electricity wholesale market forced producers to reduce prices, even more then there were able to reduce their cost Source: ARE Statistics of Polish Power Industry 2004

14. Prepared by : IEP Poland, www.iep.org.pl 14 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 URE efforts in controlling the tariff prices is visible as cross subsidizing of smaller customers by larger is being reduced Unfortunately, the electricity prices still grow despite their reduction by producers Sales and Prices Source: ARE Statistics of Polish Power Industry 2004

15. Prepared by : IEP Poland, www.iep.org.pl 15 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Main Issues From Industrial Consumer Point of View The most important problems slowing down development of the free and competitive Energy Market in Poland: Energy price higher then it should be ! Lack of law stability and clarity Uncompleted privatisation Unsolved Long Term PPA (KDT) TPA implementation barriers

16. Prepared by : IEP Poland, www.iep.org.pl 16 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Main Issues From Industrial Consumer Point of View System inefficiencies: –Incomplete privatization is causing lack off real game of interest on the market – State owns generation, transmission and distribution assets and is regulating the market at the same time –Unsolved KDT are strongly influencing the electricity price and whole system of electricity trade – only 50% of electricity in Poland, potentially, can be freely traded –EL, after 26 changes is lacking consistency and clarity – some obvious solutions have been introduced only recently, as in the past were strongly blocked by lobbies opposite to market opening Solving the above inefficiencies should allow a fair relationship between the customers and electricity suppliers willing to accept tariff system

17. Prepared by : IEP Poland, www.iep.org.pl 17 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Main Issues From Industrial Consumer Point of View TPA implementation barriers –Market snapshot (2005 TOE estimates) : There is 294 Electricity Trading Companies (ETC) licensed by URE In reality only 20-22 ETC actively trades on the market Estimated volume of electricity traded by ETC - 32 TWh No of customers dealing with ETC – 44 Data Min. Purchase per y. (GWh) No of eligible customers Volume (TWh) Market open. degree [%] No of customers benefiting from TPA 1 January 2002>106413837% 19 1 January 2004>1c.a. 6.6005351% 44 6,6 TWh 1 July 2004 all Companies c.a. 1,9 mln6968% acc. URE 78 acc. TOE 44 9,8 TWh 1 July 2007 all Customers c.a. 15,6 mln102100%??? Source: TOE TPA Report 2004

18. Prepared by : IEP Poland, www.iep.org.pl 18 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Main Issues From Industrial Consumer Point of View In case of the TPA customers, despite the significant increase in volume, price increase for transmission services was 5 X bigger (!!!) then for the tariff customers Vertical consolidation of the power sector, promoted by government will increase the squeezing of new ETC, which are the cheapest seller, in favour of existing players Source: ARE Statistics of Polish Power Industry 2004

19. Prepared by : IEP Poland, www.iep.org.pl 19 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Main Issues From Industrial Consumer Point of View TPA implementation barriers –Extremely high demand from transmission system operator (PSE Operator) and local distributors regarding the accuracy and redundancy of the measurement equipment and data transfer systems – no standards –Lack of possibility to balance the market locally and with the accuracy smaller then 1 MW –Lack of standardized Transmission Agreements and procedures for change of energy supplier –Calculation of cost of balancing the market not based on real cost incurred by the participants

20. Prepared by : IEP Poland, www.iep.org.pl 20 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Main Issues From Industrial Consumer Point of View TPA implementation barriers –The barriers are well known and defined –IEP, together with other market participants (mainly ETC) developed several solutions which should be implemented –Some of the postulates have been accepted by URE and government and implemented to the last amendments to the EL (March 10,2005): Legal and organizational separation of the energy trade activities from transmission and distribution services HV/MV transmission systems operating instruction will be subject to the approval of URE IEP hopes that by continuing the lobbying efforts and cooperation with key market players will be able to change the todays picture of the energy consumer trying to use its TPA rights

21. Prepared by : IEP Poland, www.iep.org.pl 21 AEM/SVSE Conference, Praha, Sept. 14-15, 2005 Main Issues From Industrial Consumer Point of View Critical issue for industrial consumers of energy in Poland is the level of energy taxation EU imposes only minimum excise tax requirement on member states: EUR 0,5-1,0 Last government announcement of increasing the excise tax on electricity up to EUR 5,4 will put Poland among top 5 countries with highest excise tax (D, FIN, S, DK) Source: 2005 ENEA Tariff for A23 Group customers

22. THANK YOU Presented by: Wojciech Cetnarski – Vice President Izba Energetyki Przemysłowej i Odbiorców Energii ul Poleczki 21 02-822, Warszawa Tel.: +48 22 545 0365 Fax : +48 22 545 0366 iep@iep.org.pliep@iep.org.plwww.iep.org.pl