1. Flow-based Allocations Mini Forum Central Western REM June 20 th, 2006

2. Pursuing the Optimum. Two Paths Unilateral Auctions Bilateral Auctions Multilateral Auctions Market Coupling Unilateral ATC assess. Coordinated ATC assess. Technical Profiles Flow-Based When dealing regional capacity allocations, a maximised social welfare can be reached through two different paths:  market coupling first (sharing energy bids)  flow-based modelling first (optimal use of the system) Sharing bids path #1 Grid models path #2

3. ETSO Vision on Achieving the Optimum Effective and timely use of available data by TSOs, including  regulatory and market frameworks which facilitate free and confidential data exchanges  access to relevant data from market participants  efficient data exchanges between TSOs Progressive development of the ETSO regional flow-based transmission model

4. What is the Flow-Based Model? An improvement of the NTC/profiles concepts, supporting  regional auctions (explicit or implicit), complying with new CM Guidelines  a highly meshed grid Elaborated by TSOs, based on a reference state of the power system

5. What is the Flow-Based Model? cont. Adding more accuracy (=security)  preserving the zonal/hub model  reducing the impact of wrong predictions  increased but moderate volume of data to be exchanged by TSOs Step-by-step implementation possible  technical dry-run implementation  decentralised / centralised

6. Theoretical Comparison of Models Flow based modeling maximises the security domain allowing for more cross-border trade opportunities flow-based Security domain Coordinated ATC assessment max(A=>B+A=>C) Coordinated Technical profiles assessment B A C 100 160 170

7. Heading for Some Cultural Changes? Reaching the limits of TSO subsidiarity  Political will and compatible regulatory frameworks are both required  supporting free and confidential exchange of data between TSOs  supporting a single set of regional capacity allocation Rules Using a regional flow-based transmission model means that…  all capacity (explicit) or energy (implicit) bids are simultaneously cleared  the market will find its most efficient XB trades by itself  no more sub-optimal ex-ante sharing of fixed NTCs  congestion income is shared on a regional basis

8. What Roadmap for the Region? Integrating the national wholesale markets in this region should be seen as the priority  Central Western REM > 50 % of the IEM  interconnected to all other REMs Local initiatives should always be supported  implementation of market based mechanisms since end of 2005 on all interconnections  implementation of Trilateral Market Coupling in 2006

9. What Roadmap for the Region? cont. A common regional allocation of capacities through the integration of all spot markets as the natural next step in the region …and beyond! Aiming at the optimum thanks to the development of an underlying flow-based transmission model as the final target

10. ETSO ‘Flow-based’ Publications ‘List of data European TSOs need to pursue optimal use of the existing transmission infrastructure’, December 2005 ‘FMC-Flow-based Market Coupling’, September 2004 ‘Cross-Border Electricity Exchanges in Meshed AC Power Systems’, April 2004 ‘Coordinated Congestion Management, an ETSO Vision’, April 2002 www.etso-net.org