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Belpex project and market
coupling
APEX Conference
Seoul, 30 October 2006
B. den Ouden, CEO APX Group
Agenda
 Development APX
 Belpex and Trilateral market Coupling
 Multilateral European perspective
Page 2
Building the APX Group




1999: Amsterdam Power Exchange
2003: APX UK (power), EnMO (gas)
2004: UKPX (power)
2004: Re-branding
 2005: APX Gas ZEE, APX Gas NL
Page 3
Auctioned day-ahead market
Price
Demand





Double-sided auction system
Hourly day-ahead contracts (MWh)
Physical delivery
Central counter party: APX
Equilibrium price for each hour
(Euro/MWh)
 Hourly volumes/prices published
Supply
clearing price
traded volume
Quantity
2,500.0
MWh
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Eur
2,000.0
1,500.0
1,000.0
500.0
0.0
1
Page 4
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Volumes Dutch Power Spot Market
2000-2006 Average MWh/day and % of end delivery
MWh
%
70,000
24
22
60,000
20
18
50,000
16
40,000
14
12
30,000
10
8
20,000
6
4
10,000
2
0
Jan-00
Page 5
0
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Development of intra-day market
 Regulator roadmap promoting intra-day cross-border market.
An international intra-day market would be the best solution
 As APX Eurolight trading system allows fast implementation
and members support this:
 APX has started up national market, precursor to international
 Willingness to develop this further with international partners
APX Power NL Strips - Last update: 09:15 - 12th October 2006
Instrument
Open (€)
High (€)
Low (€)
Close (€)
Volume (MW)
NL BASE 13OCT06
52.50
52.50
52.50
-
50.0
APX Power NL Intraday - Last update: 18:15 - 13th October 2006
Instrument
Open (€)
High (€)
Low (€)
Close (€)
Volume (MW)
13OCT06 - PTE 62
68.00
68.00
68.00
-
15.0
13OCT06 - PTE 63
68.00
68.00
68.00
-
15.0
13OCT06 - PTE 64
68.00
68.00
68.00
-
25.0
13OCT06 - PTE 81
69.00
69.00
69.00
-
35.0
13OCT06 - PTE 82
67.00
69.00
67.00
69.00
40.0
13OCT06 - PTE 83
67.00
69.00
67.00
69.00
40.0
13OCT06 - PTE 84
65.00
65.00
65.00
65.00
20.0
13OCT06 - PTE 96
36.00
36.00
36.00
36.00
25.0
14OCT06 - PTE 01
37.00
37.00
37.00
37.00
50.0
14OCT06 - PTE 02
37.00
37.00
37.00
37.00
30.0
Page 6
Market transparency
 Report EC competition highlights market information
 Information e.g. on maintenance and outages of power plants, is
needed, especially for non-incumbent players or investors.
 A good system of market information for power, gas, emissions is
needed. APX supports and facilitates initiatives
Availability information
Date
16-10-2006
15-10-2006
14-10-2006
13-10-2006
12-10-2006
11-10-2006
Page 7
Gas
Coal
Other
Total
4657
9499
945 15101 Installed MW
4642
9163
945 14750 Available MW
4657
9499
945 15101 Installed MW
4642
8509
945 14096 Available MW
4657
9499
945 15101 Installed MW
4557
8399
590 13546 Available MW
4657
9499
945 15101 Installed MW
4642
9129
815 14586 Available MW
4657
9499
945 15101 Installed MW
4547
8125
610 13282 Available MW
4657
9499
945 15101 Installed MW
4547
8276
610 13433 Available MW
Published bid curves
Participants per market (Sept
(2002)2005)
64
70
60
50
47
45
40
30
20
9
17
Gas Zee
Gas TTF
10
0
Power NL Power UK
Page 8
Electricity markets
Gas UK
Gas markets
Product Volumes APX Group, MWh/day
1,225
55,160
March 2006
26,880
27,530
APX spot NL
Settl. LCH.Clearnet
UKPX electr.
Gas UK
351,070
Page 9
Gas Zee+TTF
Corporate
APX Group:
 5 markets…………

 ~ 120 members
 Profitable
Traded:
 ~ 150 TWh of energy/year
 ~ 4 billion Euro/year
Page 10
activity
NL
UK
B
Electricity
X
X
*
Gas
X
X
X
Carbon
+
X
+ Service for Climex Alliance
* Service for Belpex
Agenda
 Development APX
 Belpex and Trilateral market Coupling
 Multilateral European perspective
Page 11
Market Coupling: integration of
European power market
Page 12
Europe’s ambition: one
common power market
 Not enough
transmission capacity
 Price harmonization
not possible:
 Local markets
Fragmented market!
How to optimize limited
transmission capacity?
 Market-based
 Explicit auction
 Implicit auction
(= market coupling):
 Nordic Model
 Decentralized
Trilateral Market Coupling
APX-Belpex-Powernext



Market coupling for daily allocated capacity
between 3 countries: Trilateral Market Coupling
Monthly and yearly auctions remain
Co-operation project :
–
–

Exchanges and TSO’s; APX / Powernext
Services to Belpex
 TenneT
APX
Belpex exchange: jointly owned
60% Elia, 10% TenneT-APX-RTE-Powernext



Testing of Market Coupling
system: good results
Launch Nov 2006
Regulators decision
Bel
pex  Elia
Power
next  RTE
Page 13
Market coupling:
1. Situation with daily explicit auction
Price/ Auction
revenue
Explicit
auction of
transmission
capacity
Spot market
area A
Disadvantages:
 Additional daily risk
 “Hoarding” capacity
 Adverse scheduling
 Incomplete use
 Market fragmentation
Demand Spot market
incl
area B
exports
Price
?
Maximum
im/export
Supply incl
imports
Quantity
Page 14
Quantity
Market coupling:
2. Replacement by daily implicit auction
Price difference
/Auction revenue
Explicit
auction of
transmission
capacity
Spot market
area A
Maximum
imports
Quantity
Page 15
Spot market
area B
Maximum
exports
Price
Maximum
im/export
Advantages:
 Removal of daily risk
 No adverse scheduling
 All capacity 100% used
Quantity
Market coupling:
3. Situation without congestion
No congestion:
Equal price
Explicit
auction of
transmission
capacity
Spot market
area A
Optimal
imports
Quantity
Page 16
Spot market
area B
Optimal
exports
Price
Maximum
im/export
Advantages:
 Markjets merge
 No fragmentation
 European market
Quantity
The benefits of implicit auction
(market coupling)
From 2-step process: 1) capacity auction
2) spot market,
Now 1-step process: spot markets & integrated cross-border
auction
 All local players play internationally; better liquidity, transparency
When there are transmission constraints:
 Capacity always used to the maximum, most optimal way
 Guaranteed 100% use it or lose it + netting of im/exports
When there is no real constraint:
 Market coupling unifies markets / prices
 For x % of time, markets merge:  “part time copper plate”
 Integrated European electricity market
Page 17
Illustration of potential: unused and
adversely scheduled capacity 2005
80%
Adverse flow
60%
42% of all hours
40%
Incomplete use of
Transmission capacity
20%
0%
-50
NL to F
Net transit nominationa as a
percentage of available capacity
F to NL
100%
-40
-30
-20
-10
0
-20%
10
20
30
Hourly price difference: APX Powernext (EUR/MWh)
-40%
Hourly transit flow nominations NL F as % of
available transit capacity, versus price differential
Page 18
40
50
Decentralized market coupling:
influence of im- and export on individual
area prices
Price
Area A
Price
Area B
demand
export
demand
supply
supply
import
Quantity
Page 19
Quantity
Decentralized market coupling: 2 countries
Elasticity curves
• Depicting price influence
of potential im/exports
Area
Prices
price of
area
• Each exchange produces
hourly curves
Y
• zero import price is based
on area bids like today,
price dependency curve is
based on the same in
case of additional imports
and exports
Isolated price Y
Isolated price X
price of
area
Imports
Page 20
X
0
Exports
Situations: unconstrained/constrained
Area
Prices
Available
transmission
capacity
price of
area
Y
Unconstrained case:
• Enough transmission
capacity
• Price for both areas
identical: enough
capacity to set price at
intersection of curves
Area price Y
Area price X =
Area price Y
Area price X
Flow YX
Page 21
Constrained case:
• Limited transmission
capacity
• Prices for areas differ:
set at max. im/exports;
congestion revenue
0
Flow X Y
System development
 Current APX and Powernext systems for spot market
 Prototype for 2 markets
 Prototype for 3 markets (somewhat more complicated)
 Trilateral market coupling development
 Joint development of APX and Powernext: central coupling
module, local modules, iteration rules
 Calculation for each hour: straightforward, no iterations
 Calculation with multi-hour blocks: iteration needed
 Development for X markets: underway
 Multilateral market Coupling (MLC)
 European development
Page 22
Implementing a decentralised technical
approach
POWERNEXT
BELPEX
2
Same as
Belpex
APX
Schedule
Bids
3a
3b
Nec
Block
creator
selector
Same as
Belpex
Portfolio
allocator
5
4
Coordinatio
n Module
TSO
Available
Transmission
Capacity ATC
Page 23
1
Iterative and decentralized, yet:
Efficient: costs within limits
Fast
: results within minutes
Right : converging iterations
Reliable: allocate within ATC’s
Market Coupling Daily Process
 Harmonised deadline for order submission: 11:00am
 Target time to publish results: 11:30am (latest 11:45am)
Available
Transmission
Capacities
published
Initial Data sent by
each Exchange to
the CM
Deadline
for order
submission
10:00
11:00
Intermediary
Results sent
to local
Exchanges
systems
Results
ready
11:20
11:25
11:10
Iterative
Order book
closure and Initial calculations
calculations
Page 24
Results
published
11:45
Consistency
Final
checks
calculations
Contractual approach

o
o
o
One multilateral arrangement
Principles, objectives of market coupling
Roles and responsibilities, main flows
Contractual scheme and governance
structure
 Arrangements between Exchanges
o Provide algorithms and systems
o Operate Market Coupling
 Arrangements between TSOs
o
o
o
o
Page 25
Calculate and Publish Capacity
Ship the Cross-Border Flow
Share congestion revenues
Ensure firmness
 Local arrangements TSO-Exchange
o Provide/ receive ATCs
o Issue/ accept Results
Result TLC (Trilateral Market Coupling)
region: countries become price zones
Outcome depends on market forces, transmission constraints:
F ≠ B ≠ NL
F ≠ B = NL
F = B ≠ NL
Latest news
On 27 October 2006, the three regulators
from the three countries approved this.
Start of trading according to this coupling is
scheduled for 21 November 2005
Page 26
F = B = NL
Agenda
 Development APX
 Belpex and Trilateral market Coupling
 Multilateral European perspective
Page 27
From Trilateral to Multilateral
solution
Nord Statnett
pool
TLC: NL-B-France
2.
NorNed cable
APX, Nord Pool, TSO’s
Co-operation with
Belgian, French partners
Further extension possible
1.
TenneT
APX
Belpex Elia
Page 28
Power
next RTE
Linking two regions
 NorNed cable links two regions,
already internally coupled:
– TLC region Netherlands,
Belgium, France
– Nordic region Norway, Sweden,
Finland, Denmark
 Steering committee established:
– 4 exchanges APX, Belpex, Nord
Pool, Powernext
– 4 TSO’s Elia, RTE, Statnett,
TenneT
 Aim at an enduring solution with
European scope
 Possible interim solution for livedate of cable October 2007
Page 29
Develop an enduring solution
Enduring solution:
 MMC = Multilateral Market
Coupling
 Optimize Nordic and TLC region
 “Open solution, other interested
parties will be invited to
contribute as the project
progresses” *
 E.g. Spain, UK, Germany,
Poland, Baltic countries, others
 Able of coupling many regions
 Flow-based, able to handle loop
flows
* Paper by Statnett, TenneT, Elia, RTE, Nord Pool Spot, APX, Belpex and Powernext presented at the “mini-forum” organised by the regulators on
the central North-West European electricity market, 20 June 2006
Page 30
Open system, more possibilities
 Parties committed to
facilitating the addition of
further areas to the
approach, open to any other
new partners (Iberian
peninsula, Italy, UK/ireland,
Germany, Central Europe,
Eastern Europe)
 Fits with “Regional Markets”
approach as foreseen by
European Commission,
European
Regulatory Forum
Page 31
Mix of implicit and explicit auctions
Scandinavian model:
only daily cross-border
 No auction of longterm capacity
 All capacity daily
allocated in market
“splitting”
 Long-term contracts
are financial
Central European model:
mix of daily and long-term
 Explicit auction for
monthly/yearly capacity
 Daily capacity auction,
explicit or implicit
(=market coupling)
 Both physical and
financial cross-border
contracts
Re-trading / settlement
should be possible
 Submit long-term
capacity for reauctioning, getting
implicit auction value
 “Use it or sell it”
 Use physical right as a
Financial Transmission
Right (FTR)
:
Daily
All
Daily
capacity
Implicit
Auction
Monthly
and
Yearly
Implicit
Voluntary:
Resubmit for
Implicit
Explicit
Auctioned
Page 32
or
Schedule it
physically
Implicit
+
Implicit
Physical
scheduling
Scheduled
From ATC’s to PDTF’s
Currently: Available Transmission
Capacities (ATC)
 Calculation for each border
 Sub-optimal
Towards PTDF’s:
 Physical electrical flow paths
taken into account
 Maximises use of capacity
but
 Meshing makes more difficult
the carving up explicit/implicit
Interconnector
Single price
area
 Need for Long-term Financial
Transmission Rights
+
 Daily settlement in flow-based
implicit auction between PX’s
 Roles of TSO’s and Power
exchanges
33
Summary
North West European market is integrating fast
 First step: Belpex + coupling France – Belgium – Netherlands
Trilateral Market Coupling (TLC)
 Based on intensive co-operation between exchanges, TSO’s
 Due to start soon
A VITAL LINK IN ENERGY TRADING
 Next step: NorNed cable: connect TLC and Nordic regions
Towards an enduring an Multilateral system
Towards a enduring European, flow-based solution
 Open and accessible system, suitable for more countries
 Other exchanges/countries invited to comment and contribute
Page 34