Draft Framework Guidelines on Capacity Allocation and Congestion Management

Florence Forum13 December 2010

Alain Marien ENM TF co-chair

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Context • 17th 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

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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)

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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 Market3.Efficient Forward Electricity Market4.Efficient Intraday Market

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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

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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.

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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

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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 (24 + 2 confidential) to the consultation

document • and new draft of the FG

• ERGEG approval: early 2011

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Thank you for your attention!

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