Belpex project and market coupling

APEX ConferenceSeoul, 30 October 2006

B. den Ouden, CEO APX Group

Page 2

Agenda

Development APX Belpex and Trilateral market Coupling Multilateral European perspective

Page 3

Building the APX Group

1999: Amsterdam Power Exchange

2005: APX Gas ZEE, APX Gas NL

2003: APX UK (power), EnMO (gas) 2004: UKPX (power) 2004: Re-branding

Page 4

Price

Quantity

SupplyDemand

clearing price

traded volume

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

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

0.005.0010.0015.0020.0025.0030.0035.0040.00MWh Eur

Auctioned day-ahead market

Page 5

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

MWh

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

Volumes Dutch Power Spot Market 2000-2006 Average MWh/day and % of end delivery

%

24

22

20

18

16

14

12

10

8

6

4

2

0

Page 6

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 2006Instrument 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 2006Instrument 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

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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

Published bid curvesAvailability information Date Gas Coal Other Total

4657 9499 945 15101Installed MW4642 9163 945 14750Available MW4657 9499 945 15101Installed MW4642 8509 945 14096Available MW4657 9499 945 15101Installed MW4557 8399 590 13546Available MW4657 9499 945 15101Installed MW4642 9129 815 14586Available MW4657 9499 945 15101Installed MW4547 8125 610 13282Available MW4657 9499 945 15101Installed MW4547 8276 610 13433Available MW

12-10-2006

11-10-2006

16-10-2006

15-10-2006

14-10-2006

13-10-2006

Page 8

179

64

4547

0

10

20

30

40

50

60

70

Power NL Power UK Gas UK Gas Zee Gas TTF

Participants per market (2002)

Electricity markets Gas markets

Participants per market (Sept 2005)

Page 9

Product Volumes APX Group, MWh/day

March 200655,160

26,880

27,530

351,070

1,225

APX spot NL

Settl. LCH.Clearnet

UKPX electr.

Gas UK

Gas Zee+TTF

Page 10

APX Group:

5 markets………… ~ 120 members Profitable

Traded: ~ 150 TWh of energy/year ~ 4 billion Euro/year

activity NL UK B

Electricity X X *

Gas X X X

Carbon + X

Corporate

+ Service for Climex Alliance* Service for Belpex

Page 11

Agenda

Development APX Belpex and Trilateral market Coupling Multilateral European perspective

Page 12

Market Coupling: integration of European power market 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

Page 13

Trilateral Market Coupling APX-Belpex-Powernext

APX

Belpex

Powernext RTE

Elia

TenneT

Market coupling for daily allocated capacitybetween 3 countries: Trilateral Market Coupling

Monthly and yearly auctions remain Co-operation project :

– Exchanges and TSO’s; APX / Powernext

– Services to Belpex Belpex exchange: jointly owned

60% Elia, 10% TenneT-APX-RTE-Powernext

Testing of Market Coupling system: good results

Launch Nov 2006 Regulators decision

Page 14

Spot marketarea A

Price

Spot marketarea B

?

Explicit auction of

transmission capacity

Maximum im/export

Supply incl imports

Price/ Auction revenue

Demand incl

exports

Market coupling: 1. Situation with daily explicit auction

QuantityQuantity

Disadvantages: Additional daily risk “Hoarding” capacity Adverse scheduling Incomplete use Market fragmentation

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Spot marketarea A

Price

Quantity

Spot marketarea B

Quantity

Price difference

/Auction revenue

Maximum imports

Maximum exports

Explicit auction of

transmission capacity

Maximum im/export

Market coupling: 2. Replacement by daily implicit auction

Advantages: Removal of daily risk No adverse scheduling All capacity 100% used

Page 16

Spot marketarea A

Price

Spot marketarea B

Optimal imports

Optimal exports

No congestion:Equal price

Explicit auction of

transmission capacity

Maximum im/export

Market coupling: 3. Situation without congestion

QuantityQuantity

Advantages: Markjets merge No fragmentation European market

Page 17

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 18

Hourly transit flow nominations NL F as % of available transit capacity, versus price differential

Illustration of potential: unused and adversely scheduled capacity 2005

-40%

-20%

0%

20%

40%

60%

80%

100%

-50 -40 -30 -20 -10 0 10 20 30 40 50

Hourly price difference: APX - Powernext (EUR/MWh)

Ne

t tr

an

sit

no

min

ati

on

a a

s a

p

erc

en

tag

e o

f a

va

ila

ble

ca

pa

cit

yF

to

NL

NL

to

F

Adverse flow

42% of all hours

Incomplete use of

Transmission capacity

Page 19

Price

Quantity

Area B

supply

demand

Price

Quantity

Area A

demand

supply

import

export

Decentralized market coupling:influence of im- and export on individual area prices

Page 20

Decentralized market coupling: 2 countries

AreaPrices

Imports Exports

Elasticity curves • Depicting price influence

of potential im/exports

• Each exchange produces hourly curves

• 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

0

price of

area X

Isolated price X

price of

area Y

Isolated price Y

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Situations: unconstrained/constrained

AreaPrices

Flow YX Flow X Y0

Constrained case: • Limited transmission

capacity• Prices for areas differ:

set at max. im/exports; congestion revenue

Area price Y

Area price X

Available transmission capacity

Area price X = Area price Y

Available transmission capacity

Unconstrained case:• Enough transmission

capacity• Price for both areas

identical: enough capacity to set price at intersection of curves

price of

area Y

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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 23

Implementing a decentralised technical approach

Coordination Module

1

BELPEX

TSO

ScheduleBids

Portfolio allocator

Block selector

Nec creator

2

3a 3b

4

5

Available TransmissionCapacity ATC

POWERNEXT

Same as Belpex

APX

Same as Belpex

Iterative and decentralized, yet:Efficient: costs within limitsFast : results within minutesRight : converging iterationsReliable: allocate within ATC’s

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Harmonised deadline for order submission: 11:00am

Target time to publish results: 11:30am (latest 11:45am)

11:00

Deadline for order

submission

Available Transmission

Capacities published

Initial Data sent by each Exchange to

the CM

Intermediary Results sent

to local Exchanges

systems

Order book closure and Initial

calculations

Iterative calculations

Final calculations

Consistency checks

Results ready

Results published

11:10 11:20 11:25 11:4510:00

Market Coupling Daily Process

Page 25

Contractual approach

Arrangements between TSOso Calculate and Publish Capacity o Ship the Cross-Border Flowo Share congestion revenueso Ensure firmness

Arrangements between Exchangeso Provide algorithms and systemso Operate Market Coupling

One multilateral arrangemento Principles, objectives of market couplingo Roles and responsibilities, main flowso Contractual scheme and governance

structure

Local arrangements TSO-Exchangeo Provide/ receive ATCso Issue/ accept Results

Page 26

Result TLC (Trilateral Market Coupling) region: countries become price zonesOutcome depends on market forces, transmission constraints:

F ≠ B ≠ NLF = B ≠ NL

F ≠ B = NL F = B = NL

Latest newsOn 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 27

Agenda

Development APX Belpex and Trilateral market Coupling Multilateral European perspective

Page 28

1. TLC: NL-B-France

2. NorNed cable

APX, Nord Pool, TSO’s

Co-operation with

Belgian, French partners

Further extension possible

From Trilateral to Multilateral solution

Power next

Bel-pex

APX

Nord pool

Statnett

TenneT

Elia

RTE

Page 29

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 live-date of cable October 2007

Linking two regions

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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

Develop an enduring solution

* 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 31

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

Open system, more possibilities

Page 32

Mix of implicit and explicit auctions

Scandinavian model: only daily cross-border No auction of long-

term capacity All capacity daily

allocated in market “splitting”

Long-term contracts are financial

Implicit Auction

AllDaily

capacitySchedule itphysically

Voluntary:Resubmit for

Implicit

or

Implicit

Explicit

Daily

Monthlyand

Yearly

Auctioned

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 / settlementshould be possible Submit long-term

capacity for re-auctioning, getting implicit auction value

“Use it or sell it” Use physical right as a

Financial Transmission Right (FTR)

Implicit + Implicit

Physical scheduling

Scheduled

From ATC’s to PDTF’s

Single pricearea

Interconnector

33

Currently: Available TransmissionCapacities (ATC) Calculation for each border Sub-optimal

Towards PTDF’s: Physical electrical flow paths

taken into account Maximises use of capacitybut Meshing makes more difficult

the carving up explicit/implicit

Need for Long-term Financial Transmission Rights +

Daily settlement in flow-based implicit auction between PX’s

Roles of TSO’s and Power exchanges

Page 34

A VITAL LINK IN ENERGY TRADING

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 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