Products-and-

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Available interconnection capacity split rules for the Belgian-French border: report on past practices and questions towards the market

participants This report presents an analysis of the utilization of the long term available interconnection capacity on the Belgian-French border. The findings of this report will form the basis of a market consultation on how to split the available interconnection capacity on the Belgian-French border between the different time horizons (year, month and day) for the coming years. In the 1st section we summarize the 2011 split rules. In the 2nd section we present the analysis of the usage of long term allocated capacity rights in the period January 2009 till end of February 2011. In the 3rd section, we formulate questions towards the Market Parties in order to confirm the results of the analysis and/or better understand the Market Parties’ behavior.

1. CURRENT SPLIT RULES 2011 & facts and figures on available capacity volumes and valuation The current split rules in the direction France to Belgium consist of a key to share the available capacity between the different timeframes. For 2011, the implementation of this key gave the following results::

o 1450MW available capacity for the year auction (ATC Year Auction) o 100MW available capacity for the month auction (ATC Month Auction) with a minimum

of 75MW is imposed due to the repartition key) - 400MW available capacity for the implicit daily market coupling (ATC DA) with a minimum of

325MW is imposed due to the repartition key) - Following split rules apply between month and daily capacity : 25% M – 75% D

NTC month ATC YA ATC MA ATC DA

1850 1450 75 325 1950 1450 100 400 2150 1450 150 550 2350 1450 200 700

The current split rules in the direction Belgium to France consist of a key to share the available capacity between the different timeframes. For 2011, the implementation of this key gave the following results: :

- 400MW available capacity for the year auction (ATC Year Auction) - 200MW available capacity for the month auction (ATC Month Auction) - 200MW available capacity for the implicit daily market coupling (ATC DA) - Following split rules apply between month and daily capacity : 50% M – 50% D

NTC month ATC YA ATC MA ATC DA

800 400 200 200 1000 400 300 300 1200 400 400 400 1400 400 500 500

The price convergence between France and Belgium was 70%, 85% and 98% for the periods 2009, 2010 (till November) and November 2010 till end of February 2011.

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Figure 1 and Figure 2 set out, respectively for the direction France to Belgium and Belgium to France the amount of available year, month and day ahead capacity as well as the day ahead NTC for 2009 and 2010. The amounts pertaining to the month capacity include any eventual resales, whereas the amounts pertaining to the available day ahead capacity include the resold year and month capacities following the “resale” or “Use It or Sell” principle (UIOSI).

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NTC D-1

Available month capacity

available year capacity

available day capacity

Figure 1: The D-1 NTC, the available year month and day capacity in the direction France to Belgium.

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NTC D-1

Available month capacity

available year capacity

available day capacity

Figure 2: The D-1 NTC, the available year month and day capacity in the direction Belgium to France

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Figure 3 sets out for the year 2009 and 2010 the price value of the year and month capacity rights (for the direction France to Belgium and Belgium to France) as well as the market spread.

Figure 3: The day-ahead market spread, the results of the month and year auctions in the direction France to Belgium and Belgium to France.

2. ANALYSIS THE USAGE OF LONG TERM ALLOCATED CAPACITY RIGHTS Data from January 1st 2009 till end of February 2011 have been used to analyze in both directions:

A) link between year and month nominations and day ahead market spread; B) link between year and month allocated capacity and the resales and the day ahead market

coupling spread; C) link between NTC D-1 and the year and month nominations; D) link between year and month nominations and the month auction results (volume, price) and

day ahead marketspread;

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I. In the 1st section we focus on the year and month nominations. Figure 4 and Figure 5 show the year and month nominations and the day ahead market spread for respectively the direction France to Belgium and the direction Belgium to France for the indicated time period. As can be deducted from Figure 5 for the period from January 2009 until February 2011, the congestion is mainly in the direction Belgium to France. There is less congestion in the other direction. For the direction France to Belgium, there are year and month nominations when there is also a positive spread. While sometimes the nomination behavior of the market parties follows with some delay a day ahead market spread (from April 2009 until June 2009), in other periods (for instance from April 2010 until October 2010) the majority of the nominations occur in absence of a market spread. For the direction Belgium to France, market parties also nominate with some delay with respect to a day ahead market spread except for the period April 2010 until February 2011. In that time period, the market parties have nominated capacity for a rather large amount, but there is no (significant) day ahead market spread in that direction.

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Figure 4: DA market spread and year and month nominations in the direction France to Belgium

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Figure 5: DA market spread and year and month nominations in the direction Belgium to France Table 1 & Table 2 give an overview for the nominations in both directions. Economic nominations are nominations in the direction of the spread, non-economic nominations are nominations against the direction of the spread and neutral nominations are nominations when there is price convergence between France and Belgium. A welfare loss can be associated with the non-economic nominations. For the last period and in both directions non-economic nominations do seldom occur when nominations are performed (<1%). Hence the welfare loss is almost negligible. However, in 2009 non economic nominations did occur quite often in the direction France to Belgium resulting in a welfare loss of more than 384k€. In the direction France to Belgium, between 52% and 70% of the time nominations were introduced whereas in the opposite direction close to every hour nominations were performed except for the last period where no nominations were introduced during 8% of the time.

Economic nominations

[%]

Non – economic

nominations [%]

Neutral nominations

[%]

Welfare loss due to non-economic

nominations [€]

Share of nominations compared to total hours

[%] 2009 0.55 15.09 84.36 -384.366 52

2010 (until 9th of November) 0.08 9.10 90.81 -38.300 63

10th of November

2010 until 28th of February

2011 0.96 0.05 98.99 -1.365 70 Table 1: Overview of the nominations in the direction France to Belgium.

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Economic nominations

[%]

Non – economic

nominations [%]

Neutral nominations

[%]

Welfare loss due to non-economic

nominations [€]

Share of nominations compared to total hours

[%] 2009 29.66 0.31 70.03 -16.236 100

2010 (until 9th of November) 15.15 0.05 84.80 -1.425 99

10th of November


2011 1.23 0.69 98.08 -5.950 92 Table 2: Overview of the nominations in the direction Belgium to France.

In table 3 the average hourly nominated capacities and the ratio towards the respective average hourly allocated capacities are presented. The averages have been calculated only for those hours were nominations actually occurred.

FR BE BE FR

Average nominated

capacity [MW]

Average ratio of nominated capacity to allocated capacity

[%]

Average nominated

capacity [MW]

Average ratio of nominated capacity to allocated capacity

[%] 2009 103 7.17 150 23.07

2010 (until 9th of November) 39 2.62 190 28.09

10th of November


2011 128 6.74 127 15.00 Table 3: Overview of nominated capacity.

The capacity in the direction France to Belgium is relatively less used (2-7% of allocated capacity) compared to the direction Belgium to France (15-28% of allocated capacity). The latter was the main economic direction from April 2009 till February 2011 but has also less available capacity for allocation. In 2010 (till Nov 2011), on average 190MW was nominated during 99% of the time. Figures 6 & 7 display the splitting of the nominations between year and month and the day ahead market spread for both directions. For the direction France to Belgium, almost all the nominated capacity is year capacity except for the beginning of 2011. At that moment, there are also significant month nominations. In the direction Belgium to France, the market parties nominate both month and year capacity.

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FR-BE

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Figure 6: DA market spread, month nominations and year nominations for the direction France to Belgium.

Figure 7: DA market spread, month nominations and year nominations for the direction Belgium to France. Tables 4 & 5 present the average year and month nominations and the ratio with respect to the respective average year and month allocated capacity. The averages have been calculated only for those hours were nominations actually occurred, In both directions the average year nominated capacity is significantly higher except for 2009 in the direction Belgium to France (economic direction).

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In 2010 the year nominations in the direction Belgium to France amounted to 40% of the respective average allocated capacity. The share of economic nominations reached 30% in 2009 and still 15% in 2010 (till November). With coupled markets, mainly in last period, only 1% of the nominations performed were economic though still 25% of the allocated year capacity was nominated. One can conclude that some Market Parties still prefer to use their capacity rights rather than reselling them even in cases where there is, at first sight, no economic rationale to do so.

Average month nominated

capacity [MW]

Average year

nominated capacity [MW]

Average ratio of month

nominated capacity to allocated

capacity [%]

Average ratio of year


capacity [%] 2009 2 101 1.60 7.75

2010 (until 9th of November) 0 38 0.20 2.95 10th of November 2010 until

28th of February 2011 32 96 6.91 6.68 Table 4: Year and month nominations and ratio nominations to allocated capacity in the direction France to Belgium.

Average month nominated

capacity [MW]

Average year nominated capacity [MW]

Average ratio of month


capacity [%]

Average ratio of year


capacity [%] 2009 63 87 27.43 21.73

2010 (until 9th of November) 28 162 9.20 40.46 10th of November 2010 until

28th of February 2011 25 102 5.49 25.54 Table 5: Year and month nominations and ratio nominations to allocated capacity in the direction Belgium to France.

In Figures 8 till 11, the relationship between hourly nominated capacity and the respective hourly allocated capacity is shown for both year and month capacity rights in both directions. The price convergence between France and Belgium was 70%, 85% and 98% for the periods 2009, 2010 (till November) and November 2010 till end of February 2011. As stated earlier, in the direction France to Belgium, a rather low share of year allocated capacity was nominated; between 3-8% on average. However, on same occasions like April till June 2009, the ratio was above 30%.

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Spread

Figure 8: Year allocated capacity, year nominations and DA market spread in the direction France to Belgium. In the direction France to Belgium, there was almost no month nominated capacity from January 2009 till January 2011. In February 2011, the ratio increased up to 20% of hourly allocated capacity.

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Figure 9: Month allocated capacity, month nominations and DA market spread in the direction France to Belgium. In the (economic) direction Belgium to France, on average between 20%-40% of year allocated capacity was nominated on hourly basis.

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Figure 10: Year allocated capacity, year nominations and DA market spread in the direction Belgium to France. Also the month capacity was quite used in this direction, averaging between 9%-27% between 2009 and Nov 2010 with peaks around 40% between November 2009 and March 2010.

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Figure 11: Month allocated capacity, month nominations and DA market spread in the direction Belgium to France.

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In tables 6 till table 13 the average hourly nomination for both year and month capacity rights in both directions and split between economic, non-economic and neutral nominations is presented. The averages have been calculated only for those hours were nominations actually occurred.

In the direction France to Belgium: although economic nominations seldom occur (<1%), the nominated year resp. month volume (226MW resp. 147MW) represent 15% resp. 31% of allocated capacity at that time. The average (neutral) nominations for year resp. month capacity rights vary between 64MW and 200MW for year resp. between 26MW and 117MW for month capacities.

Economic

nominations [MW] Non – economic

nominations [MW] Neutral

nominations [MW] 2009 84.00 161.27 201.51

2010 (until 9th of November) 44.00 29.21 64.13

10th of November 2010 until 28th of February

2011 226.17 240.00 136.21 Table 6: Overview of the average hourly year nominations in the direction France to Belgium.

Economic



nominations [MW] 2009 NA 36.88 42.35

2010 (until 9th of November) NA NA 26.74


2011 147.06 150.00 117.27 Table 7: Overview of the average hourly month nominations in the direction France to Belgium.

The ratio between nominated and allocated capacity varies between 5-15% for year resp. 12 – 35% for month nominated capacity rights in the direction France to Belgium.

Economic

nominations [%] Non – economic nominations [%]

Neutral nominations [%]

2009 6.46 12.41 15.50 2010 (until 9th of

November) 3.39 2.25 4.94 10th of November 2010 until 28th of February

2011 15.61 16.56 9.45 Table 8: Overview of the average ratio of the hourly year nominations to the hourly allocated capacity in the direction France to Belgium.

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Economic



2009 NA 19.41 34.82 2010 (until 9th of

November) NA NA 12.22 10th of November 2010 until 28th of February

2011 31.76 32.40 25.40 Table 9: Overview of the average ratio of the month nominations to the hourly allocated capacity in the direction France to Belgium.

In the direction Belgium to France, the average (neutral) hourly nominations for year resp. month capacity rights varied between 84MW and 156MW for year resp. between 45MW and 68MW for month capacities.

Economic



nominations [MW] 2009 92.56 100.37 84.45



2011 208.83 25.00 110.56 Table 10: Overview of the average hourly year nominations in the direction Belgium to France.

Economic



nominations [MW] 2009 62.93 37.04 68.20



2011 60.57 NA 47.95 Table 11: Overview of the average hourly month nominations in the direction Belgium to France.

The ratio between neutral hourly nominated and allocated capacity varies between 21-39% for year resp. 10– 27% for month nominated capacity rights. This clearly reveals that Market Parties use their long term allocated capacity rights. They also tend to use them more in the event of a positive market spread.

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Economic



2009 23.14 25.09 21.11 2010 (until 9th of


2011 52.21 6.25 27.64 Table 12: Overview of the average ratio of the hourly year nominations to the hourly allocated capacity in the direction Belgium to France.

Economic



2009 33.25 10.79 27.29 2010 (until 9th of


2011 13.66 NA 10.63 Table 13: Overview of the average ratio of the month nominations to the hourly allocated capacity in the direction Belgium to France. II. In the following section we focus on the resales volume and the link towards using a capacity right (referred to as Physical Transmission Right or “PTR”) as a financial transmission right (“FTR”). Figures 9 and 10 show the month and year allocated capacity, the resales from year and month to the day and the day ahead market spread for both directions. Before November 2009 the UIOLI-principle was in practice. This explains the steep increase of resold capacity rights post November 2009. For the direction France to Belgium, the resales increased after 2009 due to the introduction of the UIOSI principle. Almost all allocated capacity is resold in this (non-economic) direction. For the (economic) direction Belgium to France, the resales increase from the end of 2009. But not all the allocated capacity is resold, as Market Parties still nominated a significant amount of capacity on that border (between 15% - 28% of allocated capacity).

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FR-BE

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Spread

Figure 12: Month allocated capacity, the year allocated capacity, the resales from year and month to day and the DA market spread in the direction France to Belgium.

Figure 13: Month allocated capacity, the year allocated capacity, the resales from year and month to day and the DA market spread in the direction Belgium to France. Table 14 displays the average resales volume for the year 2009 till February 2011 and the percentage of resale volume compared to the amount of allocated capacity. For the (non-economic) direction France to Belgium, the resales have increased in 2010 with respect to 2009 revealing a quasi “FTR-option” use of the PTRs. For the (economic) direction Belgium to France, the

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resales volume remains more or less constant, around 72% in 2009 and 2010 till November and increasing to almost 80% in the last period as price convergence is increasing as well. The price convergence between France and Belgium was 70%, 85% and 98% for the periods 2009, 2010 (till November) and November 2010 till end of February 2011. Hence, a positive correlation between price convergence and resales can be observed.

FR BE BE FR

average daily MW resales

In % allocated LT capacity

average daily MW resales

In % allocated LT capacity

2009 986 64 468 73 2010 (until 9th of

November) 1504 95 475 72 10th of November 2010 until 28th of

February 2011 1645 92 701 79 Table 14: absolute and relative resales volume

III. In the following section we look at the relationship between the NTC in D-1 and the nominated year and month capacity rights, we observe the following in Figures 14 & 15. The nominated capacity increases when the NTCs decrease for the direction France to Belgium. For the direction Belgium to France, there is no direct link between the nominated capacity and the D-1 NTC.

Figure 14: The day-ahead NTC and the year and month nominations for the direction France to Belgium.

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NTC D -1

Figure 15: The day-ahead NTC and the year and month nominations for the direction Belgium to France. When comparing these nominated values to the D-1 NTC from an absolute perspective, we see that the share of the year and month nominated capacity is rather small: <5% in the direction France to Belgium and between 9-16% in the opposite direction.

FR BE BE FR

Average D-1 NTC [MW]

Average nominated

capacity [MW]

Average ratio of

nominated capacity to

average D-1 NTC

[%]

Average D-1 NTC

[MW]

Average nominated

capacity [MW]

Average ratio of

nominated capacity to

average D-1 NTC

[%] 2009 2501 103 4.11 1088 150 13.78

2010 (until 9th of November) 2642 39 1.47 1166 190 16.30

10th of November 2010 until 28th of

February 2011 3209 128 3.98 1356 127 9.36 Table 15: Average D-1 NTC and nominated capacity. In Figure 16 we look at the relationship between the available ATC for market coupling in both directions and the day ahead market spread. Lower NTC in summer months push the ATC downwards. We can observe in the direction Belgium to France a decrease in ATC with increasing day ahead market spread. As stated earlier, this decrease is mainly caused by lower NTC in summer months (cfr Figure 15) but also an increase in nominations as from July 2009 versus the period April till June 2009. Although NTC values are higher as from October 2009 onwards, the market spread keeps on increasing till March 2010 as the nominations peak in that concerned period.

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Figure 16: The day-ahead market spread and the available ATC for MC for both directions. IV. In the last section we look at the relationship between the long term nominations and the price of the monthly auctions. Figures 17 and 18 display the day ahead market spread, the year and month nominations and the price of the month auctions for both directions. In the direction France to Belgium, an increase in the prices for the month capacities goes together with an increase in the year and month nominations. For the direction Belgium to France, there is no direct link between the price of the month capacities and the year and month nominations. From Figure 17 we can derive a positive correlation between the monthly auction price and the month nominations. From Figure 18 this is less clear as from October 2009 till February 2010 the month nominations increase with decreasing monthly auction prices.

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Figure 17: day ahead market spread, year and month nominations and the price of the month auction for the direction France to Belgium.

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Figure 18: day ahead market spread, year and month nominations and the price of the month auction for the direction France to Belgium.

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3. QUESTIONNAIRE 1. In general, do you agree with the analysis? If not what are your main comments? 2. The analysis has revealed that a significant part of the allocated year and month capacities is still be

nominated by the market participants, especially in the direction Belgium to France (between 15% and 28%). What could be the reasons to favor nominating available capacity instead of automatically reselling it given that by nominating the capacity one may nominate it in the “wrong” direction?

3. The analysis has revealed a positive correlation between the yearly and monthly nominations and

the day ahead market spread with a slight delay. What could be the reason why market parties tend to nominate their capacity instead of reselling it in the occurrence of a day ahead market spread?

4. The analysis has revealed that, following the introduction of “Use It Or Sell It” (hence taking away the

administrative burden/barriers to use a capacity right financially), the nomination behavior in the economic direction (mainly Belgium to France) has not changed. What could be a reason for this?

5. Do you still see the value of having PTRs with nomination or is there a preference to move towards

FTRs? If so:

a) What conditions need to be fulfilled to introduce these FTR and what timing do you foresee for introduction?

b) Do you have a preference for FTR options or FTR obligations? Please explain. c) Should such an implementation be considered on a regional scale or should bilateral

initiatives be considered? d) How important (priority) would the introduction of FTRs be compared to the

implementation of CWE flow based, NWE day ahead price coupling, NWE intraday market integration and the harmonization of the CWE/CSE auction rules?

6. The current capacity split rules (following market consultation in October 2007) are based on

following principles:

- Recognition of the importance for the market of having as much as possible long term capacity products (for hedging), while guaranteeing a minimum amount of capacity for the monthly allocation (hedging, market entry) and the day ahead market coupling as to assure good market functioning (market depth, competition, lower volatility) and market convergence - A higher market preference for year and day ahead capacities than month capacities

a) Do you still agree with these general principles1? If not please explain. b) Are the current split rules satisfactory for you? If not please explain why and what/how you

would like them to be amended?

*******************************************************

1 Please note that the year NTC is determined at the end of October following a coordinated process involving all the CWE TSOs and that there is no guarantee that the year NTCs for the years to come will be equal to the year NTC of the past years

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