OPCOM, the Romanian Power Market Operator

earning every Day Ahead your trust

ROLE OF THE POWER EXCHANGES

in the South East Europe Countries

15th ELECTRICITY FORUM OF THE

ENERGY COMMUNITY
ATHENS, 25-26 November 2009

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AGENDA
About PX
the mission main pillars
role of markets prices for decision on investment
People: you have to hear them
About OPCOM
electricity markets pricing mechanisms
transparency & liquidity
About Market Integration
hindrances of the current markets integration process
the coupling saga
Take wise decisions for a long way; the Poyry-NPC report
Conclusions

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PX: its mission main pillars

The market is vital for competition, security of supply and
sustainable development.
The services which only PXs can provide:
Reliable price reference
Trading facilitation on different term horizons in liquid PX products
Efficient portfolio adjustment
Counterparty risk
Correct XB capacity allocating through adequate flows providing
meanwhile maximizing the capacity utilization

The challenges:
Liquidity (bringing price consistency)
Efficiency (appropriated products)
Shortest way electricity becomes money (well tailored counterpart
role).
Conclusion: The PXs support the players to discover the price and
investors to foresee it.

The markets decide on investment.

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A larger angle: Not only electricity markets matter !

Recent Accenture study is listing the ranking of technologies as contribution to additional/replacement capacity according
the selected big players (63% market share) investment plans:
Natural gas, significant being RWE: 31.3 %;
Nuclear, mainly due to the EdF contribution: 25.8 %;
Coal, including lignite (mainly: E.ON, Vattenfall, Electrabel, Enel): 20.9 %;
Renewable: 17 % ;
Traditional hydro: 4.4 %;
Immediate results:
despite the winter crisis, the gas remains the most important option
role of renewable will triple as big players focus
nuclear will (however) decrease due to decommissioning (mainly in Germany)
According to this ranking, the main problems to be solved (including cost) are:
Gas pipe projects, including financing and pipes feeding;
Practicability of the abatement technologies including CCS;
Management of the radioactive waste and related storage;
Connection of renewable based generation to the network and the systems stability.

ranking of technologies as
additional/replacement capacity

Prices interdependencies:
Source: Accenture
Gas market vs. carbon market;
Carbon market vs. CCS technologies implementation, with NAP in background;
Electricity price will include other prices; green certificates separate from wholesale but included in retail prices.
Conclusions: Markets decide not only on investors choosing to (or not to) invest, but also upon the chosen alternatives,
according to the additional costs / supporting investment;
Decision is at the cross-road of the electricity, fuels, CO2 allowances, green certificates prices and CCS cost;
Conclusion after conclusions: Time of the cheap electricity passed.

PEOPLE: YOU HAVE TO HEAR THEM

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Present investors and energy suppliers (incl. traders) a more attractive market a
bigger regional market, with EU-compatible rules and institutions
(Presentation in the Investment Seminar, April 2007)

TRADERS: Conditions for investors & traders. Investors & traders condition.

As traders we do not suffer under the wrong price.

Intransparency, illiquidity and regulatory risk lead to high risk premiums high
trading profits for only a few.
As traders we do not suffer from outages due to suboptimal system utilisation.
But as investors we do suffer and as prudent energy specialists we do care!
Statkraft trusts that the conditions will improve and we are commited to do business
in the region!
(Seminar of Romanian Traders Association, November 2009)

SYSTEM OPERATORS. The countries decision is sovereign.

WE ASSESS THE FEASIBILITY OF A NATIONAL POWER EXCHANGE !

Vladimir Jankovic EMS

Claus Urbanke Statkraft

YOU ARE NOT POOR! THIS REGION IS RICH. (intervention in the Forum 11th)
Exploit regional benefits/the economics of scale in energy investment and operations,
including emergencies (security of supply) and environment

Kary Nyman World Bank

DONORS: Need for investment.

OPCOM. Electricity Pricing basic mechanisms

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OPCOM currently offers two forward alternatives & one market for short term
Trading platform ready for market coupling, trading platform ready for intra-day continuous trading

2009: 12.8%, 34.5 Euro/MWh

35.6% market share of products

Efficient products can help

players to stay comfortably
in business

Block bids in DAM

Standard contract finalised by product
group waits for regulator aproval.
CMBC-CN Procedure will change
accordingly.
Continuous intra-day segment of
day ahead in preparation

99 participants

Public auction

2009: 22.8%, 45.2 Euro/MWh

Existing products, which will be

followed by:

Closed
auction

Continuous
trading
100 participants

67 participants

OPCOM. Transparency & Liquidity (1)

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Romania opens a way

Trading liquidity backed by two successive Ministers Orders: state owned generators, the biggest 5(ord.408/2006), respectively all (ord.445/2009)
obliged to trade further available power in centralised markets.

Transparency boosted by the Electricity Law requirement: Prices cleared on the electricity centralised markets are published on daily basis as related
operator responsibility (Art.40, paragraph 4)

Poland embraces the idea

Source: HEREN EDEM 13.05.2009

DOES U.K. FOLLOW THIS WAY?

Parliament and regulator evaluate the opportunity to introduce mandatory trading in PX

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OPCOM. Transparency & Liquidity (2)

For many years, the power exchanges represented the

magical tool for trading facilitation.
Volumes and market shares increased year on year,
the most in 2008, in the detriment of the OTCs.

Continuously improving the liquidity of OPCOM products (monthly

cumulated volumes spot/forward))
1,800,000

45%
40%
35%

Nordic

TWh/month

1,200,000

30%
25%

900,000

Germany

France
The Netherlands

20%
600,000

15%
10%

300,000
5%

14

2.5

0%
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09

30

Volume - CMBC

Romania

Volume - DAM

DAM Share

CMBC Share

Total market share (DAM+CMBC)

TWh/month

Before the coupling Cz-Sk

Beyond the volumes difference, the spot market share in OPCOM is

comparable with those of Powernext or Belpex
DG-TREN Quarterly Report Q2, 2009

DG-TREN Quarterly Report Q2, 2009

1,500,000

Czech Republic

0.6

0.2

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OPCOM. Transparency & Liquidity (2)

For many years, the power exchanges represented the

magical tool for trading facilitation.
Volumes and market shares increased year on year,
the most in 2008, in the detriment of the OTCs.

Continuously improving the liquidity of OPCOM products (monthly

cumulated volumes spot/forward))
1,800,000

45%
40%
35%

Nordic

TWh/month

1,200,000

30%
25%

900,000

Germany

France
The Netherlands

20%
600,000

15%
10%

300,000
5%
0

14

30

2.5

0%
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09

DG-TREN Quarterly Report Q2, 2009

1,500,000

Volume - CMBC

Romania

After the coupling Cz-Sk

Volume - DAM

DAM Share

CMBC Share

Total market share (DAM+CMBC)

MWh/day

Platts EiEE, November 2009

Spectacular evolution of Czech Republic and Slovakia spot markets due to

the market coupling (daily volumes)

Czech Republic - Slovakia

~16,000

~16,000

Source: CEZ

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OPCOM. Transparency & Liquidity (3)

CMBC

up

down

up

up

down

keep

keep

Forward traded volumes

down

up

down

the prices convergence

New equilibrium
Childhood period

Full convergence

Financial crisis miss convergence

effect

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Electricity markets integration

Until now at least 7 sins of the cross border trade and

accordingly regarding market integration premises:
Nord Pool

Apx UK
Apx

gielda

Belpex

EEX
Powernext

OTE
EXAA
Borzen Hupx
Opcom
BSP

omip
omi
omel
GME

Unclear legislation and limited competences before 3rd package

Lack of harmonization, lack of trust, different interests,
different resources
Network model and market coupling methods uncertainties
Adverse initiatives and leaders competition
Divergences related governance matters
Top down vs. bottom up initiatives
Different gate closure hours

Market Coupling Saga

2006 Bottom Up

Trilateral: France-Belgium-The Netherlands

2007 Top Down (?) Pentalateral Energy Forum

2008 Bottom Up

EPEX

2009 Bottom Up

Czech Republic - Slovakia

MC: the momentum of our days

EPEX

2005-2006 Current SEE; 2008 8th region

SOON: enlarged SEE

The challenge ahead: it can be possible to

integrate a two (even multi) speed Europe ?

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Note: "Multi-speed" Europe is the term used to describe the idea of a

method of differentiated integration whereby common objectives
are pursued by a group of Member States both able and willing to
advance, it being implied that the others will follow later.

Momentum is flying. Lets grasp it now !

Grasp, I mean:
to catch;
to hold;
to understand;
to control.

MARKET COUPLING: WE CAN DO !

JOIN THE POYRY-NPC FINDINGS THUS

REWARDING THE DONORS EFFORT !
TAKE WISE DECISIONS FOR A LONG WAY.

GENERATION. Keep the assets in one hand or many, either public or private, but
unleash the commodity for the market not wasting it but ensuring that generators
receive real price; it helps generators for investment and avoid further distortion of
market price.
Provide for state owned incumbents public auctions or ask/allow them to sell
in spot market, to protect against too low price (state aid) and impose VPP for
private consolidated companies if big to defend competition (mitigate market
power) and allow new entries.
Question: who plays role of DG COMP within the 8th region?

REGULATED PRICES. Think carefully on the balance between competitive

segment and regulated segment as proportion of volumes and costs and respond
to ERGEG 2007 position paper by providing the road map for regulated prices
removal.

MARKETS. Set up efficient markets for each contracting term horizon (forward,
DAM, intra-day, balancing, ancillary services) according the current and/or
envisaged best practices.

PX. Bust the myth of difficulty in setting up the PX; there are only two issues which
PX can not outsource: responsibility towards market participants (membership
agreement) and responsibility towards regulator (license conditions).

COUPLING. Choose price market coupling according Florence Forum decision

and stay on ATC at least until CWE will decide. Think twice on the size of the
bidding areas: not mandatory to be national: see Germany-Austria one zone under
EPEX administration.

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CONCLUSIONS
PXs support long term security of supply by delivering the price signal for efficient investment in due time as
well as short term security of supply by efficiently balancing the generation and demand;
LONG TERM:
PXs help investment by putting price on energy and carbon;
SHORT TERM:
Neutral framework to meet offer and demand provided by PXs helps market to
select efficient generation and discourage waste on demand side; also they
guarantee that money come FAST;
Romania through individual evolution and Czech Republic - Slovakia three months after start of MC in
1st September are equally providing liquid electricity spot markets in SEE and CEE showing same
average daily volumes.
An old story is saying that up in the mountains, a goat antelope is trying every day to pass a sharp
crest. He is daring, wise and skilled, but however in the middle of the way he always hesitates. Every
day he is coming back in the bitter sunset, knowing very well that tomorrow he will try again. A
consultant may tell him that from the point of view of the risk management it is equal to go ahead or to
come back and even worst to stay in the middle. But Im afraid that the daring character is scared not
on passing further, but about what he can find where the crest ends.
We also in SEE may be scared about what we will face at the end of the opening: higher prices for
electricity, not competitive prices for commodities, joblessness .. No consultant can foresee it or
the contrary.
OUR DAYS DILEMMA: DIFFICULT TO GO FURTHER, BUT MUCH RISKY TO STAY.

CONCLUSION AFTER CONCLUSIONS

All in all, according our market experience we encourage national spot markets set-up in SEE
which bring similar value in these markets, eventually paving the way for markets coupling.

Thank You for attention !

lucian.palade@opcom.ro
www.opcom.ro

Nord Pool

Apx UK
Apx
Belpex
EEX
Powernext

gielda

OTE
EXAA
Borzen Hupx
Opcom
BSP

omip omel

omi

GME