regulatory aspects of wholesale market tendencies on national and regional electricity markets dr....

Regulatory aspects of wholesale market tendencies on national and regional electricity markets

dr. Gábor Szörényi Chairman of ERRA

Budapest, April 22, 2008

Investment Conference

dr. Gábor Szörényi

Budapest, April 22. 2008

Main topics:

• Regional situation on the wholesale electricity markets

• Continuous common monitoring and evaluation

• Difference between cost based price regulation and market based price

• Potential regulatory interactions• Support new generation and network

investment



Some conditions of markets and regions

• Substantial demand growth in each region (3-10%)

• Existing generation capacity not always available• Some regions are highly hydro (weather) dependent• Low utilisation of existing generator capacities

(reliability problems)

• Long-lasting preparation and long-continued decisions on new generation investment

• Physically, legally and administratively congested borders

• Some national net export position• diminishing• turn to net import position



Regulatory monitoring

• Price signals (+~10EUR/MWh)• Capacity shortage in SEE• Increasing cross border flow to South• Security of Supply questions• Roundtable discussion (2007 December,

Bucharest) → Published Common Position• Wholesale market monitoring network

Why did we start the common wholesale market monitoring?



Monitoring methods

Data-collection and evaluation of national and regional wholesale markets:

• 2003-2008 (2009) data• Simplified capacity data

• Installed capacity• Capacity mix• Cross border capacity

• General energy data• Domestic production• Export-import balance• Consumption

• Tariff and price analysis

• Data collection and analysis every 6 months• National and regional analysis• Region ≠ group of ERRA members



ERGEG Regional Initiatives



The Regional Group of ERRA Members

Moldova

LatviaLithuania

Kyrgyz Republic

Georgia

Armenia

Estonia

Albania

Kazakhstan

Ukraine

Poland

Romania

Hungary

Bulgaria

Russian Federation

Croatia

Azerbaijan

Turkey

Jordan

Bosnia and Herzegovina

Macedonia

Montenegro

Serbia

UNMIK Kosovo

1

4

3

2

Mongolia



Group 1. Energy balance

-50

0

50

100

150

200

250

2003 2004 2005 2006 2007 - estimated 2008 - predicted

TWh

gross consumption net production balance of trade

Regional Consumption, Production and Trade balance



Group 1. Export-Import Balance

ERRA Group 1.: Net export

-20

-15

-10

-5

0

5

10

15

20

2003 2004 2005 2006 2007 -estimated

2008 -predicted

TWh

UNMIK K osovo

S erbia

R omania

Montenergro

Macedonia

Hungary

C roatia

B osnia andHerzegovinaB ulgaria

Albania



Group 1. Installed CapacitiesInsufficient new generation capacity!



Installed capacity mix in 2007

Installed Capacity Mix



Group 1. Market situation

• Massive demand increase

• Capacity shortage, insufficient new generation investment

• Hydro dependence

• Low utilization factors (35-55%)

• Growing import



Reduced net export possibilityGroup 2. Export-import balance



Dynamic demand growth

-50

0

50

100

150

200

250

300


TWh


Group 3. Energy balance



Continuous demand increase

0

200

400

600

800

1 000

1 200

1 400


TWh


Group 4. Energy and capacity balance

0

50 000

100 000

150 000

200 000

250 000

300 000

2006 2007 2008 - estimated 2009 - predicted

MW

Ukraine

R uss ianF ederation

Moldova

New investment slowed down(Installed capacity)



Possible reasons for the capacity shortage situation

The possible reasons for the general situation are the following:• Continuously increasing demand• Energy efficiency (energy conservation) programmes are

hardly effective• Strict environmental protection requirements and

administrative licensing procedures create difficulty for investors to build new power plants, new high voltage lines

• Emerging market conditions (immature market rules) on the national markets and the slowly developing regional markets could create risk elements which postpone investment

• In some cases the lack of transparent rules could increase the risk of new generation investment



Market Based energy prices

Identification and comparison of energy prices

• Basic difference in price formation:• Cost based „regulated” end-user price for household

consumers• Regulated network (system) tariffs• Market based (not regulated) energy prices → strongly

influenced by the supply-demand balance• Taxes, levies

• Substantial difference in structure and level of system charges → influence the „only” energy prices (uncertainty of comparison)

• No liquid wholesale markets, very rare PXs → no indicative, really market based energy prices (but signals!)



Price of electricity (only the energy component) paid by non-household consumers

EEX prices (2008)

Energy („only”) prices



• Wholesale energy market prices in Central Europe → German Power Exchange (EEX) prices [base load price: 55-60 EUR/MWh; peak load price: 75-85 EUR/MWh („only” energy without system charge)] (balanced market with adequate installed/reserve capacity).

• Going to the South-East some markets have capacity shortages. On „short positioned” markets the traders/suppliers/importers are „ready” to pay higher price for energy.

• The price difference between the region with adequate resources and the regions with capacity shortage is reflected in the deficit and in the cross border capacity auction price. The difference could reach 20 EUR/MWh in 2008.

• This price tendency has significant effect on end-user price and through this on the whole national economy!

Price Signals



• To assist the development of national economy (with reasonable energy prices),

• Not to disturb market tendencies, market forces,

• To maintain good level of security of supply on national and regional markets,

• To reduce market entry barriers and regulatory barriers to give more chance for new investment (generation, transmission)

• To utilise more potential tools of demand response programmes

Common Regulatory Position

Common intention of ERRA regulators is:



• The dominant player(s) on the national market(s) could require special attention from the regulator (e.g. cost based pricing, ex ante rules supporting new entrants) and could require special authorisation of the regulators to be able to act in advance.

• The regulators agree that special (non-avoidable, non market based) actions securing the supply on the national market(s) and trying to avoid drastic price increases on wholesale market should be proportional, transient and can not endanger the neighbouring markets.

• Simplified, harmonized licensing procedures• Analysing the possibilities to give the adequate comfort for

investors on new generation and transmission investment,• Analysing the possibilities to create more efficient support

scheme for energy generated from renewable, waste and combined heat and electricity basis.

Potential regulatory actions



Regulatory aspects of wholesale market tendencies

Thank you for your attention!

www.erranet.org

regulatory aspects of wholesale market tendencies on national and regional electricity markets dr....

Documents

gbor szrnyi page

capacity capacity

installed capacity mix

mongolia slide

exportimport balance

net export slide

network investment slide

trade balance slide