Cost of Non-Europe©loïse... · Literature review Inventory Gaps & Barriers Selection of cases...

Timme van MelleJune 6th, 2013

Cost of Non-Europe

Case of gaps and barriers – Preliminaryresults

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Our study – the costs of barriers and gaps

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Literaturereview

Literaturereview

InventoryGaps &Barriers


Selection ofcases

Selection ofcases

In-depthstudy

In-depthstudy

Currentstate

Effective and efficient cross-border markets

Sub-characteristics

Open and accessiblemarkets

KeyCharacteristics

Choice and flexibilityfor consumers

Objective Well functioning single EU energy marketthat contributes to achieving EU climate change goals ‘while at the same time ensuring security of energy

supply and competitiveness’.

Satisfies widereconomic, social andenvironmental goals

Barriers

• Range of energysuppliers to choose from

• Sufficient information onwhich to baseconsumption andsupplier decisions

• Low cost and hassle toswitch supplier

Gaps

• Energy suppliers that operateacross (and beyond) EU MS

• Integrated networks with sufficientinterconnection capacity

• Interconnection capacity is used

• Cost burdens are fairlydistributed between MS

• Cost burdens are fairlydistributed betweenactors

• Single market supportswider environmental,social and economicgoals

• Liquid and transparentwholesale markets

• Open and non-discriminatory accessto transmission anddistributioninfrastructure

• Incentives for consumersto play an active role

• Consumer protection andsupport

• Good quality consumerinformation andeducation on use andprice

• Diversified and value-added services

• Flexibility in pricing

• Inefficient consumerprotection

• Lack of transparency• Low consumer

satisfaction and trust• Price regulations• Poor consumer

understanding of energyprices and markets

• History - incumbentshave dominant marketposition, vestedinterests

• Security of supplyregulation discouragesnew entrants

• Market manipulation• Lack of network codes

• Gas and power tradinghubs in some regions

• Enforcement of anti-trust rules

• Transparent and robustenergy markets

• Linked markets andtrading

• Harmonised standards– i.e. smart grids

• Measures that ensure publicauthorities comply with EUprinciples?

• Infrastructure in specific regions• Alignment of national and EU

energy infrastructure plans• Cooperation on cross-border

projects• Demand response and storage

infrastructure

• High divergence in regional energymarkets and infrastructure

• Regulated prices – leading toinefficient investments

• National level planning, i.e.capacity mechanisms

• Lack of funding for infrastructure• Weak function of EU ETS carbon

market• Difficulties in planning and

cooperation

• State aid - can distortcosts across MS

• Taxes and subsidies -discriminate byconsumer

• Dynamic review andrevision of nationaltaxes and subsidies

Desiredstate

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Literaturereview

Literaturereview



Selection ofcases

Selection ofcases

In-depthstudy

In-depthstudy

Regulated Prices

Liquid Hubs & Exchanges

Market Coupling

Supra-National Balancing Markets

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Literaturereview

Literaturereview



Selection ofcases

Selection ofcases

In-depthstudy

In-depthstudy

Regulated Prices

Liquid Hubs & Exchanges

Market Coupling

Supra-National Balancing Markets

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Definition Market Coupling – from explicit to implicit auctions

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Nominationof yearly and

monthlycapacity

Explicitcapacityauction

Day-aheadenergymarkets

Explicit auction

TransmissionCapacity booking

Energy markets

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Market Coupling – from explicit to implicit auctions

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monthlycapacity




monthlycapacity

Day-aheadenergymarket

Allocation ofcapacity by

marketoperator

Explicit auction

Implicit auction


Energy markets


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Benefits of market coupling – transaction costs

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monthlycapacity




monthlycapacity



marketoperator

Explicit auction

Implicit auction

No partaking inexplicit auction

Only singlebidding curve

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Benefits of market coupling – transaction costs

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monthlycapacity




monthlycapacity



marketoperator

Explicit auction

Implicit auction

No partaking inexplicit auction

Only singlebidding curve

Avoids marketpower

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Benefits of market coupling – efficiency

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monthlycapacity




monthlycapacity



marketoperator

Explicit auction

Implicit auction

No efficiencylosses

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Benefits – efficient use of transmission capacity

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Market price A

Market price B

Value of capacity

Market A Market BCross-bordercapacity

Price

• Value of transmission capacity at times of congestion is equal tothe price differences in the market (per hour)

• In situations without congestion the value of capacity is assumedto be zero – prices in both markets are equal

Flow of energy

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Inefficiency makes cost with explicit auctioning higher

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Market price A

Market price B

Value of capacity


Price

Additional costs ofexplicit auctions

Flow of energy

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Higher costs consist of two main items

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Market price A

Market price B

Value of capacity


Price

Counter-flowbookings

Use-it-or-lose-it

Flow of energy

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Valuation of cost with explicit auctioning

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Market price A

Market price B


Price

IT-FRDay-

ahead

FR-ITDay-

ahead

FR-ITIntra-day

IT-FRIntra-day

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Valuation of cost with explicit auctioning

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Market price A

Market price B


Price

IT-FRDay-

ahead

FR-ITDay-

ahead

FR-ITIntra-day

IT-FRIntra-dayValue of capacity

Cost of Non-Europe

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Results for case IT-FR

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Costs for explicitauctions [€/year]

Costs for implicitauctions [€/year]

Efficiency gain

Integrated EnergyMarket [€/year]

2012 85 million 26 million 59 million

• 70% savings on auction costs

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Conclusions

- There is value in further integration of the Internal EnergyMarket

- The case discussed is a small part - additional quantification isnecessary to assess cost-savings for the whole of the EU

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Criteria for selection of cases

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> No overlap with concurrent or completed studies by EuropeanParliament;

> This means topics like the development of physical infrastructureand price transparency for households are excluded;

> The frequency and emphasis with which the barrier/gap ismentioned in the analysed sources;

> Cases jointly should represent a balanced geographical andtopical overview of the EU energy market

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Selected cases

Selected case Rationale

Regulated Prices • Indication of immature market• At the same time barrier to

competitions• Causes sub-optimal investments

Hubs & Exchanges • Important underlying prerequisite forInternal Energy Market

• Essential for efficiency and pricingsignals

Market Coupling • Important tool for connecting markets• Improves accessibility of cross-border

markets and transparency• Can ‘export’ liquidity

Balancing Markets • Currently strongly nationally orientated• Important for energy transition and

energy security

TvM28

TvM29

TvM30

TvM31

TvM28 Administratieve barriereTimme van Melle; 03/06/2013

TvM29 Voorbeelden van incidenten.Timme van Melle; 03/06/2013

TvM30 ExamplesTimme van Melle; 03/06/2013

TvM31 ExamplesTimme van Melle; 03/06/2013

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Definition

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€/MWh €/MWh

MWh MWh

Demand BDemand A

Supply A Supply B

+PS

+CS

Generation A(Coop.) Generation B

(Coop.)

Export Import

P1a

P1b

P2 P2

• Connecting markets creates overall value – overall increasedconsumer surplus and producer surplus

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> Region A and B are connected by one transmission line withlimited capacity

> Demand of A is covered by domestic production and exports fromB to A

> Max. exports are below the optimum and prices of A and B deviate

> CR does NOT equal the costs (DWL) of congestion> Both price and quantity effects determine the CR and the DWL

Congestion rent equals the value of transmissionon a congested line between regions A and B

30.04.2013 Dr. Barbara Burstedde, Dr. Christian Nabe, Dr. Marco Nicolosi

CR

price / MC

region A

price / MC

region B

demand region A

max. transmission

from B to A

export from B to Adomestic production B

price A

price B

Congestion rent (CR)= (price A – price B) * exchange

Deadweight loss (DWL)= welfare loss due to congestion

DWL

Cost of Non-Europe©loïse... · Literature review Inventory Gaps & Barriers Selection of cases...

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