Issues and Challenges of Electricity Market

Liberalisation in Hungary

Dr. Tibor DRASKOVICSChairman of the BoardMVM ZrtHungary

Contents of presentation

1. General description of Hungarian Power System – before 2006

2. Market opening

3. Changes in 2005 - Implementation - TSO Effects

PotentialsMVM Group

Structure and operational model of the Hungarian power industry 31. 12. 2005

Public ServiceWholesale

TransmissionPublic service + distribution

Public service customers

Eligible customers

Power plans+ import

Trading companies

MVMMVM

The main relations between the players

MAVIR Rt.Independent System

Operator

The privatised Hungarian Power SystemPower Generation Companies in 2005

Owner GWh/year* %

MVM 13.368 53,2

Electrabel 2.909 11,6

AES 1.664 6,6

RWE 3.807 15,1

ATEL 1.715 6,8

EDF 1.315 5,2

Croesus 215 0,9

Transelektro 0 0

E.ON 0 0

EMA Power 0 0

ÁPV Rt. 147 0,6

Total: 25.140 100,0

EDF

*Electricity sold to the public service wholesaler (MVM)

The privatised Hungarian Power System Distribution & Supply Companies in 2005

Electricity bought from the public service wholesaler (MVM) in 2005

Steps of market opening

•First step from 1 January 2003 eligible

customers with consumption of above 6.5 GWh/year

•Second stepfrom 1 July 2004 all customers

except household customers are eligible

•Next step - Directive 2003/54/ECfrom 1 July 2007 household customers also eligible - 100% of the market is open

The evolution of marketfrom 01. 01. 2003

Years Public Service Market

consumption

TWh

Competitive Market

consumption

TWh

Competitive Market

consumption / total

consumption

%

2003(1stf Jan. - 6.5 GWh/a)

29.7 3.6 11%

2004(1st May - all but households)

28.3 6.9 20%

2005 22.9 11.2 33%

Important Political Decisions in 2005

affecting the Hungarian Power System - practically with consensus of all four political parties in the parliament

1. Amendment of Privatisation Act – • no further privatisation of electricity industry • state owned Hungarian electricity industry

integrated into one hand - Holding

2. Life extension of Paks Nuclear Power Station

Implementation01.01.2006

Holding’s Medium-term Strategy approved by

Board of Directors

• TSO established • Wholesale trading activity unbundled• Paks Nuclear Power Station – ‘flagship’ of

industry

Change from ISO to TSO structureChange from ISO to TSO structure

System operation

transmission assets from MVM Zrt.

grid operation from National Power Line Co. Ltd. (OVIT Rt.)

Owner of MAVIR Zrt. - MVM Zrt. + 1 „golden share” with Ministry of Economics and Transport

Power Plants

Customers

Public Utility Wholesaler

Public Utility Supplier

Transmission network

Distribution network

System Operator

MAVIR

MVM Distr.Cos

Traders

Subject to licence

Small, <50 MW

Public Utility

Eligible

Physical path Commercial path

MAVIR

Transmission Network interconnections

Austria

Ukraine

Slovakia

Croatia

Romania

Serbia and Montenegro

Lenti

BP

Toponár120 kV

120 kV

Hévíz

Oroszlány P.P.

Győr

Siklós

Tisza II.Detk

Göd

Paks Nuclear P.P.

Kisvárda

Sajóivánka

Tiszalök

Dunaújváros

Albertirsa

Sándorfalva

Békéscsaba

Szeged

Debrecen

Szolnok

Felsőzsolca

Sajószöged

Litér

Mátra P.P.

MartonvásárDunamenti P.P.

BPZugló

Ócsa

On 220 kV

750 kV750 kV

400 kV400 kV

220 kV220 kV

planned, or planned, or under considerationunder consideration

Slovenia

Pécs

Szombathely

Levice

GabčikovoWienWien

Neusiedl

Mukachevo

Zahidno-

Ukrainska

Arad

Subotica

Donji Miholjac

Nedeljance

Zerjavinec

Cirkovce

Rimavska Sobota / Moldava

Oradea

Nadab

Arad

Ernestinovo

Südburgenland

Pod Biskupice

Albertfalva

after 2010after 2010after 2010after 2010

after 2010after 2010after 2010after 2010

2006, under 2006, under constructionconstruction2006, under 2006, under constructionconstruction

after 2010after 2010after 2010after 2010

about 2010about 2010about 2010about 2010

after 2010after 2010after 2010after 2010

2008200820082008

about 2010-2012about 2010-2012about 2010-2012about 2010-2012

until 2010,until 2010,at latestat latest

until 2010,until 2010,at latestat latest

Main Characteristics of the Hungarian Power SystemImport – Export Trade

Physical Import and Export in 2005

8806 / 0 GWh

809 / 856 GWh

4814 / 26 GWh

0 / 6689 GWh

Austria

Slovakia

Croatia

Ukraine

Serbia

Romania

16 / 1693 GWh

1190 / 146 GWh

Total Import: 15 635 GWh

Total Export: 9 410 GWh

Import Balance: 6 225 GWh

Challenges for TSO

• cross-border capacity – to participate in CEE regional co-ordination from 01.01.2007

• ITC (Inter-TSO Compensation) – to become part of the system on 01.01.2007

• regional market for ancilliary services (primary, secondary, tertiary reserves)

• inadequate information – transparency is needed

Beneficial effects of Restructuring

• new resources available• cost effectiveness• efficiency improvement

New Potentials

• better utilisation of advantageous geographical location

• closer relationship with neighbouring countries

TradingRequirements

• technical connection of grids (UCTE extension)

• harmonised electricity markets

• gradual integration of electricity markets

Relationships on mutual interest

• infrastructure – interconnections (e.g. Békéscsaba-Oradea)

• resources to satisfy competitive (single European) market needs

• developing regional markets

Regional marketRequirements

• more intensive co-operation of market-players• mutual and joint investments• strategic partnerships• etc.

MVM Group

• optimising Group structure – holding - synergy at Group level

• competitiveness in Hungary

in the region

in Europe

Structure of MVM Group

Generation

(PA Rt., Tatabánya Erőmű Kft., MIFÜ Kft., GTER Kft.)

TSO

(MAVIR ZRt., OVIT ZRt., Transmission

Network Directorate)

Engineering and technical services

(ERBE Energetika Kft., Villkesz Kft.)

Competitive market trading

MVM Partner Rt., selling directly to

consumers

Public service obligations

(wholesale)

MVM Zrt.

(Strategic holding)

Foreign portfolio elements

MVM-ADWEST GmbH.,

other foreign investments

Thank you for your attention!