Delia NITESCU - DirectorLuxembourg BeDeLux Interconnector

The Harmonised Allocation Rules For Long-Term Transmission Rights (HAR)

Plan

I. Luxembourg - electricity grid, flow and needs

II. BeDeLux Interconnector

III. Joint Allocation Office (JAO)

IV. HAR pending agreements of UK TSOs

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I. Luxembourg - Electricity Network, Flow and Needs

Luxembourg’s entire electricity transmission network is managed by Creos Luxembourg S.A. (TSO).

5,121.9 Gwh of electric power are transported The length of the national grid is currently 9,925.6 Km (out of which (i) 590 Km –

220kV; (ii) 3,600 Km – 65kV; and (iii) 5,740 – low voltage, 20kV) Source: Import (total for 2018 – 5,825 KWh)

Import [GWh] 2016 2017 2018Germany 4,314 4,302 4,137France 1,139 888 1,302Belgium 313 532 386

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I. Luxembourg - Electricity Network, Flow and Needs

A. Leader

(+) More than 8,000 Km (i.e. 80%) of the network are buried (i.e. a performance at European).

(+) Luxembourg has one of the lowest average annual grid outage times in Europe.

(-) Luxembourg has the second-smallest forecast in the EU for renewable energy generation.

(-) Luxembourg has one of the highest emissions rates of carbon dioxide per person in Europe, given that it is the EU leader in the number of cars per inhabitant.

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I. Luxembourg - Electricity Network, Flow and Needs

A. Leader

(-) Generation of electricity – very low capacity, most of the electricity comes from Germany via two 220 kV double lines; the remainder comes from Belgium and France.

(-) The main challenge of the TSO is upgrading and, especially, expanding the network, in order to maintain a high quality infrastructure and guarantee the security of supply at all times (today, about 75 to 85% of Luxembourg’s transmission capacity is already being used). Studies indicate that the cross-border interconnection capacities will be depleted by 2025.

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I. Luxembourg - Electricity Network, Flow and Needs

B. Needs

The network should be prepared, given that a strong demand for electricity is anticipated (forecasts of future electricity needs indicate an increase of up to 17%):

• STATEC - anticipates that Luxembourg will double its population by 2050.• Google plans to open a large data center in Bissen by 2020.• E-mobility

NB: Even with better efficiency, the growth of the economy and the population will, undeniably, lead to a greater need for electricity.

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Luxembourg - Network

Coupling 2x220 kV with Germany (Bauler)

Coupling 2x220 kV with Germany (Trier and Quint)

Coupling 220 kV with Belgium

Network 220 kVNetwork 65 kV

Substation 220/65/20 kVSubstation 220/20 kVSubstation 220 kV

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II. BeDeLux Interconnector (Cross-Border Transmission Connection with Belgium)

To tackle the security of supply requirements and to meet the European electricity market`s requirements (i.e. the first commercial coupling between Belgium and German markets), Luxembourg decided to implement a physical interconnection with Belgium.

Ref the imports of electricity from Germany, the transmission grid is already interconnected with the German transmission grid.

Operational since October 2017, BeDeLux interconnection allows an exchange of electricity flows between Belgium and Germany through Luxembourg (i.e. a cross-border connection).

New infrastructure now in operation allows the new exchange with Belgium

Transit flow between Germany and Belgium through Luxembourg

Meeting the European electricity market’s requirements

Belgium

Germany

from 2017until 300 MW

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II. BeDeLux Interconnector (Cross-Border Transmission Connection with Belgium)

2 steps

A phase shifter transformer (Schifflange (A)) controls the transit flows from Germany through Luxembourg to Belgium; the transit flows have led to an increase in the power imported from Germany to 860 MW (2018).

A longer-term solution (expected in 2020) with cables between Belgium and Luxembourg (from Bascharage to the Belgian border, with 220 kV cables in parallel with the existing 65kV).

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II. BeDeLux Interconnector (Cross-Border Transmission Connection with Belgium)

Investments

2018: TSO invested a record amount of EUR 132 million in its network and information system.

Encevo S.A. (the majority shareholder (75.43% of TSO)) will invest a global envelope of EUR 800 million over next 5 years.

New long-term financing (German certificates of indebtedness – Green Schuldschein) of EUR 250 million (with different maturities, the average of approx. 10 years), mainly to be used for: the development of the grid (i.e. electricity transmission and the generation of electricity from renewable energy sources).

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II. BeDeLux Interconnector (Cross-Border Transmission Connection with Belgium)

Forecast

TSO network development plan (Scenario Report 2040):

• Replace the existing 220kV lines from Trier/Quint with higher voltage level lines (400kV).

• Reinforce the existing 220kV lines coming from Bauler.• Extend, on the long term a new 400kV grid toward Belgium.

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III. Joint Allocation Office (JAO)

The Joint Allocation Office (JAO) (located in Luxembourg) facilitates the European electricity market by allocating cross-border transmission capacity (i.e., by auctioning the available capacity).

JAO operates regulated markets in 17 countries on 27 borders, all of which are connected in a single trading platform with one harmonised regulated framework.

On 1 October 2018, JAO became the Single Allocation Platform (SAP) for all European Transmission System Operators (TSOs) that operate in accordance with EU legislation.

JAO performs long- and short-term auctions of transmission capacity. JAO can offer annual, non-calendar annual, half-yearly, quarterly, monthly, weekly, weekend, daily and intra-day auctions.

9,000 daily auctions per year.

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No-deal Brexit consequences for the existing Participation Agreements between JAO and UK TSOs

What is the outcome of these agreements?

1. Governing law clause

“This Participation Agreement, the Allocation Rules and all Additional Rules shall be governed by and construed in accordance with the laws of Luxembourg.”

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No-deal Brexit consequences for the existing Participation Agreements between JAO and UK TSOs

2. References to EU legislation and the EU

The Registered Participants (i.e. in our example, UK TSO) and the SAP are bound to comply with the HAR, which, inter alia, set up the rules (e.g., the payments to or from the Registered Participants on the relevant trading day) and how the auctions are conducted for the financial transmission rights while complying with the HAR in connection with the allocation of the long-term transmission rights

Assuming that the existing JAO Participation Agreements would remain in force, following a No-deal Brexit for the transmission rights and/or financial transmission rights sold prior to the withdrawal date, and given that UK TSOs will no longer be EU-licensed, we assume that the allocation of the transmission and/or the financial transmission rights, which constitute the object of the JAO Participation Agreement, will no longer be submitted to the HAR.

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Participation Agreements between JAO and UK TSOs

3. Amendment to Participation Agreement

UK TSO will lose its quality of being EU-licensed, thus the HAR would no longer apply to its allocation of the transmission/financial rights. The Participation Agreements make reference to EU legislation and obligations arising under EU legislation, but no amendment is necessary, given that the Registered Participants are bound to accept unconditionally the allocation rules, including future amendments.

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Participation Agreements between JAO and UK TSOs

4. Force majeure

“Any unforeseeable or unusual event or situation beyond the reasonable control of a party and/or the relevant TSOs, and not due to a fault of the party and/or the relevant TSOs, which cannot be avoided or overcome with reasonable foresight and diligence, which cannot be solved by measures which from a technical, financial or economic point of view reasonably possible for the party and/or the relevant TSOs, which has actually happened and is objectively verifiable, and which make it impossible for the party and/or the relevant TSOs to fulfil, temporarily or permanently, its obligations”.

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Participation agreements between JAO and UK TSOs

Conclusion

The transmission/financial transmission rights are withdrawn–the contractual obligation can no longer be performed.

The Participation Agreement is terminated due to the loss of object and only for the future.

Whether a TSO is entitled and no transmission/financial rights have not yet been allocated, a participation agreement would no longer be entered into.

A claim for contractual damages cannot be brought, as the Participation Agreement was terminated.

A claim may be made for damages only in tort law.

Thank you for your attention!

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Delia NITESCUDirectorT: (+352) 40 49 60 – 246 | E: delia.nitescu@wildgen.lu