Market Opening Experience

Agenda

- Introduction

- Market Opening Experiences

- Conclusions for Turkey

Why reform Electricity Supply Systems?Why reform Electricity Supply Systems?Often heard “reasons”Often heard “reasons”

Our electricity supply reform aims at introducing competition and private ownership into the former vertically integrated electricity supply system. This introduction shall improve supply quality and ensure lowest possible prices for our consumers.

Mismanagement, corruption and wrong investments shall be corrected.

We are following the EU: Deregulation, unbundling and electricity markets with competition

In a competitive environment generation and consumption will use the resources more correctly and thus increase the efficiency in the sector

In a competitive environment retail business will focus on cost reduction and thus increase the efficiency in the sector

The commodity electricity should be traded in line with other commodities like oil, gold, wheat, coffee, cotton

The market price for electricity should be used for investment calculations and decisions, not “plans” set up by a monopolist for his supply area (plans backed up by cost recovery)

The deregulation facilitates the cooperation between all available resources (instead of local/national you will facilitate regional/international optimization and cooperation)

In a competitive environment generation and consumption will use the resources more correctly and thus increase the efficiency in the sector

In a competitive environment retail business will focus on cost reduction and thus increase the efficiency in the sector

The commodity electricity should be traded in line with other commodities like oil, gold, wheat, coffee, cotton

The market price for electricity should be used for investment calculations and decisions, not “plans” set up by a monopolist for his supply area (plans backed up by cost recovery)

The deregulation facilitates the cooperation between all available resources (instead of local/national you will facilitate regional/international optimization and cooperation)

Why Electricity Supply System Reforms?Why Electricity Supply System Reforms?Some good reasonsSome good reasons

Nordic?

England & Wales?

Germany?

France?

California?

Brazil?

Australia?

Russia?

Etc.?

Nordic?

England & Wales?

Germany?

France?

California?

Brazil?

Australia?

Russia?

Etc.?

Electricity Supply System ReformsElectricity Supply System ReformsWhere can we see the success?Where can we see the success?

What does success mean?

What shall we look for?

The first electricity supply systems where established (as monopolies) as early as the beginning of the last century

It took us 90 years to recognize that they were not efficient enough!

We will first be able to judge the last decades reforms in some 20/40/60 years!

The first electricity supply systems where established (as monopolies) as early as the beginning of the last century

It took us 90 years to recognize that they were not efficient enough!

We will first be able to judge the last decades reforms in some 20/40/60 years!

Electricity Supply System ReformsElectricity Supply System ReformsLet us be honest!Let us be honest!

We are replacing the old:

local monopoly supply areas with vertically integrated supply company – collective balance responsibility by local supply monopoly – technical models dispatching generation – estimates for future consumption are used for developing plans for future capacity investments – full cost recovery in order to meet the demand

increasing supply costs, difficult regulation, no transparencyand sub-optimization

We are replacing the old:

local monopoly supply areas with vertically integrated supply company – collective balance responsibility by local supply monopoly – technical models dispatching generation – estimates for future consumption are used for developing plans for future capacity investments – full cost recovery in order to meet the demand

increasing supply costs, difficult regulation, no transparencyand sub-optimization

Electricity Supply System ReformsElectricity Supply System ReformsThe basicsThe basics

With the new:

competition in generation and supply – regulated grids and system operation – market price dispatching generation and consumption – individual balance responsibility supported by real-time balancing activity of SO – investments in capacity left to anyone (public and private) wanting to invest capital

increasing supply efficiency, achieving full transparencyand a maximum degree of optimization

With the new:

competition in generation and supply – regulated grids and system operation – market price dispatching generation and consumption – individual balance responsibility supported by real-time balancing activity of SO – investments in capacity left to anyone (public and private) wanting to invest capital

increasing supply efficiency, achieving full transparencyand a maximum degree of optimization

Electricity Supply System ReformsElectricity Supply System ReformsThe basicsThe basics

Objectives, Instruments and MechanismsTurkey is reforming the electricity supply system by replacing the old monopoly with well designed instruments and mechanisms – goal is to achieve the objectives

The objectives should be kept in mind so that the success can be measured (are the mechanisms working and are the instruments good enough)

The overall objective is a correct market price combined with a well designed framework, which has to secure that the mechanisms are enabled to work

Objectives, Instruments and MechanismsTurkey is reforming the electricity supply system by replacing the old monopoly with well designed instruments and mechanisms – goal is to achieve the objectives

The objectives should be kept in mind so that the success can be measured (are the mechanisms working and are the instruments good enough)

The overall objective is a correct market price combined with a well designed framework, which has to secure that the mechanisms are enabled to work

Electricity Supply System ReformsElectricity Supply System ReformsWhat secures a success in Turkey?What secures a success in Turkey?

Instruments

Regulation – sets the framework for the market

DAM – pre-balances Turkey a day ahead on an hourly basis– determines the energy price leading to the balance

BPM – provides reserves for balancing the system in real-time;– determines the SO’s costs for balancing the system

Market Splitting – prices surplus and deficit areas correctly– reduces the flow between congested areas

AMR – determines the imbalance settlement volumes

SS – cash-settles DAM, BPM and Imbalances

Mechanisms

Competition – regulates the profit of the competitive part of the electricity supply business (generators, retailers, eligible consumers

– facilitates efficiency improvements and optimization

Price – The price mechanism is the most important mechanism for generation, demand side and investments

BR – Balance Responsibility forces each Balance Responsible to balance his physical with his contractual position and leads toa more or less total system balance

Instruments

Regulation – sets the framework for the market

DAM – pre-balances Turkey a day ahead on an hourly basis– determines the energy price leading to the balance

BPM – provides reserves for balancing the system in real-time;– determines the SO’s costs for balancing the system

Market Splitting – prices surplus and deficit areas correctly– reduces the flow between congested areas

AMR – determines the imbalance settlement volumes

SS – cash-settles DAM, BPM and Imbalances

Mechanisms

Competition – regulates the profit of the competitive part of the electricity supply business (generators, retailers, eligible consumers

– facilitates efficiency improvements and optimization

Price – The price mechanism is the most important mechanism for generation, demand side and investments

BR – Balance Responsibility forces each Balance Responsible to balance his physical with his contractual position and leads toa more or less total system balance

Turkish Electricity MarketTurkish Electricity MarketExplanation of instruments and mechanismsExplanation of instruments and mechanisms

Turkish Electricity MarketTurkish Electricity MarketMarket Opening ExperienceMarket Opening Experience

In some years you will be able to talk about your Market Opening Experience

Until then you will be able to monitor the success by looking at the market price and analyzing whether the mechanisms are working or not

Agenda

- Introduction

- Market Opening Experiences

- Conclusions for Turkey

It functions as designed!

Bad designs have resulted in fatal market collapses (California, England & Wales Pool, etc.)

Good designs have resulted in increased efficiency and correct investments/desinvestments

It functions as designed!

Bad designs have resulted in fatal market collapses (California, England & Wales Pool, etc.)

Good designs have resulted in increased efficiency and correct investments/desinvestments

Market Opening ExperienceMarket Opening ExperienceOverall ExperienceOverall Experience

Objective is to “slowly and smoothly” transfer the system from the old to the new

Pro:The participants can prepare themselves in a more or less controlled environment

Con:The mechanisms are only partially enabled to work

Objective is to “slowly and smoothly” transfer the system from the old to the new

Pro:The participants can prepare themselves in a more or less controlled environment

Con:The mechanisms are only partially enabled to work

Market Opening ExperienceMarket Opening ExperienceTransitional PhaseTransitional Phase

What does Transitional Phase mean?

- number of eligible participants increases step-by-step

- “markets” are released gradually and/or modified during the period

Experiences from Transitional Phases:

- many have gradually increased the number of eligible consumers (size- dependent), almost

all of these had to shorten the planned transitional period, i.e. to release the consumers earlier

than planned

- many have chosen to release markets imediately in t0 instead of in phases t1, t2 , t3 ...

- transitional phases show a tendency of being modified as they are ongoing ... the

mechanisms are enabled to work earlier as planned

What does Transitional Phase mean?

- number of eligible participants increases step-by-step

- “markets” are released gradually and/or modified during the period

Experiences from Transitional Phases:

- many have gradually increased the number of eligible consumers (size- dependent), almost

all of these had to shorten the planned transitional period, i.e. to release the consumers earlier

than planned

- many have chosen to release markets imediately in t0 instead of in phases t1, t2 , t3 ...

- transitional phases show a tendency of being modified as they are ongoing ... the

mechanisms are enabled to work earlier as planned

Market Opening ExperienceMarket Opening ExperienceTransitional PhaseTransitional Phase

Why a Transitional Phase?

Turkey needs to prepare:

- companies have to grow into their new roles and responsibilities

- infrastructure has to be modified

- know-how and knowledge has to be expanded

For you the most important development during this phase

Balance Responsibility will gradually be introduced to more and more participants and

the settlement of imbalances will gradually be expanded to reach the desired final design

of Imbalance Management

Why a Transitional Phase?

Turkey needs to prepare:

- companies have to grow into their new roles and responsibilities

- infrastructure has to be modified

- know-how and knowledge has to be expanded

For you the most important development during this phase

Balance Responsibility will gradually be introduced to more and more participants and

the settlement of imbalances will gradually be expanded to reach the desired final design

of Imbalance Management

Market Opening ExperienceMarket Opening ExperienceTransitional Phase in TurkeyTransitional Phase in Turkey

Definition

- A Balance Responsible has to purchase what it will consume or sell what it will produce in advance

of the hour of generation/consumption

- The purchase/sell has to be completed before the official deadline for trading (submission of

generation schedules), i.e. a day ahead of the next 24 hours of a day’s operation

- Any imbalance between contracted and metered volumes will be settled with the Imbalance

Price

Why?

- If each Balance Responsible is in a pre-balance a day-ahead the system is also in a pre-balance a

day-ahead

- Thus the SO can concentrate on unexpected imbalances in real-time (should not be more

than max 3-4% of the consumption)

Definition

- A Balance Responsible has to purchase what it will consume or sell what it will produce in advance

of the hour of generation/consumption

- The purchase/sell has to be completed before the official deadline for trading (submission of

generation schedules), i.e. a day ahead of the next 24 hours of a day’s operation

- Any imbalance between contracted and metered volumes will be settled with the Imbalance

Price

Why?

- If each Balance Responsible is in a pre-balance a day-ahead the system is also in a pre-balance a

day-ahead

- Thus the SO can concentrate on unexpected imbalances in real-time (should not be more

than max 3-4% of the consumption)

Market Opening ExperienceMarket Opening ExperienceBalance ResponsibilityBalance Responsibility

General Experience

- System Operators always have feared this transfer of responsibility (they have feared too large

imbalance volumes in real-time operations)

- Many SOs tried to set very high Imbalance Prices to facilitate the balancing efforts, but the

result was instead a market disablement due to nobody wanting to be BR

- Reasonable Imbalance Prices have shown to be enough facilitation

- A clear demand in the regulation (you shall trade into balance, otherwise you risk the loss of your

license) and intensive training has shown to be enough

Your next task

How to estimate tomorrow’s consumption/generation/commitment best possible?

Suggestion

Cooperate! Use experience, know-how and knowledge from mature markets!

General Experience

- System Operators always have feared this transfer of responsibility (they have feared too large

imbalance volumes in real-time operations)

- Many SOs tried to set very high Imbalance Prices to facilitate the balancing efforts, but the

result was instead a market disablement due to nobody wanting to be BR

- Reasonable Imbalance Prices have shown to be enough facilitation

- A clear demand in the regulation (you shall trade into balance, otherwise you risk the loss of your

license) and intensive training has shown to be enough

Your next task

How to estimate tomorrow’s consumption/generation/commitment best possible?

Suggestion

Cooperate! Use experience, know-how and knowledge from mature markets!

Market Opening ExperienceMarket Opening ExperienceExperiences with Balance ResponsibilityExperiences with Balance Responsibility

Agenda

- Introduction

- Market Opening Experiences

- Conclusions for Turkey

Get prepared ASAP

- Handling of Balance Responsibility

- Risk Management and Portfolio Management

- Enable your organization to react fast on changes/modification

(things can change or be modified sooner as stated in the plans!)

Regulation

You will have a more developed regulation – the transfer from the existing to the new will be finalized end of next year (from

T-BSR and DAS over DAS/BPM to DAM, BPM, SS, AMR, the BSR)

You should communicate to the rest of the world that this regulation has come to stay!

Recommendation

Do not try to find the negative sides of the changes … the changes will come anyway … and you will have lost time!

Please remember: We are all working for a better and more efficient Turkish Electricity Market.

Get prepared ASAP

- Handling of Balance Responsibility

- Risk Management and Portfolio Management

- Enable your organization to react fast on changes/modification

(things can change or be modified sooner as stated in the plans!)

Regulation

You will have a more developed regulation – the transfer from the existing to the new will be finalized end of next year (from

T-BSR and DAS over DAS/BPM to DAM, BPM, SS, AMR, the BSR)

You should communicate to the rest of the world that this regulation has come to stay!

Recommendation

Do not try to find the negative sides of the changes … the changes will come anyway … and you will have lost time!

Please remember: We are all working for a better and more efficient Turkish Electricity Market.

ConclusionsConclusionsWhat do the experiences learn us?What do the experiences learn us?