The future of Power Industry & Prospects of Regional Energy Trading Dr Anastasios Garis

The future of Power Industry & Prospects

of Regional Energy Trading

Dr Anastasios Garis

Chairman & CEO LAGIE

29 April 2014

1Electricity Market Operator S.A. – LAGIE SA

The European Electricity has been under pressure for the last few years, as depicted by the major Utilities financial performance

Electricity Market Operator S.A. – LAGIE SA

Economic austerity adversely impacting electricity demand

RES significant penetration driving out conventional capacity and reducing wholesale prices

Retail prices increasing due to higher taxes and levies (primarily to cover RES costs)

Relatively low coal prices driving natural gas generation capacity to extremely low levels (stranded assets in some companies)

Key forces impacting the industry

The European Commission has embraced the problem and issued new Guidelines to be valid from July 2014 to the end of 2020

3

“The Problem” and “The Premise”

Issued Guidelines

The remarkable growth of renewable energy over recent years, partly

induced by public support,

has helped to make progress on environmental objectives but has

also caused serious market distortions and increasing costs

to customers

The Commission has reflected this in the new guidelines, which will be valid from 1 July 2014 until the end of 2020

Gradual introduction of Market based mechanisms for RES

,̶ “it is time for RES to join the Market” (A. Almunia)o Gradual introduction of competitive bidding processes (pilot

2015-16) and replacement of FITs by feed-in premiums for some plants

Promoting competitiveness of European industry

,̶ Reducing the burden for a limited number of energy intensive sectors defined for the whole EU (e.g. Metals. Paper, chemicals, etc.)

Supporting cross-border energy infrastructure to further the Single European Energy Market

,̶ Focusing on projects that improve cross-border energy flows in less developed regions

Permit aid to secure adequate electricity generation

,̶ Encourage producers to build new capacity or prevent them from shutting down existing plants or to reward consumers to reduce consumption in peak hours


EUROPEX wellcomes the new Guideline which could potentially facilitate an effective integration of RES in the EU electricity market

Power Exchanges and Trading platforms in Europe


European solution regarding support for RES would further boost their development as well as diminish the impact of non-market based factors onto the electricity price.

The main issues of current support schemes stem from the distortions they cause in the Market. These problems will be reduced by the Guidelines requirements regarding direct market participation, balancing responsibilities and reducing incentives to sell at negative prices.

Already implemented market coupling projects harmonising power trading, increasing volatility, and increasing capability to cope with the intermittent nature of RES

EUROPEX support for the Guidelines

EUROPEX is a not-for-profit Association of European Energy Exchanges representing the interests of exchange-based wholesale electricity, gas and environmental markets with regard to developments of the European regulatory framework for wholesale energy trading and provides a discussion platform at European level.

The European Power Exchanges (PXs) offer a wide variety of products to their customers to enhance market visibility and efficiency

5

GME

POWER (IPEX) ENVIRONMENT GAS

Day-ahead Market

Intraday Market

OTC contracts platform

Forward Market

Derivatives

Green certifictes Market

Guarantees of Origin

Efficiency Credits Market

Emissions Allowances Market

Green Certificates OTC

registration platform

Italian Gas Market• Day-ahead & Intraday

Gas Markets• Forward Gas Market

Long term brokering platform or compulsory sale of imports and royalties

Gas balancing platform

Spot Market

– Italy achieved in 2011 its coupling with the Slovenian market (price coupling) for trans border trading– GME has agreed with EEX to use GME’s SMP as Index in EEXs derivatives business in Italy– RES is operated by GSE. GME plays no part in RES– GME is owned 100% by the State but its legal/operational model resembles that of private companies


GME’s mission is to organize and economically manage the Electricity Market fostering competition between producers, as well as economically manage an adequate availability of reserve capacity, under principles of neutrality, transparency and objectivity

Example: ITALY

The trend in PXs industry structure is consolidation whilst growing in scale and products bandwidth to enhance liquidity and risk mitigation (eex/epex as an example covering nine EU countries with plans to grow further)

Structure of the German EEX PX (spot and derivatives arm)

Bodies and Supervision for EEX


PXs tend to offer paper and spot (derivatives/physical) trading products and perform the Clearing/Settlement tasks primarily under their own umbrella.

The margins for energy trading are relatively low and would probably reduce further as the markets mature with time. It is most probable that energy derivatives trading across Europe would be operated by a few large companies who would provide the necessary liquidity for risk management.

The entry of mega US energy traders and risk managers in Europe such as ICE, CMX and Nasdaq, would speed up the industry consolidation. It is unlikely that Local derivatives players will survive.

Clearing and Settlement activities, whilst today offer higher margins, will probably go the same way.

Spot energy trading would require local presence, although (through Coupling PCR) in some cases would be subsidiaries of regional PXs.

Banks and Stock Exchanges have not made a mark in energy trading as the volumes are very small compared to that of stocks and interest markets. In the future, and when the volumes increase, they might try to enter the Derivatives energy markets as they do not have capability in Spot. They have no capability on the physical/spot energy markets.

PX industry structure strategic direction

As another important step towards an effective integration of EU markets, EUROPEX has announced the full coupling between NEW and SWE regions by 14th May 2014

Price Coupling of Regions (PCR) is an important step for the implementation of the internal energy markets in EU, to be accomplished by end 2014 through day-ahead and intra-day market solutions

PCR optimises the use of cross-border capacities delivering signals for a more effective use of investment in the Power sector across Europe leading to:

Increased liquidity Decreased volatility Drive for optimising buyers and sellers

surplus across all involved markets

The coupling of NWE with SWE will cover 17 EU countries accounting for some 75% of the EU power market

Μη σύγκλιση των τιμών μεταξύ Γαλλίας και Γερμανίας.NWE Project: Coupling of CWE, Scandinavia, Baltic Region and GBNWE and CWE are coupled since Feb. 2014SWE (France, Spain, Portugal) coupling until mid 2014


Despite the Market coupling in NEW/CWE and the consolidation of PXs across Europe, wholesale prices are not converging as yet

Εξέλιξη ΟΤΣ σε Γαλλία και Γερμανία (2011-2014)

2011 2012 2013 20140

10

20

30

40

50

60

Average of FRANCE Average of GERMANY Η μη σύγκλιση των τιμών οφείλεται κυρίως στη μεγάλη διείσδυση των ΑΠΕ στη Γερμανία. Αυτό είχε ως αποτέλεσμα τις εξαγωγές ενέργειας από την Γερμανία προς την Γαλλία. Έτσι οι μέσες τιμές ενέργειας στα έτη 2012-2014 είναι μικρότερες στη Γερμανία από τις αντίστοιχες της Γαλλίας.

Το Market Coupling επιτυγχάνει βέλτιστη χρήση των διασυνδέσεων και του ευρωπαϊκού κοινωνικού πλεονάσματος.

Θα υπάρξει απόλυτη ταύτιση των τιμών μεταξύ δύο περιοχών που είναι συζευγμένες μόνο στην περίπτωση μη συμφόρησης των διασυνδέσεων. Κάτι τέτοιο μπορεί να επιτευχθεί μόνο με τη κατασκευή νέων διασυνδέσεων.

Μη σύγκλιση των τιμών μεταξύ Γαλλίας και Γερμανίας.


In Greece, the Electricity industry has also significant structural challenges


Economic recession has stalled electricity consumption

The whole electricity Market is subsidised at various degrees

Drive to meet EU 2020 targets has resulted in expensive and uncontrollable RES growth with adverse effects in the RES industry liquidity as well as in the whole electricity industry structure

Wholesale prices are kept at relatively low levels and display erratic behaviour

Retail prices are rising (primarily due to extra taxes and levies) but the overall cost structure across the industry value chain has to be altered to allow full competition at the retail side

Generation appears to be in oversupply whilst RES capacity continuous to increase

The conventional generation sector industry structure excebits imbalances between the participants in terms of size, cost and fuel mix

10

We are experiencing significant structural changes in the Greek Electricity market as RES changing the dynamics of the market

Πηγή : ΛΑΓΗΕ / ΑΔΜΗΕ, ΜΗΝΙΑΙΑ ΔΕΛΤΙΑ ΕΝΕΡΓΕΙΑΣ, Ιανουάριος 2014

Ετήσια παραγωγή ενέργειας (TWh) ανά καύσιμο – 2011, 2012, 2013

Η σημαντική διείσδυση νέων σταθμών ΑΠΕ που μπαίνουν στο σύστημα κατά προτεραιότητα και σε υψηλές εγγυημένες τιμές είχε σαν αποτέλεσμα την αύξηση του κόστους ηλεκτροπαραγωγής

2011 2012 2013

ΕΤΗΣΙΑ

ΠΑΡΑΓΩΓΗ (TWh)

%ΕΤΗΣΙΑ


%ΕΤΗΣΙΑ


%

ΛΙΓΝΙΤΗΣ 27,6 52% 27,6 52% 23,2 45,6%ΦΥΣΙΚΟ ΑΕΡΙΟ 14,9 28% 14,4 27% 11,1 21,6%ΥΔΡΟΗΛΕΚΤΡΙΚΑ 3,7 7% 3,9 7% 5,6 11,1%ΠΕΤΡΕΛΑΙΟ 0,0 0% 0,1 0% 0 0%ΣΥΝΟΛΟ ΣΥΜΒΑΤΙΚΗΣ 46,1 86% 45,9 86% 39,9 78,3% ΑΠΕ & ΣΗΘΥΑ 4,0 8% 5,8 11% 8,9 17,5%

ΕΙΣΑΓΩΓΕΣ-ΕΞΑΓΩΓΕΣ 3,2 6% 1,8 3% 2,1 4,2%

ΣΥΝΟΛΟ 53,4 100% 53,5 100% 50,9 100%

ΟΤΣ 59,36 €/MWh 56,73 €/MWh 41,47 €/MWh

Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε.

11

In the first quarter 2014 the SMP increased by some 50% from last year primarily due to the abolition of the 30% rule on thermal unit offers

Πηγή : ΛΑΓΗΕ / ΑΔΜΗΕ, ΜΗΝΙΑΙΑ ΔΕΛΤΙΑ ΕΝΕΡΓΕΙΑΣ, Μάρτιος 2014

Παραγωγή ενέργειας (TWh) ανά καύσιμο – Q1.2013 vs. Q1.2014

Η λήψη Ρυθμιστικών Μέτρων (κατάργηση κανόνα 30%) είχε ως αποτέλεσμα τη σημαντική αύξηση της ΟΤΣ και των καθαρών εισαγωγών (διασύνδεση Ιταλίας εκτός)

Q1.2013 Q1.2014

ΠΑΡΑΓΩΓΗ (TWh) % ΠΑΡΑΓΩΓΗ

(TWh) % ΔΙΑΦΟΡΑ (TWh) %

ΛΙΓΝΙΤΗΣ 5,55 43% 6,12 49,3% + 0,57 +10,27ΦΥΣΙΚΟ ΑΕΡΙΟ 2,62 20,3% 1,83 14,7% - 0,79 - 30,15ΥΔΡΟΗΛΕΚΤΡΙΚΑ 2,3 17,8% 0,77 6,2% - 1,53 - 66,52ΠΕΤΡΕΛΑΙΟ 0,0 0% 0 0% 0 0ΣΥΝΟΛΟ ΣΥΜΒΑΤΙΚΗΣ 10,47 81,1% 8,72 70.2% - 1,75 - 16,71

ΑΠΕ & ΣΗΘΥΑ 2,08 16,11% 2,14 17.2% + 0,06 +2,88

ΕΙΣΑΓΩΓΕΣ-ΕΞΑΓΩΓΕΣ 0,36 2,79% 1,56 12,6% + 1,2 +333,3

ΣΥΝΟΛΟ 12,91 100% 12,42 100% - 0,49 -3,79ΟΤΣ 40,4 €/MWh 59,57 €/MWh +19,17€/M +47,45

Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε.

There is trend of declining SMPs since 2011 primarily due to the RES growth and the full participation of CCGTs using the 30% rule

12

Μέση Ημερήσια ΟΤΣ και ΟΤΑ (2011,2012,2013)

Η αύξηση της ΟΤΣ που παρατηρείται από τα μέσα του 2013 οφείλεται στην κατάργηση της προσαύξησης του 10%

του Μηχανισμού Ανάκτησης Μεταβλητού Κόστους

Πηγή : Μηνιαίο Δελτίο Συστήματος Συναλλαγών ΗΕΠ, Δεκ.2013Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε.

Προβλήματα Τροφοδοσίας Φ.Α.

Υψηλή Υδραυλικότητα

Κατάργηση Κανόνα 30%

Κατάργηση Προσαύξησης 10% ΜΑΜΚ

The increase in RES penetration is challenging the current operation of the system and influences the SMP level during the day


Example: 30/3/2014

The RES deficit accelerated in the last few years, but could be reduced by year end following recent legislation

Λειτουργός Ηλεκτρικής Ενέργειας – ΛΑΓΗΕ Α.Ε. 14

Εξέλιξη σωρευτικού λογιστικού ελλείμματος 2002-2013 (€ εκατ.)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-100

0

100

200

300

400

500

600

0

1 8 11

-17 -13

48

24

111

199

343

549

Πλεόνασμα (€ εκατ.)Έλλειμμα (€ εκατ.)

Τα έτη 2010-2012 σημειώθηκε σταθερή αύξηση του ελλείμματος Παρά την είσοδο πολλών νέων έργων στις αρχές 2013, το ΥΠΕΚΑ δεν προέβλεψε ώστε τα έσοδα του

Ε.Λ. να επαρκούν για τα απαιτούμενα έξοδα και να διασφαλιστούν οι νέες επενδύσεις ΑΠΕ

Ο ρυθμός αύξησης των πόρων

τα τελευταία χρόνια δεν είναι

ικανός για να καλύψει τις

αντίστοιχες δαπάνες με

αποτέλεσμα τη σημαντική

διεύρυνση του ελλείμματος από

το 2010 και εφεξής

-

The Accounting deficit should be eliminated by end 2014, following the implementation of the recent legislation

On the 28th April the Cash deficit (including that of Accounting) was at around 780 €Μ

There have to be mechanisms in place to ensure that following the “New Deal” reduced FITs, a sustained liquidity of the RES market across the technologies and topographies

Going forward, the Participants in the Greek electricity industry must focus on “Fixing the Basics” sooner rather than later


Building the Engine for the Wholesale Market reforms

Reforming the industry structure to enable healthy competition

Managing the RES growth

Releasing the capability in LAGIE

Some the Basics that we must focus on

Design and implement the “Engine” for the Target Model


Hybrid approach [voluntary pool and bilateral markets] (operated by LAGIE)

Forward national market (operated by LAGIE) gradual increase of maximum allowed bilateral contracts (OTC)

Forward cross-border market (operated by ADMIE)

Day-ahead market compatible with the PCR (operated by LAGIE)

Intra-day continuous trading (operated by LAGIE)

Centralized balancing market (operated by ADMIE)

Responsibility for RES imbalances to ADMIE

Initial thoughts for the Greek Wholesale Electricity Market design

Greece is expected to enter Market Coupling within the CSE region and from there to the whole EU power markets


Increase of market liquidity Decrease of price volatility in

the wholesale market Optimal use of the

interconnections Leverage existing technical and

processes architecture as already in use by the other PCR PXs

EU Commission has been decided to start a cooperation for elaborating a design for a day ahead market coupling on Italian borders using PCR. A Cooperation agreement for a Design Phase was signed end of 2012 between the following parties :

On TSO side:

ADMIE,APGELESRTE

Swissgrid

TERNA

On Power exchange side:BSP SouthpoolEPEX SpotEXAAGMELAGIE

Coupling advantages to Greece

NOME type auctions, due to start 9/2014, would allow retailers competitive access to the Market


Introduction of NOME-type auctions of part of the incumbent PPC (Public Power Corporation) baseload capacity (PPC owns at the moment 98% of the supply market), to create new suppliers.

NOME stands for “Nouvelle Organisation du Marché de l'Electricité”. It is a transitional reform of the electricity market.

Eligible participants in NOME-type auction are limited to generators and suppliers.

Ensuring that implementation of NOME-type products is compatible and coherent with the privatization process of PPC and the creation of small PPC.

The NOME auctions and products will remain until the Greek electricity retail markets are fully competitive. The creation of a fully operational small PPC will constitute a necessary milestone in this regard.

To bring competition in the supply side of the electricity market, the auctioning of PPC capacity (NOME) would be brought ahead and started on September 2014.

RES penetration has to be prudent ensuring cost effective operation of the Market whilst measures are taken to eliminate current deficits


Key RES messages• The State has passed legislation to eliminate the

accounting RES deficit by end 2014 by reducing FITs and introducing “credit options” to existing RES investments

• It has also set some targets for RES growth over the next few years per different technology

• The key driver now is to ensure liquidity in the market by eliminating the deficits asap

• To fully alleviate the current cash deficit and avoid build up of further deficits in the future, the State has to consider setting yearly budget (not just MW) targets for RES investments making sure that the funds would be available for the required compensation

• Planning the gradual penetration of RES, the State should also consider the effects of increasing RES production in the SMP and the overall cost of production as RES “must run” would take out lignite generation

• The State would moreover prepare for implementation of the new EU Guidelines for new RES investments “to join the Market”

ΑΠΡΙΛΙΟΣ 2014 ΛΑΓΗΕΟΥΡΑ ΑΔΜΗΕ

ΟΥΡΑ ΔΕΔΔΗΕ ΕΘΝΙΚΟΙ ΣΤΟΧΟΙ

ΤεχνολογίαΙσχύς σε λειτουργία (MW)

Μη λειτουργούντα με σύμβαση πώλησης (MW)

Αιτήματα προς υπογραφή σύμβασης πώλησης (MW)

Πρόβλεψη Διείσδυσης επιπλέον MW στο Δελτίο ΛΑΓΗΕ μέχρι τέλους 2015 (MW)

Με Οριστική Προσφορά Σύνδεσης (MW)

Με Οριστική Προσφορά Σύνδεσης (MW)

2014 (MW)

2020 (MW)

Αιολικά 1.581,7 865,8 72,0 380,2 4.375,0 210,0 4.000,0 7.500,0

Φωτοβολταϊκά 2.077,2 1.003,2 0,0 46,8 1.084,0 290,0 1.500,0 2.200,0

ΜΥΗΣ 219,8 19,3 5,2 30,2 8,0 58,0 300,0 350,0

Βιοαέριο-Βιομάζα 46,3 25,9 7,5 153,7 0,0 69,0 200,0 350,0

ΣΗΘΥΑ 98,1 0,3 1,0 11,9 0,0 5,0

Στέγες 373,6 36,0

Σύνολα 4.396,7 1.914,6 85,7 658,7 5.467,0 632,0

ΚατηγορίαΣε λειτουργία μετά την 1.1.2014 (MW)

Όριο (MW)

Διαφορά προς κάλυψη (MW)

Φωτοβολταϊκά* 3,71 200,00 196,29Φωτοβολταϊκά (FAST TRACK) 0,00 300,00 300,00Ηλιοθερμικά 0,00 100,00 100,00Γεωθερμικά 0,00 50,00 50,00Βιομάζα 0,00 40,00 40,00Βιοαέριο (Γεωργικά απόβλητα) 0,50 50,00 49,50

* Φωτοβολταϊκά: όριο ανά έτος μέχρι το 2020

Ν.4254/2014: Όρια Εγκατεστημένης Ισχύος σε λειτουργία ανά Τεχνολογία μετά την 1.1.2014 (MW)

Releasing the capability in LAGIE



Apply yourself. Get all the “education” you can, but then , by God, do

something.

Do not just stand there, Make it Happen

Lee Iaccoca

The future of Power Industry & Prospects of Regional Energy Trading Dr Anastasios Garis

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Transcript of The future of Power Industry & Prospects of Regional Energy Trading Dr Anastasios Garis