Timme van MelleJune 6th, 2013
Cost of Non-Europe
Case of gaps and barriers – Preliminaryresults
© ECOFYS | |
Our study – the costs of barriers and gaps
06/06/2013 Name2
Literaturereview
Literaturereview
InventoryGaps &Barriers
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
© ECOFYS | |
Our study – the costs of barriers and gaps
06/06/2013 Name4
Literaturereview
Literaturereview
InventoryGaps &Barriers
InventoryGaps &Barriers
Selection ofcases
Selection ofcases
In-depthstudy
In-depthstudy
Regulated Prices
Liquid Hubs & Exchanges
Market Coupling
Supra-National Balancing Markets
© ECOFYS | |
Our study – the costs of barriers and gaps
06/06/2013 Name5
Literaturereview
Literaturereview
InventoryGaps &Barriers
InventoryGaps &Barriers
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
06/06/2013 Name6
Nominationof yearly and
monthlycapacity
Explicitcapacityauction
Day-aheadenergymarkets
Explicit auction
TransmissionCapacity booking
Energy markets
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Market Coupling – from explicit to implicit auctions
06/06/2013 Name7
Nominationof yearly and
monthlycapacity
Explicitcapacityauction
Day-aheadenergymarkets
Nominationof yearly and
monthlycapacity
Day-aheadenergymarket
Allocation ofcapacity by
marketoperator
Explicit auction
Implicit auction
TransmissionCapacity booking
Energy markets
TransmissionCapacity booking
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Benefits of market coupling – transaction costs
06/06/2013 Name8
Nominationof yearly and
monthlycapacity
Explicitcapacityauction
Day-aheadenergymarkets
Nominationof yearly and
monthlycapacity
Day-aheadenergymarket
Allocation ofcapacity by
marketoperator
Explicit auction
Implicit auction
No partaking inexplicit auction
Only singlebidding curve
© ECOFYS | |
Benefits of market coupling – transaction costs
06/06/2013 Name9
Nominationof yearly and
monthlycapacity
Explicitcapacityauction
Day-aheadenergymarkets
Nominationof yearly and
monthlycapacity
Day-aheadenergymarket
Allocation ofcapacity by
marketoperator
Explicit auction
Implicit auction
No partaking inexplicit auction
Only singlebidding curve
Avoids marketpower
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Benefits of market coupling – efficiency
06/06/2013 Name10
Nominationof yearly and
monthlycapacity
Explicitcapacityauction
Day-aheadenergymarkets
Nominationof yearly and
monthlycapacity
Day-aheadenergymarket
Allocation ofcapacity by
marketoperator
Explicit auction
Implicit auction
No efficiencylosses
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Benefits – efficient use of transmission capacity
06/06/2013 Name11
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
06/06/2013 Name12
Market price A
Market price B
Value of capacity
Market A Market BCross-bordercapacity
Price
Additional costs ofexplicit auctions
Flow of energy
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Higher costs consist of two main items
06/06/2013 Name13
Market price A
Market price B
Value of capacity
Market A Market BCross-bordercapacity
Price
Counter-flowbookings
Use-it-or-lose-it
Flow of energy
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Valuation of cost with explicit auctioning
06/06/2013 Name14
Market price A
Market price B
Market A Market BCross-bordercapacity
Price
IT-FRDay-
ahead
FR-ITDay-
ahead
FR-ITIntra-day
IT-FRIntra-day
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Valuation of cost with explicit auctioning
06/06/2013 Name15
Market price A
Market price B
Market A Market BCross-bordercapacity
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
06/06/2013 Name16
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
06/06/2013 Name17
© ECOFYS | |06/06/2013 Name18
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Criteria for selection of cases
06/06/2013 Name19
> 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
© ECOFYS | |06/06/2013 Name20
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
Slide 20
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
06/06/2013 Name21
€/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
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