Developments for the Italian Power Exchange Alberto Pototschnig, CEO Gestore del Mercato Elettrico S

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Developmentsfor the Italian Power Exchange
Alberto Pototschnig, CEOGestore del Mercato
Elettrico Spa(Italian Electricity Market
Operator)8th APEx Annual
ConferenceCartagena de Indias ColombiaOctober
14th 15th, 2003
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• Presentation Outline
• Regulatory Framework
• About GME
• Main Features of the Italian Power Exchange
• Market Development
• Prospective Market Participants and Liquidity

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Regulatory Framework

• The Legal framework
• Directive 96/92/EC of the European Parliament and
  of the Council of 19 December 1996 concerning
  common rules for the internal market in
  electricity
• Law no. 128 of 24 April 1998 concerning
  provisions deriving from Italian membership of
  the European Communities art. 36 empowering
  Government to enact one or more legislative
  decrees for implementing Directive 96/92/EC and
  for redefining all relevant aspects of the
  Italian electricity supply industry
• Legislative Decree no. 79 of 16 March 1999,
  implementing Directive 96/92/EC

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Regulatory Framework

• The Legal framework and the Market Concept
• Directive 96/92/EC of the European Parliament and
  of the Council of 19 December 1996 concerning
  common rules for the internal market in
  electricity (no Market Concept)
• Law no. 128 of 24 April 1998 concerning
  provisions deriving from Italian membership of
  the European Communities art. 36 empowering
  Government to enact one or more legislative
  decrees for implementing Directive 96/92/EC and
  for redefining all relevant aspects of the
  Italian electricity supply industry (no
  Market Concept)
• Legislative Decree no. 79 of 16 March 1999,
  implementing Directive 96/92/EC

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Regulatory Framework

• Legislative Decree n. 79/99
• The economic management of the electricity market
  (electricity and ancillary services) shall be
  entrusted to a Market Operator
• The Market Operator shall be a company to be set
  up by GRTN (the Transmission System Operator)
• The Market Rules are drafted by the Market
  Operator and are approved by the Minister of
  Industry (now Minister for Productive
  Activities), having sought the opinion of the
  Energy Regulator
• The Market Operator shall be responsible for
  managing supply offers and demand bids related to
  energy and all ancillary services
• The Regulator may authorise bilateral electricity
  trading outside the Electricity Market
• The authorisation may be denied or conditioned
  whenever the contracts jeopardise competition or
  security and efficiency of the electricity supply
  system
• A Draft Bill currently being read in Parliament
  may abolish the authorisation
• requirement for Physical Bilateral Contracts
  outside the Electricity Market

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About GME
Minister of the Economy
Shareholders rights exercised in conjunction
with the Minister for Productive Activities
GRTN Gestore della Rete di Trasmissione Nazionale
SpA (Transmission System Operator)
AUAcquirente Unico SpA (Single Buyer)
GMEGestore delMercato Elettrico SpA (Market
Operator)
GRTN Group
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About GME

• GME was established by GRTN on June 27th, 2000
• GME is responsible for organising
• A Power Exchange (Leg. Decree n. 79/99)
• A facility for Green Certificates trading (the
  Green Certificates Market) (Min. Decree 11 Nov
  99)
• Became operational on March 26th, 2003.
• Volume traded so far 23,428 certificates 236
  million
• A facility for Energy Efficiency Certificates
  trading (the Energy Efficiency Certificates
  Market) (Min. Decrees 21 Apr 01)
• GME is also responsible for promoting
• Electricity Derivatives trading (Electricity
  Market Rules approved by Min. Decree 9 May 2001)

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Main Features of the Italian Power Exchange
Electricity Market Structure
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Main Features of the Italian Power Exchange
Electricity Market Structure
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Main Features of the Italian Power Exchange
Electricity Market Structure
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Main Features of the Italian Power Exchange

• , Electricity Trading Markets
• Active Demand and Supply Participation
• No Inter-temporal constraints on Bids and Offers
• Energy traded at Market Equilibrium Price(s)
• Inter-zonal Congestion Management by Market
  Splitting
• When Congestion occurs in the Day-Ahead Energy
  Market, Producers/Sellers are paid the Zonal
  Equilibrium Prices, while Consumers/Buyers pay a
  National Average Price
• Ancillary Services Markets
• Energy and Capacity paid at the offered price
  (Pay-as-Bid)

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Market Development
Working Towards the Electricity Market the Rules
27.06.2000 Gestore del mercato elettrico (GME)
is established by the TSO
2000
21.11.2000 GME submits the Electricity Market
and Green Certificates Trading Rules to the
Minister of Industry
6.03.2001 Preliminary feedback by the
Regulator on the Rules
27.03.2001 GME submits a new version of the
Electricity Market Rules
30.04.2001 The Regulator issues its opinion on
the Electricity Market Rules
2001
8.05.2001 GME submits a final version of the
Electricity Market Rules taking into account
the Regulators opinion
9.05.2001 The Electricity Market Rules are
approved by the Minister
4.10.2001 GME publishes a draft of the
Instructions (implementation and procedural
provisions) for consultation of interested parties
18.01.2002 GME submits the Instructions to the
Minister for approval
2002
3.07.2002 GME receives the Regulators opinion
on the Instructions
18.07.2002 GME submits a revised version of the
Instructions taking into account the
Regulators opinion
2003
31.07.2003 The Minister of Industry issues
Guidelines for Sistema Italia 2003
13.10.2003 GME publishes a revision of the
Electricity Market Rules, incorporating the
Instructions, for consultation of interested
parties
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Market Development
Working Towards the Electricity Marketthe
Information System for the Electricity Market
2001
5.12.2001 GME assigns the contract for the
development of the Information System for
the Electricity Market (ISEM)
31.01.2002 A prototype of ISEM is deployed at
GMEs Control Centre
22.04.2002 The first release of the ISEM is
deployed at GME. Internal testing begins
2002
20.05.2002 The ISEM is presented to
prospective market participants
20.06.2002 First trial session of ISEM with
prospective market participants
23.07.2002 Second trial session of ISEM with
prospective market participants
5.08 to 6.09.2002 First set of Daily Trial
Sessions with approx. 30
prospective market participants
28.10 to 20.12.2002 Second set of Daily Trial
Sessions with approx. 50
prospective market participants
8.01.2003... Third set of Daily Trial Sessions
begins
2003
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Market Development

• Information System Characteristics
• Developed by a group of companies led by ELSAG
  and comprising EXCELERGY CORP. and GETRONICS
• Derived from a software used for electricity
  trading by American Electric Power (Columbus,
  Ohio)
• Allows access independently of market
  participants platform
• bids and other relevant information can be
  submitted using web-forms or XML files
• all market information can be down-loaded in
  numeric format compatible with widely-used
  application software
• Modular structure ensures flexibility

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Market Development

• As of October 10th, 2003,
• GME has completed
• Daily Trial Sessions
• of the Electricity Market

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Market Development

• As of October 10th, 2003,
• GME has completed
• 204
• Daily Trial Sessions
• of the Electricity Market

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Market Development

• , Ministerial Guidelines of July 31st, 2003for
  the Sistema Italia 2004
• The Guidelines
• Envisage an organised system of bids and offers
  for electricity (and ancillary services)
• Confirm the Power Exchange model developed by
  GME. Only one Ancillary Services Market
• Set Electricity Market launch date to January
  1st, 2004
• Describe activities to be performed by the
  Ministry, the Regulator, the TSO and the Market
  Operator to meet this launch target date
• Work is under way to implement the Guidelines (in
  Regulation,
• Systems, )

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Market Development
Electricity Market Structure
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Market Development
Electricity Market Structure
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Prospective Market Participants and Liquidity

• Prospective Market Participants
• Participants to the Trial Sessions
• Eligible final consumers 10 Producers 15
  Traders, Wholesalers, Distributors 63 Othe
  rs 40 Total 128
• 136 users attended the training courses organised
  by GME

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Prospective Market Participants and Liquidity

• Prospective Market Participants
• Participants to the Trial Sessions
• Eligible final consumers 10 Producers 15
  Traders, Wholesalers, Distributors 63 Othe
  rs 40 Total 128
• 136 users attended the training courses organised
  by GME

Prospective Market Participants
88
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Prospective Market Participants and Liquidity

• Liquidity in the Italian Power Exchange (I)
• Total electricity demand in Italy exceeds 300
  TWh/year
• The annual consumption of eligible clients
  exceeds 120 TWh (April 2003)
• Further reduction of the annual consumption
  threshold for eligibility since April 2003
• By July 1st, 2004, all non residential clients
  will be eligible
• Residential demand accounts for approximately 20
  of total final demand

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Prospective Market Participants and Liquidity

• Liquidity in the Italian Power Exchange (II)
• According to the Guidelines
• On the supply side
• The subsidised renewable energy (under the CIP6
  regime) will be offered in the PX by the TSO (who
  buys this energy at subsidised prices)
• Energy from embedded generators will be sold in
  the PX
• Energy imported using interconnection capacity
  assigned (autonomously or jointly) by the Italian
  TSO can be sold in the PX according to criteria
  defined by the Regulator
• Producers are required to sell into the PX the
  energy generated by the available capacity and
  not committed to physical bilateral contracts

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Prospective Market Participants and Liquidity

• Liquidity in the Italian Power Exchange (II)
• According to the Guidelines
• On the supply side
• The subsidised renewable energy (under the CIP6
  regime) will be offered in the PX by the TSO (who
  buys this energy at subsidised prices)
  50 TWh/y
• Energy from embedded generators will be sold in
  the PX 5 TWh/y
• Energy imported using interconnection capacity
  assigned (autonomously or jointly) by the Italian
  TSO can be sold in the PX according to criteria
  defined by the Regulator ?
• Producers are required to sell into the PX the
  energy generated by the available capacity and
  not committed to physical bilateral contracts
  ?

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Prospective Market Participants and Liquidity

• Liquidity in the Italian Power Exchange (III)
• According to the Guidelines
• On the demand side
• The Single Buyer buys on the PX (or through
  dedicated import contracts) 75 of the energy
  required to serve the demand of franchise
  customers
• Eligible Clients (including Wholesalers) may
  choose to buy from the PX, or through Physical
  Bilateral Contracts (subject to the Regulators
  authorisation?)

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Prospective Market Participants and Liquidity

• Liquidity in the Italian Power Exchange (III)
• According to the Guidelines
• On the demand side
• The Single Buyer buys on the PX (or through
  dedicated import contracts) 75 of the energy
  required to serve the demand of franchise
  customers 3540 TWh/y
• Eligible Clients (including Wholesalers) may
  choose to buy from the PX, or through Physical
  Bilateral Contracts ? of 170
  TWh

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Prospective Market Participants and Liquidity

• Liquidity in the Italian Power Exchange (III)
• The Choice between Trading on the PX and Trading
  through Physical
• Bilateral Contracts depends on
• Regulators Authorisation Requirement/Policy for
  Physical Bilateral Contracts
• Availability of Price-Volatility Hedging
  Instruments (Financial Derivatives)

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• Thank you for your attention!
• Gestore del Mercato Elettrico SpAViale
  Maresciallo Pilsudski, 92 - 00197 Romatel. 39
  06 8012.1www.mercatoelettrico.org