Ferenc J. Horv

1
Ferenc J. Horváth, PresidentHungarian Energy
OfficeII. Industrial Energy Forum Conference
2004Novotel Budapest Centre, 26-27 May 2004
MARKET OPERATION IN THE GAS AND ELECTRICITY
INDUSTRY
2
Market Opening and Market Activity in the Gas
Market of EU

Member States
100
90
80
70
Market opening
Active market
60
50
40
30
20
10
0
Denmark
Netherlands
Belgium
Austria
Ireland
Portugal
Finland
Sweden
Great Britain
Germany
Greece
Italy
France
Spain
3
NATURAL GAS PURCHASE IN THE LIBERALISED MARKET
Hazai
Határon keresztüli
Domestic
Cross- border
Tárolók
Storages
termelés
kereskedelem
production
trade
Szervezett
Organised
Közüzemi
Közüzemi
Public utility
földgáz
natural gas
nagykereskedo
nagykereskedo
piac
wholesaler
market
System
Rendszer
-
-
irányító
operator
Gáz
Közüzemi
Gas
Gáz
Közüzemi
Gáz
Public utility
kereskedo
szolgáltató
trader
supplier
kereskedo
szolgáltató
Public utility
Feljogosított
Eligible
Feljogosított
Közüzemi
Közüzemi
fogyasztók
fogyasztók
fogyasztók
consumers
consumers
fogyasztók

4
ACCESS RIGHTS

5
TO SUPPLY THE DAILY NEED FOR NATURAL GAS OF AN
ELIGIBLE CONSUMER

6
SUB-MISSION OF DAILY DEMANDAND NOMI-NATION






Submission of demand
Nomination


System Operator

-
Gázfor
Gas




rások
sources


Transport licensee






Public utility wholesaler
Transport system







Storage licensee




Traders



Storage system





Eligible customers






Distribution licensee



Public utility suppliers


Distr. system









Captive and eligible customers
Captive customers










Natural energy flow




Nomination of those entitled for access toward
System Operator




Submission of demand

7
PRICE DETERMINATION

• The official price regulation includes
• - transportation of natural gas (excluding
  transit), distribution and public utility
  storage, 
• - trade between the public utility wholesaler
  and the public utility supplier, and
• - natural gas sold for the public utility
  consumer.
• The official price must include
• - return of justified investments
• - return of costs incurred by licensees
  operating efficiently,
• - and the profit necessary for permanent
  operation.

8
OFFICIAL FEES OF SYSTEM USAGE FOR NATURAL GAS
9
SOME QUESTIONS ON THE MARKET OPENING IN THE GAS
INDUSTRY (1)

• 1. To what degree is the market likely to be
  opened?
•   - Legal market opening 70 from 1 January
  2004,
• 100 from 1 July 2007
• - The rate of the active market is 5-10 in
  the first years according to international
  tendencies.
•  
• 2. Is there enough cross-border capacity?
•  
• 3. Are there any free gas sources in the
  neighbouring countries?
•  

10
SOME QUESTIONS ON THE MARKET OPENING IN THE GAS
INDUSTRY (2)

• 1.  Is it worth entering the market for eligible
  consumers?
• The estimated official charges to be added
  to the gas prices ( at price January 2004)
• - approx. 4,3 HUF/m3 transportation charge,
• - approx. 2,3 HUF/m3 storage charge
• - approx. 3,8 HUF/m3 distribution charge in case
  of consumers with capacity contract above 500
  m3/h.
•  
• Total officially regulated system-usage
  charge for eligible consumers with a capacity
  contract above 500 m3/h 10,4 HUF/m3.

11
SOME QUESTIONS ON MARKET OPENING IN THE GAS
INDUSTRY (3)

• Gas average price to be reached (domestic and
  import)
• -  domestic average price of the consumer group
  in question
• ( 44,4 HUF/m3) system-usage charges
• ( 10,4 HUF/m3) 34 HUF/m3 threshold.
• - This equals to approximately 160 USD/thousand
  m3 import price (if 212 HUF/USD).

12
Market Opening and Market Activity in the
Electricity
Market of EU Member States

100
90
80
Market opening
Active market
70
60
50
40
30
20
10
0
Denmark
Netherlands
Belgium
Austria
Ireland
Portugal
Finland
Sweden
Great Britain
Germany
Greece
Italy
France
Spain
13
THE HYBRID MARKET MODEL OF THE ELECTRICITY
INDUSTRY
14
ELECTRICITY PURCHASE IN THE LIBERALISED MARKET
Határon keresztüli
Cross-border
Termelés
Generation
szállítás
Termelés
transmission
Generation
közüzemi
for public
verseny
-
for competitive
-
célra
utility
piacra
market
Közüzemi
Public utility
Szervezett
villamos
-
nagykereskedo
wholesaler
energia
-
piac
Rendszer
-
irányító
Villamos energia
Közüzemi
Electricity trader
Public utility
kereskedo
szolgáltató
supplier
Feljogosított
Eligible
Közüzemi
Public utility
fogyasztók
consumers
fogyasztók
consumers
15
BALANCE CIRCLES IN THE BALANCED REGULATION
Szabályozási
Regulated
terület (zóna)
area (zone)
Rendszerirányító
System-operator
Balancing
Mérlegkör
Mérlegkör
Balance Circle
Balance Circle
Eromuvek
Power Plant
Exchange
Exchange
Kereskedo (mérlegfelelos)
Trader (balance circle responsible)
Fogyasztók
Consumers
16
MARKET SHARE OF ELIGIBLE ELECTRICITY CONSUMERS
(2003-2004)

25,00
20,18
20,12
19,40
18,68
20,00
17,52
17,35
17,27
17,01
17,05
16,81
16,76
15,00
10,70
9,89
10,00
8,01
7,21
6,31
4,01
5,00
3,20
1,88
1,88
1,50
1,41
0,80
0,81
0,72
0,46
0,30
0,17
0,04
0,05
-3,36
0,00
July.
May
Oct.
Jun
Jan
May
Nov
Apr
Apr
March
Aug
Dec
March
Feb
Feb
Sep
-5,00

Eligible consumers entering the market
Total
17
FREE MARKET SOURCES

• Yearly and short-time auctions
• for cross-border (import) capacities
• for domestic (virtual) power plant capacities
• Transitional capacity excesses announced by the
  public utility wholesaler
• Domestic power plants generating for the free
  market
• Balancing energy

18
MARKET OPERATION IN THE ELECTRICITY INDUSTRY (1)
19
MARKET OPERATION IN THE ELECTRICITY INDUSTRY (2)
20
POWER PLANT CAPACITY AUCTIONS
2003.
2004. I. half
II. half
1. Base
- virtual capacity
MW
85
55
- electricity
GWh
375,4
240,2
- average price
by long-term contract
HUF/kWh
18,2
auction price
HUF/kWh
8
9,5
2. Off-peak capacity
- virtual capacity
MW
110
85
25
- electricity
GWh
258,6
199,8
58,8
- average price
by long-term contract
HUF/kWh
auction price
HUF/kWh
5,6
5,2
6,7
21
GUARANTEED PURCHASES IN PPA, ACTUAL PURCHASE FROM
POWER PLANTS, EXPECTED DEMANDS
60000
50000
40000
GWh
30000
20000
10000
0
1999.
2000.
2001.
2002.
2003.
2004.
2005.
2006.
2007.
2008.
2009.
2010.
2011.
2012.
2013.
2014.
2015.
2016.
2017.
2018.
2019.
2020.
2021.
2022.
2023.
2024.
years
guaranteed purchase GWh
expected demand GWh
actual purchase GWh
22
SOME QUESTIONS ON MARKET OPENING (1)
  1.    What size of electricity (domestic and
import) demand is likely from the eligible
consumers? -        Rate of active market 20 25
in the first years -       In case 6 - 8 TWh
free consumer choice   2.    Is there enough
cross-border capacity?   3. Are there any power
plant excess capacities in the neighbouring
countries?
23
SOME QUESTIONS ON MARKET OPENING (2)
  1. Is it worth entering the market for eligible
consumers? TThe estimated official charges
to be added to the domestic power plant and
import prices ( at price August 2004) -       
approx. 0,6 HUF/kWh transmission charge, -       
approx. 0,79 HUF/kWh system operation
charge (operational, stranded costs,
transmission losses and green charge
total) -     approx. 0,68 HUF/kWh system-level
service charge, -     approx. 0,46-2,75 HUF/kWh
distribution charge in case of high and
medium-voltage level consumers.
24
SOME QUESTIONS ON MARKET OPENING (3)
 The Total officially regulated system usage fee
for eligible consumers at high and medium voltage
levels is 2,5-4,8 HUF/kWh depending on the
voltage level.   Electricity average price
(domestic and import) to be reached   - domestic
average price for high-voltage consumers (12,7
HUF/kWh) system usage fees (2,5 HUF/kWh) 10,2
HUF/kWh price threshold, - domestic average price
for medium-voltage consumers (16,6 HUF/kWh)
system usage fees (4,8 HUF/kWh) 11,8 HUF/kWh
price threshold.
25
LATEST PROBLEMS REGARDING ELECTRICITY LOAD
REGULATION
- import is practically at base, - total
capacity of gas motors is 300 MW (1,4 MW/pc on
average), high generation in the early hours of
dawn, - total capacity of wind power plants is
3,2 MW at present, a disposition to build
announced is circa 200 MW 75-80 demand for
traditional power plant reserves,   - at dawn
between 2 and 6 the load of Paks Nuclear Power
Plant must often be decreased.
26
SANCTIONS INTRODUCED FOR GAS MOTORS FROM 1
JANUARY 2004 (1)

• Operational requirements
• - obligation to give a schedule and
• - provision to keep a meter suitable for checking
  the schedule,
• - obligation to keep emissions limits of
  pollutants prescribed in legal regulations
• 2. Efficiency provisions
• Degree of efficiency to be completed monthly was
  modified to 75, maintaining the yearly 65
  requirement.

27
SANCTIONS INTRODUCED FOR GAS MOTORS FROM 1
JANUARY 2004 (2)

• 3. Decrease of purchase price
•   - The purchase price for gas motors, operated
  by natural gas for commercial trade, will
  decrease by 10 after 31 December 2005.
•   - The purchase price regarding gas motors
  purchased according to the 1. natural gas price
  category will decrease by circa 1 HUF/kWh due to
  reduction of tariff 1 and 2.

28
PURCHASE OBLIGATION AND APPLICATION OF
COMPENSATION RELATED TO OBLIGATORY PURCHASE FOR
CO-GENERATED ELECTRICITY
29
ELECTRICITY TO BE PURCHASED OBLIGATORY IN 2003,
GWh
COP energy purchase, GWh
25,2
123,7
1 451,1
Waste
Renewables
Cogenerated
COP payment, MillionHUF
665
26
173
416
7 972
Bio
Wind
Water
Waste
Cogenerated
30
COMPARING THE ELECTRICITY MARKET REGULATION OF
THE PRESENT HUNGARIAN LAWS AND THE EU (1)

• The Hungarian legal rules do not fully comply
  with the Directive 2003/54/EK in the key areas
  below (of which principal purpose is
  establishment of an European market without
  boundaries)
• The concept and definitions of the Electricity
  Act are insufficient, inconsistent or contrary to
  the Directive (e.g. consumer, supply, system
  operators, divided generation)
• The Hungarian ISO falls short of TSO defined in
  the Directive.

31
COMPARING THE ELECTRICITY MARKET REGULATION OF
THE PRESENT HUNGARIAN LAWS AND THE EU (2)

• (e.g. TSO must check the operation, maintenance
  and development of the transmission network no
  functional unbundling at DSO)
• Regulation of the Electricity Act does not comply
  with the Directive regarding stranded costs (The
  Directive does not allow return of stranded
  costs standpoint regarding this issue is
  required)
• The Electricity Act does not prescribe the legal
  unbundling of public utility supplier from
  wholesalers network activities.

32
COMPARING THE ELECTRICITY MARKET REGULATION OF
THE PRESENT HUNGARIAN LAWS AND THE EU (3)

• ( The Directive ordains legal, functional and
  accounting unbundling of TSO from other
  activities. DSO must have functional and
  accounting unbundling, legal unbundling shall be
  completed until 1 July 2007.)
• The operation of the public utility wholesaler
  and the public utility supplier does not fulfil
  the requirements of the Directive. (According to
  the Directive the public utility suppliers are
  qualified as eligible consumers and are not
  obliged to purchase from the public utility
  wholesaler.

33
COMPARING THE ELECTRICITY MARKET REGULATION OF
THE PRESENT HUNGARIAN LAWS AND THE EU (4)

• The size of public utility is much more limited
  than the present one and the public utility
  supplier selling at a regulated price must be
  selected by competitive means.)
• The regulation of eligible consumers deviates
  considerably from the provisions of the
  Directive. (e.g. The entrance into or back from
  the market in case of an eligible consumer is
  lengthy and the conditions of measurement shall
  be established by itself. According to the
  Directive the change must be simple, quick and
  inexpensive.

34
COMPARING THE ELECTRICITY MARKET REGULATION OF
THE PRESENT HUNGARIAN LAWS AND THE EU (5)

• The eligible consumers shall be provided with
  the same protective measures as the consumers in
  public utility supply enjoy. )
• The authority of HEO must be amended in order to
  be able to comply fully with the requirements of
  the Directive. (e.g. HEO shall dispose of means
  to solve claims against the system operator, to
  settle disputes and to determine tariffs,
  regulations, mechanisms and methodologies with
  greater impact. )