Title: Electricity Markets The Polish Experience Challanges of the Unification
1Electricity Markets The Polish Experience
Challanges of the Unification
- Tomasz Siewierski, PhD, Wladyslaw Mielczaski,
Prof. - The Electricity Market Research Group
- Technical University of Lodz, Poland
2Contents of the Presentation
- Overview of the Polish power sector
- EU accession consequences of the unification
market liberalization - Regulatory framework - historical overview and
current situation - Structure and operation of electricity market in
Poland - Privatization, ownership model and competition
enhancement - Energy and environment
- Renewable energy sources (regulation and finance)
- Environment protection (technical issues and
financial outcome) - Cross-border electricity trade in Central Europe
enabling pan-European market - Stranded and emerging problems
- PPA and reserve capacity
- Identity problem looking for the proper
position of TSO, DSO and the Regulator - Evolution of market design freedom of trade
(toward real-time efficient central market with
parallel local markets) and freedom of purchase
(2007 TPA for household customers) - Security of supply Polish strategy for the
energy sector until 2025 in relationship to EU
policy - Business opportunities - what we offer and what
we can do together
3Overview of Polish Energy Sector
Source PSE-Operator S.A.
4Overview of Polish Energy Sector
Source PSE-Operator S.A. 2004
5Polish Energy Sector Pros Cons
6Polish Energy Sector Pros Cons
7Production Cost ver. Energy Price
8Energy Volume Allocation
9Market Liberalization
- Break of the wall(1989)-beginning of the
political changes in Poland. Go WestEU access
as the nation strategic goal for the next 10
years - Market Discussions and unsuccessful attempts to
reform and liberalize power sector (1993-1998)
within existing regulations. - Legislation. (Lets do it by book). 10 April
1997 - Polish parliament votes the first version
of the Energy Act. Foundation of Energy
Regulation Office. - Investments. Starts first entirely private
investment in the Polish power sector (1998).
CCGT unit in Nowa Sarzyna commissioned in 2000
(Enron) - Privatization March 1999 30 shares of PAK
power plant acquired by private strategic
investor - Market Development and implementation of new
electricity market design. December 1999 Polish
market goes live. - June 2000 Polish Power Exchange starts day ahead
energy auctions - Privatization Vattenfall acquires 33 of the
largest distribution company GZE S.A. (2001) - Major modifications in the market operation
2001, 2003 (no changes in the market structure). - Privatization February 2003 ZE Polaniec power
plant becomes totally private enterprise
(Electrabel, Belgium) - Polish Independent System Operator (PSE-Operator)
liberalizes access to the cross-border
transmission capacities (yearly, montly, daily
auctions) March 2004 - May 2004 - Poland become the EU member state
- November 2005 New electrictity market concept
curently under discussion, privatization
continues, and lights stay on
10Legislation - Milestones
- Directive 96/92/EC concerning common rules for
the internal market in electricity 19 December
1996 and Directive 2003/54/EC concerning common
rules for the internal market in electricity, 26
June 2003 - Kioto Protocl, 16 February 1997 (16 February
2005) - Directive 2001/77/EC on the promotion of
electricity produced from renewable energy
sources in the internal electricity market, 27
September 2001 - Directive 2001/80/EC on the limitation of
emissions of certain pollutants into the air from
large combustion plants, 23 October 2001 and
Directive 2001/81/EC on national emission
ceilings for certain atmospheric pollutants, 23
October 2001 - Regulation (EC) No 1228/2003 on conditions for
access to the network for cross-border exchanges
in electricity, 26 June 2003 - Directive 2004/101/EC establishing a scheme for
greenhouse gas emission allowance trading within
the Community, in respect of the Kyoto Protocols
project mechanisms, 27 October 2004, (Directive
2003/87/EC establishing a scheme for greenhouse
gas emission allowance trading within the
Community, 13 October 2003, Directive 96/61/EC
concerning integrated pollution prevention and
control, 24 September 1996) - Directive 2004/8/EC on the promotion of
cogeneration based on a useful heat demand in the
internal energy market, 11 February 2004
11Directives 96/92/EC 2003/54/EC
- The member states have to ensure that the power
companies operate in accordance with the
principles of this Directive (the electricity
market essentials). - This means that the member states have to adopt
the principles of the Directive to their national
regulations, such as Energy Laws and ordinances
and other regulations. - Because of the Directive, the member state may
impose on the power companies certain obligations
in the general economic interest and public
obligations which may relate to security of
supply quality and the prices of energy, as well
as to environmental protection. - The legal regulation in the European Community
countries should allow for and guarantee equality
of access for EU electricity companies to
national consumers. - The main principle of the electricity market is
the separation of the electricity trade, which
can be carried out in a competitive market from
electricity transport, which due to a natural
monopoly and remains under the regulation of the
Energy Regulatory Authority or a similar body. - The arrangement of two separate agreements and
the discussion with energy traders and a local
distribution monopoly to enter into an agreement
for energy transport could be a difficult task
for many customers, hence they would decline to
enter the electricity market. - Two main levels of energy trade comprise
wholesale and retail markets. - The wholesale market includes power producers,
energy traders, power exchanges and the balancing
market operated by the Transmission System
Operator (TSO). - The retail market comprises the Distribution
System Operators (DSO) selling energy to tariff
(T) and TPA customers. - Energy traders have direct access to energy
producers and TPA customers. - From 1 July 2007 DSOs should not be involved in
electricity trade.
12Market Structure and Operation
13Privatization and Consolidation
Ongoing privatization. Installed power 1742 MW.
Up to 85 shares for strategic investor, 15 for
employees. Endding 12.2005
Power Producers
Ongoing privatization. Installed power 647 MW.
Up to 85 shares for strategic investor, 15 for
employees. Endding 12.2005
Partially privatized (1999, 40, Elektrim S.A).
Installed Power 2323 MW. The Treasury is looking
for a new strategic investor to sell another 50
Ongoing privatization. Installed power 2820 MW.
Up to 40 for strategic investor , 40 public
offer. I Stage up to 50.Endding 02.2006.
Entirely privatized.(2000,25, 2003 100,
Electrabel). Installed power 1800 MW.
14Privatization and Consolidation
Consolidated (8). Market share 16 (16.1 TWh).
Privatization method is not decided. Possible
vertical integration with BOT holding group
Distribution companies
Consolidated (5). Market share 14 (14.1TWh).
Privatization metod is not decided. Probable
public offer (share
Partially privatized without consolidation (85,
2002 RWE Plus). Market share 5.3 (5.3 TWh).
Ongoing consolidation (6-1). Market share 19 (19
TWh). Privatization metod is not decided. One
DisCo left the group for veritcal integration
Not consolidated. Market share 7.2 (6.5 TWh).
Privatization method is not decided. Possible
vertical integration with BOT holding group
Consolidated (5). Market share 13.1 (13.3 TWh).
Privatization metod is not decided
Partially privatized without consolidation (33,
2000, 75,2003, Vattenfall). Market share 11.3
(11.5TWh). The Treasury is going to sell
remaining shares to Vattenfall soon
Consolidated (5). Market share 14.5 (14.7TWh).
Privatization method is not decided. Possible
veritcal integration with PKE holding group
15Directive 2001/77/EC Target 2010
Fulfillment 1.3
16Renewable Resources in Poland
17Renewable Supporting Scheme
- Public financial support from the state (grants,
loans) for small scale projects (private and
public) - Renewable energy quota defined for end consumers
and imposed on trading companies - Green certificate system in operation
- Special rules for wind power operation in the
system guaranteed in the Energy Act and written
in the ISO Transmission System Code - Wind power provisionally excluded from system
balancing until 2010 (Energy Act). Detailed
regulations are still under discussion - Network connection fee reduced by half
18Green Certificates
Energy (Energy Market)
ERO
RES
Power Exchange (PolPX)
Central Register (PolPX)
LCP
Trader/DisCo
Power Exchange (PolPX)
Final Customers
Certificates
19Renewables
20Renewables - Target 2010
Beginning of green certificate trade. Buy-out
price 240PLZ/MWh
Production from renewable sources in the first
half of 2005 2050MWh (2)
Poland introduces biomass co-firing
21SO2 Precipitation 1980-2020
2020
22New Emission Standards for LCP
- Regulations Directive 2001/80/WE very tough
standards for new plants and tough standards for
old plants - In the Accession Treaty Poland negotiated
derogations for LCPs responsible for 30 of
annual emission (SO2, NOx) or 2.35 (dust) - LCPs included in the derogations must satisfy
total emission limits imposed on the whole group - LCPs included in the derogations must not work
more than 20000 hours in the period 2008-2015 - Beyond 2015 there is choice decommissioning or
to satisfy emission standards as for new plants - Solution National Emission Reduction Plan
(KPRE)
23CO2 Emission
Target Kioto 2012 (- 6)
Reserve (131)
24SO2 Emission from Power Plants
25NOx Emission from Power Plants
26Dust Emission from Power Plants
27CO2 Emission from Power Plants
28Carbon Prices Driving Forces
Source Deutsche Bank
Source Deutsche Bank
Alternatives - Hydro
Source UCTE
Source Deutsche Bank
29Regulation EC No 1228/2003
- Regulation (EC) No 1228/2003 introduces auctions
to trade the capacity of intersystem connections
and setting fair rules for cross-border exchanges
in electricity and in this way to enhance
competition within the internal electricity
market. - This requires the introduction of a compensation
mechanism for cross-border flows of electricity
and the implementation of harmonized principles
on cross-border transmission charges and the
allocation of available capacity of cross-border
transmission lines. - The transmission system operators receive
compensation for cost resulting from the
international electricity flow through their
systems. - This compensation is paid by the operators of
national systems from which cross-border flows
originate and the systems where those flows end. - The compensation is paid on a regular basis.
Ex-post adjustments of compensation is also made
where it is necessary. - There are auctions led for a period of Year,
Month , Day (hourly). The best solution is the
introduction of the coordinated auctions (Poland,
Czech Republic, Germany). - The Regulations sets targets for cross-border
transmission capacity strengthening - Problem to solve the existing contract
allocation, cost of dispatch to obtain required
capacity (export/import constraints).
30Cross-border capacity and trade
31Daily Auctions 2005
32PPX-EEX vs. Cross-Border Trade
33Network Constraints Must Runs
- In liberalized electricity markets strictly
economic criteria of generating units dispatch
would compromise security of the power system
operation so uneconomic units have to be
called on to alleviate network constraints and
maintain system reliability criteria - There are several methods of constraints
management that have been more or less
successfully adopted in the open market. The
design of Polish market includes two of them
nodal constraints with Reliability Must Run
contracts (RMR) and counter flow purchase in the
balancing market. - Although the methods are very efficient and
reliable, but - they are usually expensive,
- they could results with market abuse using
local market power, - they do not create market incentives for the
construction of new generating units, in
critical nodes of the network - they do not stimulate customers behave with
price signals
34Network Constraints Must Runs
- When now the network constraints problem in is
solved thanks to high level of PPA, as soon as
long-term contracts will be terminated or the
total volume of PPA contracts will gradually
decline, the problem will bring more troubles to
all market participants - The implementation of new approach, Localized
Marginal Price (LMP) method is now at the stage
of discussion and consultation. Application of
LMP would result with dramatic differences in
transmission prices in rather close localities
difficult to justify to the final customer
35Network Constraints Must Runs
36Ancillary Services
- The acquisition of ancillary services in Polish
electricity market is based on yearly auctions
organized by TSO (single-buyer market) - TSO is (was) responsible for preparation of the
following services primary reserve, secondary
reserve, (hourly reserve), restoration reserve,
long-lasting reserve, voltage and reactive power
regulation, black start - Since in normal network conditions the primary
reserve volume is between 1000 and 1500 MW (when
3000MW for the wholeUCTE), Polish system plays
crucial rolein the control of the UCTE area. - Increasing share of wind power requiresbigger
volume of reserves of higher qualityand smart
control - Single-buyer market rules are in favourof TSO,
when we come to pricing of ancillary services.
Short term market and localmarkets should
improve the situation
37Long-term PPA Problem
- In the nineties Polish power producers had to
take credits worth 5 bln to finance the
modernization and environment protection
projects, with maturity up to year 2020 - Credits provided by nearly 30 national and
international banks were secured with long-term
PPA between producers and the Operator
(single-buyer) - All investments has been already successfully
completed - Production capacity engaged in PPA endanger
competitive market benefits (lower supply, price
capping, low HHI index, prohibited state support) - Solution compensation for power producers,
which agree to terminate their PPA - Consultations in Bermudian triangle
EC-Government-Power Producers (creditors) - Major problems amount of compensation and
payment schedule, time is running out, EC is
running out of patient, Polish power setor needs
money for repowering
Polish Government
European Commission
Power Producers
38Third Part Access
- From 1 July 2007 all electricity users including
households will be eligible to purchase
electricity in a competitive market. - When a customer is entering the electricity
market he has to arrange two agreements. - The first one is an agreement on energy purchase
which can be arranged with any of many energy
traders. - The second agreement is to be signed with a local
DSO and determines the conditions of energy
delivery through the distribution and
transmission systems. - The third action to be taken is the installation
of an electronic meter allowing for the
measurement of electricity use in 15 minute
periods. - This leads to an additional cost which in many
case is difficult to cover by bargaining in the
electricity market. - The progress in electronic meters will allow
their installation for a few dozens Euros in
every households. - In some countries the administration imposes the
regulation on power supply companies to equip
every customer with an electronic electricity
meter.
39TPA in Polish Electricity Market
- Nearly 300 licensed traders active in the
electricity market - Top 20 traders sold 35 TWh electricity
- 30 large customers active in the market
- Very low level of supplier switching
- Barriers
- long term contracts (PPA, MIE)
- tough market rules (closed position, traders
cant trade between them) - tough requirements concerning metering devices
- no general regulations for TPA implementation in
local markets (balancing and settlement in
distribution networks) - cross-subsidising between different tariff
groups (problem of separation of transmission
distribution business activities from supply
trade) - very complicated switching procedures
- The real test of TPA will be in July 2007 with
13.3 mln new customers
40Protecting Small Customers
- Domestic customers and small enterprises with
fewer than 50 employees and with an annual
turnover not exceeding EUR 10 million should
enjoy special universal services, that is, the
right to be supplied with electricity at
reasonable and easily and clearly comparable
prices. - To ensure the provision of the universal
services the Directive indicates that the member
state may appoint a supplier of last resort. It
is not clear what the obligation of a supplier of
last resort should be and how such companies
could be appointed. - For small customers it could be too difficult to
bargain for low electricity prices and arrange a
separate agreement for electricity delivery with
a local distribution monopoly. - What such small customers really need is a
supplier who would be able to offer complex
services i.e. to sell electricity and to arrange,
on behalf of a customer, an agreement for
electricity delivery with the owner of the
network to which the customer is connected. - A provider of these complex services can be
licensed by the Energy Regulatory Authority. - Strong competition in electricity market may
cause that some electricity traders will declare
insolvency or one day they will not be able to
deliver electricity in accordance with the
agreement. - In other markets supply can be stopped and the
customer would be forced to find another vendor.
However, the electricity market is different. We
cannot stop electricity supply to customers
despite them having lost their supplier.
Customers are connected to a network and still
consume electricity despite the fact that no one
sells electricity to them. - To handle such a situation a Supplier of Last
Resort is necessary. His duties are to supply
electricity for some period, for example 3-5
months, to customers who for any reason, have
lost their suppliers.
41TSO and DSO
- TSOs have to be separated from other businesses.
They should operate as entirely regulated
businesses which means that their income results
from transmission tariffs approved by the
regulation authority. - The management of the transmission network in
the market environment requires the development
of computer software to handle millions of pieces
of data coming from balancing market
participants. - The optimization of commitment and dispatch in
15 minute periods is a big challenge for many
operators, as traditionally they operated using
daily or monthly dispatch. - The main tasks of DSOs are similar to TSOs, but
they are not responsible for system security. - The unbundling of the DSO has to be completed by
1 July 2007. It will create new structures in the
distribution systems. - There will be four categories of energy companies
operating in a place of the current distribution
companies Distribution System Operator
responsible for the maintenance of the grid,
energy suppliers carrying out electricity trade,
services company responsible for service of
energy customers and electricity meter operators.
- The growing penetration of Distributed
Generation is a big challenge, both for TSOs and
DSOs
42Market Evolution or Revolution
- The intra-day market decrease volume risk and
cut system balancing cost - The energy only market suffers from duality
problem. Ancillary services have to become part
of the market. - The development of Distributed Generation (DG)
depends on smooth adaptation to the market rules,
including physical and trade balancing of the
energy generated. - The power system operation is driven by market
rules, which impose the responsibility on each
party connected to the grid to keep its
generation or energy consumption due to the
schedule based on the trade. - When such rules are directly subjected to DG,
the cost of DG balancing can be significant. - The implementation of electricity market rules
to DG can be achieved by the development of local
balancing areas, which also become Local
Balancing Markets (LBM). Such markets using
adequate rules for trading imbalances reduce the
cost of DG operation.
43Security of Supply - Directive
- The Directive tries to address this issue by
indicating two main procedures for the generating
capacity construction. - The first procedure is called an Authorization
procedure and its duty is to set up transparent
and non-discriminatory criteria for every one who
wants to invest in the development of generating
capacity whose investment satisfies technical and
environmental criteria. - The procedure is based on the assumption that
economic signals will attract investors to the
power generating industry. - If the first procedure does not work and the
security of supply is declining, the national
authority can call for tenders to construct new
generating units. - However the problem is that if there are no
economic signals to invest in generating
capacity, so few investors are keen on entering
the tendering procedure without extra
encouragement such as special tariffs or the tax
reduction. - If such encouragement is given the national
regulatory authority, which called for tenders,
brakes the regulations on forbidden state aid and
the non-discriminatory treatment of new and
existing power producers.
44Polish Energy Policy unitl 2025
- The primary targets for the whole energy sector
the sustainable development and the fuel
diversification (both type of fuel and fuel
supplier) - Increasing energy demand should be satisfied by
domestic power plants, so we need to start the
repowering - Hard and brown coal will remain the key fuel,
but gas firing should increase to meet
environment protection standards - Decreasing energy intensity of goods at the
stages of designing, manufacturing, use, and
disposal. Increasing the efficiency of energy
generation. Decreasing energy intensity of
industrial processes. Implementation of
management systems for energy demand - Maintaining the stable support mechanisms for
the use of renewable energy sources. - Creation of competitive fuel and energy markets.
Gradual reduction of the state bodies direct
influence on the operation of energy companies,
but maintaining the ownership supervision of the
State over entities in the possession of
transmission infrastructure, including
transmission systems operators (TSO)
45Security of supply - Demand
46Security of supply - Repowering
47Repowering - New Investments
New unit Patnów II 460 MW, lignite
New unit Belchatów 13, 810MW, lignite
New unit Lagisza II, 460 MW, hard coal
48Primary Resources Use 2025
Source National Energy Policy 2025
49Conclusions-General
- The electricity market is to show customers the
real cost of scarce resources (oli,gas, coal) and
help to optimise their consumption - The market can not be established without strong
political support. - The market requires careful design of the market
structure and rules. - The market rules should be introduced by the
Energy Law and the secondary legislation. - The market has also technical requirements
- The implementation and the market operation have
to be monitored - The market introduction should not compromise the
security of supply. - Large market players can abused any market
rules. The worse is when such a player is a the
TSO as it is able to favourite its own trade. - Unbundling is necessary.
- Market monitoring by the Energy Regulatory
Authority should be in operation.
50Conclusions-Poland
- The cost of the network constraints is
socialized and covered by the transmission
charges. This cost has significantly increased
when the balancing market started its operation. - The cost of imbalances is very high impacting the
development of distributed generation. - Market monopolization by network operators has
occurred, exploiting flaws in the Energy Law and
resulting in a situation in which less than 1 of
customers changed their suppliers. - The Power Exchange established in 2000, a year
before the Balancing Market started its
operation, has a very small turnover resulting in
poor liquidity and a lack of the market reference
price. - The Polish Power Grid Company as the largest
player and the transmission system operator
monopolizes the market - Polish market design is good, but now market
participants expect more (freedom).
51Market Group
- We are one of the leading academic groups in
Poland with 15 years of experience working in the
area of electricity market design and modern
power system operation. - Profesor Wladyslaw Mielczarski (head of the
group), Andrzej Kanicki, Tomasz Siewierski,
Andrzej Wedzik (team leaders and project
leaders). - The staff is actively involved in the design and
implementation of the Polish electricity market,
proposing market rules and operation procedures
for commitment and dispatch of generating units
in the balancing market - We hold two annual conferences The European
Electricity Market - Challenge of the
Unification (www.eem06.p.lodz.pl and The Forum
on the Application of Information Technology in
the Power Supply Industry - The research is carried out with the
collaboration of the power supply industry
companies including the Polish Transmission
System Operator, power producers BOT and PKE and
Distribution Companies. Many research projects
are supported by the State Committee for
Scientific Research and commercial partners. The
project results have led to the many practical
implementations allowing for the development of
the modern applications in the power supply
industry.
52Thank you for the attention Questions?
- Tomasz Siewierski
- Institute of Electrical Power Engineering
- Technical Univeristy of Lodz,
- ul. Stefanowskiego 18/22, 90-924 Lodz, Poland
- t.siewierski_at_p.lodz.pl
- Phone 48 (42 6312608), Fax 48 (42) 6312606