Assessment of differences in market designs in the CS region

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Assessment of differences in market designs in
the CS region
Milan18 July 2008
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Background

• In the 6th IG meeting PXs were asked to present
  an assessment of the differences in market
  designs.
• The assessment is the second step of the action
  plan covering 2008 activities for the
  implementation of day-ahead implicit auction in
  the CS region.
• The assessment summarizes the results of a
  survey based on questionnaires sent to TSOs and
  PXs of the CS region.
• The following Countries provided an answer
  Austria (EXAA and APG), France (PowerNext),
  Greece (HTSO), Italy (GME and Terna) and Slovenia
  (Borzen).
• Additional information was collected through the
  PXs and TSOs websites or through direct
  contacts.

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Background

• The questionnaire focused on the following
  features of the day-ahead energy markets
  operating in the CS region
• Overview of trading arrangements
• Features of traded products
• Algorithms and matching rules
• Impact of the current Italian Market Splitting
  on the cross-border implicit auction project for
  the CS Region
• Timing
• Guarantee and settlement systems
• Governance, institutional and regulatory
  framework
• Monitoring and transparency rules
• Market liquidity

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1. Overview of trading arrangements

• PXs exist in all Countries, except Switzerland
  where EEX organizes a day-ahead market for the
  Swissgrid balancing area
• PXs operate markets with physical delivery in
  all Countries (orders may refer to a specific
  point of injection/withdrawal or to the control
  area of the relevant TSO)
• During the design phase of market coupling, it
  could be investigated whether other differences
  not specifically addressed in the questionnaire
  could would have different impacts on the
  coupling project compared to impacts they already
  have on the results of explicit auctions
• Eventual modification of the arrangements for
  market participants to notify import-export
  schedules to TSOs.
• Impact of Market coupling to the contractual
  framework between PXs and TSOs (shipping agent,
  data flows, payments and guarantess, etc).
• Consequences of coupling a pool-like market
  (e.g. IPEX) with an exchange-like market (e.g.
  Powernext, EEX, EXAA, etc.)
• Impact of deviating national regulations on
  renewables, CO2 etc. (cross-subsidizing effects)

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2. Features of traded products

• Traded products in the day ahead auction are not
  homogeneous across markets
• In Italy, Greece and Slovenia only hourly
  products
• In Austria, France and Germany both hourly and
  block orders
• The presence of block orders in case of Market
  Coupling implies
• either a mechanism based on iterations (as in
  Belpex) or
• implementing of block constraints in the central
  solver algorithm or
• implement some form of volume coupling
• Price and volume steps are rather uniform
• some form of coordination of the format of the
  bids/offers sent off by PXs to the Central
  (coupling) office will be required for market
  coupling

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3. Algorithms and matching rules

• There are substantial differences in the
  algorithms that might impact on the choice of the
  market coupling model
• the most relevant feature is the use of
  locational prices to implement the allocation of
  available domestic transmission capacity (IPEX
  and HTSO)
• Price caps/bid limits/values of lost loads are
  quite diverse
• the lowest one is implemented in Greece (150
  /MWh)
• the highest one is implemented in Austria,
  France and Italy (3.000 /MWh)
• For the efficient functioning of the market
  coupling, coordination on those values might be
  crucial in times of generation tightness.

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4. Impact of the current Italian Market Splitting
on the cross-border implicit auction project for
the CS Region

• The Italian reference price for the market
  coupling is the price of the neighboring Italian
  zone to the border in which the coupling
  mechanism is implemented (North zone for France,
  Switzerland, Austria and Slovenia, Brindisi zone
  for Greece)
• the same reference prices of the Italian market
  are actually considered for explicit auctions
• One of the approaches to integrate the Italian
  market splitting in a regional market coupling
  could be the following
• the hypothetical NEC of IPEX would describe the
  relevant zonal prices with different quantities
  of import/export from/to the coupled market
• the hypothetical NEC of IPEX would be calculated
  by considering the domestic congestions as from
  the market splitting algorithm

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5. Timing

• Market coupling requires all involved Countries
  to synchronize at least in the following
  deadlines
• collection of demand and supply bids by all
  involved markets must end before the coupling
  algorithm is run
• publication of domestic market outcome by each
  national PX must take place after the market
  coupling results are calculated
• There is an heterogeneity both in terms of gate
  closure times and in terms of computation time
• a strong effort in the direction of the
  harmonization of timing is very likely to be
  necessary in order to proceed with the coupling
  of the day-ahead markets in the CS Region.

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6. Guarantee and settlement systems

• Guarantees required to participate in the
  organized markets are similar in all Countries
  (generally a bank letter of credit and/or a cash
  deposit covering the countervalue of the
  outstanding debt).
• Settlement times are very diverse. The greatest
  difference is between
• PowerNext the working day after the trading day
• IPEX the 16th working day of the second month
  following the month of trading
• In case PXs with different settlement timeframes
  are coupled, PXs and Regulators should address
  the issues of harmonizing those timeframes or,
  alternatively, covering the implied financial
  costs or allocating the extra revenues

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7. Governance, institutional and regulatory
framework

• Authorities involved in the control of day-ahead
  markets are, uniformly across Countries
• the energy regulatory authorities
• the governments (through the Ministries or
  Directorates for Energy)
• In France, the Financial Markets Authority (AMF)
  controls Powernext activities. However, since
  day-ahead products are defined as commodities,
  they do not fall under the scrutiny of the AMF.
• In all Countries national PXs and TSOs interact
  closely in organizing the electricity markets.

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8. Monitoring and transparency rules

• Market monitoring is generally a function
  carried out by the energy regulatory authorities,
  with the support of PXs
• Publication of aggregated supply and demand
  curves, traded volumes and prices and others
  indices is a common practice

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9. Market liquidity

• Market liquidity provides an indication of the
  amount of trades that occurs on the organized
  markets vs. bilateral trading.
• Levels of liquidity of the markets are very
  different.
• Market coupling could increase the liquidity of
  the involved markets.