This section explains the main properties of different types of electricity markets exhibiting different level of competition and different forms of organisation. • General market models : vertically integrated companies / single buyer / wholesale competition / retail competition • Power pools : Price based / Cost based • Markets with bilateral trade • Balancing markets • Power exchanges

1. Training on Regulation A webinar for the European Copper Institute Webinar 2: Market Design Dr. Konstantin Petrov / Dr. Daniel Grote 2.11.2009

2. Agenda a) Power pools 3. Wholesale market models 2. General market models b) Markets with bilateral trade c) Power exchanges d) System, market and transmission function 1. Introduction 4. Balancing markets

5. 2. General Market Models Vertically integrated company Customers Market Operator Trader Independent Power Producer Generation Transmission Distribution Supply All segments integrated within a single company (incumbent) System Operation

6. 2. General Market Models Vertical unbundling Customers Generator Generator Generator Transmission System Operator Distributor Distributor Distributor Customers Customers Market Operator Supplier Supplier Supplier Trader accounting functional legal ownership unbundling

10. 2. General Market Models Single Buyer Customers Generator Generator Generator Transmission Distributor Distributor Distributor Customers Customers Single Buyer System Operation No access arrangements and direct trading between generators and distributors/suppliers Supplier Supplier Supplier Power Purchase Agreements Power Selling Agreements

11. 2. General Market Models Wholesale competition Customers Generator Generator Generator Transmission Customers Customers System Operation Supplier Supplier Supplier Distribution Wholesale market

12. 2. General Market Models Retail competition Customers Generator Generator Generator Transmission Customers Customers System Operation Supplier Supplier Supplier Distribution Retail market Wholesale market

13. 2. General Market Models International developments – wholesale power markets California (1998) Ontario (1998) Texas (2002) PJM (1998) Chile (1988) Argentina (1992) Brazil (1998) Australia ( 1997) New Zealand (1996) Japan ( 1995) South Korea ( 2001) Spain ( 1998) France ( 2001) Nordpool ( 1996) Italy ( 2004) Germany ( 2000) Poland ( 2000) Netherlands ( 1999) Ireland ( 1999) England-Wales ( 1990) Romania ( 2004) Austria ( 2001) Alberta (2001) India ( 2008) Philippines ( 2006) Singapore ( 2003)

14. 2. General Market Models International developments – retail competition End-users eligible to choose their supplier freely in % Source: DG TREN data UK since 1990 Norway since 1991 New Zealand since 1993 Australia since 1994 Finland since 1995 Sweden since 1996 USA since 1997/98 Germany since 1998 Japan since 2000 Canada since 2001/02 Switzerland since 2009 First introduction of retail competition 100% 77% Slovenia 100% 67% Hungary 100% 79% Slovakia 100% 74% Czech Republic 100% 80% Poland 100% 74% Lithuania 100% 76% Latvia n/a 12% Estonia 100% 100% 100% 100% 100% 100% Norway 100% 100% 100% 100% 100% 50% UK 100% 100% 100% 100% 100% 40% Sweden 100% 100% 100% 54% 54% 0% Spain 100% 100% 45% 30% 30% 0% Portugal 100% 100% 63% 33% 33% 0% Netherlands 100% 84% 57% n/a 30% 0% Luxembourg 100% 79% 70% 45% 45% 0% Italy 100% 100% 56% 30% 0% 0% Ireland 100% 62% 34% 30% 0% 0% Greece 100% 100% 100% 100% 100% 0% Germany 100% 70% 37% 30% 30% 0% France 100% 100% 100% 100% 100% 40% Finland 100% 100% 100% 90% 35% 0% Denmark 100% 90% 52% 35% 35% 0% Belgium 100% 100% 100% 100% 33% 0% Austria 2007 2005 2003 2000 1999 1997

15. 3. Wholesale Market Models Market timeline time real time Day-ahead market Spot market Forward market Forward / Futures market (x years to y days ahead) Intra-day market Real-time market Ex-post trading Ex-post trading Hedge against price volatility Reduction of imbalances System / Energy balancing Optimize / Correct position Close positions / Determine production schedule

16. 3. Wholesale Market Models a) Power pools – general structure Customers Generation unit 1 Generation unit 2 Generation unit 3 Transmission Customers Customers Mandatory Power Pool System Operation Supplier Supplier Supplier all suppliers must purchase their entire demand from the pool all generators must sell their entire production to the pool Optional: Bilateral contracts (physical) Contracts for Difference (financial) Distribution Centralized scheduling, unit based

19. 3. Wholesale Market Models Generator Generator Generator Transmission System Operation Supplier Supplier Distribution Decentralized scheduling, company based Customers Customers Large industrial customers b) Markets with bilateral trade – general structure Voluntary Power Exchange

21. System Operator 3. Wholesale Market Models b) Markets with bilateral trade – European Model Generation Transport Load Sellers Sellers Sellers Sellers Sellers Buyers Buyers Buyers Buyers Buyers Import Export PX Bilateral market (OTC) Balancing market Capacity auction

24. 3. Wholesale Market Models d) Market, system and transmission operator – international practice TO SO MO TO SO MO TO SO MO TO SO MO NGC (GB, 1990-2001) ISA (Colombia) TenneT, APX (Netherlands) Stattnet, Nordpool (Norway) NENMCO (Australia) CAMMESA (Argentina) PJM (USA) TO, CallSO , PXs (California) ONS-MAE (Brazil)

26. Transmission Network Service Distribution Network Service System Services Ancillary Services 4. Balancing Markets Ancillary Services and System Services Transmission Network (TSO) Distribution Network (DSO) Consumers connected to transmission Consumers connected to distribution Producers connected to transmission Producers connected to distribution

27. 4. Balancing Markets Ancillary services – types Active Reserve / Frequency Control Voltage / Reactive Power Control Restoration Services (Black Start Capability) Frequency containment Frequency restoration Replacement of reserves Services to balance supply and demand in the event of a sudden and unexpected loss of generation unit or transmission line or an unexpected increase in demand e.g. primary control, available in 5-30 seconds e.g. secondary control, available in no more than 5 minutes e.g. tertiary control, available in usually more than 15 minutes Services to go from shutdown to operating condition, and start delivering power without assistance from power system Services to maintain a specific voltage level and to generate or absorb reactive power