IFA Market Coupling Update IG FUI 22/11/10 1

General benefits of Market Coupling on IFA Contents General benefits of Market Coupling on IFA RTE / NGIL investigations : Market Approach Coupling solution Conclusion : next steps 2

Benefits of Market Coupling on IFA - (recap on our conclusions presented to the last IG Mtg) A coupling solution will bring about significant benefits on IFA : Efficient allocation of capacities : the capacity is fully used if price differential is higher than cost of utilisation of the interconnector. Enables optimal use of cross-border capacities. Adverse flows, that currently occur around 13% of the time are eliminated. This is expected to generate significant increase in social welfare It gives better price signals : increases liquidity, allows for a better market resilience and decreases volatility. Anticipation of the NWE enduring solution : Gains valuable experience in Market Coupling : stakeholders, IT, process, rules etc…before NWE implementation. Insight to DA physical firmness impacts on IFA. Addresses specific aspects of GB market integration, to be taken into account for the implementation of implicit allocation : IFA cable losses, GB Grid losses and charges (BSUoS). 3

Merits and feasibility of an implicit solution on IFA : Market approach IG action for RTE and NG : further investigations building on the operational impact assessment. The work has centred on an economic analysis based on a sample period of actual IFA operation between January 2010 and October 2010 included, taking into account: - Historic price spread between GB and FR markets (sources – N2EX and EPEX) - Actual availability, outage and curtailment data for the period - GB and FR market imbalance (cashout) prices (applicable for the application of physical firmness) - IC Losses and applicable GB market BSUoS & Losses costs Results indicate the following: - Implicit allocations would have resulted in significant increase in social welfare/economic surplus and achieve a higher utilisation of IFA Capacity - Further work required concerning firmness risk from imbalance price volatility Preliminary conclusions: - A coupling solution on IFA prior to NWE would be economically viable - Could potentially compliment progress toward the NWE solution 4

Proposed Coupling Solution : CWE Price Coupling extended to GB via IFA Interconnector RTE and NGIL have been approached by EPEX and NPS who have made a collaborative proposal for a coupling solution for IFA Main features : Extension of CWE price coupling to GB via IFA. Based on the CWE architecture and tools (Market Coupling System) and coordinated with the current CMS IFA auction tool. Shipping and cross-border nominations performed by clearing houses on both sides. Solution could be delivered by Q4 2011. Illustrative diagram Source – NG,RTE,ELIA & Tennet presentation to the last IG Mtg 5

Conclusion : next steps RTE and NGIL will consider and evaluate the EPEX/N2EX proposal and carry out additional studies so as to assess its overall impact : market approach -> further analysis i.e. : further assessment of firmness risk from imbalance price volatility. Assess potential implementation and operational costs Further evaluate Technical impact No decision made yet RTE and NGIL are committed to provide their feed back to EPEX and NPS by the end of this year. 6

Thank you for your attention ! 7