Gent Summer School: Electricity Markets & Trading Gregory Michiels 27 August 2013

2 EDF LUMINUS: 1 st CHALLENGER IN ELECTRICITY PRODUCTION IN BELGIUM 1,950 MW installed capacity (beginning 2013) 10 % of the Belgian electricity production capacity 73 MW hydro-electric energy 3.8 % of our energy mix 117 MW wind energy 6 % of our energy mix 418 MW nuclear participations 21.4 % of our energy mix 1,342 MW gas power plants 68.8 % of our energy mix

3 1 st CHALLENGER IN GAS AND ELECTRICITY SUPPLY 1,700,000 access points 30,000,000 MWh sold Market share of 20%

4 SHAREHOLDERS June 2009 EDF announces its intent to buy Centrica’s 51% November 2009 Approval by the European Commission 12/11 Closing 51% shares 26/11 Minority shareholders sale option 8 June 2010 Publilum and VEH sell half of their shares, Dexia sells all  participation EDF in SPE: 63.5% 22 November 2011 The company name is EDF Luminus

5 Optimisation versus Trading Asset Optimiser Manages a portfolio of assets (power plants, contracts, retail portfolio,…) Objective is to control physical and financial risks and maximising margins = hedging Trader Creates a position Objective is to make money from this position when market conditions change = speculation Both actors sell and buy in the wholesale markets to achieve their objectives, thus creating a liquid market

6 Timeline of activities of an asset optimiser From 3 years to 1 month ahead of implementation date [D] Forecast of the medium-term supply/demand balance Scheduling of power plant maintenance Sale/purchase operations on the forward markets 1 Month ahead of implemenation date [D] Refine the supply/demand balance to more accurate weather forecasts and availability of power plants Sale/purchase operations on the forward markets Day Ahead [D-1] Create operating schedule for the power plants Balancing supply and demand on the Day-Ahead market (DAM) Send nominations to TSO Intraday [D] Respond to latest unanticipated changes in the portfolio Send re- nominations to TSO Sale/purchase operations on the intraday market

7 OTC markets and power exchanges

8 Forward and spot prices

9 Price Drivers

10 DAH price formation: supply/demand balance Power Price Industrial demand Residential demand Exports Commercial demand Nuclear CCGT Renewables Coal Peak units Imports Hydro reservoir

11 The make or buy decision Fuel CO 2 Power Plant Heat Power

12 Interaction hedging - dispatching  DAH dispatch decision is independent from hedging decision in the forward markets Situation A Forward Market CSS = 5€/MWh Hedged Day-Ahead CSS = 10€/MWh PP dispatched Benefit 5€/MWh Situation B Forward Market CSS = 5€/MWh Hedged Day-Ahead CSS = 2€/MWh PP dispatched Benefit 5€/MWh Situation C Forward Market CSS = 5€/MWh Hedged Day-Ahead CSS = -3€/MWh PP not dispatched Benefit 8€/MWh Situation D Forward Market -3€/MWh Hedged Day-Ahead CSS = 3€/MWh PP dispatched Benefit 3€/MWh

13 Capacity mix Europe

14 CWE Market Coupling Launched on 9 November 2010 Cooperation of Transmission System Operators (TSOs) and power exchanges (PXs) coupling the Belgian, Dutch, French and German electricity markets Provides for the implicit cross-border capacity allocation and matching of orders of the involved PXs, resulting in the optimal allocation of available day ahead cross-border capacity and price convergence between day ahead wholesale electricity markets across this region

15 CWE market results 3 Aug 2013

16 CWE market result 23 August 2014

17 Convergence of CWE prices: are we on a copper plate?

18 Forward markets: OTC

19 Imbalance markets

20 Levers for the TSO to manage the country balance primary reservesecondary reserve tertiary reserve via generation units tertiary reserve via sheddable customers uncontracted reserve ('free bids') reserve contracts with neighbouring system operators AUTOMATIC MANUAL 30sec <15min 15min

21 Balancing: how does it work? Balancing = difference between production and consumption of the whole portfolio (metering) 1/4h Balancing obligation for each BRP Short position of BRP purchased at imbalance price - Long position of BRP sold at imbalance price + TSO takes care of the position of the country High incentive for BRP to be balanced Many opportunities for BRP Imbalance price is equal to marginal price activated by TSO Differences (extra incentive) only if big imbalances Imbalance price + and – are equal most of the time

22 Imbalance prices NRV = Net Regulation Volume (=volume activated by Elia to restore the balance)POS = Positive Imbalance price (what you get paid if you inject more than you consume)NEG = Negative Imbalance price (what you pay if you consume more than what you inject) sunny day Cold evening peak

Delta between DAH prices and imbalance prices D-1 D

24 Demand side management

25 Market Regulation  Prohibition of market manipulation and trading on the basis of ‘insider information’  Market monitoring by ACER Market manipulation prohibitions Insider dealing prohibitions Market Integrity Applies to underlying physical power, gas and transport contracts and markets Trade data reporting to ACER Transparency Post trade transparency for energy markets through ACER Public transparency of fundamental data / inside information and their reporting to ACER Applies to all gas, power and transportation contracts and markets

THANK YOU ! QUESTIONS & ANSWERS