Congestion Management Mr Carlo Crea AEEG, Italy The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007

2 Congestion Management Structure of Presentation  CBT congestion management  Long-term objectives  Key developments to date  Planned developments  Focus on the Central-South Region  Cross border allocations in 2006  Cross border allocations in 2007  The way forward

3 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management CBT Congestion Management: objectives  Electricity Regional Initiative (ERI)’s goal is to create seven electricity Regional Energy Markets (REMs) as an interim stage towards a single European electricity market.  Effective market integration requires an efficient mechanism for the allocation of interconnection capacity.  Harmonization of congestion management mechanisms:  Coordination of long term CB capacity allocations;  Flow based market coupling for short-term allocations.

4 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management CBT Congestion Management: key developments to date  Positive steps, even though integration is proceeding at different paces.  Day-ahead market coupling:  Central-West REM (France-Belgium-Netherlands);  Northern REM (Denmark-Norway-Sweden-Finland);  Coordinated explicit auctions:  Central-East REM: all borders – five coordinated;  Central-South REM: three borders.

5 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management CBT Congestion Management: planned developments  Planned improvements:  Central East REM: flow-based coordinated CM system;  France-UK-Ireland REM: removal of the reserve price on capacity auction on the French- UK interconnector;  South-West REM: single Iberian spot market.  Northern REM: day-ahead market coupling on the Danish-German interconnectors.

6 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management Focus on the Central-South REM Key priorities:  harmonization of CBT congestion management methods;  Inter-TSO coordination (harmonisation of operational and security standards)  transparency;  integration of intra-day and balancing markets.

7 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management Focus on the Central-South REM: Cross border allocations in 2006  Non-coordinated allocation of interconnection capacity (50/50 approach);  On the 50% capacity allocated by Italy:  short-term: import/export bids to IPEX (implicit auction);  long-term: explicit auction of financial rights.  Critical issues: -lack of coordination; -partial inefficiency (no market coupling).

8 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management Focus on Central-South REM: Cross Border allocation in 2007  Coordinated allocation of interconnection capacity on three borders (Italy-France, Italy-Austria; Italy-Greece).  Each country allocates all the available export capacity:  short-term and long term explicit auction of physical transmission rights.  Critical issues:  bilateral, not regional coordination;  no coordination on day-ahead or intraday;  partial inefficiency: no opportunity to allocate spare capacity after the daily explicit auction.

9 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management Focus on Central-South REM: the way forward  Improvement of regional coordination:  long and medium term allocation (yearly and monthly): guidelines for coordinated explicit auction of physical transmission rights;  short term allocation (daily): guidelines on market coupling.

10 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management Conclusions  The REMs are a pragmatic approach towards a single European electricity market;  In 2006, the REMs made a number of positive steps towards market integration, especially in the area of congestion management;  Cooperation among regulatory authorities in the context of ERGEG and CEER is essential to reach such results.

11 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management Conclusions/2  Further developments towards a single European Electricity Market require parallel improvements of hardware (interconnection expansions) and software (networks and congestion management harmonisation);  To this end, we need:  adequate and binding ETSO agreements involving all the necessary parties, including Switzerland (develop ETSOplus);  shared solutions to the NIMBY problems;  national regulatory authorities with strengthened and harmonised powers together with ERGEGplus.

12 The Regional Initiatives: Progress and Prospects Conference Brussels, 28 March 2007 Congestion Management More information on the Central-South Electricity Regional Energy Market is available at Become an “Online Subscriber” to automatically receive news from the regions Thank You