1. SESSION 1. Part 4 IMPORTANCE OF INTRADAY AND ADJUSTMENT MARKETS José Javier González Market Operations Director OMEL 2008 APEX Conference Sydney, October 13 th, 2008

2. INDEX 1.Intraday and adjustment markets 2.Intraday and adjustment markets importance 3.Intraday and adjustment markets characteristics 4.Intraday markets operating in Western Europe 5.Cross-border intraday markets 6.Combine solution ID auction markets + continuous trading 7.Power exchanges can help in providing solutions for cross intraday markets

3. 1.INTRADAY AND ADJUSTMENT MARKETS

4. INTRADAY AND ADJUSTMENT MARKETS èDay ahead prices are the basis for most of the forwards and financial products settlements l In many markets the physical positions need to be balanced at the day ahead time èIntraday and adjustment markets covers energy negotiated in open markets after the day ahead time, and prior to System Operator Real-time security interventions l Markets open to all participants; producers, demanders, retailers, etc…

5. 2.INTRADAY AND ADJUSTMENT MARKETS IMPORTANCE

6. INTRADAY AND ADJUSTMENT MARKETS IMPORTANCE èIntra ‑ day (“ID”) markets are an important tool for market parties to keep positions balanced as circumstances taken into account in the planning of injections and/or off ‑ take may change between the day ‑ ahead (“DA”) stage and nearer to real time operations. èIncreasing intermittent renewable generation development l Wind and sunlight predictions are much more accurate close to delivery èGas Combine Cycles l Faster startup time èImportance of Thermal plants l Need to assure a reasonable schedule for several hours èIn many markets, production participants with dominant positions are a reality. These kind of markets are very important for the viability of new entrants into the market. l Deviations costs.

7. 3.INTRADAY AND ADJUSTMENT MARKETS CHARACTERISTICS

8. INTRADAY AND ADJUSTMENT MARKETS CHARACTERISTICS èImportance to concentrate liquidity as much as possible èUnder the real situation of the production market concentration, is convenient that this kind of markets are concentrated, for them to serve their purpose? l Should all participants appear at the same trading place ? l Should this trading place be the only way of correcting scheduling problems after day-ahead time ? èDoes allowing other kind of trading until very close to real time creates an unsolvable entry barrier for new entrants through the deviations costs?

9. 4.INTRADAY MARKETS OPERATING IN WESTERN EUROPE

10. INTRADAY MARKETS OPERATING IN WESTERN EUROPE èTwo ID markets have been operating in Europe for the last 8-10 years èELBAS, between some of the Nordic countries that form NORDPOOL l Continuous trading operating until 1 hour prior to delivery. l Includes cross border transactions using cross border capacity on a first come first served basis. èOMEL auction intraday market (Spain accepting energies from the border countries in an implicit way) l Operating since April 1998. Since July 2007 operating Spain and Portugal on a full market splitting ID form l Includes cross- border transactions with France, Portugal, Morocco and Andorra l 6 intraday auctions markets per day èOther countries have or are implementing this kind of markets: GME(Italy) has an ID auction market after the DA market, etc..

14. 5.CROSS-BORDER INTRADAY MARKETS

15. CROSS-BORDER INTRADAY MARKETS (I) èThe possibility for market parties to trade would be much improved if they could not only benefit from the ID ‑ liquidity available nationally, but also from the available liquidity in other areas where there is cross ‑ border (“CB”) capacity available èThis is especially important for relatively small markets that could benefit from the liquidity of neighboring larger markets èID markets are in line with the European Commission’s objective to integrate national electricity markets in order to create a single EU electricity market (Internal Electricity Market or “IEM”) èThe commercial capacity published by the System Operators prior to day ahead, without a precise knowledge of the power plant operation schedules, could possibly be improved after the DA results are available

16. CROSS-BORDER INTRADAY MARKETS (II) èFurthermore, since ID trade normally responds to new system or participant requirements l like thermal power plant failures, general mistakes in temperature predictions, mistakes or updates of wind predictions, etc… l the CB ID trade does not necessarily go in the same direction as the DA flows èThe EU “Guidelines on management and allocation of available transfer capacity of interconnections between national systems” requires in point 1.9 that by 1 January 2008 mechanisms for the intra-day cross-border congestion management be established èTo guarantee the viability and the of ID markets and the irrevocability of deals under an implicit allocation mechanism the Cross-border capacity should be offered on a firm and “obligatory use” basis

17. 6.COMBINE SOLUTION ID AUCTION MARKETS + CONTINUOUS TRADING

18. COMBINE SOLUTION ID AUCTION MARKETS + CONTINUOUS TRADING èBoth kind of markets could be combined l A number of ID auctions (including cross-border trade) l Continuous trading for the hours where there is not going to be an ID auction available any more èMixed the best of both kind of markets èAfter this ID markets the System Operator can run the real time system Operation (balancing mechanisms/markets) being the SO the single buyer/seller (as technically needed) and the rest of the market parties the counter part

19. Day-Ahead Market Result Intraday auction Market Result First come first served allocation MARKET ORGANIZATION DAY-AHEAD MARKET + Market Splitting/Coupling 6 INTRADAY MARKETS LAST HOURS INTRADAY ALLOCATION Market Splitting/Coupling + INTRADAY FIRST COME FIRST SERVED CONTINUOUS COORDINATED ALLOCATION AUCTION MARKETSRESULTS

20. EXAMPLE OF FIRST COME FIRST SERVED ALLOCATION OPEN HOURS PRIOR TO THE FIRST INTRADAY AUCTION MARKET 0 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 FIRST COME FIRST SERVED PERIOD (representing hours after 16 hours) HOURS AVAILABLE FOR FIRST COME FIRST SERVED CONTINUOUS COORDINATED ALLOCATION

21. EXAMPLE OF FIRST AUCTION INTRADAY TIMING 0 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 FIRST INTRADAY MARKET BID RECEPTION STARTS NEGOTIATED HOURS First Intraday Auction Market (28 Hours) BID RECEPTION FINISHES

22. EXAMPLE OF FIRST COME FIRST SERVED ALLOCATION OPEN HOURS AFTER TO THE FIRST INTRADAY AUCTION MARKET 0 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 FIRST COME FIRST SERVED PERIOD HOURS AVAILABLE FOR FIRST COME FIRST SERVED CONTINUOUS COORDINATED ALLOCATION

23. EXAMPLE OF SIX AUCTION INTRADAY NEGOTIATING HOURS 00010203 04 0506070809101112131415161718192021222300010203 04 0506070809101112131415161718192021222300 Intraday 6 (9 h.) Intraday 5 (13 h.) Second intraday market 2 (24 hours) First intraday market (28 hours) Third intraday market (20 h.) Intraday 4 (17 hours)

24. EXAMPLE OF FIRST COME FIRST SERVED ALLOCATION OPEN HOURS PRIOR TO INTRADAY AUCTION MARKET 0 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 FIRST COME FIRST SERVED PERIOD HOURS AVAILABLE FOR FIRST COME FIRST SERVED CONTINUOUS COORDINATED ALLOCATION

25. MARKET OPERATION 0 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 0101 0202 0303 0404 0505 0606 0707 0808 0909 10101 1212 1313 1414 1515 1616 1717 1818 1919 2020 21212 23230 NEGOTIATED HOURS First Intraday Session (28 Hours) BID RECEPTION FINISHES CONTINUOUS MARKET FIRST SESSION NEGOTIATED HOURS BID RECEPTION FINISHES CONTINUOUS MARKET SECOND SESSION Second Intraday Session (24 Hours) NEGOTIATED HOURS BID RECEPTION FINISHES CONTINUOUS MARKET THIRD SESSION Third Intraday Session (20 Hours)

26. 7.POWER EXCHANGES CAN HELP IN PROVIDING SOLUTIONS FOR CROSS INTRADAY MARKETS

27. POWER EXCHANGES CAN HELP IN PROVIDING SOLUTIONS FOR CROSS INTRADAY MARKETS (I) èIt is generally accepted by the market parties that, given the short timeframes available for ID trade, the most efficient way to allocate available CB capacity is via an implicit method l i.e., linking the firm capacity allocation to irrevocable energy deals l As providers of organized markets that facilitate liquidity, power exchanges can make an important contribution to ID CB congestion management based on implicit allocations

28. POWER EXCHANGES CAN HELP IN PROVIDING SOLUTIONS FOR CROSS INTRADAY MARKETS (II) èIntroduction of straight through processing by Power Exchanges (“PX”, “PXs”), in the general framework of implicit capacity allocation, implies significantly lower operational risk and transaction cost: l Participants do not have to deal with CB nominations, since this task will be performed by the PXs l A market participant only needs to be a member of the PXs operating in those markets/price ‑ zones they wish to physically trade in l Financial clearing takes into account all the deals concluded via a particular PX, effectively netting the financial outcome of all of them. This also implies one set of financial collaterals and one financial transaction to be executed per settlement period

29. THANK YOU FOR YOUR ATTENTION