1. ETSO-GTE Supporting a secure and liberalized European energy market A Joint Presentation by Mr Geert Joosten, GTE Mr Juha Kekkonen, ETSO 22 January 2003

2. Contents Present role of ETSO and GTE in the European liberalising electricity and gas market Overview of the European gas and electricity market Differences and similarities between these markets Significance for legislative policy areas

3. European Transmission System Operators (ETSO) ETSO was established in 1999 at the request of the European Commission Direct membership of all independent TSOs in the EU and associated countries. ETSO is the only EU wide organisation specifically for TSOs 31 members at present and growing Full Members Associate Members

4. Achievements on tarification ETSO designed and implemented the 2002 and 2003 Cross-border transit compensation mechanism Benefits for the Market –Export fee reduced to 0.5 €/MWh. Users pay once to use the whole European network (not distance related) –A consistent definition by all TSOs of the “horizontal network” which is used for international trade. –Transparency - published regulated value of the horizontal network

5. Achievements on congestion management ETSO has proposed market-based solutions to congestion management Initiated a pilot project on co-ordinated congestion management between France, Belgium, Germany and Netherlands. Transparency - Publication of commercial transfer capacities

6. ACHIEVEMENTS ON CONGESTION MANAGEMENT (2) Strong capacity improvements on some of the most congested interconnections in Europe: (Winter 2001/2 - Winter 2002/3)  Belgium / Germany  Netherlands:  1000 MW  France  Belgium / Germany:  700 MW  France  Spain:  300 MW  Norway  Sweden:  300 MW  France  Italy:  450 MW  Austria  Germany:  350 MW  New DC link Italy Greece: 500 MW

7. New Directive and Regulation ETSO supports both proposals. With the strong recommendation that: – TSOs should continue to be involved in the decision-making process –The Florence Forum process should continue.

8. Unbundling and Access All TSOs are compliant in regard to the unbundling requirement ETSO supports legal unbundling. Many TSOs also have ownership separation ETSO supports regulated access to networks and publication of network access tariffs

9. GTE members

10. Executive Committee WG Security of Supply WG WG Capacity Capacity.WG WG Tariffs Tariffs.WG WG LNG. WG WG Inter- opera- bility. WG GTE secretariat PlenaryPlenary www.gte.bewww.gte.be GTE organization

11. GTE’s vision and ambitionVision: The process towards a liberalized European gas market needs the initiative and support from TSO’s to become one single competitive market where (cross border) transport is secure and efficient.Ambition: GTE’s ambition is to participate in this process and to realize its objectives.

12. Promoting the development of a fully operational and integrated internal European gas market Facilitating cross-border transmission Supporting interoperability of the European transmission systems Promoting market solutions Contributing to the setting of a clear and stable public policy framework Voicing the opinion of the transmission companies in Europe. GTE’s objectives

13. Active contributor to the Madrid Process Communicate with stakeholders in the EU legislation and liberalisation process Facilitator of cross-border transmission via website (grid map, capacities etc.) Initiator of workshops with users of the grid Co-Founder EASEE-gas GTE activities

14. Characteristics of the European Gas Market Developed by integrated companies making production and transmission decisions on a commercial basis. From the start EU gas systems have been well interconnected. However, system characteristics of nations differ significantly due to national energy policies. Gas supply is unevenly distributed geographically: 60% of EU production already passes at least one border. Gas sources vary in composition: gas quality is a point of attention Growth market: gas use to increase up to 80% over next 30 years. EU becomes more dependent on non-EU supply; Gas will travel longer distances. Large, long term investments in infrastructure are needed to bring this non-EU supply to the EU

16. Cross border transmission is an essential part of EU gas market. More than 60% crosses at least one border. No cross border tariffs are charged (contrary to popular belief) Physical transport Transmission takes compression and time; gas travels at 20 km/hr. Gas failure is potentially hazardous Production and consumption are not simultaneous; big variation in consumption over the day, usually flat production rates. Consumption is temperature dependent; high but rare peaks in winter. Characteristics of the European Gas transmission market GTE focuses on interoperability; quality, harmonisation of units and business rules. Role for storage & balancing rules

17. Congestion management Characteristics of the European Gas transmission market Security of supply Currently no major cross border congestion. GTE focus on Guidelines of Good Practice Short term: very high but rare consumption peaks Long term: Increasingly dependent on non EU sources Long term: stable regulatory and investment climate Long term: incentives to contract transmission capacity

18. Similarities: Both are energy commodities Complex infrastructure (grid) needed Transmission grids need to be balanced System enhancements have long lead times and influence the operation of existing parts of the grid Markets have changed substantially in the last few years and will continue to do so for the next decade Gas vs Electricity

19. Differences: Electricity produced at many locations, gas solely at finding location 60% of gas moves cross-border, approx. 9% of electricity does No cross border tariffs in gas Transit compensation in electricity Gas can be stored ; electricity not Gas competes against other fuels, electricity a universal service Gas only one of possible fuels for electricity production Gas failure may be hazardous Gas consumption strongly temperature dependent with very high, but rare, peaks Gas vs Electricity

20. Security of Supply: Both gas and electricity need clear and stable investment climate Both gas and electricity need a balanced system for secure operation of the grid LT gas supply heavily influenced by long distance investments; LT electricity supply requires heavy investments in local production capacity and interconnectivity Significance for policy areas

21. Congestion management and capacity allocation: Both gas and electricity markets benefit from transparency of available transmission capacities. In gas confidentiality issues may play a role. In electricity investments in interconnections help relieve congestion and the development of the European Electricity market In gas congestion in the internal market is much absent: Future congestion depends on timely contractual arrangements between suppliers and TSO‘sTariffication: Harmonised tariffication for electricity. No need for gasInteroperability: Major point of attention for electricity and gas Significance for policy areas

22. Legislastion and regulation for gas and electricity may have common points. However, differences need to be taken into account. Conclusion