1. Joint Proposal for a Day Ahead Market Coupling Initiative between GB and Mainland by National Grid, RTE, ELIA and TENNET   Results of a joint study on the quality of results of explicit and implicit allocations and operational consequences   Phase 1 : preliminary study
IG FUI 13/09/10 1

2. - benefits of CWE - GB market coupling
Contents
General context.
Market approach :
- benefits of CWE - GB market coupling
- probabilistic assessment of flows within CWE – GB
Operational approach :
- methodology
- impacts on CWE and GB flows
Coupling solutions : theoretical review of possible schemes
Conclusion : next steps 2

3. Continental market coupling initiatives :
General context (1/2)
Continental market coupling initiatives :
- CWE market coupling launch date on November 9th,
…coordinated with NORDIC market via the “ITVC” solution (step 1 without NorNed) .
Current discussion on the design of the NWE enduring solution :
- benefiting from the experience of CWE – ITVC market coupling
- encompassing GB
BritNed commercial go-live on April 1st :
- implicit auctions on DA capacity allocation : requirement of BritNed Exemption
- a positive step toward market integration between GB and Mainland
- a significant increase in transfer capacities with impacts on regional flow patterns
Wish of FUI regional initiative forum to pursue a coordinated approach to couple the GB market with Mainland via IFA and BritNed 3

4. Initial results are summarised in the following slides
General context (2/2)
Elia, NG, RTE and Tennet performed a three-fold preliminary study in order to give some insights on the issue identified above :
- a market oriented assessment of the additional benefits of coordinated implicit allocation mechanisms
- system analysis looking into the impacts of BritNed commissioning on CWE / NG operations
- a review of possible « coupling solutions » between GB and Mainland
Initial results are summarised in the following slides 4

5. MARKET ORIENTED ASSESSMENT
Aim :
- to identify the enhanced benefits of a market coupling solution between GB and mainland Europe.
- to give a qualitative assessment of the situations that may arise after BritNed commissioning considering differing allocation mechanisms.
Source of data :
- FR-EPEX, NL- APX and GB-N2EX DA spot prices, from January 13th to June 30th (availability of N2EX data). 5

6. Market approach : flows assessment within CWE and GB
Consideration of adverse flows :
Using explicit auctions as capacity allocation method for IFA induces risk of flows on IFA being nominated day ahead counter to day ahead price signals (so called “adverse flows”)
=> this risk occurred 13.7% of this sample period based on the price index available
=> there is a benefit to improving the coordination in day-ahead capacity allocation processes on both IFA and BritNed through the introduction of implicit auctions
Representation of IFA net nominations in DA
vs market price spread. 6

7. Market approach : flows assessment within CWE and GB
Consideration of adverse flows
- “adverse flows” can create opposite flow patterns on IFA and BritNed in most of cases leading to circulating flows through the CWE and/or GB systems (case A).
Outcomes are :
85% of France-GB adverse flows would have created opposite flows on IFA and BritNed;
100% of GB-France adverse flows would have created opposite flows on IFA and BritNed.
N.B. Opposite direction flows on IFA and BritNed can also result from the optimally determined flows resulting from market prices configurations (case B - about 8.7% of the time of the sample period) i.e. GB market arbitrages between NL and FR prices
Examples of opposite flow patterns: 7

8. OPERATIONAL APPROACH Aim Methodology :
To assess the impacts on CWE and GB operations of flows identified in the previous part (resulting from commercial exchange scenarios across IFA and BritNed)
Especially the network impact during situations where the magnitude and direction of IFA and BritNed do not optimally reflect price signals.
Methodology :
- The studies are carried out by CORESO on the CWE Grid and by NG on its network.
- in both cases, historical data have been used, with the addition of IFA and BritNed in maximum import/ export.
- Combined effects of IFA / BritNed flows are analysed in terms of :
sensitivity of critical branches
constraints management 8

9. improved operational coordination between TSOs,
OPERATIONAL APPROACH
Results
- Improved coordination of BritNed and IFA flows could deliver an optimal situation inside the management of the cross border capacity within the CWE area
This coordination can be achieved in several ways :
improved operational coordination between TSOs,
the careful consideration in TSOs D-2 and D-1 cross border capacity calculations/allocation
…with a specific systematic consideration of situations where circulating flows are created
optimal CWE-UK redispatching
the consideration of the timings of implicit and explicit auction processes
The coordination of IFA allocation with BritNed would reduce complexity and simplify the process 9

10. COUPLING OPTIONS
Aim
- to review possible « coupling solutions » (pros and cons).
- options are considered with a decreasing degree of integration . 10

11. Analysis of coupling options : “coordinated” scenarios
Different possibilities where coupling in GB is coordinated between GB PX:
- CWE Market coupling IFA – BritNed / 2 GB PX connected via infinite ATC
Main Pros :
- Good coordination on GB also compatible with different PX in GB
- Full benefits of implicit mechanisms
- Easily extendable to Ireland
- compatibility with NWE solution
Main Cons :
- More complex and longer Integration to CWE MC
- Raises the question of ITVC compatibility
- Feasibility prior to enduring solution?
Example : coordinated « 2 –PX » price coupling
Other possibilities
- CWE Market coupling IFA – BritNed / Any number of Px represented by one “virtual hub” in GB
- Full price coupling CWE (extended to GB), one GB PX for capacity allocation in DA. 11

12. Analysis of coupling options : “non coordinated” scenario 1
A possibility of coupling solutions in GB without coordination between GB PXs :
- Embedded IFA / Embedded BritNed
Main Pros :
- Faster benefits of implicit mechanisms
- the “easiest” to implement
Main Cons :
- not fully coordinated
- Choice of a PX on IFA
Example : Double embedded MC between GB and CWE 12

13. Analysis of coupling options : “non coordinated” scenario 2
A possibility of coupling solutions in GB without coordination between GB PXs :
- CWE IFA Market coupling / Embedded BritNed
Main Pros :
- Faster benefits of implicit mechanisms
- a step towards enduring solution
Main Cons :
- not fully coordinated
- Choice of a PX on IFA
- CWE Governance
Example : CWE IFA Market coupling / Embedded BritNed 13

14. Conclusion : next steps toward a coordinated price-coupling
Preliminary integration of GB to CWE prior to the delivery of the NWE solution is desirable and can be pursued with the overriding provision it should not put at greater risk or further delay the implementation of the enduring NWE solution.
Existence of competing exchanges in GB adds complexity in terms of GB market coupling but does not represent a barrier; regulatory input could be needed.
Consult with the relevant PX’s which options could be feasible in the short term.
Commence work to identify in more detail how interim lighter coupling solutions for IFA to CWE as “double embedded” or “CWE price coupling with IFA” would work and how they could be implemented.
Select an option by the end of September or soon after.
Review and improve where practical the operational procedures to manage the operational integration of BritNed; in that perspective enlarge the CSM group to include NG. 14

15. Thank you for your attention !15