1. Advanced allocation starts with us!
CAO - the CEE Allocation office
CEE Capacity Congestion Management Project
Tomaz Ostir – ICT Manager
23rd June 2010, Portoroz

2. Agenda
Development of the energy markets – the road to Coordinated Auctions
Central Allocation Office
Company – initiative and first steps
Team – multicultural & interdisciplinary
Work
New approach to crossborder capacity trading - FBA
Future development of crossborder acitivities

3. The road to coordinated auctions /1
1st Energy Directives: 19 Feb 1997„Internal Market in Electricity and Gas“
Instant Opening: UK, FIN, SWE, DE
Slow Movers: AT, ESP, NL
Late Adopters: FRA, GR, IT
Main goals of the European Union’s energy packages:
Create a single European energy market
Increase competition
Increase efficiency
Ensure security of supply.
• Directive 96/92/EC
concerning common rules for the internal market in electricity (“First Electricity Directive”)
• Directive 98/30/EC
concerning common rules for the internal market in natural gas (“First Gas Directive”)
• Related regulations

4. The road to coordinated auctions /2
2nd Energy Directives (26. June 2003) - „Accelaration Directive“
100 percent market opening by June 2007
Harmonized transmission access system: Regulated Third Party Access
ERGEG
Unbundling Requirements:
Informational
Operational
Legal
by 2004(TSO)/ 2007(DSO)
Directive 2003/54/EC
concerning common rules for the internal market in electricity (“Second Electricity Directive”)
• Directive 2003/55/EC
concerning common rules for the internal market in natural gas (“Second Gas Directive”)
• Related regulations

5. The road to coordinated auctions /3
3rd Energy Directives (in progress)
EU Council: Full Ownership Unbundling / Independent System Op.
National Action Plans on Energy Poverty
Price Setting Formulas / Peak Load Reduction
Independent Energy Regulators / European Regulator (CEER)
Grid Integration / Grid Codes
Forming of a European Transmission Grid
Cross Border Integration
Investment Plans for Grid Infrastructure (Monitoring & Order)
Monitoring of Cross Border Trade / Energy Prices
Mandatory Full Ownership Unbundling (NO ISO, NO 3rd Way)
Directive 2009/72/EC
concerning common rules for the internal market in electricity (“Third Electricity Directive”)
• Directive 2009/73/EC
concerning common rulesm for the internal market in natural gas (“Third Gas Directive”)
• Related regulations

6. CAO – Central Allocation Office
Freising
Initiated in cooperation of TSOs and NRAs
Regional coordination of congestion management
Enhanced method of coordinated capacity calculation

7. CAO – Central Allocation Office (start)
CAO Central Allocation Office GmbH founded in July 2008 with registered office in Freising, Germany
First preparatory organization steps done by the first managing director by the end of 2008
IT tender in 2008 closed by concluding the contract for the auction IT solution supply
In December 2008 signed Contract for Services between TSOs and CAO
Preparatory works to start the operation
Consultancy services
Work on the Technical Requirement Specification for the IT solution (TRS) - accepted on 7 April 2009
FBA method implemented, NTC as a fall-back

8. CAO – Central Allocation Office (Team)
Experienced start-up team
CAO is doing necessary steps to be ready for the start
Goal fulfilled: trained team of people for dry-run in fall 2009 and for the start of operation
Number of employees since Jan 2010: 14
Process oriented organization
CAO supported by TSOs workgroups dealing with market issues, FBA development and Scheduling issues
CAO manages to lead the main WGs now
Interim solution for 5 TSO

9. CAO – Central Allocation Office (Work)
Explicit auctions in CEE with use of flow based capacity allocation – Maximum Flow
Yearly, Monthly and Daily allocation
Secondary market
CAO is responsible for capacity calculation based on delivered data (grid model, generation shift key, totals, saldo etc.)
CAO provide and operate auction system
CAO provide settlement services
Decentralized Scheduling in the CEE for now
Intraday trading responsibility of TSOs

10. Individual or Coordinated ATC auction(s)
NTC bilateral vs. FBA coordinated
NTC bilateral
TSO 1
Grid model
ATC calculation
Bilateral
ATC Assessment
Individual or Coordinated ATC auction(s)
TSO 2
Grid model
ATC calculation
Bilateral
ATC Assessment
TSO n
Grid model
ATC calculation

11. Coordinated Flowbased auction(s)
NTC bilateral vs. FBA
FBA
TSO 1
Coordinated Flowbased auction(s)
TSO 2
Grid model
TSO n
CAO
TSOs identify and control only the critical grid elements

12. Consequences of FBA One-stop shop for Market Participants
One IT for CEE
One auction for CEE
Virtual Borders – e.g. PSEO-ELES
The main intention of the Internal European Market establishment is to reach a higher social welfare
bid price and the bid amount for all allocated (accepted) bids + social welfare
Equivalent levels of network security
In flow-based regime, cross-border capacities compete for the flows on the most critical branches, while in an ATC-based regime they don‘t
investigation
Difference between flow-based and ATC-based is in line with expectations
Increase of welfare
Decrease of total allocated capacity (mostly in rarely needed directions)
Transmission cost assumed to be unaffected by ATCFB migration
Generation cost savings are the relevant measure of social welfare gain
Searching for an optimum distribution pattern of the limited resources (represented by capacities of the transmission elements) :
•be market oriented and will give efficient economic signals to market participants and TSOs,
•ensure that the physical power flows resulting from the (intra-) regional transactions comply with network security standards.

13. Maximum available exchange?
Control only critical elements!
Consider critical outages (N-1)
Estimate Available Maximum Flow (AMF)

14. “Flow decomposition”
For each critical element: Available Maximum Flow (AMF) =
Total maximum flow (TMF) -
Natural flow (zero exchange flow)
Flow caused by already allocated/nominated capacity
Uncertain flows (reliability margins)

15. Concerns of market Complexity of the FBA allocation method
Structure of the input data: AMF, PTDF matrix
volatile results / high sensitivity
Not enough capacity as a result of the FBA allocation
Short time for necessary adaptations – 6M required
All changes in one step – critical
Misunderstandings to be explained
In flow-based regime, cross-border capacities compete for the flows on the most critical branches, while in an ATC-based regime they don‘t
investigation
Difference between flow-based and ATC-based is in line with expectations
Increase of welfare
Decrease of total allocated capacity (mostly in rarely needed directions)
Transmission cost assumed to be unaffected by ATCFB migration
Generation cost savings are the relevant measure of social welfare gain
Searching for an optimum distribution pattern of the limited resources (represented by capacities of the transmission elements) :
•be market oriented and will give efficient economic signals to market participants and TSOs,
•ensure that the physical power flows resulting from the (intra-) regional transactions comply with network security standards.

16. Typical Misunderstandings
FBA will bring more capacity
FBA is only a system of most optimal calculation known ensuring max security of supply = it doesn't built any new lines
FBA will maximize from its nature allocated capacity on the most attractive directions
What is better: Market Coupling or FBA?
Such comparison does not have any sense
Market Coupling is only an implicit allocation method which still needs the capacities to be somehow calculated (NTC, FBA or we have to invent something new ;-)

17. Typical Misunderstandings II
FBA manipulates with the capacity among profiles, because depending on sensitivity of flows
FBA provides always a standardized optimal result taking into account technical constrains and attractiveness of a direction – i.e. market decides where more capacity will be allocated
This is bringing 100% transparency in comparison with NTC world, where TSOs decides

18. Typical Misunderstandings II: Example

19. Typical Misunderstandings III
Bids on one profile influence Auction price on other profile
As long as bids use the same constraint there must exist interrelation between the Auction Prices
Similar principles already apply today in case of so called Technical Profiles used in “5 TSOs” auctions

20. Typical Misunderstandings IV
Discriminatory approach towards different profiles through PTDF – negative PTDF coefficient = infinity prices
in example used for explanation of auction algorithm infinity price is used for the source-sink pair with negative PTDF on congested element
this only means that as long as the use of capacity is relieving congested element capacity will be allocated

21. CAO in operation for 2010 - Interim Phase
Dealing with challenges in the FBA implementation, TSOs discussed set-up for 2010
Interim phase of capacity allocation in CEE started in parallel with the FBA project:
CAO introduced common registration point for capacity allocation in CEE
CAO took over the role of 5TSOs Auction Office
CAO is providing other coordinating support to the other auction offices in CEE
Until FBA is ready to launch

22. Approaching the start ...
The new Auction Rules basically consulted with market – now major changes expected
“Efficiency study” results to be available at the end of July 2010
Next dry-run session planned for August – September
Start of the coordinated FBA procedure planned for October 2010 if no major problems appear
NTC long-term auctions expected to be also coordinated by CAO
Finalisation of the long-term FBA capacity calculation – expected in Q1 2011

23. What is happening elsewhere
Electricity Regional Initiative
Consensus across Europe
Flowbased – capacity calculation
LT - Harmonized auction rules
LT Harmonized IT interfaces
Day ahead allocation – market coupling model
Intraday – continuous intraday platform
Balancing market integration
Transparency

24. Other crossborder development - CASC – CWE
France
Belgium
Luxemburg
Germany (Amprion, EnBW, TPS)
Netherland
Coordinate NTC
Market Coupling - -> Implicit auction
Flow base
ERGEG

25. Other crossborder development
ERGEG
ERGEG
ERGEG

26. Thank you for your attention!
Advanced allocation starts with us!
Thank you for your attention!
Tomaz Ostir