1. Regional electricity market Janez KOPAČ,Director Energy Community Secretariat Conference in Belgrade, April 25 th, 2013 1

2. AT A GLANCE 2 1. Geografic scope 2. From theory to praxis  The legal parameters – 2nd and 3rd IEM Package  Electricity Target Model for the 8th Region  Reality check – status quo, open challenges, outlook 3. Conclusions

3. EU electricity trading regions 3 BalticCentral EastCentral SouthCentral WestNorthern South West UK-F-IRL

4. GEOGRAPHIC TARGET GEOGRAPHIC TARGET Energy Community vs 8th Region 4 8TH REGION

5. FROM THEORY TO PRAXIS FROM THEORY TO PRAXIS Electricty Wholesale Market Opening in the 8th Region 5 Legal parameters Theoretical implementation model Implementation in praxis 2nd and 3rd IEM package SEE Target Model on WMO Jointly developed by ECRB and ENTSO-E Streamlined with EU electricity target model (different deadlines)  The formal framework for WMO in the 8th Region exists already – political committment for real implementation is lacking

6. REALITY CHECK – 1. REALITY CHECK – 1. Electricty Wholesale Market Opening in the 8th Region 6 SEE WMO RAP Deadline & responsibility Done?Developments 1. Capacity calculation -Harmonized methodologies/ procedures for capacity calculation (yearly / monthly / day ahead) Q1 2011 ENTSO-E SEE RGNO 2. Long-term allocation -Coordinated bilateral explicit auctions implemented on all borders within the SEE region -Multilateral coordinated auctions on several borders (NTC-based) -Centralized auctions via SEE CAO (NTC based in a first step) -Multilateral coordinated auctions on all borders (regional one stop shop) Q1 2012 TSOs, Ministries, NRAs Q3 2012 TSOs, Ministries, NRAs Q4 2012 TSOs, Ministries, NRAs Q4 2014 ENTSO-E SEE RG NO PARTLYNO Yearly 2014 capacities expected to be auctioned by SEE CAO end 2013 But: Serbia, Bulgaria missing

7. CAPACITY ALLOCATION CAPACITY ALLOCATION Status Quo 8th Region 7 Source: ECRB, Quarterly Report on the 8th Region, Q1 2013

8. REALITY CHECK – 2. REALITY CHECK – 2. Electricty Wholesale Market Opening in the 8th Region 8 SEE WMO RAP Deadline & responsibility Done?Developments 3. Day ahead allocation -Establishment of power exchanges in several SEE countries or contracting services from the existing PX -Bilateral/ trilateral market coupling in SEE region -Price based market coupling (EU target model) in entire SEE region -Pan-European market coupling including the SEE region 31.12.2011 the latest National Q2 2012 Q4 2014 ECRB, PHLG, ENTSO-E RG SEE Q2 2015NONO Developemnts in Croatia establishment of a PX, a new law in Serbia from Dec 2012 - activities of EMS are not known yet 4. Intraday allocation -on several borders -harmonised regional solution Q2 2014 TSO’s Q2 2015 ENTSO-E RGNO 5. Balancing2013 NRA’s, ECRBNO SEE balancing target model

9. TO DO LIST 9 1. Enforced committed is needed  To abolish barriers for WMO  To complete the missing pre-conditions 2. Swift transposition and implementation of the 3rd package 3. Adoption of EU Network Codes  Active participation of Energy Community NRAs and TSOs in Network Code preparations crucial!

10. PROPOSAL FOR AN ACTION PLAN 10 ACTIONTIMINGMILESTONES REGIONAL Capacity calcuclation 1.TSOs to agree on common capacity calculation methodology 2.Streamlining as much as possibile with CW/Nordic model 3.Regional PX asap but by end of 2013 the latest In parallel with PX progress Long term allocations SEE CAO PTC to allocate yearly capacitities for 2014 asap but by end of 2013 the latest  Project Team Company to develop relevant documents  NRAs to approve  Serbia to join it Balancing Development of a regional balancing model End 2013 / early 2014 (ECRB Work Program) LEGAL - NATIONAL Day ahead 1.Establishment of a Serbian or better regional PX 2.Other CPs to either also establish a PX or sign service contracts with asap but by end of 2013 the latest Market models 1.Phasing out of regulated energy prices -WMO -End-users 2.Aboloshment of single buyer models asap Single buyer models: Albania, Ukraine, Kosovo*, FYR of Macedonia (* This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.)

11. Recommendations of ECS from June 2012 (1) 11  All Contracting Parties to ensure that eligibility is defined in line with Article 21 of Directive 2003/54/EC, i.e. as the full and unconditional right to choose a supplier for all non-household customers. This requires in particular:  (a) a clear and compliant definition in primary law;  (b) the removal of all conditions and requirements other than the status of being a non-household customer, including references to voltage levels or electricity consumption;  (c) the removal of all administrative obstacles to exercising eligibility such as discretionary or conditional approval by regulatory authorities or market operators, registration requirements, etc.;  (d) ensuring that the right to switch supplier can be exercised continuously (not only by one particular reference date) and swiftly;  (e) the inclusion of resellers in the category of eligible customers, including public suppliers and suppliers of last resort, and the removal of all explicit or structural barriers for them to exercise their eligibility.

12. 12 Recommendations (2) All Contracting Parties to ensure that the electricity prices for all customers falling within the category defined for the purposes of universal service provision in the first sentence of Article 3(3) of Directive 2003/54/EC (“households and small and medium enterprises”) subject to price regulation are cost-reflective. All Contracting Parties to ensure the cost-reflectivity of network tariffs. All Contracting Parties to define clearly and through legislation the public service objectives pursued by price regulation as well as the notions of vulnerable customers subject to special protection or support. All Contracting Parties to ensure that the electricity prices for all customers not falling within the category defined for the purposes of universal service provision in the first sentence of Article 3(3) of Directive 2003/54/EC (“large customers”) are not subject to price regulation. All Contracting Parties to ensure that the market design does not impede the goals of market opening and price reforms. To that end, the possibility for public supply must be limited to small customers and may not impede eligibility. Furthermore, there must be no legal obligation for the public supplier to buy exclusively from one single generation company or wholesale supplier.

13. Acronyms 13  CA(M) – Capacity Allocation (Mechanism)  CM(P) – Congestion Management (Procedure)  IEM – Internal Energy Market  PX – power exchange  RAP – regional Action Plan  SEE – South East Europe  WMO – wholesale market opening

14. 14 THANK YOU FOR YOUR ATTENTION! QUESTIONS? CONTACT: Janez Kopač Director Energy Community Secretariat Janez.kopac@energy-community.org

15. Influence of coupled markets on prices 15