1. Secondary Market with Transmission Capacities ČEPS, a.s. 11/2006

2. Initial situation Regulation 1228/2003 EC requires the member states to define rules allowing the secondary market with transmission capacities Already supported in coordinated auction: –self-service capacity transfers –capacity notice-board Not sufficient for the market: –no rules for secondary trading –no products (complicates matching between bids and calls) –no anonymous environment –no financial settlement –etc. No secondary market with capacities is operated in the region

3. Initial situation Opportunity for common Auction office and TSOs: –AO and TSOs has data about entities and capacities –shared financial guarantees for primary and secondary market can be applied –common invoicing for primary and secondary capacities can be applied –auction office can automatically register the realized transfer Auction office has the best background for organizing secondary market –maximum added value for market participants in contrast to any other solution –market opportunity for TSOs participating in the project

4. Basic principles of secondary market Which should be secondary market? –transparent –non-discriminating –flexible Main features: –negotiation and registration of deals –invoicing and settlement of deals –check of financial guarantees

5. Basic principles of secondary market Two basic variants: –Use-it-or-sell-it can be considered to primary coordinated auction –Exchange of predefined forward products two sub variants: –call forward auction – separate trading stages Bids Submitting and Evaluation –continuous forward trading, overlapping both stages »more suitable for secondary market »described further in this presentation

6. Why continuous trade? Market participant is not limited by the auction schedule –bid can be submitted at any time till capacity transfers gate closure Capacity price may vary in time depending on a number of factors –market participants can flexibly respond to the price development Development of prices can be continuously published by means of forward curves

7. Basic principles of continuous market Definitions: –bid – supply of capacity –call – demand for capacity –orders – bids & calls Continuous evaluation of received orders –Continuous matching of bids and calls –Non-matched orders are inserted into wait list

8. Orders Period Offered/requested amount of capacity Requested/offered price limit –not mandatory – if not specified, bid is without price limit which means: order has priority during matching process order is matched with the counter-order with the best price

9. Products

10. Orders

11. Price curves

12. Basic principles of continuous market

13. Trading periods Definition of trading period: –type (year, month, week?, day) –time period corresponds with the periodicity –product base, peak, off-peak working/non-working days not used for daily

14. Possible schedule

15. Transaction settlement Transaction is announced to primary auction office immediately after matching Financial transaction is recorded Individual accounts – sum of all: –credits – payments for sold capacity –debits – payments for bought capacity

16. Financial Balance

17. Risk-management of secondary auction office Time lag between credit and debit payments –can be covered by different maturity dates Financial guarantees by purchasing market participants –sharing of financial guarantees for primary and secondary markets –automated immobilization process

18. Other possible extensions Extended attributes for orders: –fill or kill – order must be either matched or rejected immediately (it is never added to wait list) –good for day, good till date, good till cancelled – order has the specified time validity, order is automatically withdrawn after time elapsing Cascading: –automatic transfer of orders from trading with longer periodicity to shorter ones Possibility to obtain full transmission path for transaction route –searching of optimal route (bids which together match the requested full transmission route)