1. Bucharest, 3-5 April, 2006 BSEC, Bucharest, 3-5 April, 2006 Towards a pan-European Energy Market: Challenges for the SEE &Black Sea Regions Dr. Michael Thomadakis Greek Regulatory Authority for Energy

2. 2 Recent developments in the EU (1)…  Second legislative package:  Directives 54/2003/EC & 55/2003/EC  Regulation 1228/03 on electricity (and the accompanying “Commitology” Procedure)  Regulation 1775/05 on gas ● DG TREN 2005 Report on the (rather poor) progress achieved in the development of the EU Internal Energy Market ● DG COMP Sector Inquiry

3. 3 Recent developments in the EU (2)…  Green Paper:  Focus is given to the acceleration of the IEM Process  Interconnectors  Energy Efficiency  External Energy Policy (SEE, Black Sea, Caspian region, North Africa, Middle East) ● ERGEG Regional Initiatives:  7 Regions for Electricity (already launched)  5 Regions for Gas (to be launched very soon)

4. 4 Recent developments in the EU (3)…  What are the main concerns:  Security of supply still remains the main pillar  Competitiveness  Environment & Consumer’s protection  Regional market integration has been recognized as an essential instrument for enhancing security of supply and achieving the EU-IEM  Growing dependence on energy imports (especially for gas) is a crucial element  Investments on generation (electricity) but also on transmission capacity will play a crucial role. This is even more important (and much more difficult) for the neighboring to the EU regions

5. 5 EU and its neighbours… Source: EC

6. 6 UK, Nordic, Irish, Iberian : Lessons learned  Market design is a choice between convergence or compatibility. Single Market Design is the best option  Regional market must have certain key features:  Clear and unified arrangements for interactions in transmission  Transmission issues must be addressed to achieve competitive wholesale arrangements Governance of reform and the involvement of central actors is vital: Governance of reform and the involvement of central actors is vital:  Strong government support  Strong cooperation between regulators and TSO/MO Time consuming process, even for advanced market places Time consuming process, even for advanced market places

7. 7 The Energy Community (of SEE) Process…  Following the two Athens MoU (2002 and 2003), a legally binding Treaty for the establishment of the Energy Community in South East Europe has been signed (October 2005) between EU and the SEE countries  The Treaty, still to be ratified, will come into force (hopefully) by the end of 2006  The Treaty signals a new energy era:  Currently for SEE but, probably in the immediate future, for the broader region: Black Sea, Caspian, (Middle East, North Africa?)

8. 8 The main Benefits and Objectives of the ECSEE  Optimize energy market and infrastructure developments over the broader scale of an integrated market (rather than at the level of each country)  Attract Investment in Power generation and Transmission by providing a stable regulatory and market environment in a broader single energy market. Facilitate foreign capital inflow also for the privatization process.  Comply with the vision of future integration into the European Union and as a first step develop an integrated regional energy market ready to join the Internal Energy Market of the EU  Enhance Security of Supply, deliver energy service with improved quality and reliability, preserve economic competitiveness and affordability for consumers, comply with environmental strategy of the EU  Establish an infrastructure and market-based link between Western Consumers and Eastern Resources and set up of a SEE Energy Hub

9. 9 The EC(SEE) Treaty (1)  Main provisions:  Expansion of the aquis communnautaire on energy, environment and competition to the SEE region  Provision for measures which may go beyond the aquis communnautaire:  Single mechanism for the cross-border transmission of electricity and gas  Security of Supply  Provision of energy to citizens  Harmonization and compatibility of market designs, mutual recognition of licenses  Renewables

10. 10 The EC(SEE) Treaty (2)  Main provisions (cont.):  Creation of a Single energy market:  Removal of customs and duties on energy between EU and SEE  Regulation of exports and imports from/to third countries  Mutual assistance in the case of disruption

11. 11 The EC(SEE) Treaty (3)  Institutional building:  Ministerial Council:  Policy guidelines, Measures delegation of specific tasks to the PHLG, ECRB and Secretariat  Permanent High Level Group (PHLG):  Support the work of Ministerial Council  Take Measures when empowered by the MC  Take Procedural Acts

12. 12 The EC(SEE) Treaty (4)  Institutional building (cont.):  Regulatory Board (ECRB):  Advise the MC and the PHLG on the details of statutory, technical and regulatory rules;  Take Measures, if so empowered by the MC;  Issue recommendations on cross-border disputes;  Take Procedural Acts  Secretariat  Overall administrative support, monitoring implementation and report;  Coordinate Donors’ activities with the EC  Fora (one for electricity -Athens, one for Gas)

13. 13 Pan-European IEM: Initial Steps (1)…  Electricity:  A cross-border trading mechanism has been established among the 27 European countries in the West  A similar mechanism has also been established in the SEE region. A coordinated effort is currently underway for the merger of the two mechanisms: a small but important barrier to trade will have been removed from almost 35 European borders  UCTE is performing a study for the synchronization of the electricity networks in Ukraine, Russia and Turkey to the western European ones  Coordinated cross-border capacity allocation mechanisms are already either investigated or implemented in almost all European regions (including SEE)  Coordinated electricity market arrangements are also under serious elaboration  Considerations on region-wide Generation and Transmission Capacity Support Mechanisms are becoming more mature

14. 14 Pan-European IEM: Initial Steps (2)… Gas: Source: EC

15. 15 Pan- European IEM: What is next?  Bold steps will be required:  Strong political support and collaboration  Stronger co-ordination of national Institutions:  TSOs (grid access, capacity allocation, real time operation of the grids)  Regulators (market rules, market monitoring, dispute settlement)  Convergence of national market designs and market rules,  Sufficient transmission capacity available to market participants  Is there going to be a new energy deal?

16. 16 Thank you… RAE 69 Panepistimiou & Eolou 105 64 Athens, Greece Tel: +30 210 3727400 Fax: +30 210 3255460 e-mail : info@rae.gr info@rae.grinfo@rae.gr www.rae.gr Dr. Michael Thomadakis Vice Chairman thom@rae.gr Tel: +30 210 3727465 (direct)