1. Permanent High Level Group meeting Athens, September 9 th, 2003 Towards a Standard Market Design for the SE Europe Electricity Market Prof. P. Capros, co-chairman of the CEER WG SEEER

2. 2 Standard Market Design in SEE and the Role of CEER In the 2 nd Athens Process Forum in Rome (March 2003): CEER proposed a strategy for the development of a Regional Electricity Market in South East Europe The Forum welcomed this proposal and invited CEER to cooperate with the EC and others for the development of a paper on the SMD for the SEE Regional Electricity Market For this purpose, the CEER WG is working in order to prepare the input of the Regulators on the fundamental guidelines for the development of the SEE REM The outcome of this work will be presented by CEER for discussion in the next Athens Process Forum in October in Sofia A brief outline of the progress made so far is presented herein

3. 3 The main Benefits and the Objectives of the SEEEM Attract Investment in Power generation and Transmission by providing a stable regulatory and market environment in a broader single energy market Comply with the vision of the European Union for the establishment of tightly integrated regional markets within the Internal Energy Market of the EU Enhance Security of Supply Develop energy market competition in a broader scale and exploit economies of scale Establish a link between Western Consumers and Eastern Resources and Set up of a SEE Energy Hub

4. 4 Main Requirements from Standard Market Design in SEE Attract new investments and assure security of supply while optimizing economic competitiveness of electricity supply Ensure compatibility and consistency between technical operation of the electricity system and the functioning of new financial/commercial mechanisms at a regional level Ensure smooth transition without jeopardizing the viability of existing national entities or recourse to market distorting mechanisms (stranded cost recovery, excessive public obligations) Take into account the specificities of the countries of the SEE region, including the progress of the reforms in the energy sector that has already began in some of the countries

5. 5 The CEER proposal for SMD: Basic Principles 1. Market Structure - Bilateral contracts with physical delivery, conducted between producers and suppliers throughout the SEE region - Regional Day-Ahead market, operated by the Regional Market Operator RMO - Real-time flows for balancing, under the full responsibility of the national TSOs, who will cooperate with other TSOs and the RMO 2. Tariff Regimes - Regulated Fixed Tariff - Regulated Fixed Tariff : a temporary mechanism (e.g. 5 years) under strong regulatory supervision, to allow smooth transition and protect sensitive consumer categories - Free tariff: - Free tariff: The ordinary regime which provides consumers with the choice of managing their own risk

6. 6 The CEER proposal for SMD: Basic Principles 3. Regional and National dimensions: - At a national level - At a national level : national TSOs retain full control and responsibility for the safe operation of the networks along with the provision of balancing and ancillary services - At a regional level - At a regional level: The regional Day-Ahead market will be operated by the SEE Market Operator, an entity established jointly by national TSOs - A set of regulatory rules imposing obligations on generators, hydros and suppliers in order to ensure smooth transition and market integration 4. Additional elements: - Elements of a Capacity Availability Market for the adequacy of generation and transmission capacity - Promotion and support for the establishment of Power Exchanges and Financial Hedging mechanisms

7. 7 SEE SMD: Requirements Agreements on a regional level: Agreements on a regional level: Basic principles of the SEE SMD Establishment of SEE Market Operator and the relevant Code Coordination between Regulators Coordination between TSOs Technical Assistance for the development of the detailed design: Technical Assistance for the development of the detailed design: under the coordination of the EC, with the participation of CEER and other Institutions (ETSO, UCTE) and the support of the Donors community (CIDA-SEETEC, USAID, GdF, etc.) in particular with MFG Commitment from the national governments Commitment from the national governments for the support and the implementation of the SEE SMD: national reforms to be compatible with the accepted SMD

8. 8 The next steps October 2003: October 2003: Endorsement by the Forum of the Basic Principles End 2003: End 2003: Inclusion of these principles into the MoU 2004: 2004: Detailed design 2005 onwards: 2005 onwards: start of implementation 2007: 2007: First Operation at regional level