1. The European Electricity Market Integration and some Thoughts on Gas Markets Market Coupling and Ways Forward Lene Sonne Vice President, Market

2. 2 Doc. no. 7738-08_v2 Agenda The Vision Status of market coupling projects Possible ways forward EMCC: an overarching mechanism: First of its kind Integrating gas markets

3. 3 Doc. no. 7738-08_v2 Vision for European Electricity Markets Effective utilization of the existing power system ­Merit order activation of generators despite geographical location Implicit auctions: ­most efficient allocation method ­should be applied at all congestion points Energy bid/offer information and cross border capacity PEX-TSO coordination Socio-Economics Basic Requirements: Single European Market: Transparent and Liquid Market, Free trade across all National Borders

4. 4 Doc. no. 7738-08_v2 Status of existing Regional Markets The first Inter-regional Coupling

5. 5 Doc. no. 7738-08_v2 EMCC and Tasks Nord Pool Spot EEX Germany FI,DK,SE,NO EMCC Central coordination Entity Calculate local market prices Settlement ETC..  EMCC - European Market Coupling Company, private limited company (GmbH)  TSO and PEXs equal Shareholders  EMCC is located in Hamburg Set the correct flows Collect congestion revenue Publish and maintain information ETC…

6. 6 Doc. no. 7738-08_v2 Possible ways Forward Several regional/local solutions Extremely important to coordinate these solutions How: 1.Selecting compatible regions for further integration 2.An overarching mechanism to coordinate regions

7. 7 Doc. no. 7738-08_v2 Selecting Compatible Regions for Further Integration Condition: - Efficient exchange on both sides of the congestion point Analyze Potential benefit compared to challenges of integration: Potential benefits: ­secure right direction of flow on interconnections ­Sufficient size of cross border capacity Challenges of integration: ­Number of stakeholders, difficulties of multilateral agreements ­Necessary market harmonization A gradual process that eventually extends to a Pan-European solution

8. 8 Doc. no. 7738-08_v2 Overarching Mechanism to Coordinate Regions: less need for full harmonization MS (Nord Pool Overarching Mechanims EMCC+ MC (CWE) PEX 2PEX 1 Price area Market Coupling

9. 9 Doc. no. 7738-08_v2 Governance of the Market Coupling Process Several stakeholders involved: high level of governance challenges Stepwise harmonization considered to be the best option Need for regulatory guidelines: ­Indicate best practice for market coupling ­Require commitment from all stakeholders

10. 10 Doc. no. 7738-08_v2 Integrating gas markets The development of the gas market has been lagging behind compared to the electricity market. An integrated and well functioning market for gas must be the final goal. ­The EU Electricity & Gas markets 3 rd legislative package ­A vision to make the internal gas market work. Same development for gas and electricity? ­In principle yes, but differences must be recognised.

11. 11 Doc. no. 7738-08_v2 Evolution of Gas and Electricity Markets FCFS Pro Rata Explicit auctions Implicit auctions Socio-economic efficiency Before Liberalization Power sector? Gas Sector? Time The evolutionary path for gas might be different from electricity However, the final goal must be an efficient integrated European gas market

12. 12 Doc. no. 7738-08_v2 Steps to be taken Transparent prices ­Clear trend - gas exchanges are being established around Europe Further step: ­Short-run: ­increase utilisation of capacity ­cooperation between TSOs to harmonize capacity products ­Medium-run: explicit capacity auctions ­Long-run: market coupling between existing gas exchanges An integrated market for gas is possible – but some serious challenges must to be solved. use-it-or-loose-it use-it-or-sell-it