1. Electricity Regional Initiative Central Eastern European Region Market Entry Barriers – Regulators’ View Walter Boltz E-Control CEE Stakeholder Group Meeting 7 th November 2007

2. 2 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 CEE Priority Issues Short term 2006/2007: -Congestion Management with full implementation of CM Guidelines -Information management and transparency in line with the ERGEG Guidelines of Good Practice -Identification of and dealing with market entry barriers -Coherence and harmonization of the regulatory competences Mid term >2007 -Balancing markets integration -Market design issues of relevance for regional market The issues of market entry barriers, Congestion Management and transparency have been in focus so far; The other issues have not yet been addressed with full priority, partly because they cannot be resolved only by regulators

3. 3 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 CEE Priority Issues by Eurelectric Market entry barriers of legal and technology nature Congestion Management TSO cooperation Long term contracts and price regulation Infrastructure investments – regional planning

4. 4 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 Market Entry Barriers by EFET -Administrative and bureaucratic procedures, e.g.: -Licensing & subsidiary requirements -Congestion Management, e.g.: -No adequate maximizing of capacities -Firmness of capacities -Use of technical profiles -Historical long term cross-border reservations -Market Transparency, e.g. -Lack of ex-ante generation information -Market liquidity and standardization (Power Exchanges) -Lack of transparent and reliable prices Congestion Management and Transparency are already dealt with, but annual capacities reduced at some borders; Administrative issues and adequate wholesale market development not yet addressed in a systematic way

5. 5 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 CEE General Market Situation -Generation capacities in the CEE region are rather concentrated -Some countries are moving towards further reduced generation capacities  market is becoming more tight -Market participants have increasing interrest to export towards South-East Europe -Power Exchanges do not always exist – for existing PEX significant differences in liquidity and products are identified If national markets become tight – imports and exports become increasingly important Beneficial situation for buyers and sellers

6. 6 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 Promising Steps (Poland)... Situation June 2006 * Situation November 2007 So far nominations were limited to entities with a physical connection to the grid) - trader-to-trader nomination was not allowed Since 1st of July 2007 each trader possesses "physical scheduling unit" on the balancing market. Nominations between traders possessing such “scheduling units” are feasible Liquidity is limited due to the long term PPAs blocking ~ 50% of capacity New law releasing energy from long term PPAs, in force since August 2007. This is based on voluntary participation of generators. Beginning of 2008, the deadline for generators to join this program Capped end-user with free wholesale pricesPolish Regulator announced that from 1st of January 2008 all suppliers are released from obligation to have approval on electricity prices *... Refering to EFET presentation from CEE SG meeting 22 June 2006

7. 7 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 Promising Steps (Hungary)... Situation June 2006 * Situation November 2007 No Power Exchange existing or plannedNew law (entering into force beginning 2008) requires a Power Exchange established by - private undertakings and - allows foreign existing Power Exchanges to operate in Hungary In case none of these option apply MAVIR will be obliged to do so For licensing, a local representation in Hungary is needed for trading. A local branch is not enough and a fully registered company is required – leading to high cost of licenses The new law (entering into force beginning 2008) foresees a simplified way for getting a trading license, no local representation required *... Refering to EFET presentation from CEE SG meeting 22 June 2006

8. 8 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 Further Promising Developments... Situation June 2006 * Situation November 2007 Long term cross-border capacity reservations on the Polish-Slovakian and Slovakian-Hungarian border Changed legislation in Hungary and TSO grid code in Poland (just nominations from auctioned capacities allowed) but no complete solution for all countries yet Austrian grid infrastructure limited by weak internal connections Permission for building new HV- connection has been granted, construction works starting *... Refering to EFET presentation from CEE SG meeting 22 June 2006

9. 9 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007... no progress... Situation June 2006 * Situation November 2007 Number of control areas in Austria and Germany causes more complex operations for market parties In Austria e.g. fixed in constitution, no changes on the way In Czech Republic licenses are only granted to companies with local representation (local branch is required) - administrative obstacle for foreign companies interested in the wholesale trading only Fixed in Czech Energy Act (no distinction between a wholesale trading and sales to end consumers) – no changes on the way *... Refering to EFET presentation from CEE SG meeting 22 June 2006

10. 10 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007... Steps in a questionable direction ! Envisaged cross-border fees are not supportive to market integration -Hungarian Government announced in October 2007 via the official journal, a cross border fee of 17,63 €/MWh – but just in force for 1 day (31st December 2007) -In July 2007 Slovakian Government approved new market rules which foresee a „system service charge“ for exports – in force from January 2008 The Slovakian Regulatory Authority RONI can not support the above conclusions

11. 11 ERI Central Eastern Europe CEE Stakeholder Group Meeting, 7th November 2007 Proposed Approach To achieve a more regional and systematic approach, establish an Implementation Group dealing with market entry barriers resulting from -Administrative issues and -Market development (wholesale market liquidity, standardized products and market places) To be composed out of representatives from -Governments/Ministries -European Commission -Market Participants -Power Exchanges -Regulators