1. European electricity market: Improvement potential in market structure and quality Bert Den Ouden CEO, APX Group EPFSF Annual conference 15 May 2007

2. APX Group:gas and electricity exchanges
24/04/2017
APX Group:gas and electricity exchanges
APX Gas NL (TTF)
APX Power NL
APX Gas UK (NBP)
APX Power UK
APX ZEE (Zeebrugge HUB)
Market Coupling together with other exchanges
NBP
TTF
APX UK
APX
ZEE
Bel-
pex

3. Overview of APX Group activities
Operations:
5 markets on line
4 service activities
206 gross memberships
Traded (2006):
178 TWh of energy
€ 5.3 billion of contracts
10% of UK gas demand
18% of NL power demand
Corporate:
Anglo-Dutch management
Positive financial results
Shareholders TenneT (74.5%, Transmission System Operator NL) and Gasunie (25.5%, Gas infrastructure company NL)
Development of APX Group Members
per Market, 1999 to March 2007
Gas NL
200
Gas Zee 20 19 11
Gas UK 9
Power UK 15 11 8 70
Power NL 5 67 58
Number of Members
100 54 54 52 46 51 54 41 39 27 34 36 36 27 51 31 36 36 38 40 41 48 21
1999
2000
2001
2002
2003
2004
2005
2006
2007

4. European electricity market
24/04/2017
European electricity market
Achievements
Free customers
TSO tasks
Efficiency of utilities
Role of regulators
Shortfalls
Volatile prices
Low liquidity
Transparancy issues
Inefficient use of transportation
High level of concentration
Market power issues
 Fragmented market ?

5. Some available solutions
24/04/2017
Some available solutions
Infrastructure
Build more capacity…. and/or
Make better use of existing capacity!
Market Coupling
Market organization
Transparency
Carbon market regulation
Transport limitation
Integrated market

6. Market Coupling Netherlands-Belgium-France
APX
Bel
pex
Power
next
APX
Bel
pex
Power
next
Before
Fragmented 2-step operation
2 capacity auctions on each border
2 electricity spot markets
After
One integrated system, 1-step operation
Daily allocation of transmission
capacity between 3 countries
Generating spot market prices
3 exchanges working together
Political will
Start: 22 November 2007
 TenneT
APX
Power
next 2. 1.
 Elia
 RTE

7. Achievements of market coupling: utilisation of transmission
24/04/2017
Achievements of market coupling: utilisation of transmission
market coupling 22 Nov 06
Upper graph: Average utilization as % of available
30  60% after MC
Lower graph: time-percentage of full usage
0  25% after MC

8. Achievements of market coupling: price convergence
24/04/2017
Achievements of market coupling: price convergence
market coupling 22 Nov 06
Upper graph: APX
Lower graph: Powernext
Before MC: correlation, no convergence
After MC: strong convergence(>70% of time)
Some price differences remain

9. Achievements of market coupling: integration of price areas
100%
of time
Old
situation
19%
Either prices will converge 100%, or prices diverge –but then the transmission capacity used for 100%
Better price index
Better efficiency and better economic results
Better basis for long-term contracts & investments 2% 6%
73%:
“Copper plate”
Shown are the data for January 2007
Percentages vary each month

10. Achievements of market coupling: Price difference Netherlands-France
24/04/2017
Achievements of market coupling: Price difference Netherlands-France
Hourly price difference, €/MWh
9% ∆P > 10 €
19% ∆P 1..10€
40% ∆P > 10 €
4% ∆P < 1 €
∆P >10 €
∆P 1-10 €
∆P <1 €
Equal price
“copper plate”
51% ∆P 1..10€
68% ∆P=0
Equal price
“copper plate”
8% ∆P < 1 €
Before Market Coupling
Winter 2006
After Market Coupling
Winter 2007

11. Hourly price difference, €/MWh
24/04/2017
Price convergence simulation for coupling in “Pentalateral” region (NL-Be-Lux-Ger-Fr)
Hourly price difference, €/MWh
Results Historically
Simulated coupling
15%
19%
24%
35%
33%
38%
14%
12% 3%
19% 2%
∆P >10 € 3%
∆P 1-10 €
∆P <1 €
56%
58%
Equal price
“copper plate”
52%
68%
66%
54% 9% 9% 9%
Fr-Nl
Fr-Ge
Nl-Ge
Fr-Nl
Fr-Ge
Nl-Ge
* by APX ** simple daily ATC capacities like used in the explicit auctions (not flow-based)

12. Conclusions market coupling
24/04/2017
Conclusions market coupling
Market Coupling is proven solution, yields:
Better use of transmission capacity
Im/exports always in right direction
Removal of im/export barriers
Prices converge when there is no constraint: “copper plate”
More market parties, better liquidity, reduction of market power in the bigger area
Creation of NW-European market
European market perspective
European copper plate is possible
Utilize existing transport capacity
Integrated market
Better index, better liquidity, reduced market power
Better basis for financial market and investments

13. Market transparency
Report EC competition highlights market information
Information on availability of power plants: scheduled maintenance and (non-scheduled) unavailability
May have high impact on (spot) market price  derivatives
Information held by parties having generation assets
Transparency important for new entrants, financial market parties

14. Transparency regarding price calculation on the spot markets
Publication bids/offers (anonymous): important for index used for futures
APX web site example
Supply curve offers
Demand curve bids
price

15. Publication of power plant availability
24/04/2017
Publication of power plant availability
UK, Nordic (Regulated)
Complete
Accurate
Compliance
Sanctions
Continental Europe (Voluntary)
Growth model
Accuracy issues
No strict compliance
No sanctions
Compliance is needed for accuracy of data
Important role for regulator
Important for financial market and investments
Regulated
Voluntary

16. Carbon trading and electricity price
24/04/2017
Carbon trading and electricity price
Strong correlation between rising prices for CO2-allowances and rising electricity prices since the beginning of 2005*
The strong price increase in e.g. the German market during 2005 on can be explained exclusively by taking into account the effect of CO2*
After decrease of carbon price, power prices dropped too
Huge movements in carbon prices after publishing of carbon data
Uncertainties
* Source: VIK-Opinion on the Preliminary Findings of the Energy Sector Inquiry (VIK, April 2006)

17. Needs of the carbon market
Achievements
CO2-driven market
Recognition
Reductions
Shortfalls
National bias
Market distortions
Contribution to power price volatility
Publication issues
Political uncertainty
Lower liquidity in long-term contracts (forwards)
Effect on investments
Currently: carbon market not supervised by regulators (both financial and energy)
Needed:
Harmonization
Transparency rules
Regulation
Political stability
Role of regulators in carbon market needed
Important for long-term markets, investments

18. Effort in market structure /
Summary
Huge potential for structural improvement in the power market
Better use of existing infrastructure: market coupling
European “copper plate”
Better efficiency, better economic results
Better market liquidity, better price index, reduction of market power
Transparency: compliant publication of generation availability
Better role for financial parties and new entrants
More liquid and reliable daily prices
Regulation of the carbon market
Decrease of uncertainties
Better liquidity in the forward markets
Effort in market structure /
market quality
Better prices
Better efficiency
Economic results
Investment climate
Security of supply

19. A VITAL LINK IN ENERGY TRADING b.denouden@apxgroup.com