Security of Supply. on the European Electricity Market

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1 Security of Supply on the European Electricity Market

2 What is Security of Supply? A reliable supply of energy Reliable transportation of supply Reliable distribution and delivery of supply to the final customer At reasonable prices over a continuous period For the whole of Europe 2

3 Security of Energy Supply Physical Disruptions International Political Events Social National Events Climatic Events Terrorism Lack of Investment Price Disruptions International Events Market Organization (price volatility) 3

4 How secure has the European Energy Supply been in the past? 4

5 Daily Spot Gas Prices Across the European Hubs 5

6 Long-term Energy Security of Supply: The Specific Situation of European Countries 6

7 The Capacity Situation in Western Europe: 2000 Installed Capacity Peak Demand % Dependable Reserve Margin * Dependable Capacity Margin calculated by subtracting Peak to Dependable Capacity, then dividing by peak demand. The calculation uses 50 percent of Installed Hydro Capacity with the exception of Finland, Luxembourg, Norway, and Sweden which are calculated using 90 percent of Hydro Capacity. Note: The Data for Luxembourg, Greece, and Austria, is

8 Remaining capacity in % at peak month 8

9 Physical Energy Flows in Europe

10 Part of Exchanges in the Consumption

11 European Markets Size and Growth England & Wales 288 France 279 Italy Nordpool 491 Germany Peak Demand Growth (percent) Consumption TWh Spain %

12 Current Market Opening 12 EU-average UK Sweden Germany Finland Austria* electricity gas Greece Ireland Portugal Netherlands Belgium Italy Luxemburg Spain Denmark France

13 European Power Prices

14 Range of Wholesale Power Prices in Europe 2000 Costs Pressure on Power Prices Prices as a Result of European Liberalization 6.9 Published Italian Industrial Prices* Euro Cents per kwh Published UK Industrial Prices* Published French & German Industrial Prices* New Dutch Coal Plant 4.4 New French Nuclear 4.0 Gas IPP 3.3** 3.0 UK & Spanish Pool Price Cogen Cap 2.7** APX Pool Price 2.1 Expected Range of Bulk Power Rates Target Price for a 50 GWh Customer ATEL/EGL SWEP Price Nord Pool Price French Nuclear Short-run Marginal Cost * Annual Consumption 35GWh ** Gas feed prices of 0.9 eurocents/kwh

15 Northwest Europe Power Market, 2000: Short-Run Marginal Cost (SRMC) Pricing Eurocents per kwh % 100% Peak Demand GW 15

16 NordPool Spot Increasing Prices, Volatility and Basis Risk January September Jan-99 Apr-99 Jul-99 Nov-99 Feb-00 May-00 Sep-00 Dec-00 Apr-01 Jul-01 Weekly Average Prices 16 Euros per MWh Copenhagen Helsinki Oslo Stockholm System

17 17 UK Spot The Pool in , , Megawatts 15,000 10, , Jan-00 Feb-00 Apr-00 May-00 Jul-00 Aug-00 Oct-00 Nov-00 Weekly Average SMP Source: Cambridge Energy Research Associates. Avg SMP PPP Avg Volume Euros per MWh

18 18 UK Spot Low Volumes and Volatility March October Megawatts Euros per MWh Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 UKPX Weekly Average Prices Price Volume Source: Cambridge Energy Research Associates.

19 Spanish Spot Hydro, CTC and New Competition from Bilateral Trade January September Euros per MWh Jan-98 Apr-98 Jul-98 Nov-98 Feb-99 May-99 Sep-99 Dec-99 Apr-00 Jul-00 Oct-00 Mar-01 Jun-01 Weekly Average Day Ahead Market Results Price Volume 25,000 20,000 15,000 10,000 5,000 0

20 20 Megawatts Netherlands Spot Gaining Momentum and Credibility June September , ,200 1, Jun-99Aug-99Nov-99Jan-00 Apr-00 Jun-00Sep-00Nov-00Feb-01 Apr-01 Jul-01 Sep-01 0 APX Weekly Average Spot Market Prices APX Price APX Volumes Euros per MWh

21 21 Austrian Spot Prices Mai. 00 Jun. 00 Jul. 00 Aug. 00 Sep. 00 Okt. 00 Nov. 00 Dez. 00 Jän. 01 Feb. 01 Mär. 01 Apr. 01 Mai. 01 Jun. 01 Jul. 01 Aug. 01 Sep. 01 Okt. 01 /MWh Base Peak

22 /MWh 45 Many European Markets are linked e A,CH,GER (Day-ahead Peak) Aug. 01 Sep. 01 Okt. 01 Germany Switzerland Austria 22

23 German LPX Spot Growing Liquidity, Stable Prices June September Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01 LPX Weekly Average Spot Market Results 2,500 2,000 1,500 1, Euros per MWh Megawatts LPX MCP LPX Volumes

24 European Power Industry

25 A Future European Value Chain: Increasing Competitive Opportunities Percentage of Final Price (percent) Europe 2000 United Kingdom 2000 Europe 2005 Generation Supply Transmission Distribution Taxes 25

26 European Power Presence: Top 10 Incumbents Source: Cambridge Energy Research Associates

27 European Power Presence: Top 10 New Entrants Source: Cambridge Energy Research Associates

28 Economics of Capital Intensive Industries and Investor Momentum Drive Boom-Bust Price Cycles Dollars per MWh New Supply Busbar Band ELECTRIC PRODUCER PRICE Total Electric Price Spot Energy Price Restructuring Transition Commodity Markets TIME RESERVE MARGIN Build Trigger Brownouts TIME 28

29 Risk and Liquidity in Gas and Power Markets Follow Three Phases Emerging Market Liquid Market Risky Market Liquidity Volatility Market Phase 29 Level

30 Sizing Up Power Markets: Major Variations Among Markets Financial Markets Spot Markets Regulating Market Physical Market Time 3 Years to 1 Month Day Ahead 24-2 Hours Real Time Size 100% - 500% 15% - 25% 2% - 3% 100% Volatility Low High Extreme - Dominant Players Banks Generators Generators Generators Traders Consumers Merchants Consumers Merchants Source: Cambridge Energy Research Associates. RT graphics.xls 30

31 The Future of Power Transmission in Europe

32 France, Germany: Hourly Price Spreads Create New Congestion Source: Cambridge Energy Research Associates

33 Transmission Capacity Adequacy in 2000: Gauging the Import Threat Switzerland Denmark Austria Belgium Sweden Netherlands Greece Norway France Germany Portugal Italy Finland Spain U.K Ireland European Average = 27% Winter ATC / Peak Demand Percent Source: Cambridge Energy Research Associates

34 Assessing European Transmission Utilization: A Comparison of National Transmission in 2000 Portugal Finland Spain France Italy U.K Germany Ireland Austria Switzerland Norway Netherlands Belgium Sweden Denmark Greece European Average = 72% Source: Cambridge Energy Research Associates (Imports + Exports) / Total Capacity (percent) 34

35 Market Power and Pricing Behaviour

36 Market Power in the Wholesale Markets What is Market Power? The ability of a generator to raise prices consistently and profitably above competitive levels How would a generator raise prices? by withholding capacity or bidding high prices Prices Additional profit to Inframarginal units Profit lost from withdrawn unit P P Withdrawn Unit Capacity MW 36

37 Regulatory Developments

38 Commission Proposal for a New Directive on Gas and Electricity March 13, 2001 I. A New Timetable for Market Opening All EU companies for Electricity (2003), for Gas (2004) All EU consumers for Electricity and Gas: 2005 II. Extended Unbundling Legal and functional unbundling for independent transmission system operators and independent distribution system operators III. Regulated Third Party Access IV. Independent Regulators V. Improving Standards of Services Better protection of consumers rights Increased concern for security of supply 38

39 Main Regulatory Issues (ex Ante) Transmission and Distribution Tariffs Market Transparency Organizing Trans Border Trade Long Term Security of Supply Main Competitive Issues (ex Post) Distortion of Competition (conspiracy price manipulation) Abuse of Dominant Position Mergers and Acquisitions (ex ante) 39

40 For further questions: Walter Boltz Austrian Electricity Regulation Authority Rudolfsplatz 13a A-1010 Vienna Tel.: Austria Walter.Boltz@e-control.at 40

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