Security of Supply on the European Electricity Market
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
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
How secure has the European Energy Supply been in the past? 4
Daily Spot Gas Prices Across the European Hubs 5
Long-term Energy Security of Supply: The Specific Situation of European Countries 6
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 1999 10601-45 7
Remaining capacity in % at peak month 8
Physical Energy Flows in Europe 2000 9
Part of Exchanges in the Consumption 1975-2000 10
European Markets Size and Growth 40 35 30 25 England & Wales 288 France 279 Italy 424 384 Nordpool 491 Germany 20 15 10 5 0 0 5 10 15 20 25 Peak Demand Growth 1995-2000 (percent) Consumption TWh Spain 196 12% 30 35 11
80 60 40 20 0 Current Market Opening 12 EU-average UK Sweden Germany Finland Austria* electricity gas Greece Ireland Portugal Netherlands Belgium Italy Luxemburg Spain Denmark France
European Power Prices
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 5.7 5.6 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** 2.7 2.6 APX Pool Price 2.1 Expected Range of Bulk Power Rates Target Price for a 50 GWh Customer ATEL/EGL SWEP Price 1.2 0.7 Nord Pool Price French Nuclear Short-run Marginal Cost * Annual Consumption 35GWh ** Gas feed prices of 0.9 eurocents/kwh 90801-6 14
Northwest Europe Power Market, 2000: Short-Run Marginal Cost (SRMC) Pricing 15 12 Eurocents per kwh 9 6 70% 100% Peak Demand 3 0 0 50 100 150 200 250 300 GW 15
NordPool Spot Increasing Prices, Volatility and Basis Risk January 1999 - September 2001 40 35 30 25 20 15 10 5 0 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 UK Spot The Pool in 2000 25,000 50 45 20,000 40 35 Megawatts 15,000 10,000 30 25 20 15 5,000 10 5 0 0 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 UK Spot Low Volumes and Volatility March 2001 - October 2001 800 40 700 35 Megawatts 600 500 400 300 200 30 25 20 15 10 Euros per MWh 100 5 0 0 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.
Spanish Spot Hydro, CTC and New Competition from Bilateral Trade January 1998 - September 2001 70 60 50 40 30 20 10 0 19 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 Megawatts Netherlands Spot Gaining Momentum and Credibility June 1999 - September 2001 60 1,400 50 1,200 1,000 40 800 30 600 20 400 10 200 0 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 Austrian Spot Prices 0 5 10 15 20 25 30 35 40 45 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
/MWh 45 Many European Markets are linked e A,CH,GER (Day-ahead Peak) 40 35 30 25 20 Aug. 01 Sep. 01 Okt. 01 Germany Switzerland Austria 22
German LPX Spot Growing Liquidity, Stable Prices June 2000 - September 2001 60 50 40 30 20 10 0 23 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 1,000 500 0 Euros per MWh Megawatts LPX MCP LPX Volumes
European Power Industry
A Future European Value Chain: Increasing Competitive Opportunities 100 90 80 70 Percentage of Final Price (percent) 60 50 40 30 20 10 0 Europe 2000 United Kingdom 2000 Europe 2005 Generation Supply Transmission Distribution Taxes 25
European Power Presence: Top 10 Incumbents Source: Cambridge Energy Research Associates. 11002-26 26
European Power Presence: Top 10 New Entrants Source: Cambridge Energy Research Associates. 11002-26 27
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
Risk and Liquidity in Gas and Power Markets Follow Three Phases Emerging Market Liquid Market Risky Market Liquidity Volatility Market Phase 29 Level
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
The Future of Power Transmission in Europe
France, Germany: Hourly Price Spreads Create New Congestion Source: Cambridge Energy Research Associates. 10904-50 32
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 0 10 20 30 40 50 60 70 80 90 100 Percent Source: Cambridge Energy Research Associates. 11002-9 33
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% 0 20 40 60 80 100 120 Source: Cambridge Energy Research Associates. 11002-10 (Imports + Exports) / Total Capacity (percent) 34
Market Power and Pricing Behaviour
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
Regulatory Developments
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
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
For further questions: Walter Boltz Austrian Electricity Regulation Authority Rudolfsplatz 13a A-1010 Vienna Tel.: + 43 1 24 7 24 201 Austria Walter.Boltz@e-control.at www.e-control.at 40