EURELECTRIC - CIS EPC Joint Report: Key differences in electricity trade market rules and obstacles to trade between the EU and Russia/Belarus

Transcription

1 EURELECTRIC - CIS EPC Joint Report: Key differences in electricity trade market rules and obstacles to trade between the EU and Russia/Belarus O c t o b e r

2 Key differences in electricity trade market rules and obstacles to trade between the EU and Russia/Belarus Joint EURELECTRIC CIS EPC Task Force On Cross Border Trade EURELECTRIC: Jaanus ARUKAEVU (EE), Stefan BLACHE ( DE), Roman BOROVSKIKH (IT), Andris CAKULS (LV), Anne-Malorie GERON (EURELECTRIC Secretariat), Mans HOLMBERG (SE), Johan LINNARSSON (SE), Olga MIKHAILOVA (EURELECTRIC Secretariat), Pekka SALOMAA (FI), Valerio USELLA (IT) CIS EPC: Konstantin AKSENOV (RU), Natalia BAGROVETS (BY), Oleg BARKIN (RU), Yury BORISOV (RU), Nina DIMOVA (RU), Valentin GERIKH (RU), Andrey KATAEV (RU), Andrey NAZAROV (RU), Yury RAEVSKIY (RU), Natalia RESHETNIKOVA (BY), Olga STOROZHENKO (RU), Natalia ZAIKINA (RU) Contact: Olga MIKHAILOVA omikhailova@eurelectric.org Olga STOROZHENKO - soi@np-sr.ru Dépôt légal: D/2012/12.105/42

3 TABLE OF CONTENTS INTRODUCTION... 1 KEY DIFFERENCES IN ELECTRICITY TRADE MARKET RULES AND OBSTACLES TO TRADE BETWEEN THE EU AND RUSSIA/BELARUS Functions of the grid operators and power exchanges Model (zonal model vs. nodal model) Energy-only market vs. energy and generation capacity market Division between balance responsibility and trade of electricity Network access /Network fees/transit Hedging of price risks... 9 CONCLUSIONS ANNEX CONCLUSIONS OF THE 1ST MEETING OF THE JOINT EURELECTRIC CIS EPC TASK FORCE ON CROSS BORDER TRADE EURELECTRIC BACKGROUND INPUT TO THE JOINT EURELECTRIC-CIS EPC TF ON CROSS BORDER TRADE EXPERT MEETINGS Main models of the electricity cross border trade and capacity allocation conceptual aspects Main models of the electricity cross border capacity allocation: State of play in the Nordic and Baltic markets Description of the existing cross border trade arrangements on the Nordic/Baltic/Russia/Belarus borders CIS EPC BACKGROUND INPUT TO THE JOINT EURELECTRIC-CIS EPC TF ON CROSS BORDER TRADE EXPERT MEETINGS Delivering electricity from Russia to Finland Electricity supply from Finland to Russia Delivering electricity from Russia to Latvia through Belarus Delivery of capacity from Latvia to Russia through Belarus... 44

4 INTRODUCTION The foundation for broadening cooperation and deepening integration processes in the area of electric power industry between ЕС and CIS was laid under the Roadmap titled Towards Compatible Electricity s in the EU and CIS Member Countries, developed and approved by EURELECTRIC and CIS EPC on November 25, On November 13, 2007 in Rome, the CIS-EPC and EURELECTRIC Presidents, A. Chubais and R. Miranda, agreed to establish a joint Task Force on the common cross-border electricity trading principles. The wish to continue the work of the TF was confirmed at the 10th EURELECTRIC-CIS EPC Presidents meeting on March The Joint Task Force is composed of the representatives of energy companies (power suppliers), electricity industry management bodies and infrastructural entities representing the electric power sector of the countries participating in the Task Force, namely: Belarus, Estonia, Finland, Latvia, Lithuania, Russia and other stakeholders. The goal of the Task Force was to develop proposals for organizing and improving efficiency of the cross-border electricity trade in the region. The Task Force focused on the following areas of work: 1. Analysis of the existing policies and practices of cross-border trade in the region 2. Identification of key differences in electricity trade market rules and obstacles to trade in the region 3. Development of policy options/measures necessary to increase compatibility of market rules between two systems and improve the efficiency of cross-border trade This report represents the 1st part of the joint EURELECTRIC CIS EPC publication on electricity cross-border trade and outlines the key conclusions of the work of the Task Force during the period of focusing on the key differences between the electricity trade market rules and obstacles to trade. In 2013, the joint Task Force will focus its efforts on formulating concrete proposals for adapting current market rules and regulations in view of developing a market based link between the EU and Russia/Belarus systems and identifying the potential to improve competition and overall efficiency of the electricity trade in the region. 1

5 KEY DIFFERENCES IN ELECTRICITY TRADE MARKET RULES AND OBSTACLES TO TRADE BETWEEN THE EU AND RUSSIA/BELARUS Based on the fact that within the CIS it is the electricity market of the Russian Federation that has the most significant potential for electricity trade with the EU and bearing in mind the particularities of this market in terms of electricity export and import the CIS part of this report mainly focuses on the rules of the Russian electricity and capacity market. 1. Functions of the grid operators and power exchanges The functions of the Transmission System Operator (TSO) and a Power Exchange (PEX) in the EU and the System Operator (SO), the Federal Grid Company (FSK) and the Administrator of the Trading System (ATS) and the Centre of Financial Settlements (CFS) in Russia differ. EU: The TSOs are responsible for the maintenance and long term development of the grid as well as the short term management of internal and cross-border electricity flows (providing access, electricity transport and congestion management). They also have the duty to maintain the stability of the grid (energy balance in a control area), calculate the transmission capacity of internal and cross-border interconnections and allocate it to the market. In the EU, power plant dispatch functions are to a significant extent exercised by the generators themselves only in rare emergency cases and under strictly defined conditions would TSOs intervene in generation dispatch. The PEX are responsible for collecting and matching bids (price discovery), billing, clearing, developing traded products. participants trading Over-the-Counter have to clear deals through special commercial platforms or fully assume counterpart risk. RUSSIA: The FSK is responsible for providing electricity transmission services, grid availability, load flow metering and participates (alongside SO) in the interaction with the foreign TSOs, who are parties to parallel operation agreements. SO is responsible for controlling power system operation, maintaining the power balance in the synchronous zone, calculating the transmission capacity of interconnectors, managing internal and cross-border electricity flows. According to Russian electricity market rules SO conducts unit commitment procedures for the day-ahead market and the balancing market based on generators bids. Flow managements in the power systems of Russia, the Baltic states and Belarus are dealt with by the relevant SOs on the basis of the BRELL cooperation agreements. ATS is responsible for registering both exchange-traded and over-the-counter bilateral contracts, conducting trade on the day ahead market (determining the equilibrium price), collecting metering data and determining the final claims and liabilities of wholesale market participants (except claims and liabilities under bilateral contracts). 2

6 Execution of payments through the unified clearing system and billing are carried out by a specialized organization CFS. The functions carried out by grid organizations across the CIS and EU areas may vary from one another. These differences should thus be taken into account when defining the market rules relating to cross-border trade. 3

7 2. Model (zonal model vs. nodal model) EU: The market model is based on zonal pricing. A zonal model aggregates all nodes within a control zone and substitutes it by one equivalent node; individual cross-border lines are substituted by equivalent one link per border. The TSOs responsible for the main transmission grid inform about the transmission capacity available, and the power exchange calculates the price for electricity based on the bids of market parties. Commercial transactions in most of Europe are currently managed based on a contract path mechanism and the generation units are dispatchable by generators based on the market pricing, and the TSOs in their turn do re-dispatching within the bidding zones based on economic incentives towards creating the necessary counter flows to ease the congested lines. Congestions between bidding zones are managed by price differences between the areas (implicit auctioning) or the price of the transmission capacity on the border. Financial contracts for price difference are used by market participants to hedge these risks. Today, they are mostly available in the Nordic market. RUSSIA: The internal electricity market model in Russia is based on nodal pricing. The SO is responsible for the control of power system operation and unit commitment, scheduled based on their bids and included in the trading schedule, which is approved by the SO as the dispatch schedule. The ATS is responsible for electricity price calculation. Sales and purchase transactions are carried out via commission and sales-and-purchase contracts through the CFS, which defines customer assignment to the producers. Direct contracts between producers and customers are signed through the ATS indicating only the volumes supplied under these contracts. Equilibrium prices obtained as a result of price calculation reflect the cost of electricity with account of the value of load losses and transmission capacity constraints. This model enables the use of physical transmission capacity to the fullest extent and ensures effective power plant loading for consumers in Russia. Centralized calculation of the participants claims and liabilities that becomes the basis for power plant load schedules is a prerequisite for the application of this model, which is only possible under single market rules. Single wholesale market rules are also applied in the Kaliningrad Region, excluding however the procedure of competitive price bid selection, considering that there is only one supplier in this region. Currently there are two interfaces between the Russian and the EU markets: a) A DC link on the Russia-Finland interface. All technological procedures related to transmission capacity calculation and planning, including intraday planning and supply schedule control procedures, have been fully reconciled. Sequential accounting of trading results on the Russian and Finnish market has been provided for, as well as defining calculation procedures for the volumes and costs of actual deviations. 4

8 b) Interaction between the power systems of Russia, the Baltic states and Belarus, which are in parallel operation. The procedures for joint planning of power system operation are defined in a set of previously signed documents, of which many provisions are currently in need of updating, for instance in relation accounting for the trading results on the Russian and the Baltic markets with different gate closure times. Comprehensive congestion management procedures for the controlled interconnections have not been defined. In view of the lack of reconciled procedures normal power system operation is often provided for by the SO by cutting supplies from Russia. The differences in market designs between the EU (zonal model) and Russia (nodal model) do not represent as such an impediment to trade. In other terms, the parties in this process are of the view that trade development between these two geographical areas is possible and should not require the prior convergence of the market structures and regulatory frameworks on both sides. However, the analysis carried out in this report also shows that an adjustment of technical rules is needed to allow fair and efficient cross-border trade. 5

9 3. Energy-only market vs. energy and generation capacity market EU: The electricity market is an energy-only market with marginal hourly pricing (fixed costs are to be covered by the margin between energy price and SRMC). RUSSIA: The market consists of two elements: the electricity market with marginal prices and the capacity market. Electricity is subject to nodal pricing. The capacity market operates based on competitive capacity selection (CCS) carried out by the SO. Wholesale market participants may bid into the CCS for a volume that does not exceed their maximum capacity, included by the Federal Tariff Service of Russia in the forecast balance for the respective regulation timeframe. Buyers have to pay for all capacity selected at the CCS in their price zone. The main features of the Russian capacity market model are: capacity selection at the CCS for 4 years ahead (starting from 2016) thereby guaranteeing the suppliers payments for capacity during the construction of new capacity; pricing within free flow zones thereby establishing localized price signals for buyers and suppliers of capacity; selection and payment for only a part of available capacity, which contributes to increased competition among capacity suppliers. The market model also involves capacity supply contracts that provide funding for investments in new generating capacity. Across the market capacity payments account for roughly one third of the total payment. For buyers the capacity payment is calculated in proportion to their peak consumption. For suppliers the capacity payment is defined by their ability to supply all their capacity selected at the annual competitive capacity selection to the market. As capacity market prices are much less susceptible to fluctuations than electricity prices, forecasting the total cost of electricity and capacity is a task no more challenging than electricity price forecasting. There are no specific features of selling and purchasing capacity in relation to electricity export/import. The exporter of electricity has to purchase capacity on the internal market for the respective amount, currently on the same terms as buyers inside the market. The importer may earn a capacity price subject to the fulfillment of a number of conditions, however their fulfillment is currently challenging. The requirements that the importer is faced with are the same as those that generators are faced with on the internal market in order to supply capacity. The differences between wholesale markets for one product (electricity) and two products (electricity and capacity) do not necessarily imply an obstacle to trade cross - border but they have created so-called dead zones 1 according to which the use of available cross-border capacity is reduced at times when a capacity payment is applicable on the Russian side. This is an issue that needs to be solved. 1 A dead zone consists in a price band where no trade takes place in either direction. In the case of peak hours on the FI-RU border the dead zone can be as wide as 30 /MWh. 6

10 4. Division between balance responsibility and trade of electricity EU: The TSOs are responsible for cross-border capacity calculation and allocation, congestion management and cross-border balancing. participants have balance responsibility implying that they must economically cover for their own energy use and deliveries, while TSOs have the responsibility for physical flows. This separation of roles makes possible to arrange open access to the cross-border transmission capacities simultaneously for several traders in the same network point. RUSSIA: The border is treated by the market model as consumption (for export) or generation ( for import) points, not as a border where cross-border trade takes place. According to Russian market rules deviations attributed to a group of delivery points registered to a wholesale market participant are reconciled by that wholesale market participant. In these conditions all deviations under cross-border supplies are appertained to the party carrying out export/import operations (Inter RAO). As a result all cross-border electricity flows on the Russian market under normal operation are to be reconciled by the trader (not the SO). Inter RAO balances both physical and financial flows (differences between schedules and metering), as is the case for all the consumption and generation nodes inside the Russian market with consideration for the particularities of accounting for deviations attributed to parallel operation. The SO takes over the management of cross-border flows if normal operation is disturbed (including emergencies). The combined role of exporter and balancing responsible party (currently Int er RAO) is hindering parallel access of other traders to the cross-border interconnections. Development of more efficient cross-border electricity trade arrangements and the removal of obstacles for the access of parties to such trade require harmonization of electricity market rules in relation to balance responsibility and the development of a balance responsibility concept within the Russia-Baltic states synchronous zone. Balancing intervals in EU and Russia are different but this is not regarded as posing a major problem to cross-border trade. 7

11 5. Network access /Network fees/transit EU: On cross-border interconnectors, there is a regulated Third Party Access, implying that any market participant owning electricity on one side of the border can bid for access the cross-border network and carry electricity across the border. Inside the EU, the transit of electricity between countries is arranged automatically by electricity spot markets of neighbouring countries (implicit auctioning) or by acquisition of e xplicit trade rights for fixed volumes at every interconnection (explicit auctioning). The concept of transit does not exist anymore for traders, but the costs for TSOs caused by transit are cleared between the TSOs in the inter-tso compensation mechanism. These payments - positive or negative - are part of the national transmission network tariffs. The similar ITC-fee is collected from every declared delivery across the EU border. On some EU borders with 3rd countries (e.g. Finland) there are additional n etwork fees for imported electricity, including costs of direct cross border connection, associated share of the main grid, widening the dead zone and thus impeding the cross-border trade. The Baltic States allocate cross-border capacity for import from 3rd countries for free. The calculation is left to decision and judgment of TSOs and is fixed to the lowest available capacity value calculated by TSOs for every border. For the borders between the Baltic countries and Russia/Belorussia, the capacity is regulated by the existing BRELL agreement but is likely to be partly covered by the forthcoming agreement resulting from the EU-Russia-Belarus negotiations. Furthermore, import from 3rd countries to Estonia and Lithuania is allowed only through the respective import bidding areas of the local power exchanges. The importer will get the market price of the local power exchange for all sold electricity. RUSSIA/BELARUS: Access to the cross-border interconnectors by many participants is not limited by legislation. In the situation where financial responsibility for cross-border balancing on all the Russian borders is imposed on INTERRAO, participation of other Russian players in cross-border trade will result in difficulties in distinguishing schedules and actual physical deliveries across the border. In order to ensure Third Party Access to the cross-border interconnectors, new rules with regard to, among other things, capacity allocation mechanisms and allocation of imbalances (deviations) on the Russian border between several exporters will have to be introduced. Transit through the power system of Belarus is subject to bilateral contracts for electricity transit (there is no inter-country compensation mechanism similar to the one used in the EU). These transit contracts are signed on an annual basis, transit flows are calculated on a monthly basis and the price for transit is determined contractually. Ensuring third party access to the cross-border interconnections means further liberalizing cross-border electricity trade in creating equal opportunities to market participants. In addition, there should be fair, transparent and non-discriminatory rules applicable to cross-border capacity allocation allowing electricity exports and imports across the border where this is economically relevant. 8

12 6. Hedging of price risks EU: There are extensive hedging opportunities for cross border deliveries in liquid markets. The TSOs calculate cross-border capacity and sell it to the market in form of firm transmission rights. Allocation of cross-border capacity is done through explicit or implicit auctions. In Finland, there is a wide variety of power traded contracts both physical and purely financial - aimed to hedge the price and volume risks of physical deliveries. The time gap between signing a supply contract and a hedging contract is around 1 hour. Gate closures between markets connected through implicit auctions are harmonised (12.00 CET). RUSSIA: There are limited hedging opportunities for cross border deliveries. Exporters sign export delivery contracts while not disposing of officially published information about available cross border capacity as there is no market-based capacity allocation and congestion management mechanism on the border. The information made available to the current exporter is based only on analytics or statistics and does not imply any obligation on the SO to ensure firm transmission capacity. As a result, the exporter bears a volume risk. There is a time gap of roughly 1 day (from D (X-2) till D (X-1) between signing an export contract and buying a hedging contract in the day-ahead market. In general an exporter has to submit a price accepting bid into the day-ahead market to ensure that the export delivery is executed. A price sensitive bid may be submitted only for those interconnections that fulfil a number of conditions (these conditions are expected to be fulfilled in the near future for the interconnection on the border with Finland). Under existing market regulations if (subject to an official agreement being signed between the SO and a European TSO) the European TSO takes part in the updating of the Russian market calculation model and exchanges information with the SO then the exporter on that border may submit price sensitive bids to the DAM. In case of deviations of export volumes, there will be a need for coordination with the foreign TSO. On the Finnish-Russian border, price accepting bids limit the influence that an exporter has on the market situation and carry certain price risks. In these conditions, more reliable hedging possibilities are related to signing bilateral contracts (taking into account the price difference between nodes) or investments into generation near the border (to be used as a natural hedge), which disfavours short-term cross border trade. gate closure is not compatible with the one in the EU (12.00 CET). The existing agreements between the Finnish TSO and the Russian SO do not provide for full re-evaluation of cross-border capacity after the DA gate closure in view of giving remaining capacity for trade in the intraday timeframe (or balancing timeframe in Russian terms). Re-evaluation is currently in limited use on the Russian-Finnish border. The solution is meaningful only in the case where both directions of cross border capacity for a certain hour are allocated to one party. 9

13 Development of more efficient cross-border electricity trade arrangements is possible through implicit auctioning subject to harmonized gate closure times. Developing trade through explicit auctioning does not require harmonization of gate closure times. To protect themselves against price difference, market participants should be able to rely upon financial hedging instruments. This issue is particularly relevant in the case of the Baltic and Russian markets where such instruments do not currently exist. 10

14 CONCLUSIONS EU and Russia have embarked on a parallel process of establishing open and competitive electricity markets which has delivered good progress. This report demonstrates that the differences in wholesale market models have not had as an effect to prevent the development of trade relations across the EU and the Russian federation. However, to enhance social welfare across the regions, the use of cross-border interconnection should be better optimised in the interest of both electricity systems. To reduce current access barriers and improve the efficiency of cross-border trade, it is advisable that parties take coordinated actions in the following areas: Compatibility of electricity markets: the linkage between one-product market (energy market) and two-product market (energy plus capacity) should be further developed in order to remove the current dead zone ; access: fair and mutual access to neighbouring grids and markets based on compatible technical rules should be determined; Regional TSO cooperation: exchange of precise and accurate calculation of actual electricity flows and overflows between TSOs is necessary to improve grid stability and ascertain firm capacity to the market; Reconciling deviations of actual net electricity flows from planned flows: in order to enable cross-border electricity trade there is a need to define clear rules for the calculation of deviations of actual cross-border flows from planned flows and the reasons for such deviations, as well as the procedure of settling these deviations; Transparency: market-related information has to be made available in a timely manner to the market participants. Following the introduction of the abovementioned measures to improve the usage of existing cross-border interconnectors between the EU and Russia, it could also be advisable in the medium term to investigate the need for further development of the cross-border network infrastructure in the region with the involvement of all the relevant decision making bodies (e.g. FSK, ENTSO-E). 11

15 ANNEX 12

16 CONCLUSIONS OF THE 1ST MEETING OF THE JOINT EURELECTRIC CIS EPC TASK FORCE ON CROSS BORDER TRADE The Task Force will produce a joint report that should outline o Existing constraints and barriers to electricity cross border trade between the selected CIS and the EU markets, including trade through the territory of third countries (transit) Agreement on the main 4 trade paths (with possible extensions) Case 1. Case 2 - Power station in Russia (participant of wholesale market) Finland (wholesale market) - and back (Physical route and Contract route) Case 3 Case 4 - Power station in Russia (participant of wholesale market) via Belarus/Lithuania (transit) - Latvia - and back (eventually extend this trade route to Estonia) (Physical route and Contract route) Agreement on the concept of the analysis based on the following value chain: Border Participan t t Wholesale (Russia ) Exporter TSOs cooperation, Congestion Manag-t, Capacity allocation Importer Wholesale (Finland ) Participan t 13

17 EURELECTRIC BACKGROUND INPUT TO THE JOINT EURELECTRIC-CIS EPC TF ON CROSS BORDER TRADE EXPERT MEETINGS Main models of the electricity cross border trade and capacity allocation conceptual aspects Single buyer Only one trader can decide about cross border trades at one side of the border On one side trader can define trade volume based on actual meter readings Price difference between areas is shared between traders, with reduction due to the cost for access to the cross-border capacity. The income of the access is shared between the TSOs. Border Trader 1 100% Trader 2 Trader 3 Trade volume is based on meter reading Trade is based on fixed volumes Explicit auction Cross border capacity can be devided into multiple parallel volumes. Traders can obtain rights for cross border capacity from open auctions. Several traders can simultaneously use their share of capacity for their own fixvolume trades. TSOs will settle deviation between fixed volumes and actual meter reading Price difference between the areas is shared between traders with reduction due to the auction costs. The income of the auction is shared between the TSOs Border 14

18 Trader 1 50% Trader 3 Trader 2 50% Trader 4 TSO TSO Volume is based on deviation between fixed volumes and meter reading Trade is based on fixed volumes Implicit auction Cross border capacity is allocated to the neighbouring electricity markets for fixed trades: In day ahead markets cross border capacity is used for automatic trades from market area with lower price to market area with higher price In intraday markets the free cross border capacity is provided based on principle first come first serve to deliver traded electricity Price difference between the areas is shared between the TSOs Trader 1 Trader 2 Border % Trader 3 Trader 4 TSO TSO Volume is based on deviation between fixed volumes and meter reading Trade is based on fixed volumes 15

19 Main models of the electricity cross border capacity allocation: State of play in the Nordic and Baltic markets Nordic electricity market Fixed deliveries Implicit auction Single buyer explicit implicit Implicit auction Singel buyer Implicit auction 250 MW implicit 100 MW explicit Implicit auction Baltic electricity market since NPS Helsinki 250 MW implicit 100 MW explicit explicit Singel buyer Single buyer Fixed deliveries Balancing deliveries NPS Estlink Singel buyer explicit implicit 20% explicit 80% implicit 100% implicit Singel buyer Baltpool Singel buyer Kaliningrad Singel buyer 16

20 Description of the existing cross border Nordic/Baltic/Russia/Belarus borders trade arrangements on the Case 1. Electricity export from Russia to Finland Russia/Finland Russia Finland Border Participant Wholesale (Russia) Exporter TSOs cooperation, Congestion Manag-t, Capacity allocation Importer Wholesale (Finland) Participant Border (Finland) Roles & responsibilities Fingrid offers transmission services from the border through a transmission service agreement. The transmission service is currently intended for a fixed-type import of electricity. When making an agreement with Fingrid on transmission service, the customer reserves a transmission right for a time period to be agreed upon separately. The smallest unit for transmission that can be reserved is 50 MW. Fingrid checks that the importer has a transmission reservation with FGC. Network access Anyone with an import contract can access the cross border network and carry electricity across the border. Currently the capacity is allocated as follows: Fortum Power and Heat Oy (Finland) 400 MW, RAO Nordic Oy (Finland) 650 MW, Scaent AB (Sw eden) 250 MW. The transmission reservation is firm. The TSO announces planned and unplanned outages through urgent market messages (UMM) on the NordPool website. 17

21 Capacity allocation & CM Capacity is allocated through negotiations with the exporter through bilateral agreements on yearly basis. In case of fault, outage and in other unexpected circumstances imposing limitation needs, Fingrid will notify customers of the start and ending of the import limitation. While the imports are limited, import programmes of all customers are adjusted to the available transmission capacity in proportion to the overall limitation made according to the transmission service agreements. Third country trade shall cover the costs of direct cross border connection, associated share Finnish main grid and ITC perimeter treatment. As of 1 January 2010 Capacity fee 500 /MW, month Use of grid fee, input 0.30 /MWh border fee 1.10 /MWh Perimeter fee 0,7 /MWh The existing grid fees framework is foreseen to evolve alongside with discussion on introducing ITC mechanism and the concept of congestion rent (that is directly linked to the choice of an auction-based model of capacity allocation and congestion management). Settlement of physical deviations Physical balance settlement is done on monthly base (not on hourly as in the Nordic market). It is impossible to have negative balance deviation (Russians export more than planned on monthly base). TSO-TSO trade during operation hour is handled by Fingrid and InterRAO Balancing on the Finnish Russian border Imported energy goes to the consumption balance. In a normal situation importer gets nominated power and can sell or buy from the day-ahead or intra-day to balance his consumption balance. Unbalanced energy can be handled according to the Fingrid's balance agreement. 18

22 Wholesale market (Finland) Bilateral trade Direct bilateral trade between a seller and buyer can take part in the same bidding area (see below) in the Nordic market, although it is nowadays practiced more seldom. More and more trade is directed through Nord Pool spot, which currently has around 75 % of the consumption in the Nordic area. If the importer of power from Russia wants to sell the electricity to a customer in another bidding area, e.g. in Sweden, the trade has to go via Nord Pool spot, see description below. The importer sells the energy in the Finnish bidding area, buys the same volume in the Swedish bidding area and delivers it to the customer. Financial market The price risk associated with buying from Russia at a fixed price and selling to Nord Pool spot at an uncertain hourly price can be offset in the Nord Pool futures and forward market, which is cleared at spot price. In that way the length of the import contract and the financial contract could be aligned in order to minimize the risk. In the same way it is possible to use the financial market to minimize the risk by buying at spot prices in bidding area Sweden and selling at fixed price to the Swedish customer. In case the contract lengths of the import contract and the sales contract in Sweden are the same, it is also possible to hedge the risks by buying Contracts for Differences (CfD) that covers the price difference between the spot prices in Finland and Sweden. set up On Elspot hourly power contracts are traded daily for physical delivery in the next day's 24-hour period. The price calculation is based on the balance between bids and offers from all market participants finding the intersection point between the market s supply curve and demand curve. Various types of bids, like hourly bids, block bids and flexible hourly bids that cover some or all of the 24 hours of the next day are possible. Implicit auctions are used to manage congestions between bidding areas (currently 10 areas). Gate closure 12:00 CET Electricity/capacity The Nordic market is an energy only market meaning that there is no market for capacity (fixed costs are to be covered by the margin between energy price and SRMC) 19

23 Deviations There is a clear division in the concepts of physical and economic balance responsibility. TSOs are responsible for the physical balance in the network, while market players, who are also balance responsible parties, are economically responsible for staying in balance in their portfolios. They can correct their positions in Day Ahead spot market or Elbas as an alternative to the balancing market for all or some of the imbalances a power company may have after the day-ahead trades are final. At 14:00 CET the hourly contracts for the next day are opened in the Elbas market areas Finland, Sweden, Norway, and Denmark. Because the capacities available for Elbas trading are published approximately at 14:00 CET. After the gate closure of Elbas (around 1 hour before the real time), the TSOs is becoming the central counterpart for all (physical) "trades" of regulating power (primary and secondary reserves) and performs the "residual balancing" for the bidding area/control area. After real-time, the TSO charges or pays market participants on the basis of whether they are short (have a shortage of supply vis-à-vis their nomination) or long (have an excess). This payment or charge also depends on whether the entire system as a whole is long or short. These payments or charges are known as imbalance energy prices and are allocated after real-time during the settlement process. Finally, the payments and charges are based on underlying prices, which in turn provide market participants that bear balancing responsibility with the incentive to have their demand and supply in balance so that overall deviations of the system are minimised. For the TSO this process should be a zero-sum game where he has no financial interest and bears no price risk. participant (Finland) Licensing Import and export is not subject to licensing. However to be able to trade on NordPool you need to follow a number of requirements and rules: - Submit an application to Nord Pool Spot AS and sign a participant agreement - Post a minimum security amount - either as an on-demand bank guarantee or as cash in the pledged bank account - The responsibility for the company s balance must be taken care of either through entering a balance agreement with the TSO in the Elspot and/or Elbas area(s) in which trading will take place or through a third company having such responsibility. - Submit your company s VAT registration information to Nord Pool Spot - participant must put up collateral to both Nordpool and Fingrid. - Also the TSO requires that a minimum-security amount is posted 20

24 access Any one with an import agreement can import Russian electricity to Finland. Fingrid matches the importer and exporter as long as they have an import agreement. Case 2 (Additional) Electricity export from Sweden to Finland Sweden/Finland Sweden Finland Border Participant Wholesale (Russia) Exporter TSOs cooperation, Congestion Manag-t, Capacity allocation Importer Wholesale (Finland) Participant Products and setup of the Nordic electricity market Financial market 4 years - 33 h Elspot h Elbas 33-1 h Regulating market Operating hour Imbalance settlement After operating hour 21

25 participant (Sweden) Licensing Import and export is not subject to licensing. However to be able to trade on NordPool you need to follow a number of requirements and rules: - Submit an application to Nord Pool Spot AS and sign a participant agreement - Post a minimum security amount - either as an on-demand bank guarantee or as cash in the pledged bank account - The responsibility for the company s balance must be taken care of either through entering a balance agreement with the TSO in the Elspot and/or Elbas area(s) in which trading will take place or through a third company having such responsibility. - Submit your company s VAT registration information to Nord Pool Spot - participant must put up collateral to both Nordpool and Fingrid. - Also the TSO requires that a minimum-security amount is posted access Any one can import/export electricity from Sweden to Finland. Wholesale market (Sweden) set up The Swedish wholesale market is part of the common Nordic wholesale market, Nord Pool. The conditions for the participation in the Nord Pool are elaborated above in the Chapter Licensing. Financial market Electricity trade between actors in Finland and Sweden is often hedged financially. The generator makes the delivery by buying the electricity on Nord Pool in the price area where the customer is located and delivers the energy in the price area where the generation plant is located. Both delivery and generation prices are hedged on the financial market with the same time horizon as the supply contract with the customer, and the price difference between the two countries is hedged via a CfD (contract for differences), on the financial market. In that way the generator can secure the margin between her income from the contract and the costs of supplying (the sum of spot market purchase for the customer, forward contracts and CfD contract minus the spot market income from the generation) 22

26 Physical delivery through bilateral contracts is only possible within the same bidding area. In-between prices areas, the contracts should go through the Nord Pool. Electricity/capacity: The Nordic market is an energy-only market meaning that there is no market for capacity (fixed costs are to be covered by the margin between energy price and short run marginal cost (SRMC). There is, however, a capacity reserve scheme of about 2000 MW to secure capacity in extreme situations. Deviations There is a clear division in the concepts of physical and economic balance responsibility. TSOs are responsible for the physical balance in the network, while market players, who are also balance responsible parties, are economically responsible for staying in balance in their portfolios. They can correct their positions in Day Ahead spot market or Elbas as an alternative to the balancing market for all or some of the imbalances a power company may have after the day-ahead trades are final. At 14:00 CET the hourly contracts for the next day are opened in the Elbas market areas Finland, Sweden, Norway, and Denmark. Because the capacities available for Elbas trading are published approximately at 14:00 CET. After the gate closure of Elbas (around 1 hour before the real time), the TSOs is becoming the central counterpart for all (physical) "trades" of regulating p ower (primary and secondary reserves) and performs the "residual balancing" for the bidding area/control area. After real-time, the TSO charges or pays market participants on the basis of whether they are short (have a shortage of supply vis-à-vis their nomination) or long (have an excess). This payment or charge also depends on whether the entire system as a whole is long or short. These payments or charges are known as imbalance energy prices and are allocated after real-time during the settlement process. Finally, the payments and charges are based on underlying prices, which in turn provide market participants that bear balancing responsibility with the incentive to have their demand and supply in balance so that overall deviations of the system are minimised. For the TSO this process should be a zero-sum game where he has no financial interest and bears no price risk. 23

27 Border (Sweden) and border (Finland) Roles & responsibilities The TSOs are responsible for keeping the balance in each country. They inform Nord Pool Spot each day how much cross border capacity that can be allocated for the next day, taking security off supply into account. The power exchange Nord Pool Spot is then responsible to calculate the optimal power flows over each border based on the available capacity given by the TSOs. Network access There is a regulated third party access to the network. There is a transparent structure of network fees across the national, regional and local networks. They are charged to network users based on where generator/user is located in the network and not where there the trading takes place. Capacity allocation & CM Nord Pool Spot manages the capacity on the interconnectors between the Nordic countries and the cables that connect the bidding areas in Norway. Nord Pool Spot uses the capacity to move electricity from low-price areas into the high price areas. Thereby, the price in the high price areas is reduced whereas the price in the low price areas is raised. This principle is right for society: the commodity ought to move towards the high price. This system also causes no market participant to be assigned privileges on any bottleneck, which is an important feature of a liberalised market. A privilege on a bottleneck could be abused by a commercial participant and it is therefore essential that the capacity is given to a neutral party. With implicit auction the day-ahead transmission capacity is used to integrate the spot markets in the different bidding areas in order to maximize the overall social welfare in both (or more) markets. The flow on an interconnector is found based on market data from the marketplace/s in the connected markets. Thus the auctioning of transmission capacity is included (implicitly) in the auctions of electricity in the market. In implicit auctions the transmission capacity between bidding areas (price areas/control areas) is made available to the spot price mechanism in addition to bid/offers per area, thus the resulting prices per area reflect both the cost of energy in each internal bidding area (price area) and the cost of congestion. Implicit auctions ensure that electricity flows from the surplus areas (low price areas) towards the deficit areas (high price areas) thus also leading to price convergence. In the Nordic wholesale market, so called market splitting is used to handle congestions in between bidding areas. In market splitting the implicit auction of transmission capacity is handled within the day ahead electricity auction by one single power exchange. In the Nordic region Nord Pool Spot performs market splitting since the transmission capacity between the Nordic bidding areas is handled implicitly in the price and bid matching 24

28 calculation performed at Nord Pool Spot. Sometimes the transmission capacity between the internal bidding areas is not enough to get a complete convergence of price, and the result is that there are different prices in different bidding areas. Thus the term market splitting refers to the fact that the limited transmission capacity leads to a split between to market areas. When a price difference occurs between two bidding areas the owners of the cross border connection (normally the two TSOs) will receive the so called congestion rent, i.e. the price difference multiplied with the amount of energy that passes the border. It can be compared with the situation that the owner of the cross border connection bys electricity from the low price area and then sells it in the high price area. Settlement of physical deviations on the Swedish-Finnish border Settlement of physical deviations on the border is handled between TSOs and market participants are not involved in this process. Wholesale market and Participant (Finland) See above: Chapters about Sweden. 25

29 Case 3. Electricity export from Russia to Latvia (extension: to Estonia) Russia/Latvia Russia Latvia Border Participant Wholesale (Russia) Exporter TSOs cooperation, Congestion Manag-t, Capacity allocation Importer Participant Border (Russia - Latvia) Roles & responsibilities Network access Latvian TSO (AST) offers transmission services from the border under terms agreed in BRELL framework. It also announces planned and unplanned outages in c-b capacities and informs available transmission capacity for trading (ATC). The TSO accepts only one market participant with open deliveries and endless number of market participants with fixed deliveries. Importer of open deliveries can be only Latvenergo AS. Importer can sell electricity to all market participants in Latvia or export to Lithuania or Estonia. All market participants in Latvia can conduct import standard fixed deliveries (smallest unit 1 kwh/h). The importer should have balance provider (open delivery contract) in Latvia to secure its deliveries from Russia. Open delivery contract is available on market terms from balance providers (currently at least 3 companies are providing balancing services). Importer can sell electricity to all market participants in Latvia or export to Lithuania or Estonia. Capacity allocation & CM Latvian-Russian cross border capacity (3 lines) for export from Russia to Latvia is transfered to the Latvian TSO (ATC) by using n-1 principle (2 lines out of 3 are allocated to market). Congestion Management principles not explicitly agreed. Implicitly, Congestion Management is managed by proportional decrease of planned deliveries of all importers. 26

30 Settlement of physical deviations on the Russian-Latvian border participant (Latvia) access To be able to purchase from Baltpool a market participant needs to submit an application to Baltpool in Lithuania, sign a participant agreement and post a minimum-security amount - either as an on-demand bank guarantee or as cash in the pledged bank account. The responsibility for the company s balance must be taken care of through entering a balancing agreement with the balance provider in Latvia. Latvia/Estonia Russia Estonia Importer from Russia Border TSOs cooperation, Congestion Manag-t, Capacity allocation Importer Wholesale (Estonia) Participant Roles & responsibilities Network access Estonian and Latvian TSO-s (Elering & AST) offer transmission services under terms agreed in mutual agreement and announce planned and unplanned outages. Exporter and Importer can make sell electricity in standard fixed deliveries ( smallest unit 0,1 MWh/h in direct deliveries; 1 MWh in deliveries to NPS). The direct importer should have open delivery contract in Estonia to secure its export from Latvia. The open delivery contract is of standard nature. 27

31 All market participants purchasing from the spot market should have the open delivery contract. Contract is availabel on market terms from balance providers (list of balance providers is published on TSO web-page The counterparty for the market participant in Estonia can always be Nord Pool Spot Estlink price area. Capacity allocation & CM Until 20. September 2010 two parallel methods for congestion management were in use: 1) minimum 80% of available transfer capacity (ATC) allocated to NPS Estlink price area in Estonia, 2) max. 20% of availble transfer capacity (ATC) is allocated through weekly explicit auctions. From 20. September 2010, 100% of available transfer capacity (ATC) is allocated to Nord Pool Spot. Nord Pool Spot, the Estonian TSO Elering and the Finnish TSO Fingrid are finishing preparations for Estonia to join the intraday market Elbas. The target date for launching the Elbas on this border is 19. October The intraday market starts after the spotmarket has close and gives market participants the opportunity to sell surplus energy or buy missing capacity as intraday trading and offers can be made up to one hour prior to delivery. Trading for 19 October starts at 14:00 CET on the previous day. All Estonian market participants can sign a separate agreement for Elbas and use their current guarantees for both markets.. The seller from Latvia to Estonia can use cross border capacity for the export from Latvia to Estonia if the sales bid to Estlink price area has been successful. The available transmission capacity to be used by NPS Estlink price area for the next day is firm aftrer 10 o clock AM and secured by Estonian TSO. Max 20% of cross-border capacity is used according to the results of weekly explicit auction based on use it or lose it principle. If the usage of the explicitly auctioned capacity is not confirmed two days ahead, the capacity usage right is cancelled and the capacity is given to the NPS. Settlement of physical deviations on the Latvian-Estonian border Wholesale market (Estonia) set up In Elspot hourly power contracts are traded daily for physical delivery in the next day's 24-hour period. The price calculation is based on the balance between bids and offers from all market participants finding the intersection point between the market s supply curve and demand curve. Only hourly bids from c-b areas are allowed. The bid should cover some or all of the 24 hours of the next day. Implicit auctions are used to manage congestions between bidding areas (currently between Estonia and Finland). Gate closure is at 12:00 CET, trade results are published before 14:00 CET. 28

32 Electricity/capacity There is no market for capacity (fixed costs are to be covered by the margin between energy price and SRMC) Participant (Estonia) access To be able to trade on NordPool a market participant need to submit an application to Nord Pool Spot AS, to sign a participant agreement, to post a minimum-security amount - either as an on-demand bank guarantee or as cash in the pledged bank account and submit your company s VAT registration information to Nord Pool Spot. The responsibility for the company s balance must be taken care of either through entering a balance agreement with the TSO in the Elspot and/or Elbas area(s) in which trading will take place or through a third company having such responsibility. Case 4 (Additional). Electricity export from Russia to Estonia Russia Russia/Estonia Estonia Border Participant Wholesale (Russia) Exporter TSOs cooperation, Congestion Manag-t, Capacity allocation Importer Wholesale (Finland) Participant Border (Estonia) Roles & responsibilities Network access Estonian TSO (Elering) offers transmission services from the border under terms agreed in BRELL framework. The TSO announces planned and unplanned outages. 29

33 Exporter offers standard fixed deliveries (smallest unit 1 MWh/h). The importer should have open delivery contract in Estonia to secure its export from Russia (no t needed if Russian and Estonian TSO has respective mutual agreement). The open delivery contract is of standard nature. All market participants purchasing from the spot market should have the similar contract. Contract is availabel on market terms from balance providers (list of balance providers is published on TSO web-page The counterparty for the exporter from Russia is always Nord Pool Spot. The importer should have agreement for Elspot trading with Nord Pool Spot under general terms. Capacity allocation & CM 100% of available EST/RU capacity for export from Russia to Estonia is allocated to Nord Pool Spot Estlink price area. The seller from Russia will get up to 100% of c-b capacity for the export if the sales bid to Estlink price area has been successful. Separate capacity allocation is not needed. The available transmission capacity for the next day is firm aftrer 10 o clock AM and secured by Elering. Settlement of physical deviations on the Russian-Estonian border Wholesale market (Estonia) set up In Elspot hourly power contracts are traded daily for physical delivery in the next day's 24-hour period. The price calculation is based on the balance between bids and offers from all market participants finding the intersection point between the market s supply curve and demand curve. Only hourly bids from c-b areas are allowed. The bid should cover some or all of the 24 hours of the next day. Implicit auctions are used to manage congestions between bidding areas (currently between Estonia and Finland). Gate closure is at 12:00 CET, trade results are published before 14:00 CET. Electricity/capacity There is no market for capacity (fixed costs are to be covered by the margin between energy price and SRMC) Deviations 30

34 participant (Estonia) access: To be able to trade on NordPool a market participant need to submit an application to Nord Pool Spot AS, to sign a participant agreement, to post a minimum-security amount - either as an on-demand bank guarantee or as cash in the pledged bank account and submit your company s VAT registration information to Nord Pool Spot. The responsibility for the company s balance must be taken care of either through entering a balance agreement with the TSO in the Elspot and/or Elbas area(s) in which trading will take place or through a third company having such responsibility. 31

35 Case 5. Electricity export from Russia through Byelorussia to Lithuania Russia Russia/Byelorussia/Lit huania Lithuania Participant Wholesale (Russia) Exporter Border (Byelorussia Lithuania) Wholesale (Lithuania) Border (Lithuania - Latvia) Participant Border (Byelorussia/Lithuania) Roles & responsibilities Network access Lithuanian TSO (Litgrid) offers transmission services from the border under terms agreed in BRELL framework. The TSO announces planned and unplanned outages.exporter offers standard fixed deliveries (smallest unit 1 MWh/h). The counterparty for the exporter from Byelorussia is always Baltpool. The importer should have agreement for trading with Baltpool under general terms. Capacity allocation & CM 100% of available BY/LIT capacity for export from Byelorussia to Lithuania is allocated to Baltpool. The seller from Byelorussia will get up to 100% of c-b capacity for the export if the sales bid to Baltypool has been successful. Separate capacity allocation is not needed. The available transmission capacity for the next day is firm aftrer 10 o clock AM and secured by Litgrid. Settlement of physical deviations on the Belorussian/Lithuanian border 32

36 Wholesale market (Lithuania) set up On Baltpool hourly power contracts are traded daily for physical delivery in the next day's 24-hour period. The price calculation is based on the balance between bids and offers from all market participants finding the intersection point between the market s supply curve and demand curve. Only hourly bids from c-b areas are allowed. The bid should cover some or all of the 24 hours of the next day. Gate closure is at 12:00 CET. Trade results are published before 14:00 CET Electricity/capacity: There is no market for capacity (fixed costs are to be covered by the margin between energy price and SRMC) Deviations Border (Lithuania/Latvia) Roles & responsibilities Network access Lithuanian TSO (Litgrid) offers transmission services from the border under terms agreed in BRELL framewor. The TSO announces planned and unplanned outages. The exporter can do standard day-ahead fixed deliveries (Smallest unit 1 MWh/h). Baltpool is always a counterparty for the importer in Latvia. The importer should have agreement for trading with Baltpool under general terms. Capacity allocation & CM 100% of available LIT/LAT capacity for export from Lithuania to Latvia is allocated to Baltpool. The purchaser in Latvia will get up to 100% of cross border capacity for import from Lithuania if the purchasing bid to Baltpool has been successful. Separate capacity allocation is not needed. The available transmission capacity for the next day is firm aftrer 10 o clock AM and secured by Litgrid. 33

37 Participant (Latvia) access: To be able to purchase from Baltpool a market participant needs to submit an application to Baltpool in Lithuania, sign a participant agreement and post a minimum-security amount - either as an on-demand bank guarantee or as cash in the pledged bank account. The responsibility for the company s balance must be taken care of through entering a balancing agreement with the balance provider in Latvia 34

38 CIS EPC BACKGROUND INPUT TO THE JOINT EURELECTRIC-CIS EPC TF ON CROSS BORDER TRADE EXPERT MEETINGS 1. Delivering electricity from Russia to Finland 1а. Legal entity becoming an RF WECM participant 1b. Legal entity becoming a Nord Pool energy market participant 2. Purchasing electricity and capacity on the RF WECM for export purposes 4. Selling the electricity on the Nord Pool energy market 3. Customs clearing of electricity purchased for export Block 1: Fulfilling initial conditions a) Legal entity (RF resident) entering the RF WECM (Wholesale Electricity and Capacity ) as an exporter/importer. In order to fulfill the initial conditions, the two procedures below must be completed: obtaining the status of a wholesale market participant carrying out export-import operations; obtaining access to the wholesale market trading system. To obtain the status of a wholesale market participant carrying out export-import operations, the following actions are necessary: 1) obtaining a RF FTS tariff-balance decision on export/import operations for the appropriate period of regulation (mandatory for 2010, as per par.19 of the Wholesale Regulations (hereinafter Wholesale Regulations refers to the electricity (capacity) wholesale market regulations for the transition period that were approved by Russian Federation Government Resolution No.643 of October 24, 2003 On Wholesale Electricity (Capacity) Regulations for the Transition Period ). As for 2011 and subsequent periods the need to obtain a tariff-balance decision will depend on the amendments currently being introduced into regulatory documents, presumably it will no longer be mandatory; 35

39 2) submitting a standard package of documents (specified in the Provisions on Obtaining the Status of Wholesale Participants and Maintaining the Register of Wholesale Participants) to NP Council, including copies (extracts) of trading agreements for export deliveries, which meet the minimum quantitative requirements as per par.16 of the Wholesale Regulations; 3) concluding an agency contract with JSC FGC UES in terms of the actions related to delivery planning, maintenance data submission and metering; 4) registering the export-import interconnection on the wholesale market (this is carried out by infrastructure organizations - the Operator (JSC TSA ), the System Operator (JSC SO UPS, the Federal Grid Company (JSC FGC UES )) if the exportimport interconnection, through which electricity is to be delivered, is not already registered on the wholesale market; 5) registering an export Delivery Point Cluster (DPC) and an import DPC for the corresponding export-import interconnection (newly registered or already existing) on the wholesale market. To obtain access to the wholesale market trading system, the following actions are necessary: 1) concluding a contract for connection to the wholesale market trading system and other standard contracts and agreements listed in subpar. b, par.34 and subpar. е, par.35 of the Wholesale Regulations (standard forms of regulated contracts; contracts for the sale and purchase of electricity based on the results of competitive selection of day-ahead price bids and competitive selection of bids for system balancing; capacity sale and purchase contracts including those based on competitive selections of price bids for capacity sale; sale and purchase contracts for electricity and capacity on the wholesale market in areas that are not part of wholesale market price zones; contracts for services related to organizing trade and settlements on the wholesale market); 2) concluding an operative dispatch management services contract with JSC SO UPS ; 3) concluding a transmission service provision contract with JSC FGC UES. b) Legal entity becoming a Nord Pool energy market participant. 36

40 Block 2: Purchasing electricity and capacity on the RF WECP for export purposes 1) hourly purchase of electricity on the day-ahead market (DAM): submitting preliminary notices for hourly volumes of purchased electricity to JSC FGC UES ; submitting price bids for hourly volumes of purchased electricity to JSC TSA (currently exporters/importers only have a right to submit price-accepting bids for electricity purchase/sale on the DAM). The above procedures determine how the exporter s trading schedule is formed and are carried out in the following order: the exporter obtains preliminary approval of electricity delivery schedules from foreign counterparties during day Х-2 and sends this data to JSC FGC UES (hereinafter referred to as FGC ) by 17:00 of day Х-2 ; at the same time the foreign counterparty sends the delivery schedules agreed upon with the exporter to its system operator (hereinafter referred to as foreign SO ); by 09:00 Х-1 the foreign SO transmits the delivery schedule for day Х to FGC after having checked the purchasers bids for compliance with the reserved interconnection capacity; by 09:15 Х-1 the exporter transmits the delivery schedule for day Х to FGC; upon coordination with the foreign SO and the exporter FGC will send the preliminary planned delivery schedules to SО by 9:30 Х-1 in order to evaluate their feasibility in terms of power system operation; if during calculation of power system operation conditions a need arises to introduce any limitations for electricity deliveries, SО adjusts the data received from FGC to the required level and uploads this data to the corresponding website; by 12:00 Х-1 SО transmits the calculated data to FGC and to the foreign SO, and uploads this data to the website; by 12:15 Х-1 FGC sends the approved planned hourly delivery schedules to JSC TSA and to the exporter; by 14:00 Х-1 SO transmits the calculated data on planned hourly net delivery volumes for each export-import interconnection to JSC TSA ; upon receipt of the data from FGC and SO, TSA establishes the exporter s trading schedule. 37

41 Exp/impor t 17:00 Х-2 Operating conditions estimation 9:30 14:00 FGC SО TSA Trading schedule Х-1 Х-1 To be approved Counterparty To be approved Foreign SO 12:00 Х-1 FGC 12:15 Х-1 Export/import 12:00 Х-1 Foreign SO Hourly volumes of the exporter s deliveries for the corresponding export DPC, calculated using the procedure described above, are included in the exporter s price-accepting bid participating in competitive selection of day-ahead price bids. Volumes and prices of electricity purchased on the DAM for export purposes depend on the results of competitive selection of day-ahead price bids. 2) hourly purchasing/selling of electricity on the balancing market (BM); Electricity volumes purchased/sold on the balancing market are calculated based on metering data as the difference (for each hour) between the actual delivery volumes for the export or import DPC and the corresponding planned volumes for the export DPC. For every hour, depending on the combination of actual and planned electricity flow volumes and directions, the following situations may occur: An export delivery was planned an export delivery was in fact made; An export delivery was planned, but as a result of a deviation towards import, an import delivery in fact took place; No delivery was planned, but as a result of a deviation, an export or an import delivery in fact took place depending on the direction of the deviation. Currently the particularity of payments for imbalances for wholesale market participants carrying out export-import operations is that a part of these imbalances that falls within certain limits determined by wholesale market regulations for each export-import interconnection is considered to be caused by natural power flows in electricity grids, and is paid for not at balancing market prices, but at a special tariff. These imbalances are called imbalances attributable to parallel operation of the Russian UPS and foreign power systems. Electricity transmission at the interconnection with the power system of Finland is carried out through a DC link and from a power plant operating separately from the UNPG, therefore instead of the term parallel operation of power systems, the term interconnected operation of power systems should be used; in this case imbalances depend on the accuracy of frequency control in the power system of Finland. 38

42 3) monthly purchase of capacity Currently exporters purchase capacity on the Russian wholesale market on the same terms as all other consumers based on their monthly average peak consumption (export) for the corresponding export DPC, with an allowance for a certain maximum volume of imbalances attributable to parallel operation of power systems that is not subject to penalties. 4) financial settlements on the wholesale market based on data submitted by JSC TSA and CJSC CFS for the settlement period (a calendar month) with account of previously made advance payments. Block 3: Customs clearing of electricity purchased on the wholesale market Block 4: Selling the electricity on the Nord Pool energy market 39

43 2. Electricity supply from Finland to Russia 1а. Legal entity becoming a Nord Pool energy market participant 1b. Legal entity becoming an RF WECM participant 2. Purchasing electricity on the Nord Pool energy market 4. Selling electricity on the RF WECP (import from foreign power systems) 3. Customs clearing of electricity purchased for import Block 1: Fulfilling initial conditions a) legal entity becoming a Nord Pool energy market participant (the contents are the same as in Block 1b, Section 1); b) legal entity (RF resident) entering the RF WECP as an exporter/importer (obtaining the status of a wholesale market participant carrying out export-import operations, and obtaining access to the wholesale market trading system) (the contents are the same as in Block 1а, Section 1). Block 2: Purchasing electricity on the Nord Pool energy market Block 3: Customs clearing of electricity purchased on the energy market of Finland Block 4: Selling the electricity on the RF WECP (import from foreign power systems) а) hourly sales of electricity on the day-ahead market (DAM): submitting preliminary notices to JSC FGC UES ; submitting price bids to JSC TSA. b) hourly purchasing/selling of electricity on the balancing market (BM); c) currently importers are not capacity suppliers and do not sell capacity on the wholesale market. Starting from 2011, subject to the conditions set out in the Wholesale Regulations being fulfilled, importers may sell capacity on the WECP; d) financial settlements on the wholesale market based on the data submitted by JSC TSA and CJSC CFS for the settlement period (a calendar month). 40

44 3. Delivering electricity from Russia to Latvia through Belarus 1а. Legal entity becoming an RF WECM participant 1b. Legal entity becoming a Baltic Exchange participant 1c. Concluding a contract for electricity transit through the Belarus UPS grid 2. Purchasing electricity and capacity on the RF WECP for export purposes 1d. Existing procedures for identification and allocation of available transfer capacities (ATC) of controlled interconnections 1e. Concluding a contract for electricity transmission through the Lithuania PS grid 3. Customs clearing of electricity purchased for export purposes 4. Electricity transit through the Belarus UPS grid to the Lithuania- Belarus border 5. Transmitting electricity through the Lithuanian power grid 7. Selling electricity on the Baltic Exchange 6. Transmitting electricity through the Estonia - Pskov - Latvia interconnection 41

45 Block 1: Fulfilling initial conditions: а) legal entity (RF resident) enters the RF WECP as an exporter/importer (obtaining the status of a wholesale market participant carrying out export-import operations, and obtaining access to the wholesale market trading system) (the contents are the same as in Block 1а, Section 1); b) legal entity becomes a Baltic Exchange participant; c) concluding a contract for electricity transit through the Belarus UPS grid from the Russia-Belarus border to the Lithuania-Belarus border, between the Customer ordering Russian electricity transit services and GPO Belenergo ; d) concluding a contract for electricity transmission through the Lithuania PS grid between the Customer ordering Russian electricity transit services and the Lithuanian transmission system operator (TSO); e) existing procedures of identifying and allocating available transfer capacities (ATC) of the following controlled interconnections: Center - Belarus, Belarus Lithuania, and Estonia - Pskov Latvia, under annual, monthly and daily planning of exchanges within the Belarus Russia Estonia Latvia Lithuania (BRELL) electrical ring (ER). Block 2: Purchasing of electricity and capacity on the RF WECP for export purposes а) hourly purchase of electricity on the day-ahead market (DAM): submitting preliminary notices to JSC FGC UES ; submitting price bids to JSC TSA. b) hourly purchasing/selling of electricity on the balancing market (BM); c) hourly capacity purchasing; d) financial settlements on the wholesale market based on data submitted by JSC TSA and CJSC CFS for the settlement period (a calendar month) with account of previously made advance payments. Block 3: Customs clearing of electricity purchased on the wholesale market 42

46 Block 4: Electricity transit through the Belarus power system а) the electricity transit services customer coordinates the maximum transit capacity with GPO Belenergo for every month of the year under annual BRELL ER planning, with account of ATC identification and allocation procedures; b) the electricity transit services customer coordinates the schedules for electricity transmission through the Belarus UPS grid with GPO Belenergo under monthly and daily BRELL ER planning, with account of ATC identification and allocation procedures; c) transmission of the customer s electricity through the Belarus UPS grid according to the approved schedule; d) actual volumes of transmitted electricity are identified based on the balances of electricity deliveries within the BRELL ring and metering data on interstate HV lines; e) financial settlements for electricity transit services are conducted. Block 5: Transmitting electricity through the Lithuanian power grid а) the electricity transit services customer coordinates the maximum transit capacity with the Lithuanian TSO for every month of the year under annual BRELL ER planning, with account of ATC identification and allocation procedures; b) the electricity transit services customer coordinates the schedules for electricity transmission through the Lithuanian power grid with the Lithuanian TSO under monthly and daily BRELL ER planning, with account of ATC identification and allocation procedures. Block 6: Transmitting electricity through the Estonia - Pskov - Latvia interconnection а) the electricity transit services customer coordinates the maximum transit capacity with the Latvian TSO for every month of the year under annual BRELL ER planning, with account of ATC identification and allocation procedures; b) the electricity transit services customer coordinates the schedules for electricity transmission through the interconnection with the Latvian TSO under monthly and daily BRELL ER planning, with account of ATC identification and allocation procedures. Block 7: Selling electricity on the Baltic Exchange 43

47 4. Delivery of capacity from Latvia to Russia through Belarus 1а. Legal entity becoming a Baltic Exchange participant 1b. Legal entity becoming an RF WECM participant 1c. Concluding a contract for electricity transmission through the Lithuania PS grid 2. Purchasing electricity on the Baltic Exchange 1d. Existing procedures for identification and allocation of available transfer capacities (ATC) of controlled interconnections 1e. Concluding a contract for electricity transit through the Belarus UPS grid 3. Transmitting electricity through the Estonia - Pskov - Latvia interconnection 4. Transmitting electricity through the Lithuanian power grid 5. Electricity transit through the Belarus UPS grid to the Russia- Belarus border 7. Selling the imported electricity on the RF WECP 6. Customs clearing of electricity sold for import purposes Block 1: Fulfilling initial conditions: а) legal entity becomes a Baltic Exchange participant; b) legal entity enters the RF WECP as an exporter/importer (obtaining the status of a wholesale market participant carrying out export-import operations, and obtaining access to the wholesale market trading system) (the contents are the same as in Block 1 а, Section 1); c) concluding a contract for electricity transmission through the Lithuania PS grid between the Customer ordering Russian electricity transit services and the Lithuanian transmission system operator (TSO); 44

48 d) concluding a contract for electricity transit through the Belarus UPS grid from the Lithuania-Belarus border to the Belarus-Russia border, between the Customer ordering Russian electricity transit services and GPO Belenergo ; e) existing procedures of identifying and allocating available transfer capacities (ATC) of the following controlled interconnections: Center - Belarus, Belarus Lithuania, and Estonia - Pskov Latvia, under annual, monthly and daily planning of exchanges within the Belarus Russia Estonia Latvia Lithuania (BRELL) electrical ring (ER). Block 2: Purchasing electricity on the Baltic Exchange Block 3: Transmitting electricity through the Estonia - Pskov - Latvia interconnection а) the electricity transit services customer coordinates the maximum transit capacity with the Latvian TSO for every month of the year under annual BRELL ER planning, with account of ATC identification and allocation procedures; b) the electricity transit services customer coordinates the schedules for electricity transmission through the interconnection with the Latvian TSO under monthly and daily BRELL ER planning, with account of ATC identification and allocation procedures. Block 4: Transmitting electricity through the Lithuanian power grid а) the electricity transit services customer coordinates the maximum transit capacity with the Lithuanian TSO for every month of the year under annual BRELL ER planning, with account of ATC identification and allocation procedures; b) the electricity transit services customer coordinates the schedules for electricity transmission through the Lithuanian power grid with the Lithuanian TSO under monthly and daily BRELL ER planning, with account of ATC identification and allocation procedures. Block 5: Electricity transit through the Belarus power system а) concluding a contract for electricity transit through the Belarus UPS grid from the Lithuania-Belarus border to the Belarus-Russia border, between the Customer ordering Russian electricity transit services and GPO Belenergo ; b) the electricity transit services customer coordinates the schedules for electricity transmission through the Belarus UPS grid with GPO Belenergo ; c) transmission of the customer s electricity through the Belarus UPS grid according to the approved schedule; d) actual volumes of transmitted electricity are identified based on the balances of electricity deliveries within the BRELL ring and metering data on interstate HV lines; e) financial settlements for electricity transit services are conducted. 45

49 Block 6: Customs clearing of electricity purchased on the wholesale market Block 7: Selling the imported electricity on the RF Wholesale Electricity and Capacity а) hourly sales of electricity on the day-ahead market (DAM): submitting preliminary notices to JSC FGC UES ; submitting price bids to JSC TSA. b) hourly purchasing/selling of electricity on the balancing market (BM); c) currently importers are not capacity suppliers and do not sell capacity on the wholesale market. Starting from 2011, subject to the conditions set out in Wholesale Regulations being fulfilled, importers may sell capacity on the WECP; d) financial settlements on the wholesale market based on the data submitted by JSC TSA and CJSC CFS for the settlement period (a calendar month). Note*: if more than one exporter/importer operates on an export-import interconnection, then in order to ensure correct planning of export-import deliveries and settlements for deviations and transit, documents (methodology guidelines) covering the following issues would need to be developed, coordinated and approved: а) allocation of target delivery volumes between several exporters/importers; b) allocation of deviations on interconnection between several exporters/importers; c) allocation of payments for transit through one power system between several exporters/importers. 46

50 Union of the Electricity Industry - EURELECTRIC aisbl Boulevard de l Impératrice, 66 - bte 2 B Brussels Belgium Tel: Fax: VAT: BE CIS Electric Power Council 7 Kitaigorodsky proezd Moscow Russian Federation Tel: Fax: