ENERGY COMMODITIES C O N F E R E N C E

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ENERGY COMMODITIES C O N F E R E N C E 2 0 1 8 Thursday May10th gazarte Live, Athens Greek Electricity Market :

1 ENERGY COMMODITIES C O N F E R E N C E Thursday May10th gazarte Live, Athens Greek Electricity Market : Current status and transition to the EU Target Model Dr. Christoforos Zoumas Director, Electricity Markets Operation, LAGIE

Overview Market evolution & current status Opening-up market and competition for wholesale and retail: the Greek NOME-equivalent mechanism Market reform towards the EU Target Model: key design

2 Overview Market evolution & current status Opening-up market and competition for wholesale and retail: the Greek NOME-equivalent mechanism Market reform towards the EU Target Model: key design factors Extending the single day-ahead market Overview of Forward, day-ahead and intraday markets The Hellenic Energy Exchange: conveying the Market to new operation standards Challenges & Opportunities

3 "Greek Electricity Market: Current status and transition to the EU Target Model" Market evolution & current status

Market Evolution: Strongly governed by Law

Scheduling Target Model NOME Auctions 1999

4 Market Evolution: Strongly governed by Law & Regulation 4 Mandatory Pool / Day-Ahead Scheduling Target Model NOME Auctions L.2773/1999 System & Market Code L.4389/2016 L.4414/2016 L.4425/2016 L.4512/2018 L.4533/2018 Exchange Rulebooks

5 Market Evolution: Figures 5 80 Price ( /MWh) ,35 45,66 59,36 56,60 41,47 57,47 51,92 42,84 54,68 49, Volume (TWh) 50 55,59 55,47 55,07 56,28 54,73 51,63 53,16 53,07 55,26 55, Participants

6 Market Evolution: Design flaws & issues raised 6 Market open-up and main issues New entrants acquired gas-fired units and RES : non-equivalent portfolios and asymmetric competition price formation issues : Marginal Prices non-relevant to short-term scarcity No interest for physical bilateral contracts between producers and suppliers: gas price levels prohibiting competitive physical hedging for vertically integrated companies Capacity Market : designed to provide adequate capacity and security of supply. Failed to act as a hedging mechanism for suppliers Preservation of bidding rules for thermal units (30%-rule) distorted the SMP and conveyed the market interest to uplift accounts Single-byer and absence of forward-hedging market resulted in hindering the opening-up of the retail market Lack of effective regulation and continuous risk-management in DAS resulted in transactions deficits and retail market setback

7 "Greek Electricity Market: Current status and transition to the EU Target Model" Opening-up market and competition for wholesale and retail : the Greek NOME-equivalent mechanism

8 Forward Electricity Products Auctions System 8 The Greek equivalent to France NOME mechanism Entered in force by Law 4389/2016 and other supplementary legislation & regulation A strictly regulated mechanism to provide access to incumbent owned lignite and hydro production for enhancing competition at the wholesale and retail market level Adopted as a measure equivalent to the structural arrangements of the small-ppc Yearly schedule of released capacities linked to ambitious retail share reduction targets PPC as a seller of Forward Products and Eligible Suppliers entering a supplementary transactions contract Auctions of Yearly forward products with obligation of physical delivery and a predetermined Reserve Price reflecting variable costs of lignite and hydro production Secondary Market enabling efficient market-based reallocation of volumes among suppliers and entry of Traders Physical delivery and settlement of acquired quantities effectuated in DAS via supplementary clearing

9 FEPAS: Quantities & Auction Prices 9 Released Quantities & Delivery Auction Products & Prices

10 FEPAS: Secondary Market & Usage Declarations 10 Quantities and Prices Beneficiaries: Suppliers & Traders

11 FEPAS: Price hedging & Local vs. Exports Utilization 11 SMP vs. weighted FEPAS Price FEPAS Volumes: Local & Exports Analysis

12 FEPAS: retail market share targets 12

13 FEPAS: conclusions & future 13 Over the last two years FEPAS gained increasing interest and acceptance Started with eleven (11) Eligible Suppliers in 2016, doubled in % of Suppliers active in the retail are now using NOME quantities Traders also involved: exploiting opportunities in the Secondary Market and increasing demand and price levels at the auctions Retail Market Development Development of retail network of existing and new entrants Retail rice discounts reaching up to 35% Bundled gas and power products exploiting the opening of the gas retail Competition widen: PPC provides discounts for prompt-payers Market share targets: ambitious time-schedule taking into consideration the country economic status and the numerous issues to be addressed in the electirictymarket Steps-forward: Lignite Units disinvestment and Derivatives Market Schedule of Lignite Units disinvestment (L.4533/2018) to affect the released quantities Organized Financial & Forward (OTC/Bilateral) market to gradually replace FEPAS

14 "Greek Electricity Market: Current status and transition to the EU Target Model" Market reform towards the EU Target Model: key design factors

15 Market Reform: key factors & Guidelines 15 HLMD target: select the appropriate market modeling options in order to re-organize the wholesale electricity market and tackle the existing flaws, extend the single day-ahead scheduling (DAS) to forward, day-ahead, intraday and balancing markets compatible for market coupling under the CACM regulation, and taking into consideration : the local & regional market characteristics, participants shares and interests the proper functioning of the markets in terms of liquidity and price formation HLMD deliverables Qualitative high level design for each necessary market Quantitative analysis on specific market design options List all the necessary Legislative & Regulatory interventions

16 Market Reform: Projects, Law & Regulation 16 HLMD project: assigned to ECCO International Inc. under the monitoring of RAE and with the active support of ADMIE & LAGIE Project kick-off: April 2014 HLMD presented to the market participants: November 2014 L.4425/2016: Setting the necessary interventions for the establishment of markets with obligation of physical delivery HLMD Guidelines: published by RAE (dec. 67/2017) for setting-up the regulatory framework required for drafting the Market Codes. DLMD project: Development of the DLMD and the Market Codes managed by the EC-Joint Research Center Under the close monitoring of RAE and active support of ADMIE & LAGIE Project kick-off: June 2017 Contracted consultants delivered by September 2017: DLMD and Codes for each market High level description of Market Platforms specifications Qualitative and quantitative analysis for specific parameters requested by the Regulator

17 "Greek Electricity Market: Current status and transition to the EU Target Model" Extending the single day-ahead market Overview of Forward, day-ahead and intraday markets

18 Derivatives/Forward Market: Design options (1/2) 18 Traded Products & Participants Participants: electricity market participants or financial institutions Base-load or Peak: Yearly products cascaded to Quarterly and Monthly sub-products Cash Settlement or Physical Settlement Participation in the exchange-based organized market Voluntary on a portfolio basis Order types : Market Limit Linked Iceberg (Price Tick 1c /MWh, Volume tick 1MWh) Order characteristics (GFD, GTC, GTD, FAK, FOK, AON, Stop Order) Trading Method Continuous : matching priority of price / time Last trading day: 3 days prior the product reference month for products with physical delivery

19 Forward Market: trading design options (2/2) 19 Price and Position Limits by relevant Regulatory decisions Contract daily price variation limits (± Χ % of the previous day settlement-price) Possibility to enforce position limits to Participants Bilateral Contracts Pre-agreed trades or OTC bilateral: cash-settled or with obligation of physical delivery Contracts registration and clearing via the CCP Limits set by Regulator on bilateral & exchange-based contracts volumes to maintain the liquidity and price formation of the DAM

20 Derivatives Market: Clearing & Settlement (1/2) 20 Clearing & Risk Management Central Clearing by Clearing House (ATHEX-Clear) according to EMIR requirements for CCPs: Calculates the positions of the participants Calculates required margins, evaluates guarantees and defines credit limits Guarantees the financial leg of the transactions (using Guarantees, Clearing Fund, Own Resources) Executes the Cash Settlement Apply sanctions for non-performing Clearing Members Facilitate the physical delivery to the DAM Clearing Members (General or Direct): Function as Counterparties to the Clearing House Participate to Clearing Fund and provide guarantees to the Clearing House Provide clearing services to Non Clearing Participants Set Credit Limits for Non Clearing Participants

21 Derivatives Market: Clearing & Settlement (2/2) 21 Clearing & Risk Management Risk Mitigation Measures Preorder risk management (Credit Limits based on prefunded guarantees) Margins Default Fund Clearing House Own Fund Settlement Next working day settlement using Target2 Settlement to be performed by designated Settlement Banks (any Greek or International Bank)

22 Day-Ahead Market Trading: Design options (1/2) 22 Traded Products & Participants Participants: Producers, Suppliers, Traders, RES Aggregators: Regulator License + TSO Balancing Contract Day-ahead hourly energy products Physical Settlement of forward traded positions: Nominations to DAM Participation in the exchange-based organized market Semi-compulsory for the Producers (orders submitted to cover availability) Bidding: Asset based to maintain price formation transparency and facilitate market monitoring Unit-based for dispatchable units, per Bidding Zone for Demand Per Interconnection for non-coupled interconnections (Traders explicit participation) Aggregated (portfolio) for RES per-technology and bidding zone Order types: Simple Step-wise and Linear, Block Selection of available order types under approval of the IBWT/MRC/PCR and RAE

23 Day-Ahead Market: trading design options (2/2) 23 Bidding Conditions & Validations Bidding price CAPs and Floors under relevant Regulatory decision Credit Limit validations for Buy Orders imposed by the Clearing House and the Clearing Members Bidding for the whole available capacity for dispatchable units Trading Method PCR Auction : matching priority of Order price / time Solution: Common EUPHEMIA/PCR Algorithm in Isolated or Coupled mode Trading Results EL - Bidding Zone Price and Net-Position Harmonized Clearing Prices applicable as per ACER decisions (3.000 /MWh -500 /MWh) Sell & Buy Orders acceptance status for each Order/Participant Cross-borders schedules for coupled & non-coupled borders

24 Day-Ahead Market: Clearing & Settlement (1/2) 24 Clearing & Risk Management Central Clearing by Clearing House: Calculates the positions of the participants Calculates required margins, evaluates guarantees and defines Credit Limits Guarantees the financial leg of the transactions (using Guarantees, Clearing Fund, Own Resources) Executes the Cash Settlement Take-on the Clearing of coupled Cross-border flows Apply sanctions for non-performing Clearing Members Clearing Members (General or Direct): Function as Counterparties to the Clearing House Participate to the Clearing Fund and provide guarantees to the Clearing House Provide clearing services to Non Clearing Participants Set Credit Limits for Non Clearing Participants

25 Day-Ahead Market: Clearing & Settlement (1/2) 25 Risk Mitigation Measures Preorder risk management (Credit Limits based on prefunded guarantees) Margins Default Fund Clearing House Own Fund Settlement Next working day settlement using Target2 Settlement to be performed by designated Settlement Banks (any Greek or International Bank)

26 Intra-Day Market Trading: Design options (1/3) 26 Gradual multi-phase approach 1 st Phase: Three (3) Local Intraday Auction Sessions 2 nd Phase: One (1) Local Intraday Auction Session Two (2) Regional Auction Sessions with implicit allocation of Cross-border capacity Continuous-Trading on XBID Pan-European Intraday Coupling Participation in the exchange-based organized market Voluntary for all Intraday Market Participants Bidding: Sessions bidding conditions as per Day-Ahead Market Products Local & Regional Auction Sessions : Hourly products (partially or for the whole day) XBID Continuous Trading: Half-hourly. Partial or whole-day contracts extension

27 Intra-Day Market Trading: Design options (2/3) 27

28 Intra-Day Market Trading: Design options (3/3) 28 Order types Local Sessions: Simple Step-Wise & Linear Regional Sessions: As per Local Sessions. Block Orders under evaluation for acceptance in the IBWT EU XBID: Limit, Linked, Iceberg (Price Tick: 1c /MWh, Volume Tick: 0.1 MWh) Execution & Time Specs: NON, FOK, IOC, AON, GFS, GTD Bidding Conditions & Validations Bidding price CAPs and Floors under relevant Regulatory decision Credit Limit validations for Buy Orders imposed by the Clearing House and the Clearing Members Orders Matching Price / time Intraday Results Local & Reginal Sessions: As per Day-Ahead Market EU XBID: Volume and Price for each matched Order

29 "Greek Electricity Market: Current status and transition to the EU Target Model" The Hellenic Energy Exchange: conveying the Market to new operation standards

30 Law 4512/2018: Setting-up new Business & Role 30 Energy Derivatives Products: Setting-Up Derivative Products: Including Cash Settled Products Provisions for setting up the specific Organized Market Operation and for OTC Bilateral Setting-up the Hellenic Energy Exchange & Energy Clear Hellenic Energy Exchange: Take-on operation for Power Spot & Derivatives Markets Provisions for developing products for Environmental & GAS Markets Energy Clear: 100 % Subsidiary of Hellenic Energy Exchange Act as a Clearing House for Day-Ahead and Intraday Markets (physical commodities) ATHEX Clear: Act as a CCP for the Energy Derivatives Market

31 Hellenic Energy Exchange: Business Model 31

32 Hellenic Energy Exchange: Build on existing experience & infrastructure 32 LAGIE: contribute the Markets Branch Spin-off the Markets Operation, Regulatory Affairs and Monitoring Experience on Spot Markets Operation & Clearing, EU Market integration and development LAGIE Renewables Branch to follow the Operator of Renewable Sources and Guarantees of Origin (legal successor of LAGIE). ATHEX: provide infrastructure & support IT & Market Platforms development, operation and maintenance Corporate Organization Clearing, Risk Management and Settlement Selected Business Plan Capitalize on existing expertise and invest on the necessary infrastructure Provide competitive services to Market Participants in Greece

33 "Greek Electricity Market: Current status and transition to the EU Target Model" Challenges & Opportunities

34 Challenges & Opportunities 34 For Market Participants Adapt to the new market organization for trading and clearing Invest on infrastructure, knowhow and people For the Energy Exchange Establish its operations for the new markets in time: Systems adaptation and development: Q3-Q Dry-runs: Q Operational ready: Q Succeed to provide competitive services to the Participants Take position in the Region and develop necessary synergies

35 "Greek Electricity Market: Current status and transition to the EU Target Model".thank you for your attention!

Workshop on Target Model

Workshop on Target Model Friday July 20th ΟΤΕAcademy, Athens HEnEx Spot Markets Trading Rulebook: Day-Ahead Market Dr. Christoforos Zoumas Overview 2 Day-Ahead Market: HLMD & Regulatory Guidelines Spot