Federatie van de Belgische Elektriciteits- en Gasbedrijven Fédération Belge des Entreprises Électriques et GazièresFederation of Belgian Electricity and Gas Companies

Rollen, taken en uitdagingen in de energiesector

Marc Van den Bosch

30/10/2015 • VEB2

Inhoud

Wie is FEBEG Rollen in de geliberaliseerde energiemarkt Waar staan we nu? Belangrijke trends Opportuniteiten 2 belangrijke uitdagingen

Korte termijn bevoorradingszekerheid: flexibiliteit Lange termijn bevoorradingszekerhied: capaciteitsmarkt

30/10/2015 • VEB3

30/10/2015 • VEB5

Pillars of a liberalized electricity marketElectricity market in Belgium

Market model

Market struc-ture

Regu-latory

frame-work

Rules andconditions

governing access to the system,

balancing, capacityallocation, …

Important factors:- Number participants- Size participants- Types of assets- Interconnections- …

Transmission System Operator and Power Exchanges

Energy regulators Competitionauthorities

Elia

Transmission grid

30/10/2015 • VEB6

Rather complex regulatory frameworkTransposition of the EU Directives in Belgium

70 KV

Electricity Law

Royal Decrees

RegionalDecrees

CREG

CWAPE

VREG

BRUGEL

Local transport and distribution

gridEandis, Ores,

Sibelga, Tecteo, Infrax, …

Legislation Regulators Grids System operators

REGI

ON

AL

FED

ERAL

Third Energy PackageDirective 2009/72/CE Common rules for the internal market in electricity

Regulation No 714/2009 Conditions for access to the network for cross-border exchanges in electricity

Regulation No 713/2009 Establishing an Agency for the Cooperation of Energy Regulators(ACER)

30/10/2015 • VEB7

Rather complex contractual frameworkWho are the stakeholders in the Belgian electricity market?

Consumer

Industrial consumer

Distribution System Operator

Market

BRPSupplier Generator

Acce

s ho

lder

Acce

s ho

lder

Transmission System Operator

Connection and access contract

Connection and access contract

Sales contracts

Collaboration agreement Sales contracts

Conn

ectio

n an

dac

cess

con

trac

t

Sales contracts

30/10/2015 • VEB8

Central role of the BRPAll BRP’s contribute to the global system balance

BRPxBRPy

BRPzElia regulating

zone

BRPx

System imbalance is translated to imbalance price

BRP is penalized or rewardedby imbalance tariffSystem (im)balance

BRP (im)balance

30/10/2015 • VEB9

BRP is responsible for balance in its own perimeterBalancing the electricity system starts long before real-time

FORWARD(Endex)

DAY-AHEAD(Belpex DAM)

INTRADAY(Belpex CIM)

BALANCING

LT forecasts DA forecasts ID forecast continous monitoring

LT-DA Programs Re-dispatching of flexibility in perimeter(centralized generation and dispatchable load) (centralized generation and flexible load)

LT purchase contracts DA and ID commercial exchanges

TSO enters in action in order toresolve observed residual

imbalances

30/10/2015 • VEB10

Residual balancing by transmission system operatorElia has several means at its disposal to resolve residual imbalances

Primaryreserves

(R1)

Secondaryreserves (R2) Free Bids

Tertiaryreserves via generationunits (R3)

Tertiaryreserves via sheddablecustomersTSO grid

(ICH)

R3 DynamicProfile via

scheddablecustomersTSO and

DSO grid (R3 DP)

Reserve contracts

with neigh-bouring TSO

Disconnect customers (forced)

Pre-contractedreserves capacities

Pre-contractedreserves capacities

All products and bids are organized in a merrit order (fromlow price to high price)

The price of the last bid that is called by Elia to resolve theresidual imbalance is determing the imbalance price

Prijs elektriciteit Vrije keuze van de klant: hoge switchng rate

Aantal producenten, ARP’s en leveranciers Nieuwe dienstverleners: aggregatoren, …

Efficiëntiewinsten: Elektriciteitsproductie is kostenefficiënter geworden Transmissienet en interconnectoren worden efficiënter benut Meer mogelijkheden om aanbod en vraag op elkaar af te stemmen

Nieuwe ‘business opportunities’: Nieuwe types contracten Leveranciers bieden nieuwe diensten aan Slimme systemen Demand Side Management Aggregatoren

MAAR TOENEMEND OVERHEIDSINGRIJPEN TE WEINIG AANDACHT VOOR BEVOORRADINGSZEKERHEID

30/10/2015 • VEB11

Liberalisering heeft positieve effecten Waar staan we?

Forward prijzen elektriciteit

30/10/2015 • VEB12

30/10/201513

Door inspanningen van de leveranciers is de prijs voor deconsument sneller gedaald dan de groothandelsprijs

Leveranciers zijn essentiële draaischijf

NOOT: Retail prijs werd berekend als een gemiddelde van de maandelijkse retail prijzen voor de energiecomponent. 2012 prijsberekening: het gemiddelde (€/jaar) werd berekend over de maanden Mei tot December en vervolgens omgezet in €/MWh; 2013-2014 prijsberekening: het gemiddelde (€/jaar) werd berekend over de maanden Januari tot December en vervolgensomgezet in €/MWh.

BRON: CREG “de monitoring van mogelijke marktverstorende effecten in het kader van het vangnetmechanisme ingevoerd via artikel 20bis, §§1 tot 5 van de Elektriciteitswet en artikel 15/10bis, §§1 tot 5 van de Gaswet’” – 7 Mei 2015 Endex CAL Y+1, Accenture Analyse

30/10/201514

Consument kan gemakkelijk veranderen van leverancier en heeft ruime keuze

Leveranciers zijn essentiële draaischijf

Aantal klanten dat van leverancier verandertbij de hoogste van Europa (>15%)

BRON: ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2013, October 2014, Accenture analyse

Source: Accenture Belgian Market Pulse Survey 2015 (sample = 117)

30/10/201515

Dienstverlening is uiterst klantvriendelijkLeveranciers zijn essentiële draaischijf

Source: Accenture Belgian Market Pulse Survey 2015 (sample = 117)

Aantal klachten over leverancier bij Ombudsman daalt Percentage klantendiensten die 5 sterren ontvangt van de VREG stijgt jaarlijks

BRONNEN: Ombudsman Energie, Activiteitenverslag 2012, 2013, 2014 VREG service checks, 12 Januari 2015, Accenture analyseAccenture New Energy Consumer Research 2014Jaarverslag 2014, FOD Economie

73%van de klantenis tevreden

#2 Hoogst aantaltevreden klanten in vergelijking met onzebuurlanden

4%Aandeel van de klachten m.b.t. water- en energie bijde EconomischeInspectie (FOD Economie) in 2014

De klant zal tegen 2017 zijn elektriciteitsfactuur zien stijgen met 37%, terwijl het energiecomponent daalt

Iedereen zal de rekening betalenAls er niks verandert

BRON: Vijf grote energieleveranciers in België, Accenture analyse

16 30/10/2015

Energie

Hernieuwbare energiecertificatenDistributie

Gratis kWh

BTWBelastingen & heffingen

Transport

Noot- Factuursimulatie gebaseerd op beschikbare informatie op 1 September 2015- Verschillen tussen opsomming en totaal worden veroorzaakt door afrondingen

30/10/2015 • VEB17

Reserve capaciteit CWE landen (2013)En gaat verder achteruit

BELANGRIJKE TRENDS

30/10/2015 • VEB18

And now the zero marginal cost revolution is beginning to affect other commercial sectors, including renewable energy, 3D printing in manufacturing, and online higher education. There are already millions of “prosumers”—consumers who have become their own producers—Jeremy Rifkin The zero marginal cost society

30/10/2015 • VEB19

Zero marginal cost society

Alles is verbonden Netwerken convergeren

Sociale netwerken => individuen, bedrijven, organisaties, overheden

Communicatie => data, video, telefoon fysieke netwerken => gas, water, electriciteit

30/10/2015 • VEB20

The Internet of Things

Bedrijven en individuen gebruiken sociale netwerken bij aankoop

De deeleconomie

30/10/2015 • VEB21

• 276 steden

• > 4 miljoen freelancers

• 34.000 steden

Demografie

30/10/2015 • VEB22

• Bevolking blijft aangroeien• Gezinsverdunning gaat verder door

10,0

11,0

12,0

13,0

14,0

2010 2020 2030 2040 2050 2060Be

volk

ing

(milj

oen)

Bevolkingsvooruitzichten: België

FPB_2010-2060FPB_2007-2060NIS_2000-2050

Trend: EU klimaatbeleid

30/10/2015 • VEB23

Dalend elektriciteitsverbruik

03/06/2015 • Jaarverslag FEBEG 201424

Berekend elektriciteitsverbruik daalde structureel met -2,51% ten opzichte van 2013 et met -7,1% ten opzichte van 2010

83,76 83,77

86,18 86,10 85,95

79,54

86,13

82,1783,81

82,05

79,99

74

76

78

80

82

84

86

88

90

Total calculated electricity consumption in Belgium (TWh) 2004-2014

Bron: FOD Economie, Eurostat

Trend: Hernieuwbare energie EU

30/10/2015 • VEB25

Klimaat: transport belangrijke uitdaging

30/10/2015 • VEB26

Omgaan met verandering: Veerkrachtige ondernemingen

30/10/2015 • VEB27

Primaire bronnen transport Productie Transport Distributie

Levering &

evenwichtKlanten

• Trends hebben impact op de waardeketen

Opportuniteiten

30/10/2015 • VEB28

• Optimalisatie van het systeem₋ aanmoediging verbruik in periodes van overaanbod van groene

(gedecentraliseerde) energie₋ aanpassing van het verbruik aan de beschikbaarheid van groene

energie met behulp van prijssignalen en automatisering (zonder verlies aan comfort)

• eindgebruikers/klanten actief laten deelnemen mits aantrekkelijke op maat gemaakte producten en diensten vanuit de markt⁻ met de leverancier als commerciële SPOC

29

29

PV-cellen

Windenergie

Micro WKK

EV

…..

Prijssignalen optimaal identificeren en inzetten

van energiestromen Beheer evenwicht tussen productie

en verbruik

Slimme energieconsument als antwoord op de evoluties

DSM = aansturing nieuwe

ontwikkellingen Nieuwe services Verwarming Gedrag klant Overige smart

appliances …

Storage

30/10/2015 • VEB30

Elektro en gas mobiliteit

30/10/2015 • VEB31

DAILY DRIVING DISTANCE

City car Short milk

run

Trucks long distance

Hybrid, Range extender orCNG

Milk run longer Other professional City busses

Trucks localuse

EV succes: ondersteunend beleid

30/10/2015 • VEB32

• EV succesvol in landen met voldoende gunstig wettelijk kader

• Noorwegen als voorbeeld (>15.000 EV)⁻ Geen aankooptaks⁻ Vrijstelling van BTW⁻ Gratis gebruik tolwegen en ferry⁻ Gratis gemeentelijke parking (+ opladen

indien beschikbaar)⁻ Gratis gebruik van busstroken⁻ Lage jaarlijkse taks

Short term adequacy: flexibility

30/10/2015 • VEB33

30/10/2015 • VEB34

Growing need for flexibilityNew challenges

Controlled by BRP via nominations

BalancingResponsibleParty (BRP)

Import Export

Market

ConsumptionProduction

Forecasting

Forecasting

Dispatchable

CentralizedDispatchablePredictable

PRODUCTION

More de-centralizedLess dispatchableLess predictable

BEFORE

NOW

Inelastic demand

CONSUMPTION

More elastic demand

Flow of flexibility

Flow of flexibilityFlow of flexibility

=

30/10/2015 • VEB35

Need to integrate the aggregator in the marketNew challenges

European Commission, Regulators and System Operators strongly support the development of demand response aggregation E.g. Directive 2012/27/EU: Member States shall promote demand

response participation in spot and balancing markets

Aggregators are already entering the market, but without a clear market model Different market designs in different countries in Europe

Issues arise when independent aggregators (= third parties) affect the existing business position of other market participants without proper compensation or settlement

How can the independent aggregator be integrated in the market while limiting impact on existing market parties?

30/10/2015 • VEB36

Balancing between principlesChallenges necessitate adjustments to the market design

Liberalizedmarket (market

basedsolutions, …)

Cost efficiency (no over-regulation,

limitedadministrative

burden, …)

Right of property Freedom of

enterprise andcontracting

Level playingfield betweenmarket parties

Market integrity

Confidentiality

Sustainability(future proof and

upscalablesolutions)

TransparencyPresumptionof innocence

Avoiding market abuse (risk of BRP

blockingflexibility)

Consumer protection

30/10/2015 • VEB37

A good market design …Robust market design with correct allocation of costs and benefits

•Coherent market design for different markets•Keep flexibility available for both market parties as well as system operators

… shall work in spot, balancing, adequacy and balancing markets

•A level playing field between demand flexibility, storage and generation is essential as they deliver the same service•No seepage of additional costs from demand flexibility aggregator presence to existing markets, e.g. activation by third parties of flexibility services shall not increase balancing settlement prices

… shall respect all parties

•Aggregator flexibility is not only sourced from the customer, but also from its BRP (balance perimeter)•The impact on the BRP is not limited to the activation window, e.g. rebound, load shifting, ramp up, …

… shall value flexibility correctly

•Changes to the consumption profile of a customer should be communicated to the supplier (impact on pricing)•The BRP needs information (e.g. underlying data behind an activation) for balancing, forecasting and monitoring purposes

… should provide the necessary information to all market parties (including the BRP and the supplier)

•Aspects down the headmeter should remain commercial•Intrusive regulation linked to transfer price will distort the level playing field•Administrative burden should be limited to a minimum, e.g. prequalification process, flexibility and activitation register, …

… shoud boost innovation and cost-efficiency in a stable framework: no over-regulation!

•Current market models are created ad-hoc and based on a limited number of customers/aggregators•Large-scale-roll-out requires operational processes and contracts that can be automated or standardized

… should be scalable

30/10/2015 • VEB38

Overview of roles in the marketRoles of FSP and BSP needs to be integrated

Regulation required

Allows FSP to enter energy market

Balancing responsibilities Responsibilities wrt impact of the activated

energy on the physical grid Responsibilities – like other market parties –

as regards market functioning, e.g. market monitoring, REMIT obligations, …

Reponsibilities to share information withother market parties (BRP’s, supplier, TSO, DSO, …)

Financial guarantees

FSP: Market participant that commercializes flexibility from a producer or consumer and provides that flexibility to a third roleBSP: Market participant providing balancing services to its connected or contracted TSO

30/10/2015 • VEB39

Impact of activation of flexibility on supply contractDifference between diverted energy and supply flexibility

RAMP UP

Pmax

Activation period

REBOUND

t

Diverted energy

Supply flexibility

How is the price in a supply contract determined? An agreed profile is used as reference in the supply contract Price is bilaterally set based on commodity and reference profile

Unilateral differentiation from this reference profile impacts pricing and should therefore be included in the supplycontract

Therefore the BRP/Supplier needs to be compensated for the different flexibility cost Irrespective of market in which aggregator is active At an agreed price between the customer and the BRP/Supplier Feasible on a large scale, without disproportionate costs for

market parties

30/10/2015 • VEB40

Supply flexibilityImpact on supply contract

FEBEG prefers ex ante inclusion of aggregator activity in supply contract (like any other change in the consumption

profile)

30/10/2015 • VEB41

Diverted energyImpact on supply contract

Buyer-BRP/TSO FSP Source-BRP

€/MWh€/MWh(€/MW/h)

Transfer PriceMarket price

(€/MW/h)

Bilateral model

•Process:•BRP (whose perimeter is impacted by activation by FSP) sells the energy to a second BRP (possibly the FSP)

•This second BRP then sells the energy to another BRP or to a system operator that wants to use the energy

•Transfer at commercially negotiated price•Can be implemented at a short term:•Putting contracts in place•Using existing tools, e.g. Elia HUB•Low implementation costs, flexible system, allows tailor-made solutions, …

Model via client

•Process:• The customers buys the energy from its supplier (whobougt it form its BRP)

•The customer sells it to the FSP (who then sells it toanother BRP or system operator)

•Transfer at price in the supply contract•Solution at longer term?•Market facilitation by system operators to provide correct allocation data to supplier

•Is this feasible (costs, complexity, e.g. taxes andcontributions, rigidity, implementation time, …?

Respect for supply contract is of utmost importancy

No regulated price for the transfer of energy!

FSP’s are already providingservices to BRP’s based on

bilateral contracts

Long term adequacy: capacity

30/10/2015 • VEB42

30/10/2015 • VEB43

Is scar-city anissue?

In Belgium the risks of price spikes and (controlled) black-outs doesn’t seem to be accepted: LOLE in law Price caps on the market Strategic reserves as insurance Constraints for closing power plants Safety net regulation Introduction of benchmark to limit prices towards industrial

consumers …

In Belgium electricity seems to be perceived as a ‘public good’

30/10/2015 • VEB44

Scarcity implies prices spikes and (controlled) black-outs Is continuous uncertainty about security of supply acceptable?

If uncertainty would be acceptable, all these constraints should be removed to enhance market functioning

30/10/2015 • VEB45

Is scar-city anissue?

Conti-nuewithEOM?

Remove allconstraints

Yes

No

30/10/2015 • VEB46

How the EOM works …EOM is designed to have an efficient dispatch

• The price of electricity is mainlydetermined by the short-run marginal costs (fuel, CO2, variableoperational costs)

• However, high scarcity prices nowand then are required forgenerators to recover theirinvestment costs (typically: 5 hoursper year with 3000 EUR/MWh)

• Price spikes should occur when allcapacity is used and shouldprovide incentive to build more capacity or decrease consumption

EOM is not designed to quarantee the desired quality of security of supply

Price spikes will occur when there is very low to zero safetymargin left

This implies there are continuously serious risks on (controlled) black outs

As electricity seems to be perceived as a public good: Prices are unlikely to be optimal at scarcity events (caps, constraints

for closing power plants, …) Regulators may see scarcity prices as market abuse, as prices are

then much higher (50 vs 3.000 EUR/MWh) Society may urge authorities to intervene leading to more regulatory

risks for investors

30/10/2015 • VEB47

Issue 1: Price spikes and (controlled) black-outsFunctioning of EOM has some inherent consequences

Regulators and public opinion don’t seem to accept the consequences of an EOM

Growing share of RES is accelerator of evolution towards less security of supply

Increasing share of RES will drop clearing price and reduce number of running hours:

Inframarginal rent drops and missing money increases

If inframarginal rent < fixed costs: units willleave the market

Is a future with iRES and gas realistic in EOM?

1. Inframarginal rent is 0 for iRES and back-up

2. Back-up technology has no inframarginalrent

3. Only scarcity rent can keep the back-up plants in the market

30/10/2015 • VEB48

Issue 2: Missing money problem will increaseChanging policies and objectives impact market functioning

Power plants will continue to leave the market

To ensure SoS, investments are needed, both for new assets as formodernising plants

Even an improved EOM will notdeliver long term visibility

Important variations of revenues, fromone year to another, in EOM (even without price cap)

Generators as well as DSM, need to relyon a few years with very high prices torecover costs

30/10/2015 • VEB49

Issue 3: High risk for investorsInvestors want a long-term outlook, visibility and predictibility

Annual revenues in % of annual costs

Society isn’t sure whether and when EOM will trigger sufficient investments

Will these years actually occur?Will these high prices be accepted?To what extent will investments themselvesreduce occurence of price spikes?

Belgium is a small market …… that at the same time:

is highly interconnected and thus impacted by foreignpolicies is part of a bigger market via the market coupling struggles with huge uncertainties, e.g. nuclear phase out is complex, e.g. different support schemes for RES, …

30/10/2015 • VEB50

Issue 4: Small market with a lot of uncertaintiesSmall is not always beautiful

Result is a contradiction: Belgium has low prices, but a the same time a security of supply issue

30/10/2015 • VEB51

Is scar-city anissue?

Conti-nuewithEOM?

Whichtype of CRM?

Remove allconstraints

Yes

Yes No

No

EOM

•Completing the electricity target model has considerably improved EOM

•Other enhancements are being considered: removing price caps, improving functioning balancing market, …

SR

•Power plants leaving the market are paid to remain available, but ‘out of the market’ (insurance)

•Relatively easy to implement measure with limited market distortion

30/10/2015 • VEB52

Current market design: EOM + SR Belgian market design has moved away from pure EOM

Will this new market design be sufficient to secure electricity supply?

30/10/2015 VEB53

SR already shows its limitsSR is a good transitory measure

SR buys time, but is not an enduring solution

Volume

•Strategic generation reserve (SGR):•Some generation units are not eligible for SR, e.g. small cogeneration units

•Some eligible generation units will not be able toparticipate (permits, environmental or security regulation, …)

•Plants in SR are ‘out of the market’: the full cost must bepaid, not only the ‘missing money’

•Strategic demand reserve (SDR):•Demand flexibility in SR should also be ‘out of the market’ (market distortion)

•If price is set too high, risk of cannabalisation of existingdemand flexibility in the market

Additional risks

•SR is an insurance product against physical consequencesof scarcity, not against high prices

•Impact on liquidity in Belgian market, e.g. ancillaries

•Legal basis with contraints to leave the market discourages new investors

•4.500 EUR/MWh imbalance tariff•High risk for power plant operators, especially foroperators with a single unit, and suppliers•Assymetric risk for generators in Belgium (cap DAM 3.000 EUR/MWh >< imbalance tariff of 4.500 EUR/MWh)•Entry barrier for new entrants

Required volumes will not be found Additional risks for investors

30/10/2015 • VEB54

Current market design doens’t ensure adequacyCurrent market design has three goals, but will not deliver all three

Keep existingcapacity

Trigger new investments

Trigger demand side

response

SR will only keep part of existing capacity in the market and will trigger some demand side response

30/10/2015 • VEB55

Is scar-city anissue?

Conti-nuewithEOM?

Whichtype of CRM?

Strategic reserves

Remove allconstraints

SoS not ensured

TargetedYes

Yes

No

No

30/10/2015 • VEB56

Several ways to go forward ...A capacity market will effectively secure supply in cost-efficient way

A capacity market provides a long-term solution by securing the full required volume from both existing and new-build

capacity

Current Installed Capacity

Decom/moth-balling New-build

Future Installed Capacity

Capacity demand

Current Installed Capacity

Decom/moth-balling New-build

Future Installed Capacity

Current Installed Capacity

Decom/moth-balling

New-build

Future Installed Capacity

Current Installed Capacity

Decom/moth-balling New-build

Future Installed Capacity

Non-functioning Energy-only Strategic Reserve

Capacity Payment Capacity Market

> A Strategic Reserve prevents mothballing/decommissioning of plants

> A Capacity Market secures all capacity required to fulfil demand, and can both stop mothb./decom. as well as stimulate new-build

> A Capacity payment stimulates new-build plants

> If plants suffer from missing money, over time a shortage of capacity to fulfil peak demand could occur

Market based solution where supply and demand set the capacity price, and thus no subsidy

Capacity market should be market-wide and technology neutralto ensure full competition – and thus optimal mix - between: Existing and new capacity All technologies Generation, storage and demand flexibility

As short-run marginal costs are not impacted, capacity willcontinue to be efficiently dispatched via EOM

Future proof solution that enables integration of large amountsof renewables and new technological developments

Suitable for optimisation via cross-border trading of capacity

30/10/2015 • VEB57

Capacity market is a real marketMarket functioning brings efficiency

Security of supply: security of supply is ensured as the full required volume to cover peak demand will be contracted via the capacity market

Correct price: consumers pay the correct price for the requiredcapacity: Although every capacity is remunerated, only the missing

money to secure supply is paid for If there would be oversupply of capacity, the price for

capacity will be low to zero Ideally, the consumer decides on the level of capacity he

wants to pay for

30/10/2015 • VEB58

Benefits for the consumerPrice for full costs – neither more, nore less – of desired capacity

30/10/2015 • VEB59

Benefits for the investorA capacity market will lead to different revenue streams

Investment climate will become attractive due to stable, visible and predictable prices

A capacity market willresult in smootherenergy prices, as scarcity pricing willhardly occur: there’smore capacityavailable

This leads to lowerpower prices, whichcompensatesconsumers forcapacity price

30/10/2015 • VEB60

Is scar-city anissue?

Conti-nuewithEOM?

Whichtype of CRM?

Capacity market with capacity

obligation

Strategic reserves

Centralor

decen-tral?

Remove allconstraints

SoS ensured

SoS not ensured

Targeted

Market-wide

Yes

Yes No

No

30/10/2015 • Steerco with FPS61

FEBEG favors the implementation of a ‘capacity obligation'With a ‘capacity obligation’, two types of capacity markets are possible

Obligationverification

with penaltyscheme

Auction based (central) capacity market Portfolio based (decentral) capacity market

Cap

acity

Load

Generators / aggregators

sell certificates

Central planner/buyer buys full market needs

via auction

Ex-Ante Ex-PostLo

ad

Retailers buy certificates in

marketObligation pro rata supplier

MarketMarket supervisor

Ex-Ante Ex-PostCa

paci

ty

Certificated by authority

Generators / aggregators

sell certificates

> A central authority establishes a firm capacity target and procures this from the market via centralized auction(s)

> Example: United Kingdom

> Retailers are obliged to contract a certain level of firm capacity, depending on the load of their customers, and supervised by the regulator

> Example: France

Auctions

Certificated by authority

Market supervisor

Obligationverification

with penaltyscheme

30/10/2015 • Steerco with FPS62

Auction based (central) vs portfolio based (decentral)Both types of capacity markets have pro’s and con’s

Auction based (central) capacity market Portfolio based (decentral) capacity market Limitations in product specifications Opportunities for innovation (tailor made deals, secondary

market, …)

Risk of over-estimation of needed capacity by centralauthority

Suppliers will optimize capacity in their portfolio

Straight forward preset process and thus fasterimplementation possible

Higher complexity (federal vs regional)

Incentive for demand side flexibility via aggregator to beoffered to auction platform

Incentive for demand side flexibility via retailer to reducepeak load (portfolio)

No transaction cost for supplier (no role in the system) Transaction costs for supplier, but a central role in the system (SPOC)

Stable signal for investments (in case of long term procurement)

Effectiveness subject to penalties

Problem of ‘free riders’ is by-passed Balancing obligation is re-enforced

Costs via central buyer in grid tariffs via BRP and suppliers billtowards end user

Costs become part of commodity cost for end user via supplier bill

Need to develop central auction platform Easy to implement, but need for transition period in order toadjust supply contracts

Higher regulatory risk Most market-oriented option

Auction based CO for pragmatic

reasons

Portfolio based CO from market

design perspective

30/10/2015 • VEB63

Both types of capacity obligations are acceptableSolution best suitable for Belgian situation should be chosen

30/10/2015 • VEB64

Is scar-city anissue?

Conti-nuewithEOM?

Whichtype of CRM?

Capacity market with capacity

obligation

Strategic reserves

Centralor

decen-tral?

Cross border partici-pation?

Remove allconstraints

Choose best option for

Belgian situationSoS ensured

SoS not ensured

Targeted

Market-wide

Yes

Yes No

No

Interconnections allow to optimize via cross border exchanges and thus increase social welfare

Evolutions in other countries (policy, support schemes, energy mix, transmission tariffs, adequacy situation in other countries…) impact the Belgian market

Interconnections don’t ensure that cross border generationcapacity will be availabe at all times: cross border capacity is no generation capacity

30/10/2015 • VEB65

Belgium is a highly interconnected countryInterconnections are an important factor for the Belgian market

Belgian capacitymarket

Implicit XB participation via interconnectors

Implicit XB participation

countries withEOM and explicit XB participationcountries with

capacity market provided political

agreement

Explicit XB participation with

all countriesprovided political

agreement

EU or CWE reference model

Different national initiatives are implemented at different time horizons to tackle adequacy

It is important to investigate how these initatives can coexist and gradually beharmonized and integrated

Start with Belgian capacity market and develop cross-border participation:

30/10/2015 • VEB66

Priority is securing supply in BelgiumHaving the right focus

30/10/2015 • VEB67

Is scar-city anissue?

Conti-nuewithEOM?

Whichtype of CRM?

Capacity market with capacity

obligation

Strategic reserves

Centralor

decen-tral?

Cross border partici-pation?

Remove allconstraints

Choose best option for

Belgian situation

Yes, but shouldnot delay

capacity market

SoS ensured

SoS not ensured

Targeted

Market-wide

Yes

Yes No

No

Federatie van de Belgische Elektriciteits- en Gasbedrijven Fédération Belge des Entreprises Électriques et GazièresFederation of Belgian Electricity and Gas Companies

thanks