Price Coupling of Regions PCR

Transcription

1 Supported by Europex Price Coupling of Regions PCR Presentation to 5th SG meeting South-West Electricity REM, Lisbon Deliverable I.2 Day-ahead market coupling Price coupling - Update on Single algorithm

2 Agenda 1. Implicit auctions, market coupling and PCR 2. One single algorithm 3. Decentralized operation 4. Decentralized governance 5. Implementation Appendix I. PCR: Proof of concept Appendix II. Algorithm requirements and current situation Appendix III. PCR: Communication flows in the PCR and System Design status Appendix IV. PCR Governance. Current situation Appendix IV. The Italy-Slovenia market coupling (An example of a decentralized d Market Coupling, in operation since January 1, 2011)

3 1. Implicit auctions, market coupling and PCR

4 TSOs and PXs role The use of implicit it auction requires a certain level l of coperation between TSOs and PXs TSOs operate, develop and mantain the HV grid, They manage interconnections They sometimes buy energy to provide ancillary services and compensate losses PXs provide price determination, clearing services market transparency have matching of bids as their core function have no influence nor interest in the market price In market coupling, PXs provide liquidity to market guarantee competence ensure neutrality Clearing Payment Price Determination Order Collection Matching Order Execution Broadcasting Prices Delivery Volumes

5 Development of the Price Coupling of Regions (PCR) Initiative Markets initially included din PCR 2860 TWh Markets either associate members of PCR or in the process of joining PCR Markets that could join next as part of an agreed European roadmap Supported by Europex

6 Essential features of PCR Price Coupling of regions (PCR) is a price coupling project. The PCR initiative is focused on the delivery of a common European price coupling solution (with associated algorithms, systems, procedures and inter-px co-operation arrangements), where this solution can potentially be implemented in a variety of local regulatory/governance settings. Its philosophy is to build on the existing contractual, regulatory and operational solutions, setting at the European level the needed harmonization and governance principles. It s consistent with PCG principles and AHAG/AESAG proposals, and it has been welcomed at the Florence Forum. To this aim it is based on three main principles. One single algorithm Decentralized operation Decentralized governance

7 2. One single algorithm

8 The PCR Algorithm The future PCR Matching Algorithm will calculate hourly prices over all the PCR areas, satisfying all the core requirements satisfied by the already existing individual PX algorithms. This is necessary both to build on the existing liquidity granted by the existing market rules and to avoid odany unnecessary change in the local regulation. It is the intention of PXs to start using all the same PCR algorithm even before being all price coupled In order to build the PCR Matching algorithm, many steps have already been done: Proof of concept: PXs have already proven the possibility to implement the existing market features in a single algorithmic solution (see Appendix 1) by means of a proof of concept, used for simulations based on historical data from Epex, NPS and Omel Requirements: PX are completing the assessment of the core requirement of the algorithm Starting point: noting that PXs already have matching solutions and that none of these current solutions exactly satisfy all the requirements, but that most of them could possibly be enhanced to satisfy all the PCR requirements, PXs have agreed to implement the future solution by starting from existing solutions

9 The PCR Algorithm The Price Coupling of Regions (PCR) algorithm development announcement Europex, Brussels, May 9, Europex members, in their General Assembly of today in Lisbon, unanimously took note of the progress achieved so far by the Price Coupling of Regions (PCR) project and reconfirmed their support to this challenging project. ( ) The PCR Parties have decided to use an existing algorithm based on mathematical optimization methods that have already been applied and proven effective in several energy exchanges Day Ahead implicit auction spot markets as a starting point for further development. This starting point will be used for the development of a fully functional algorithm able to cover the full scope of PCR and support the European single price coupling target model.

10 The PCR Algorithm The Price Coupling of Regions (PCR) algorithm development announcement Europex, Brussels, May 9, This starting gpoint will be used for the development of a fully functional algorithm able to cover the full scope of PCR and support the European single price coupling target model. The parties have agreed to use an enhanced version of the Cosmos algorithm currently in use in the CWE Market Coupling as the starting point. This follows an extensive review by the Parties of the potential algorithms over the past 6 months ( ) This is an internal project milestone, and a formal decision to adopt the new algorithm will come later. ( ) Work is now progressing to develop a full prototype t algorithm that t will be transformed also into an industrialized version used in daily production. Based on the outcome of the development phase that will now follow the PCR Based on the outcome of the development phase that will now follow, the PCR Parties will then be in a position to seek Regulatory/TSO and market acceptance of the solution.

11 3. Decentralized operation

12 Conceptual representation of the Technical solution with a European scope TSOs TSOs TSOs Region 1 Region 2 Region 3 Regional TSOs PX interface for grid & hub positions data Regional TSOs PX interface for grid & hub positions data 1 6 Regional PX 1 Regional PX 2 Regional PX 3 Regional TSOs PX interface for grid & hub positions data European price coupling algorithm using all European data European price coupling algorithm using all European data European price coupling algorithm using all European data Hub 1 Hub 2 Hub Hub A Hub B Hub Hub X Hub Y Hub Master & hot backups Regional PX Trading System 1 Regional PX Trading System 2 Regional PX Trading System Anonymous data sharing solution between PXs Master & hot backups Participating PXs to keep their trading system infrastructures while letting PCR run the algorithm 2 5 Hub α Hub β Hub γ Hub PX 4 PX 5 PX 6 PX 7

13 The PCR Solution is based on applying several general enhancements to the existing infrastructures Use the same algorithm in each of the PCR Spot Market matching systems Connect the PXs systems in a way that all input and output data is shared in aggregated and anonymous form per market Area, allowing for the incorporation of new PXs and new market Areas as required All data provided by any PX (be it network capacity constraints or order books) to the others should be validated beforehand by the PX providing the information, The results of the matching process will be validated by the PCR Matching algorithm to ensure that they are correct under the conditions pre-established by the PCR participants.

14 Decentralized technical & operational solution Information sharing. To place at the disposal of all the PCR members all the information needed to produce the complete core results for the whole PCR area. Decentralization. The information system utilizes as much as possible decentralized possibilities, avoiding the creation of central equipments/sites, to ease the governance and operation of the PCR. In any case, where several PXs are already in operation in some form of partially centralized manner, nothing will prevent them to continue operating in the same way as they are today. Parallelization. All PXs are up and running every day, to be able to produce results under complete or isolated decoupling without entering into special operations. Nevertheless some PXs may rely on some other PX trading system if they want to. Subsidiarity. Operational/business process will respect as far as viable the main basis of the PCR: Pragmatically building and respecting the existing operational or business processes Avoid any unnecessary changes to existing local procedures, liabilities, responsibilities and interfaces with market participants, i t Regulators, TSOs

15 PCR High Level System Design: Technical Principles The final solution is decentralized (no existence of a central site) All PXs are connected to each other through direct lines, Internet or MPLS using secure channels Each PXs is connected to the related TSOs for receiving capacity information and sending the required information (nominations, clearing info, ) as today Thisis responsibility of each particular/regional PX A data sharing solution is created based in the implementation at each PX of a PCR Connection Broker (PCR Broker) which is responsible of interfacing the PX systems with therestofthepxs Together, all the PXs PCR Brokers form the PCR Cloud Each PCR Broker is in continuous connection to the other PCR Brokers, access to the internal PX market information, validates it, and publishes it to the rest of the PCR Brokers Several validation layers to ensure the detection ti of potential ti errors or problems as soon as possible in the information flows The PCR Matcher wraps the algorithm and ensures that each exchange runs the same common algorithm with the same data and the same configuration parameters

16 4. Decentralized governance

17 Example Responsibilities: CWE Coordinated Matching Cross-Border Clearing & Settlement PXs jointly responsible for design, build and operation, based on an MOU signed by regulators, governments, TSO, PXs and market parties, subject to: Capacity allocation functionality agreed with TSOs Algorithm validation/testing accepted by TSOs Changes under all-party controls Operational procedures agreed with TSOs Incident management by all Operational performance overseen by all Market Coupling: PX clearing houses settle X-border internally or between each other; pass congestion revenue to TSOs Clearing houses nominate X-border flows

18 Example Responsibilities: GME, OMEL, Nord Pool Spot Coordinated Matching Cross-Border Clearing & Settlement PXs responsible for design, build and operation, subject to: Functionality assigned to PXs and approved by the regulators Algorithm validation/testing accepted by regulators Changes under control of regulators Operational procedures, including incident management, of TSOs and PX approved by regulators Operational performance of PX and TSOs overseen by regulators PX settles X-border internally and pass congestion revenue to TSOs PX communicates X-border schedules to TSOs

19 European Market Coupling Governance Solution

20 5. Implementation

21 IN scope and OUT of scope of PCR In Scope of PCR: Common algorithm, core systems and procedures, joint PX governance Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Establish Core PCR Infrastructure Setup Joint algorithm, systems, communications Operational procedures, agreements Design Implementation Approvals Implementation: area 1 Local agreements Local Systems, procédures Testing, trial Approvals Implementation: area 2 Local agreements Local Systems, procédures Testing, trial 21 Interregional implementation NOT In PCR Scope: local governance arrangements, local nominations, clearing & settlement,

22 Regional development progress status (1/2) Region CWE, NORDIC, GB (potentially grouped as NWE for some aspects) IBERIA Progress recorded Technical workshop held on 10 March where PXs presented PCR status and progress to NWE TSOs. Assessment of PCR by NWE TSOs SC positive, meeting between PXs and TSOs on 12 April for next steps Clarification & finalization of NWE TSOs requirements requested asap (NWE TSOs-PXs meeting planned end of March); TSOs s view on NWE project structure requested. PCR can be seen as the way PXs will meet the coordinated matching needs of the TSOs and the market in these regions PCR presentation to Regulators and TSOs (CEER SWE Regional Initiative), Participants (Participants Committee) and Authorities Maintain informed all stakeholders of the evolution and of any need for evaluating changes to existing situation No envision of changes to the existing Business process needed, except for the hours (12:00), where there is a precise proposal (together with the involved TSOs) under discussion to move to closing at 12:00. The proposal is already finalised with REE, pending final details with REN Plans to move MIBEL to the PCR algorithm as soon as available, even prior to coupling Iberia with France (PCR working in decoupled mode) Market Economic unit already changed to /MWh from c /kwh 22

23 Regional development progress status (2/2) Region ITALY Others Progress recorded PCR presentation to ERI CSE Regulators, TSOs and Stakeholders (SG meeting), Italian Regulator, Italian Minister and Italian TSO Regular meeting to update Italian Regulator, Minister and TSO about progress of PCR No envision of changes to the existing business process needed, except for the hours (postpone gate closure from 9.00 to 12:00) Access to PCR documentation offered to Associate PCR Member PXs subject to signing a NDA Associate PCR member PXs have presented PCR to national stakeholders in Eastern Europe More and more convergence in terms of market design and systems to facilitate seamless PCR convergence eastern wards (Poland, Hungary, Czech Republic ) 15/03/

24 Project Finance Each PX is responsible for the funding and the financing of its contribution to the project in a decentralised way since harmonizing this is not necessary for the purpose of price coupling Local financing/recovery of costs is the responsibility of each PX A cost sharing agreement between PXs will describe what are considered as common costs and how PXs share these costs between them In this way, cost efficiency is ensured compared to a more centralised management of costs

25 Thank you for your attention! APX-ENDEX is Europe s premier provider of power and gas exchange services for the wholesale market, operating transparent platforms for short term and futures trading in the Netherlands, the United Kingdom and Belgium. Established in 1999, APX-ENDEX provides exchange trading, central clearing & settlement and data distribution services. APX-ENDEX has over 300 memberships from more than 15 countries. APX-ENDEX offers benchmark data and provides industry indices. APX-ENDEX s offices are located in Amsterdam, London and Nottingham. Belpex is a leading contributor to the integration of the European electricity markets, accountable for delivering transparent price signals to its participants and the community. Belpex is focused on delivering electricity market services that bring value to its members and the entire Belgian electricity wholesale market. Belpex provides a trading platform for the negotiation of spot electricity trades and green certificates. Purchase/sale transactions are concluded directly, but anonymously, between the market participants. EPEX Spot SE is a Paris-based company under European law (Societas Europae) with a branch in Leipzig. i EEX AG and Powernext SA each hold 50 percent in the joint company, in which they integrated their entire spot power trading activities. EEX AG main shareholders are Eurex Zürich AG and Landesbank Baden-Württemberg. Powernext SA main shareholder is a Holding of TSOs formed by RTE, TenneT and Elia. The product range of EPEX Spot SE encompasses spot power trading for France, Germany/Austria and Switzerland. These countries account for more than one third of the European power consumption. GME is the company which organizes and manages the wholesale electricity market in Italy. On GME, producers, consumers and wholesalers may enter into electricity purchase and sale contracts for the next day and, from 2008, also trade electricity blocks for forward physical delivery. GME also organizes and manages Environmental Markets, i.e. the venues where Green Certificates, Energy Efficiency Certificates and Emission Allowances are traded. GME has been attributed, moreover, by law no. 99 of 23 July 2009, the exclusive management of the Italian natural Gas Exchange. Operador del Mercado Ibérico de la Energía, polo español S.A. (OMEL) is a Spanish company created with the purpose of managing markets in underlying energy assets. As its main function, OMEL is the responsible of the management of the Iberian spot electricity market, running everyday the daily and six intraday markets encompassing all Iberian energy. In addition to this principal function, OMEL is responsible for the management of several energy-related product auctions, including both physical and financial products. Nord Pool Spot runs the largest market for electrical energy in the world, offering both day-ahead and intraday markets to its participants. 330 companies from 20 countries trade on the exchange. The Nord Pool Spot group has offices in Oslo, Helsinki, Stockholm, Fredericia (Denmark), Tallinn and London. Nord Pool Spot is owned by the Nordic transmission system operators. In 2009 the group had a turnover of 288 TWh representing a value of EUR 10.8 billion.

26 Appendix I. PCR: Proof of concept 26

27 Simulations outcomes and analysis Robustness tests - Prices Price deviation. Histogram of the number of hourly calculated prices by a single algorithm in one pass, in percentage, vs the value calculated by each of the algorithms for their own prices areas. Ability to handle diversity of products and scale of calculation has been demonstrated on 3 existing algorithms (154 days, 14 prices areas, hourly prices simulated) The calculation of the prices is of a good quality for a first attempt. Price deviation compared to local algorithm calculation is controlled.

28 Appendix II. Alogrithm requirements and current situation 28

29 Overview of the PCR algorithm requirements 1. Orders I. hourly orders: stepwise and linear interpolated curves; II. fill-or-kill block orders; III. profile block orders; IV. linked block orders; V. minimum income conditions orders; VI. maximum payment condition orders; VII. load gradients constraints; VIII. schedule stop constraint; IX. indivisibility constraint; X. merit order priority; 2. Price properties I. welfare optimization; II. Italian national uniform purchase price (PUN); III. price range and precision; IV. curtailment rules; 3. Network properties I. balance constraints; t II. interconnection constraints (ATC and flow-based); III. ramping constraints (on flows and net positions).

30 PCR Algorithm Working Group Process (1/3) First Phase of Simulation until 2010 September - historical dataset; - existing market features (approximate modelling allowed); => proof was given that a single algorithm can calculate prices over NPS/CWE/Omel (+ good quality of results and performance) Starting Point Selection phase from 2010 October PXs agreed on a Starting Point Selection process Aim: Among existing matching algorithms, select one solution to be used as astarting point for next developments Starting Point Selection process split into 4 activities #1 common list of (functional and non-functional )requirements #2 assessment methodology for every requirement #3 assessment of the fulfilment of the requirements by existing algorithms: current fulfilment and ability to fulfil in an enhanced version #4 technical recommendations (begin March 2011)

31 PCR Algorithm Working Group Process (2/3) Starting Point Selection process was based on paper p works, involving experts from every PX, using knowledge and experience acquired during the development of current algorithms Consensus based on deep understanding of each other s market features and of current implementation features Bi-weekly Algorithm Working Group conference call (Monday + Wednesday) Periodic 2-days workshop kh (28-29 sep / nov / jan / feb) Implementation of a Q&A process on ProjectPlace (under specific confidentiality agreement with full disclosure of algorithm description) ) Algorithm Working Group Leader participates in weekly WGRs coordination meetings and in weekly Project Board meetings; reports to PCR Project Manager

32 PCR Algorithm Working Group Process (3/3) Starting Point Selection process List of deliverables List of Requirements e e Assessment Methodology of the fulfilment of the requirements Assessment Matrix of the fulfilment of the requirements by every algorithm candidate Technical Recommendation (+ Assessment of the Distance to the Target) Risks related to Implementation Next Activities Elaboration of next steps (e.g. specifications, prototype, implementation, extensive tests) Implementation of next steps Provider selection

33 Main Requirements for Future PCR Algorithm Market and Network features Order types (e.g. linear/stepwise, blocks, MIC Orders, linked blocks) Network modelling (e.g. ATC, Flow-Based Based, Ramping, Flow-Related Charges and Losses) Price/Network modelling (e.g. in ATC, price difference only if congestion) Price Calculation Requirements Welfare Maximization Price Coupling Algorithm Curtailment and Indeterminacy Rules Performance and reproducibility Outputs of Algorithm Pi Prices and Net Positions Potential Set of Feasible Flows

34 Appendix III. PCR: Communication flows in the PCR and System Design status 34

35 The PCR Solution is based on applying several general enhancements to the existing infrastructures Use the same algorithm in each of the PCR Spot Market matching systems Connect the PXs systems in a way that all input and output data is shared in aggregated and anonymous form per market Area, allowing for the incorporation of new PXs and new market Areas as required All data provided by any PX (be it network capacity constraints or order books) to the others should be validated beforehand by the PX providing the information, The results of the matching process will be validated by the PCR Matching algorithm to ensure that they are correct under the conditions pre-established by the PCR participants.

36 Four Operational Options for New Partners (depending or their desires or their regulatory situation) Option 1: Run the matching algorithm and enter into the rotating matching master responsibility procedure Option 2: Run the matching thi algorithm and, since the same bid information, programs and parameters are available, it can do it for verification purposes and, might be, for fall back or decoupling potential preparation, but not assuming the master role in any moment. Option 3: Maintain its own trading system, provide the anonymous bid (and capacity information if applicable) directly to the other exchanges through the PCR IT systems and receive the results, but not run the matching algorithm Option 4: Reachanagreement with an already PCR participating p exchange and decide to use an existing trading system while keeping its independence as an exchange

37 The Master-Slave rotational responsibility concept It is based in the following general principles: All PCR PX participants can run in parallel the matching algorithm for each of them to be responsible for their own results A rotating Master role, among the PXs that decide to be involved in the Master-Slave responsibilities, takes care of two basic functions: In normal operation to produce the reference results, giving to all PXs the green light to publish them (or to continue with the pre-established operational procedures, in case steps are needed prior to publication) In emergency or abnormal situations to be in charge of investigating the problem, evaluating in which state are the different Market areas, communicating the predefined emergency actions and, in general, be the central contact point in case of emergencies In case of decoupling, all PXs have access to the input data and to a continuously used infrastructure to run the algorithm in their areas of influence

38 Operational or business process associated to the PCR Cross market area settlement of transactions Today there are several existing Regional Market Coupling/Splitting markets in operation, or close to be in operation, with solutions in place for this processes The solutions to be applied in the different new borders covered by the PCR do not need to be the same as the existing ones, but still need to be compatible with them. The PCR concept calls for this issue to be discussed by the involved parties in each border (PXs, National Regulators, TSOs). Cross border energy shipping arrangements: the energy shipping solution already in place in the different Regional or National markets will be respected as much as possible the new cross border flows shipping or communication solution that need to be reported to the involved TSO will be discussed in a bilateral or multilateral manner among the involved PXs, Regulators and TSOs. in case some degree of harmonization is needed the issue will be raised and discussed with the involved parties

39 Decentralized technical & operational solution. Main requirements (I) Cost effectiveness: Simplify as much as possible the complexity of the solution, its operation and maintenance activities in order to reduce the implementation and operation costs. Decentralization: Absence of one single central site where all information converge. Maintaining the existing PXs infrastructure: Each PX must be allowed to maintain its current trading system and IT applications, connecting to PCR through normalized interfaces. PCR common infrastructure and applications must be reduced to the indispensable. Maintaining the existing Information channels with PXs stakeholders: Each PX must maintain its existing communication channels and procedures with its stakeholders (participants, TSOs, Regulators ), If there are several PXs that wish to cooperate in a common manner with a set of TSOs or stakeholders this is not a problem, since the decentralized concept still applies in the same way to each of them. Extendibility: The PCR solution will be opened to the incorporation of new market areas and the modification of the existing topology managed by the involved, or newly added, PXs. High availability The system must necessarily be available at the matching process period The PCR High availability. The system must necessarily be available at the matching process period. The PCR solution must include the necessary redundancy so that no single point of failure exists in any part of the PCR indispensable infrastructure.

40 Decentralized technical & operational solution. Main requirements (II) Adequate Performance: Results must be provided in reasonable and controlled timeframes, including the necessary functionalities and safeguards to ensure that an acceptable solution is reached in the existing PCR time limits. Operation flexibility: Allowing for the modification of the standard procedures when special situations appear (fallback procedures, decoupling ), always under the Master control. Auditability: All actions and traffic occurring within the PCR Operations and IT systems should be recorded and auditable for incident evaluation and correction. Answer to predefined questions readily available: The PCR system should provide complete output data and logging facilities to all PXs, to permit them to analyze and understand the results, Security: All information exchanged should be digitally signed and encrypted Stand alone operation: The local PCR system at each PX should require minimal manual intervention Communications must also be redundant: The level of security in the communications will be selected by each PX deciding how it builds its redundant communications infrastructure.

41 Advantages of the decentralized approach (I) Normal market process are almost identical in the decentralized and centralized alternatives: All bidding area prices and net positions are produced in an algorithm run which uses all input data from the different regions/countries. The only different process in the decentralized approach is the comparison of the different obtained results This process ensures the validity of the results providing a very important verification of the overall process All PXs have more confidence in the obtained results: They all have access to all input data and results information They run, if they want to, the algorithm everyday verifying the provided results They have direct access and know-how to all tools to verify the results, run simulations, perform analysis, Service to the market participants and stakeholders is improved: Each PX takes care of its participants i t and stakeholders Having access to all input information and having run the algorithm, they are capable of answering all potential questions No need for participants and stakeholders of contacting a central site in a different language to resolve their doubts

42 Advantages of the decentralized approach (II) Operation is ensured in almost all circumstances PX personnel run the market processes everyday In case of any technical problem in the Master, several PXs may take over in no time (hot standby) In case of decoupling, all PXs have all information and the operational people ready to run the decoupled d areas PX operators are used to running the system everyday, not only in periodic or exceptional situations PCR ensures overall efficiency Regulation and operations are maintained as much as possible on each Region/Country. No need to change all PX and participants processes PX use the existing infrastructures, except for the particular new PCR modules These common modules are commonly developed. Costs, sharedbyallpxs, are divided as the number of PXs increase No need of special redundancy sites (all PXs my provide the market results). Use by the PX of the same algorithm for the decoupling scenarios (no need of maintaining i i secondary systems) PCRimplementation is fast and ensures success PCRminimizes the need of regulatory changes. This avoids unnecessary delays Noneed of creating new entities, ii nor to create complicated governance structures PXs already count with trained personnel and start with existing and proved infrastructures on which PCR is based

43 PCR Matcher operator PCR Broker operator PCR Matcher operator 14a 14b PCR Algorithm 6a 4b PCR Algorithm PCR Matcher OPERATOR 13a 13b MASTER 14a 14b 6c 4b PCR Matcher 6b 4b 3c 6a PCR Algorithm 3c a, 6b 6c 4a, 6b PX IT System PX Trading System 2b, 9b PCR Broker PCR Broker 7b, 8c. 11a 2a, 9a,11b 7b, 8c, 3a,8a,10a 11a 3b, 7a, 8b, 9c, 10b 2b, 9b, PX IT System PX Trading System 3a,8a,10a 2a, 9a,11b 1a 12b 12a 1a 1b 12b 1a 12a TSO IT Systems PX member TSO IT Systems 3a,8a,10a PC CR Broker PX member 2b, 9b 7b,8c,11a TSO IT Systems 1b 12b PX IT System PX Trading System 12a 2a, 9a,11b 1a PX member PX Environment Current PX Systems PCR Systems TSO IT Systems

44 PCR HLFA: Normal Process Information Flows(1) Description of the Normal PCR Process 1 Reception of the bids and capacities a Bids reception on PX trading system b Capacities reception on PX trading system 2 Delivery of aggregated bids and capacities information a PX information generation and Validation b Transmission of information to the Broker 3 Gathering of all matching input information a Information validation by the Broker b Collection and distribution of all PXs information through the Cloud c Provision of information to the Matcher 4 Uploading of information by the PCR Matcher a Uploading of the information in the algorithm structures b Validation of all gathered information (cross-checking) 5 Running of the PCR algorithm 6 Downloading of the information in the PCR Matcher a PCR Matcher access the results b Validation of the obtained results c Transmission of information to the Broker 7 Gathering of the PCR MC results files a Distribution of PCR results through the PCR Cloud b Gathering of the PCR results by all PXs

45 PCR HLFA: Normal Process Information Flows(2) Description of the Normal PCR Process 8 Comparison and validation of the PCR MC results a Comparison of results through fingerprint files b Distribution of the comparison results through the PCR Cloud c Transmission of information to PX Systems 9 Validation of the PCR provisional MC Results by the PX a Each PX validates the obtained results (directly or through third parties) b Generation of the validation results information c Distribution of all PXs validation information through the PCR Cloud 10 Confirmation of the Official PCR MC results a Analysis of validation information by the Master b Distribution of the analysis results through the PCR Cloud 11 Uploading of the PCR MC Results in the PX IT Systems a Transmission of the analysis results to the PX Systems b Uploading of the PCR Results in the PX Trading and IT Systems 12 Distribution of the information to participants a Market results to participants b Interconnection flows/net positions to TSOs 13 Interaction with the PCR Broker a Monitoring of PCR Cloud b Commands 14 Interaction with the PCR Matcher a Monitoring of the Matcher and algorithm execution b Commands

46 PCR Matcher operator PCR Algorithm 4b PCR Algorithm PCR Matcher 4b OPERATOR 5 5 4a 3c PX IT System PX Trading System 2b PCR Broker 3b 2a 3a 1b 1a TSO IT Systems PX member 3a TSO IT Systems 1b 2a 3b 3b PC CR Broker 2b PX IT System PX Trading System PCR Broker operator MASTER PCR Broker 3b 3a 1a PCR Matcher operator 3c PCR Matcher 6b 4b PCR Algorithm 4a 5 2b PX IT System PX Trading System 2a 1b 1a TSO IT Systems PX member PX member PX Environment Current PX Systems PCR Systems TSO IT Systems

47 PCR Matcher operator PCR Algorithm 6a PCR Algorithm PCR Matcher 4b 6c 5 5 6b PX IT System PX Trading System 8c 7b 8a TSO IT Systems PX member 8a TSO IT Systems OPERATOR PCR Broker 7a 8b 7a 8b 8b 7a PC CR Broker 7b PX IT System PX Trading System PCR Broker operator MASTER PCR Broker 7a 8b 8a 8c 7b 8c 6c PCR Matcher 6b PX IT System TSO IT Systems PX member PCR Matcher operator 6b 6a 6a PCR Algorithm 5 PX Trading System PX member PX Environment Current PX Systems PCR Systems TSO IT Systems

48 9a PCR Algorithm 5 PX IT System TSO IT Systems PCR Matcher operator PCR Algorithm PCR Matcher 4b PX Trading System 9b 10a PX member 10a TSO IT Systems OPERATOR PCR Broker 9c 9c 10b 10b 9c 10b PC CR Broker 9b PX IT System PX Trading System 9a PCR Broker operator MASTER PCR Broker 9c 10b 10a 9b 9a PCR Matcher PX IT System TSO IT Systems PX member 6b PCR Algorithm PX Trading System PX Environment PCR Matcher operator PX member Current PX Systems PCR Systems TSO IT Systems

49 11b PCR Algorithm 5 PX IT System 12b TSO IT Systems PCR Matcher operator PCR Matcher 4b PX Trading System 11a 12a PX member TSO IT Systems OPERATOR PCR Broker 12b 11b PX IT System PC CR Broker 11a PX Trading System PCR Broker operator MASTER PCR Broker 12a 11a 11b PCR Matcher operator PCR Matcher PCR Algorithm PX IT System PX Trading System 12b 12a TSO IT Systems PX member PX member PX Environment Current PX Systems PCR Systems TSO IT Systems

50 PCR PX participant Other PCR participants 3a,8a,10a PCR Broker PCR Broker Cloud PCR Broker operator 3c 6c 7b, 2b, 8c, 9b 11a 4a, 6b PX IT System PCR Matcher PCR Matcher operator 6b 4b 6a 5 PCR Algorithm PX Trading System 2a, 9a,11b 1a 1b 12b TSO IT Systems 12a PX member Virtual shared environment PX Systems environment Optional items Current PX Systems PCR Systems TSO IT Systems

51 PCR HLFA: Exceptional PCR Situations Description of the Exceptional PCR Situations 1 2a A PX is not capable of producing or validating the aggregated curves information 2 2b A PX cannot send the aggregated curves information to its PCR Broker 3 3a The PX Broker does not validate the input files provided by a PX 4 3b Information from one PX does not arrive to the other PXs 5 3c Broker is not capable of producing of ICF 6 3d Broker cannot send the ICF to the Cloud 7 3e Broker detects that does not have one of the files indicated in a control file 8 3e The checksum of one or several input data files is/are different 9 3f Broker cannot send the input data files to the Matcher 10 4a The PCR Matcher does not validate the information received 11 5 The algorithm fails (crashes) in the process of finding the result 12 6b The PCR Matcher process validation crashes 13 6b The PCR Matcher does not validate the results of the Algorithm 14 7a One or several Brokers cannot access the results in the PCR Cloud 15 7b Broker cannot send the algorithm output data files to his PX 16 8a The Master results and several PX results are not equal 17 8b The Master cannot send confirmation message to one or several PXs 18 8b The Master cannot send confirmation message to any PX (Master isolated) 19 9a Validate process of PCR provisional results by the PX fails 20 9c PX cannot send the validation of results (ie receipt) to the Master 21 10a The analysis of validation of results messages (i.e. receipts) by the Master fails 22 10b The Master cannot send the analysis of validation messages to the PXs 23 13b PCR Broker interface doesn t work 24 14b PCR Matcher interface with the operator doesn t work

52 Status of the SDWG Activities HLFA already finished: Normal process Exceptional situations Requirements & Specs definition Just started Expected in three months Operational Manual Starting from the HLFA works Expected in three months

53 Appendix IV: PCR Governance. Current situation 53

54 PCR Governance WG (GOWG) Scope, Working Process and Organization Identification of Governance issues in need of legal review and/or development of Agreements between the PCR parties is managed via a group consisting of persons from each PX Members have deep knowledge about current (DA spot) market design and regulations each of them uphold and are faced with locally/regionally Combined the group has also deep knowledge about current EC Regulations/Directives/Guidelines relevant for Market Coupling Also the group considers, and single members are directly involved in, current EC scope work on renewed regulations, codes, guidelines, etc., linked to for ex. AHAG Main line of work is up to this date to jointly develop Term Sheets for and then draft needed set of PCR Agreements between the PCR parties The group also ensures that modifications of Agreements are made, for ex. if scope of PCR, PX parties involved in PCR, or external,for ex., regulatory requirement is modified All work is finally reviewed and approved in PCR PB and subsequently SC upon which in case of developed Agreements signature is made by all PCR Parties

55 PCR Governance WG (GOWG) Scope, Working Process and Organization Weekly GOWG Telco meetings, and physical 1-2 day meetings on (ca) bi-monthly basis, plus ad-hoc extra Telco s with all parties or subgroups for specific deliveries GOWG Leader participates in weekly PCR WGLD coordination meeting and in weekly Project Board meetings; reports to PCR Project Manager Deliverables status Confidentiality & Data sharing agreements Signed IPR Co-ownership principles p Agreed IPR Co-ownership agreement To be signed by 1 June 2011 Joint PX Cooperation principles In progress Joint PX Cooperation agreement To be signed by 1 June 2011

56 Appendix V The Italy-Slovenia market coupling (An example of a decentralized Market Coupling, in operation since January 1, 2011) Extract from a presentation made by GME in E-Mart 2010 (Amsterdam) 56

57 No se puede mostrar la imagen. Puede que su equipo no tenga suficiente memoria para abrir la imagen o que ésta esté dañada. Reinicie el equipo y, a continuación abra el a 57 ITA-SI Market Coupling: decentralized approach Italian Market Slovenian Market Terna Eles Italian Market Participants 6 6 Slovenian Market Participants i t 1 Market participants submit bids/offers to GME Market participants submit bids/offers to BSP 2 Terna sends ATC values to GME for the SI-ITA border Eles sends ATC values to BSP for the SI-ITA border GME and BSP share bids/offers (in anonymous way) and ATC values GME runs matching algorithm and computes BSP runs matching algorithm and computes results results GME and BSP check the consistency of results and validate the results 6 GME publishes results BSP publishes results -57- Decentralized, parallel and redundant operations Coordinated operations

58 58 ITA-SI Market Coupling: roles and responsibilities ITA Sl MC is a decentralized price coupling that: reflects roles and responsibilities already held by each party relies on existing local relationship between TSO and PX Each TSO is responsible for defining its local grid model communicating ATC values between Italy and Slovenia to its local PX being counterpart of its local PX for market coupling import/export quantity Each PX is responsible for receiving ing bids and offers by local market participants running its own matching software taking into consideration bids and offers of the other PX defining and publishing results of its own market prices quantity sold and bought TSOs are jointly responsible for defining the overall grid model of Italy and Slovenia defining ATC values between Italy and Slovenia to be allocated through MC PXs are jointly responsible for sharing information about bids/offers (anonymously) and ATC values adopting a common matching algorithm checking consistency of results (prices and balance of quantity sold and bought) defining market coupling import/export p quantity between Italy and Slovenia -58-

59 59 Closing remarks Italian Slovenian Market coupling: a decentralized price coupling Minimum level of harmonization needed low impact on national regulations easy and fast to implement No need to introduce a central entity to perform Price Coupling, but support to cooperation of existing entities at national level (PX-TSO, PX-Regulator, TSO-Regulator) at XB level (PX-PX, TSO-TSO, Regulator-Regulator) Full regulatory oversights directly on PXs and TSOs at national level Support to PXs role a robust price formation process is an essential requirement for an efficient congestion management redundant approach increases the security of operations Support to TSOs requirements grid model features are embedded in the matching algorithm Open to further expansion: the approach adopted is in line with PCR principles does not prevent coupling with other regions with different governance arrangements -59-