COMMISSION FOR ELECTRICITY AND GAS REGULATION

Transcription

1 COMMISSION FOR ELECTRICITY AND GAS REGULATION ANNUAL REPORT 2010

2 TABLE OF CONTENTS 1. Foreword Main developments on the electricity and natural gas markets Wholesale market Developments with regard to market concentration Regional integration of the market development of electricity and gas exchange platforms CREG activities aimed at promoting competition on the wholesale market Retail Market Public service obligations and consumer protection Putting in place the federal mediation service for energy CREG duties relating to disputes settlement Infrastructure Price trends in Investments in the transmission system Capacity allocation Security of supply Powers of the CREG in terms of security of supply Development of investment Development of supply/demand balance Diversification of sources and routes Regulation/Unbundling Powers of the CREG Role of TSOs on the markets Development of unbundling of TSOs Transposition of the third legislative package General conclusions regarding the legal framework Regulation and functioning of the electricity market Regulation Management and allocation of interconnection capacities and congestion mechanisms A. Regional and bilateral developments B. Market results on interconnections C. Infringement proceedings against Belgium Regulation of transmission and distribution A. Transmission and distribution tariffs B. Maximum prices C. Ancillary services and balancing D. General terms and conditions of Access Responsible Party contracts Effective unbundling Competition aspects Description of the wholesale market A. Electrical power demand B. Electricity supply C. Wholesale generation market D. Energy exchange E. Mergers and acquisitions F. Price trends Measures aimed at preventing abuse of a dominant position regulation and functioning of the natural gas market Regulation Management and allocation of the interconnection capacity and congestion mechanisms Regulation of transmission and distribution A. Transmission and distribution tariffs B. Maximum prices C. Code of conduct D. Transmission model E. Indicative transmission programme F. Standard connection contract Effective unbundling

3 Competition aspects Description of the wholesale market A. Natural gas supplies B. Holders of a natural gas supply permit C. Natural gas transmission permits D. Exchange platforms E. Integration with intra-european regions and neighbouring member states F. Integration between gas producers/importers and suppliers long-term gas supply contracts G. Access to natural gas storage facilities H. Developments in terms of market concentration I. Mergers and acquisitions J. Price trends Measures aimed at preventing any abuse of a dominant position Security of supply Electricity Demand Generation Transmission grid infrastructures Gas Demand Supply Measures in emergency situations Investment Security of supply standards The CREG The assignments of the CREG The Bodies of the CREG The General Council The Management Board General policy plan and comparative report on the objectives and achievements of the CREG Cooperation with other bodies The CREG and the European Commission The CREG and ACER The Madrid Forum The Florence Forum The London Forum The CREG within CEER and ERGEG The CREG and the regional regulators Handling questions and complaints Participation of CREG members as speakers at seminars The CREG finances The federal contribution A. The federal contribution for gas B. The federal contribution for electricity The funds The accounts for The company auditor s report on the financial year closed on 31 December List of acts of the CREG during the year

4 LisT of tables Average import/export capacity and average nomination per year (MW) Annual revenues from capacities offered for auction (in millions of euros) 18 3 Congestion rents on coupled electricity exchanges per type of player (in millions of euros) Trend in the cost price for the transmission of electricity depending on the voltage, excluding surcharges and VAT 20 5 Tariffs for the use of the distribution network in 2008, 2009 and 2010 (in /kwh), excluding VAT (Unweighted) average price of imbalances during the period Net supplies to customers connected to the federal transmission system for the years 2007 to Wholesale market shares in electricity generation capacity Wholesale market shares in power generated Energy exchanged and average price on the Intraday exchange Breakdown of exchanges on the Day-ahead hub Breakdown of exchanges on the Intraday hub Tariffs for the use of the distribution network in 2008, 2009 and 2010 (in /kwh), excluding VAT Companies operating in the supply of natural gas on the Belgian market in Market shares on the transmission system from 2007 to Power demand and peak capacity demand in Belgium during the period Breakdown of the installed capacity per type of power station connected to Elia s grid, per type of power station, as at 31 December Breakdown of power generated per type of primary energy Breakdown per sector of the Belgian demand for natural gas between 2001 and 2010 (in TWh) Existing tools in the event of an emergency situation Members of the General Council as at 31 December Directorates and staff of the CREG as at 31 December Overview of presentations given by the CREG in Shortfalls recorded in the funds in 2010 ( ) Income statement as at 31 December 2010 ( ) Balance sheet as at 31 December 2010 ( ) 96 List of figures Availability and use of interconnection capacity from 2007 to Average composition of distribution cost in Flanders in Average composition of distribution cost in Wallonia in Average composition of distribution cost in Brussels in Structure of Eandis in on the basis of the shares per DSO in Eandis Structure of Infrax in on the basis of the shares per DSO in Infrax 25 7 Structure of Ores in on the basis of the shares per DSO in Ores 25 8 (Unweighted) average price of imbalances and Belpex DAM price during the period (in /MWh) 29 9 Shareholding body of Elia as at 31 December Average consumption on a monthly basis in the Elia control area for the 2007 to 2010 period (in MWh/h) Average price on the Belpex, APX and EPEX FR exchanges between 2007 and 2010 (in /MWh) Average monthly resilience of the Belpex market in Trend in average all-in price for electricity in (in /MW) Shares of the various components of the electricity price for Gaselwest-Electrabel household customers in Trend in total electricity price household customers (Dc) Trend in the price of energy per supplier household customers (Dc) Trend in the energy price per supplier business customers, average voltage (Ic1) Breakdown of the price of electricity in Brussels, Paris, Berlin, Amsterdam and London June 2010 ( ) Average composition of distribution cost in Flanders in Average composition of distribution cost in Wallonia in Average composition of distribution cost in Brussels in Shareholding body of Fluxys as at 31 December Breakdown of supply per entry zone in Composition of aggregated supply portfolio of suppliers operating in Belgium in Natural gas supplies by type and length of contract IGH-Electrabel household customer Trend in total natural gas price household customers (T2) Trend in energy price per supplier household customers (T2) Energy price trend per supplier business customers (T4) Development of the natural gas consumption per sector during the period (1990=100), corrected for climate changes Breakdown per sector of the Belgian demand for H-gas and L-gas in 2009 and Forecasts demand for natural gas in Belgium until 2020 (GWh, normalised t, H+L) Market shares on the transmission grid in

5 COMMISSION FOR ELECTRICITY AND GAS REGULATION ANNUAL REPORT 2010

6 1. Foreword The year 2010 was marked by a number of significant developments both as regards the electricity and natural gas markets and as regards the CREG. At European level, last year saw the drafting by the European Commission of interpretative notes on the third legislative package so as to guide member states when transposing this package into their national legislation. The CREG took a proactive approach to this matter, by providing the Belgian authorities, in complete transparency, with draft texts so as to apply the provisions of the third package into Belgian law as well as possible. The main objectives of the two directives and three regulations that make up this third package are identical to those of the CREG: to improve the operation of the electricity and natural gas markets by increasing transparency in network and supply activities, reinforcing the rights of consumers, and vulnerable consumers in particular, supporting cooperation and coordination at European level between network operators, regulators and member states, and finally, by strengthening the independence and powers of the national regulators. This transposition into Belgian law must be undertaken in accordance with European rules, in the general interest and in particular in the interest of consumers. It is a matter of avoiding a situation in which Belgium, as has happened in the past, becomes the subject of infringement proceedings owing to the incorrect or insufficient transposition of European legislation in the field of electricity and natural gas. One of the main thrusts of the third legislative package also concerns the separation of energy production and supply activities on the one hand from network activities on the other, also known as unbundling. In this area, Belgium ranks among the leaders in Europe. Over the past year GDF SUEZ, via Electrabel, sold its stake in the electricity and gas TSOs, Elia and Fluxys. With regard to the distribution of electricity and gas, Electrabel has confirmed its intention to reduce or even ultimately sell its stake in the mixed network operators. In Belgium, the CREG fulfilled the assignments it has been entrusted with by federal and European law, on the one hand to advise the public authorities on matters concerning the organisation and operation of the electricity and natural gas markets and on the other hand to supervise the market and monitor the implementation of applicable laws and regulations. Last November, one of the highest courts in Belgium, the Constitutional Court, confirmed the independence and autonomy of the CREG. It also stated that this autonomy is not compatible with the submission of the federal regulator to hierarchical control or administrative supervision. However, the CREG has a duty to be transparent in the action it takes and must be able to justify its decisions before Parliament, which exercises democratic control over each federal body in the country, however independent it may be. The efforts made by the CREG over a number of years were rewarded by the adoption at the start of 2011 of its proposal for a Royal Decree on the code of conduct governing access to 3

7 1. Foreword the gas transmission system, the storage facilities and the LNG facilities. This code will make a substantial contribution towards reinforcing competition and improving the operation of the gas market in Belgium, as it provides for the abolition of the distinction between transit from border to border and transmission for Belgian consumption, the implementation of new rules on congestion and the secondary capacity market, as well as the improvement of transparency on the gas market. The CREG has also adopted a proactive attitude with regard to the government and federal Parliament in the debate on the calculation of the profit generated by the operation of Belgian nuclear power stations. On the basis of data provided by the electricity producers, the CREG has delivered an estimate of this profit which is the most accurate established to date in Belgium by an authority. Numerous reports, studies, opinions, proposals and decisions were drawn up by the CREG in The most important of these concern the opinion on the ten-year development plan for Elia s grid, the comparison of electricity prices in Brussels and in neighbouring capital cities, the analysis of the quality of the electricity price indexation parameters, the examination of the fixed price and variable price contracts offered by suppliers to household consumers, the analysis of the contracts concluded between electricity suppliers and major industrial consumers, and the monitoring of the relationship between the costs and the selling prices of the gas supplied to Belgian consumers. Some of these acts may be compared to a spotlight trained on a particular aspect of the electricity and gas markets to reveal a dysfunction hitherto little known or unknown to most of the market players and public authorities. This confirms that it is vitally important for Belgium to have a strong and independent regulator on a liberalised electricity and gas market. Reading this 2010 annual report, readers will note that the structure of the table of contents differs significantly from that used in previous years. The new structure, based on the report which the CREG sends to the European Commission in July every year, already partly anticipates the reporting obligations imposed by the third package on European regulatory authorities. Chapter 2 of this report reviews the main developments that occurred on the electricity and natural gas markets. Readers will find a summary of the main elements that occurred in 2010 here, while the following chapters cover each element in more detail. François Possemiers Chairman of the Management Board April

8 2. Main developments on the electricity and natural gas markets 5

9 2. Main developments on the electricity and natural gas markets This chapter provides an overview of the main developments that have occurred on the Belgian electricity and gas markets. Some of the items are covered in greater detail in Chapter 3 with regard to electricity and Chapter 4 with regard to natural gas Wholesale market Developments with regard to market concentration Electricity As regards supplies to major customers connected to the federal transmission system 1, the market share of Electrabel was estimated at around 88.7%, up approximately 1.1 percent compared with The total volume of energy taken up by end customers from the federal transmission system rose by almost 11% in 2010, increasing from 12,332.8 GWh in 2009 to 13,714.0 GWh in Two access points on the federal transmission system changed supplier in As regards the production market, the dominant position of Electrabel clearly declined during the course of 2010, although it still remains very strong. The HHI 3 of the production market amounted to approximately 5,380 in Natural gas In 2010, a total of fourteen supply companies operated on the Belgian market. Total natural gas consumption rose to TWh, an increase of 10.9% compared with consumption in 2009 (194.2 TWh). The merger between GDF and SUEZ and the fulfilment of the conditions imposed by the European Commission further to the approval of the merger in 2008 had a significant impact on the development of the market in 2010 and in particular on the market shares of Distrigas and GDF SUEZ on the gas transmission market. With a 52.1% market share however, Distrigas still remained the dominant player in Regional integration of the market Electricity Having exported electrical power on an annual basis in 2009 for the first time since the liberalisation of the market, Belgium again imported electricity on an annual basis in 2010, albeit only on a very small scale. Until 8 November 2010, the markets were coupled via Trilateral Market Coupling (TLC), involving Belgium, France and The Netherlands. On 9 November 2010, the market coupling was extended to cover the Central West Europe region (CWE), which means that the Belgian daily market is now coupled, on the basis of implicit auctions, with France, Germany, Luxembourg and The Netherlands. Via Interim Tight Volume Coupling (ITVC), also launched on 9 November 2010, the CWE region is also coupled with the Scandinavian market by means of a mechanism based on volumes (Volume Coupling). Natural gas Belgium occupies a strategic position as a hub in the natural gas systems of the North West region. This position is reflected in the large number of interconnections with adjacent networks and the volumes of gas brought in for international transit and local supplies. Whereas in previous years, congestion with regard to the supply of entry capacity at the Eynatten and s Gravenvoeren interconnection points remained an issue, this was overcome in 2010 thanks to the additional investments made. In this respect, the introduction of the two-directional flow at the Zelzate entry point and the reinforcement of the eastwest axis by means of the rtr2/vtn2 project rank among the most striking achievements. In doing so, the main requirements were of course taken into account, but the market is not yet fully integrated. Further investments will be required to be able to integrate the Belgian grid into the process of European harmonisation. Cooperation with neighbouring countries in investment projects had already become a common practice through coordinated investment projects (Open Seasons). In 2010, all these projects gave rise to a final decision on a coordinated cross-border investment. Plans for implementation have been put in place. Amongst other things, this success has led to regional cooperation becoming an obligation in accordance with the new European regulations. In the future, cooperation within the north-west regional initiative will therefore have to take on coordination and intensive follow-up duties Moreover, a new European survey has shown that - as with the Belgian experience - the mechanisms for capacity allocation and the principles governing the management of 6 1 Grids with voltage in excess of 70 kv. 2 Source Elia (provisional data, January 2011). 3 The HHI index (Herfindahl-Hirschmann Index) is a commonly accepted measurement of the market concentration. It is calculated by squaring the market share of each company competing on a market and adding up the figures obtained.

10 2. Main developments on the electricity and natural gas markets congestion at grid connection points are, on the whole, not at all harmonised. Local and/or national markets continue to be unduly organised along their own lines. This is why it was recognised in 2010 that better structured cooperation was needed to achieve market integration, at the very least with regard to the form to be taken on by a unified, integrated market. This entire process requires a clear framework within which progress can be made stage by stage towards a final model. To define this target model, a discussion forum was set up at the initiative of ERGEG at the end of The position of all stakeholders will be heard and analysed by conducting workshops and external studies. Final conclusions are expected in Development of electricity and gas exchange platforms Electricity In 2010, the coupling of the Day-Ahead markets between Belgium (Belpex), The Netherlands (APX) and France (EPEX FR) once again proved successful: in fact, the three markets seldom operated in total isolation from one another. Belpex and EPEX FR were coupled 87% of the time, Belpex and APX 73% of the time. Belgium was isolated from the other two markets for just 1.2% of the time. The daily congestion rents amounted to a total of 33.3 million in Natural gas At national level, activity on the APX Gas ZEE gas exchange remains very limited: 75 transactions were recorded there in This observation also means that the OTC trade (over the counter) at the Zeebrugge hub remains the central element of the trade in Belgium. Even though in 2010 the total volume traded at this hub reached a similar level to that of 2009, a significant increase in liquidity was observed. Moreover, new developments in the field of the regulations governing hubs and exchanges are gathering speed at European level. In this context, the CREG has taken on a leading role in the drafting of the ERGEG 2010 report on the monitoring of natural gas hubs 4. It has also been closely following the proposal from the European Commission for a new European regulation on the integrity and transparency of the energy market (REMIT) 5. The wholesale markets such as the exchanges and hubs, on which gas and electricity are traded among producers and traders, are playing an increasingly important role in determining the prices paid by end customers. Cross-border issues therefore also require cross-border surveillance. In this respect, the Agency for the Cooperation of Energy Regulators (ACER) is to work closely with the national regulators, who are also responsible for investigating any anomalies observed and for imposing penalties, if and when required CREG activities aimed at promoting competition on the wholesale market In 2010, the CREG continued to undertake permanent monitoring of technical aspects and tariffs on the electricity and natural gas markets. In this context, as regards electricity, the Management Board specifically focused on the regional integration of the markets, the operation of the Belpex Day-Ahead Market, the nuclear issue and the prices charged to end customers. As regards natural gas, the Management Board concentrated mainly on the regional integration of markets, promoting liquidity on the wholesale market (by means of additional investments and a plea for better support for the Zeebrugge hub), the development of a competitive regional market for low-calorific natural gas and the issue of costs and prices. In addition, the CREG worked with the Competition Council. Several members of staff from the CREG contributed to a number of Competition Council dossiers as experts Retail Market Price trends Electricity Prices billed to end users continued to rise in This increase may be attributed to the way in which supply price parameters developed. In addition, as regards the Flemish Region, the unit price of the free kwh fell, with the result that the discount for Flemish customers was smaller. Moreover, the increase in the quotas to be supplied with regard to the green certificates is resulting in a bigger contribution for renewable energy and cogeneration. Finally, the federal electricity contribution has increased. 4 Monitoring Report 2010 on the regulatory oversight of natural gas hubs ( GMM-11-03%20Gas%20Hub%20Monitoring%20Report%202010_final.pdf). 5 Proposal COM(2010)726 final for a Regulation of the European Parliament and the Council on energy market integrity and transparency, 8 December

11 2. Main developments on the electricity and natural gas markets Natural gas Prices billed to end users continued to rise in This increase may be attributed to the increase in the price of energy linked to the trend in commodity prices. This increase is partly offset by the reduction in transmission tariffs and the fall in the federal contribution and the protected customer surcharge Public service obligations and consumer protection Putting in place the federal mediation service for energy Although the procedure for appointing the French-speaking federal energy mediator is still ongoing, the energy mediation service 6 has been operational since 10 January This service is qualified to deal with any disputes between an end customer and an electricity or gas company and deal with requests and complaints concerning the operation of the electricity and gas market. In the context of the cooperation between this service and the energy regulators, the CREG has analysed a number of complaints received by the mediator from end customers CREG duties relating to disputes settlement To date, it has not been possible to take up the new duties assigned to the CREG in 2009 with regard to dispute settlement, which provide for the creation within the CREG of a Mediation and Arbitration Service and a Litigation Chamber (cf Annual Report, p. 57). In fact, as at 31 December 2010 the implementing decrees required for this purpose had not yet been promulgated Infrastructure Price trends in 2010 Trend in electricity transmission tariffs As the tariffs charged for the use of the transmission system and ancillary services are multi-annual tariffs which have been approved for the whole of the regulatory period, they remained unchanged compared with 2008 and Trend in electricity distribution tariffs The trend was considerably flatter than that between 2008 and 2009 and may be attributed mainly to the application of an indexation mechanism to the manageable costs and to a lesser extent to the trend in other elements, such as depreciation and non-manageable costs (public service obligations for instance). In 2010, imposed tariffs were billed for two Walloon DSOs (Tecto and Wavre) and for the «pure» (i.e. whose capital is held only by public sector authorities) Flemish sector (Infrax West, Inter-Energa, Iveg and PBE). These are based on the most recent corresponding total revenue elements approved, i.e. the tariffs for the 2008 operating year. Trend in all-in electricity price Prices charged to end users rose in August 2010 compared with December This rise is due mainly to the trend in supplier price parameters. A substantial increase in the federal contribution and renewable energy and cogeneration contributions is also seen. Trend in natural gas transmission tariffs The new multi-annual tariffs for the transmission, transit and storage of natural gas came into force in January These tariffs, which result from an agreement between the CREG and Fluxys, are valid until 31 December The agreement also provides for stable tariffs until Moreover tariff predictability has been integrated in the longer term 7. The entry/exit tariffs (transmission and transit) have been set in accordance with current European legislation, using a methodology underlying the calculation of the tariffs which is based on costs and applicable both to the transmission of natural gas intended for the Belgian market and transmission from border to border. Equivalent principles have been applied to determine storage tariffs. These new transmission tariffs for Belgian consumers resulted in a 28% drop in tariffs compared with The (indexed) tariffs for the use of the liquefied natural gas terminal remain unchanged. Trend in natural gas distribution tariffs The trend was considerably flatter than that between 2008 and 2009 and may be attributed mainly to the application of an indexation mechanism to the manageable costs and to a lesser extent to the trend in other elements, such as depreciation and non-manageable costs (for instance, public service obligations). The provisional tariffs 8 6 Energy mediation service, rue Royale 47, 1000 Brussels; Tel.: 02/ ; Fax: 02/ ; plainte@mediateurenergie.be; website 7 See 2009 Annual Report, p. 48.

12 2. Main developments on the electricity and natural gas markets applied by DSOs (Infrax West, Inter-Energa, Iveg and ALG) were not made to change since the provisional tariffs for are identical to the tariffs in force for the 2008 operating year. Trend in all-in natural gas price As was the case for electricity, which rose sharply in 2008 and fell again in 2009, the price of natural gas increased again in 2010, without reaching the level seen in 2008 however. In , natural gas prices did not follow the trend in oil prices Investments in the transmission system Electricity In 2010, Elia System Operator (hereinafter referred to as Elia) and RTE, the operator of the French transmission system, set up a second 225 kv three-phase circuit on an existing electricity line stretching 15 kilometres between Moulaine in France and Aubange in Belgium. A new type of electrical conductor has been used on the new three-phase circuit and on the existing circuit alike, making it possible to increase the capacity of the circuits by over 20%. According to Elia, thanks to this investment the exchange capacity between France and Belgium can be increased by around 10 to 15%. In addition, as part of the increase in the capacity of the transmission system between the coastal region and the interior of the country, a new 150 kv cable has been installed between the Blauwe Toren and Bruges sub-stations. Natural gas The investment programme of the TSO covers both the forward-looking reinforcements of the gird aimed at supplying the Belgian natural gas market and the investments to provide additional capacity for transmission from border to border on the basis of long-term reservations. In 2010, Fluxys, the TSO, allocated an investment budget of some 400 million to reinforce the grid Capacity allocation Electricity The overall volume of commercial capacity available at the borders during the course of 2010 did not undergo any significant changes compared with 2009, despite the increase in unidentified flows due to the huge injection of wind energy in northern Germany thanks to the use of phase-shifting transformers, amongst other things. Natural gas In terms of capacity allocation, in 2009, Fluxys launched a subscription period procedure in consultation with and under the supervision of the CREG so as to provide a solution to the problem of capacity congestion encountered at certain entry points on the transmission system. This procedure was included in the indicative transmission programme which constitutes a catalogue of the services offered by the TSO. The subscription period procedure was amended as part of the indicative transmission programme on the basis of feedback further to the subscription period 8. The feedback from the subscription period was used for the launch of the consultation process on the basic principles of an optimised transmission model, amongst other things. On 23 November 2010, Fluxys submitted a new proposed indicative transmission programme for the period in which the subscription period procedure has been abolished further to the assertion by Fluxys that no congestion was expected on the transmission system during this period. The proposal was approved by the Management Board on 8 December Security of supply Powers of the CREG in terms of security of supply Electricity The CREG continues to play a significant role in terms of security of supply. However, the CREG is not the only party to be involved in this issue, given the Belgian institutional context on the one hand and the distribution of powers of authority between the regulator and the energy administration on the other hand. While the regions have powers to settle the regional aspects of energy, the federal authority remains qualified to address matters whose technical and economic indivisibility requires uniform implementation at national level in the listed cases, i.e. the national plan for the equipment of the electricity sector, the nuclear fuel cycle, major storage infrastructures, the transmission and production of energy and the tariffs. In addition, the federal authority can settle everything that comes under the residual powers, which means that when a matter 8 Decisions (B) CDC-938 and (B) CDC Decision (B) CDC

13 2. Main developments on the electricity and natural gas markets cannot be linked to one of the powers attributed to the regions, this matter comes under the federal scope of authority. And so in principle new energy sources come under the regional scope of authority. However, the federal authority remains qualified in the North Sea and for the wind farms constructed in this zone in particular, owing to the limitation of the territorial powers of the regions to the territory of the region. The powers of the federal authority are assumed either at the level of the federal administration, which is the Directorate General for Energy, or at the level of the regulator, the CREG. The construction of new power generation units is subject to the prior granting of an individual permit issued by the Minister for Energy at the proposal of the CREG, which is in charge of the examination of applications, amongst other things. The domain concessions with a view to the construction and operation of power generation units from water, currents or wind in marine areas (wind farms) are granted by the Minister for Energy after obtaining the opinion of the CREG. As regards the outlook for long-term supplies, the CREG is being consulted in the context of the drafting of a study on the outlook for electricity supplies known as the prospective study. The CREG also has the power to advise on the draft development plan for the transmission system put forward by Elia. The CREG also has the power to approve the methodology used to assess the primary, secondary and tertiary reserve capacity, which contributes towards ensuring the security, reliability and efficiency of the grid in the control area. Similarly, it has to approve the market operating rules intended to offset 15-minute imbalances. Natural gas The CREG plays a significant role in the field of security of supply. The Act of 12 April 1965 on the transmission of gaseous and other substances by pipeline (referred to here as the Gas Act) in fact stipulates that the CREG shall be consulted when drawing up the prospective study on the security of natural gas supplies. However, the most recent achievement of the CREG in this area dates back to the publication of the (F) CREG-874 study of 13 July 2009 on natural gas supply needs, security of supply and infrastructure development for the time frame. Moreover, European Regulation No 994/2010 which lays down measures aimed at guaranteeing the security of natural gas supplies came into force on 2 December This regulation lists the provisions aimed at maintaining the security of gas supplies by guaranteeing the proper and continuous operation of the internal natural gas market, by enabling the implementation of exceptional measures when the market is no longer able to provide the necessary gas supplies and by precisely defining and attributing responsibilities among natural gas companies, the member states and the European Union, both concerning preventive action and the reaction to concrete disruptions of supply. This regulation also provides for transparent mechanisms, in a spirit of solidarity, for the coordination of planning for, and response to an emergency at member state, and regional level and within the European Union. Certain provisions in this regulation shall be implemented in These include the publication of public service obligations with regard to security of supply, the appointment of the competent authority under the terms of this regulation, the definition of protected customers and the preparation of a risk analysis Development of investment Electricity n Investments in generating units With regard to prospective investments in onshore generating units known as at 31 December 2010, 946 MW are under construction, 3,455 MW have been authorised 11 and 2,502 MW are planned 12. With regard to prospective investments in offshore generating units known as at 31 December 2010, 460 MW are under construction and 1,112 MW have been authorised 13. n Investments in the electricity transmission system The main development in the transmission system for the future is the Stevin project planned by Elia. This consists of extending the 380 kv grid between Zomergem and Zeebrugge Regulation (EU) N 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/ EC. 11 These 3,455 MW have been authorised but construction work has not yet begun. These are projects for which a generating permit has been granted (power plants of over 25 MW). 12 For which an application for authorisation is still being processed. 13 These 1,112 MW have been authorised but construction has not yet begun. These are projects for which a domain concession (offshore wind farm) has been granted.

14 2. Main developments on the electricity and natural gas markets This reinforcement of the grid is able to meet three needs: transporting the energy produced by wind farms at sea to the interior of the country; creating the conditions for a new interconnection with the Belgian grid by means of a submarine link with the United Kingdom; improving the security of the electricity supply in West Flanders and enabling the continued economic development of the port of Zeebrugge. n Open Season relating to the transmission capacity to the Grand Duchy of Luxembourg In the second quarter of 2009, Fluxys launched an Open Season for the capacity between Belgium and the Grand Duchy of Luxembourg. In this context, the capacities reserved as of 2015 are in line with expectations and will give rise to limited investments. The timing of the project depends largely on the length and progress of the various authorisation procedures needed for the construction of the project. These are scheduled to be completed by the end of In this case, the actual work could begin early in 2013 to be completed in Natural gas n Expansion of storage capacity In the context of the gradual expansion of the underground storage capacity in Loenhout, the useful storage volume increased from 650 million cubic metres of natural gas in 2009 to 675 million cubic metres in n Reinforcement of North Limburg In 2010, a major extension was undertaken of the existing H-gas pipeline from the Dilsen entry point to Lommel, in a region supplied mainly by Dutch L-gas. n rtr2/vtn2 The laying of the rtr2/vtn2 pipeline parallel to the existing bi-directional rtr1/vtn1 pipeline along a stretch covering almost 170 km between Eynatten and Opwijk was the main achievement in n Reinforcement of north/south axis With regard to the north/south project, the new capacity amounts to 10 billion m³ per year. The additional compression capacity needed for this north/south project is provided at Winksele and Berneau Development of supply/demand balance Electricity Belgium s position on the international market depends heavily on circumstances, and in particular on the economic situation. The sharp fall in Belgian electricity demand in 2009 compared to 2008 and the increase in installed capacity created margins in the generating activities that enabled the Belgian system to reposition itself on the international market. The recovery that began in 2010 caused these margins to narrow. Belgium therefore moved from being a net importer by 10,620 GWh in 2008 to being a net exporter by 1,835 GWh in 2009 and back to being a net importer by 600 GWh in 2010 (source: Synergrid, provisional data for 2010). Natural gas In 2010, total natural gas consumption amounted to TWh, which represents a considerable increase (10.6%) compared with consumption in 2009 (194.2 TWh). This increase is due entirely to the strong recovery in industrial demand for natural gas (+19.7%), which has almost returned to the 2008 level of consumption, and to a considerable increase in consumption on the distribution networks (+15.5%). Overall, the individual support portfolios of the various natural gas suppliers lead to differentiated supply depending on the type of contract. The share of long-term contracts concluded directly with the natural gas producers fell from 71.3% in 2009 to 60.3% in 2010, but still constitutes the main component, with 2010 seeing a shift towards supplies on the wholesale market. n Open Season relating the transmission capacity from France to Belgium The first non-binding phase of a market consultation process designed to gauge market interest in the transmission capacity from France to Belgium was completed in It will not be possible to begin the binding phase however until the initiator, EDF, has decided to build a new LNG tanker terminal in Dunkirk. As at 31 December 2010, after a number of postponements, a decision was still pending. The forecasts put forward by the CREG in 2009 with regard to the supply/demand balance still apply as a reference framework for investments in the transmission system and for security of supply. The growth in demand in Belgium is mainly covered at least contractually by the increasing imports of Russian natural gas, while the share of Norwegian natural gas contracts is stagnating and that of British natural gas continues to decline. 11

15 2. Main developments on the electricity and natural gas markets The role of LNG in covering demand is more difficult to estimate as it depends on additional investments in the LNG terminals. Nevertheless, the Zeebrugge LNG terminal already plays a major role in supplying Belgium, at least in the context of additional deliveries during peak consumption periods. Although the 2009 gas crisis between Russia and Ukraine did not disrupt the natural gas market in Belgium, it is recommended that Belgian energy policy follows this issue closely and develops appropriate regulations to ensure the security of supply Diversification of sources and routes Electricity In 2010, nuclear-generated electrical power accounted for 53% of the total electrical power generated in Belgium. The share of electrical power generated using natural gas as the primary fuel amounted to 30%. In terms of capacity, nuclear energy and the CCGT together with the gas turbines accounted for almost 35.7% and 27.2% respectively of the total installed capacity of the power stations connected to Elia s grid in Natural gas LNG supplies, mainly from Qatar, via the Zeebrugge terminal accounted for 6.2% of Belgian natural gas consumption in 2010, compared with 9.0% in With a share of 46.5%, Zeebrugge has once again confirmed its position as the gateway to the Belgian market. For the L-gas market, we observed fairly significant backhaul supplies from Blaregnies (4.9% in 2010 compared with 2.6% in 2009) on transit flows initially intended for the French market. The forecasts put out by the CREG in 2009 continue to apply. Natural gas suppliers operating on the Belgian market have a differentiated supply portfolio in which the long-term contracts concluded directly with natural gas producers constitute by far the biggest element. Obtaining supplies via the wholesale market is an option chosen mainly by the new natural gas suppliers who have few, if any, direct purchase contracts in place with natural gas producers. An analysis of the supply portfolios of importers (existing or new) points to an upward trend in supplies via Germany (through Eynatten) and The Netherlands (through s Gravenvoeren and the new physical entry point in Zelzate). In fact, there are bi-directional connections with The Netherlands, Germany (and the United Kingdom), but not with France. Physical imports from France are not possible at the moment. To enable such physical imports, the Blaregnies/ Taisnières interconnection point will have to become a physical entry point for the Belgian market and a deodorisation unit 14 will have to be built on the French side. The forecasts regarding the choice of entry points tally with the grid reinforcements planned by Even then, substantial entry capacity available in Eynatten and Zelzate should enable increased supplies via these points Regulation/Unbundling Powers of the CREG Over 2010, the chairman, three directors and sixteen members of staff of the CREG were appointed inspectors vested with the powers of authority of officers of the judicial police 15. They are charged with seeking out and establishing infractions of certain provisions of the Gas and Electricity Acts and of the relevant implementing decrees across the territory of Belgium. In addition, in a preliminary ruling (judgment No 130/2010 of 18 November 2010), the Constitutional Court stated that the lack of hierarchical control or administrative supervision over the CREG is not contrary to the Constitution in that the CREG is an administrative authority with a considerable degree of autonomy and in addition is subject to both jurisdictional and parliamentary control. The Court added that the fact that the CREG fulfils its assignments with a high level of autonomy results from the requirements of European Union law, which has become gradually more explicit in this area Role of TSOs on the markets Electricity On the electricity market, the operation of the power exchange is regulated by the Royal Decree of 20 October 2005 regarding the creation and organisation of a Belgian market for the exchange of energy blocks. Article 6 of this decree specifically outlines the behaviour and responsibilities of the market operator and the TSO if the market is coupled to similar markets. Pursuant to this article, the market operator may, in In Belgium, natural gas is odorised (injection of an odorising substance to enable the detection of leaks, as natural gas is odourless) as soon as it is injected into the distribution networks. In the transmission system, natural gas is not really odorised because this creates problems for the chemicals industries that uses natural gas as a raw material. In France, however, natural gas is odorised in the transmission system. Gas taken up by the chemicals sector is, if necessary, processed by an individual deodorisation plant. 15 Royal Decree of 25 June 2010 appointing the members of the Management Board and the members of staff of the Commission for Electricity and Gas Regulation, as officers of the judicial police (Belgian Official Journalof 23 July 2010).

16 2. Main developments on the electricity and natural gas markets this case, at the request of the TSO, implement the methods for the allocation of the available capacity to the market coupling for energy exchanges with foreign grids, provided that this is done transparently and without discrimination. In practice, Elia and Belpex use this Article 6. The Day-Ahead capacity on the interconnections with The Netherlands and France is implicitly auctioned on the Belpex Day-Ahead market. For annual and monthly capacities, the capacity on the interconnections concerned is auctioned explicitly. Natural gas On the natural gas market, the operation of the hub and the exchange is organised by Huberator and APX, which are not regulated. The TSO, which is regulated, does not have a specific role to play on these markets. It is a member of the markets, in the same way as other parties, to obtain natural gas supplies in line with its own needs Development of unbundling of TSOs The electricity TSO On 31 March 2010, the Elia Board of Directors approved the agreement concluded between Elia, Publi-T and Electrabel/ GDF/SUEZ on the terms and procedures for the withdrawal of Electrabel from the capital of Elia. Under the terms of this agreement, Electrabel is selling 12.5% of the capital of Elia to Publi-T, bringing Publi-T s stake in the capital of Elia to 45.37%. The natural gas TSO Further to an Act of 10 September 2009, in March 2010 GDF SUEZ and Publigaz concluded an agreement on the transfer of the entire stake of Electrabel in Fluxys (38.5%) to Publigaz. The transaction was effected on 5 May Further to this transaction, Publigaz s stake in Fluxys has increased to 89.97%, while the GDF SUEZ group has withdrawn entirely from the capital of Fluxys Transposition of the third legislative package Over the course of 2010, the CREG carried out a number of studies with a view to adapting the Gas and Electricity Acts to the new European rules of the third energy package promulgated in July 2009, the final deadline for the transposition of which was 3 March Other amendments to the Act were put forward at the same time so as to improve the functioning and follow-up of the market, resolve certain legislative difficulties and inconsistencies and establish a logical structure for the Acts in question. An initial study on the Act of 29 April 1999 relating to the organisation of the electricity market (hereafter: the Electricity Act) was published in April , followed by a second version on 5 November On the same date, a study on the Gas Act 18 was also presented. The amendments proposed are in line with the objectives of the third energy package, and specifically relate to: increasing the independence and powers of the energy regulators; separating production and supply activities on the one hand and grid activities on the other (unbundling); improving market transparency with a view to promoting equality of access to information, price transparency and consumer confidence in the market and avoiding market manipulation; strengthening consumers rights; ensuring cooperation between European energy regulators through the newly created Agency; promoting cooperation between the TSOs General conclusions regarding the legal framework At a time when the procedure begun by the European Commission with regard to Belgium s infringements of the second package is taking its course (see paragraph C below), the deadline for the transposition of the third European energy package is fast approaching. This will require numerous significant modifications to the Belgian legal framework, including to the Gas and Electricity Acts. The modifications to be brought will enable the CREG to carry out its general monitoring assignment in full. Examples of the biggest modifications to be brought include the determination by the CREG of the conditions for the connection and access to the grids and the rules on capacity allocation and congestion management, the certification of TSOs, the problems inherent to closed distribution networks, tariffs, grid development plans and the powers of the CREG as a regulator. 16 Study (F) CDC Study (F) CDC Study (F) CDC

17 3. Regulation and operation of the electricity market 15

18 3. Regulation and operation of the electricity market 3.1. Regulation Management and allocation of interconnection capacities and congestion mechanisms A. Regional and bilateral developments The growing importance of the regional integration of energy markets was pointed out in the third European legislative package which stresses that the regional level is an essential first step towards a single European energy market. The CREG is closely following the development of this issue in the context of the electricity regional initiatives (ERI). In 2010, the work on integrating the markets of the Central West Europe region (hereinafter CWE, which includes Belgium) carried out under the leadership of the CREG related mainly to daily market coupling, setting up a regional mechanism for Intraday exchanges, the auctioning rules for cross-border transmission capacity and calculating interconnection capacities. Generally speaking, substantial delays have built up with regard to these priority activities compared with the initial schedule. One key objective is the creation of a flow-based D-1 market coupling. To this end, the TSOs and regulators of the CWE region have held a series of meetings to prepare for the launch of CWE coupling, initially scheduled for May The main aim of these meetings was to reach a better understanding of the capacity calculation mechanism, the congestion management methods and the methods used to allocate the available daily capacity to the Access Responsible Party, as well as establishing a common position on these matters and discussing the regulatory process. Further to coordination with the volume coupling between Germany and the Scandinavian countries and implementation problems in the final phase of the market coupling process, the CWE market coupling was finally launched on 9 November This coupling means that the Belgian daily market is now coupled, on the basis of implicit auctions, with France, Germany, Luxembourg and The Netherlands. At the same time it also involves the coupling of the CWE region with the Scandinavian countries through Interim Tight Volume Coupling (ITVC). At the moment, the CWE coupling is based on the Available Transmission Capacity (ACT) and not on energy flows. The regulators of the CWE region also intend to set up a regional Intraday mechanism. On the basis of consultation with the market players in 2009 organised by the regulators, in November 2009 the latter asked the TSOs to submit a proposal based on an implicit (transmission capacity and energy) and continuous allocation mechanism. The system operators responded in February 2010 with an information study. An adapted version of this study was produced in June 2010 in response to specific requests from the regulators. These developments in the CWE region gave rise to coordination between the energy regulators, the TSOs and the electricity exchanges. The CREG took a number of decisions in this context relating to the long-term, daily and Intraday markets. On 7 October 2010, the Management Board approved the proposal put forward by Elia relating to the harmonised auctioning rules for the CWE region, with the exception of Article 4.01 (b) (i), the application of which was authorised nonetheless so as to avoid compromising the implementation of the improvements contained in the modified auctioning rules 19. Thanks to the harmonised auctioning rules, identical rules apply throughout the CWE region for the allocation of interconnection capacity, whichever the required interconnection for the capacity. Moreover, market players wishing to acquire annual and monthly interconnection capacity in the CWE region can now contact a common auctioning body, the CASC CWE. Furthermore, the launch on 9 November 2010 of daily market coupling based on prices has also given rise to a number of CREG decisions. In February 2010, the Management Board issued an opinion on the application for approval of the modifications proposed by Belpex concerning the market rules of the Belpex market 20. These modifications were introduced so as to enable the implementation of market coupling of the Belgian, Dutch and French hubs (Belpex, APX and EPEX Spot) to the German hub (EPEX Spot). Further to this opinion, the Minister for Energy authorised the proposed modifications 21. The methodology used to calculate interconnection capacity is based on existing methodologies to determine interconnection capacity. It is supplemented by coordinated monitoring of grid security by the TSOs of the CWE region, which may result in a coordinated reduction in capacity. On 26 October 2010, the Management Board issued its decision on the methodologies used to calculate daily capacities Decision (B) CDC Opinion (A) CDC Ministerial Decree of 19 February 2010 approving modifications to the regulations on the energy blocks exchange market (Belgian Official Journalof 4 March 2010). 22 Decision (B) CDC-997.

19 3. Regulation and operation of the electricity market In October 2010, the Management Board also took a decision on the proposal put forward by Elia on the congestion management methodologies and the methodologies used to allocate the available daily capacity on the Belgium/ France and Belgium/Netherlands interconnections 23. It refused to approve the methodologiess proposed as they failed to comply with Article 3.5 of the Guidelines on the management and allocation of available interconnection transfer capacity of interconnections between national systems annexed to Regulation (EC) 1228/2003 which aims to achieve flow-based coupling. The Management Board did however authorise the implementation of the proposed coupling in the interests of the Belgian electricity market. Finally, as regards the Intraday coupling mechanisms, the CREG and the Dutch regulator NMa followed the development of a temporary bilateral Intraday mechanism between Belgium and The Netherlands. This mechanism will be based on the Elbas system which is already in place in the Scandinavian countries. This will be a continuous and implicit system. To prepare for the adaptation of the market rules to the specific features of this new Intraday market, the Management Board issued an opinion in September 2010 on the modifications to the market rules 24 proposed by Belpex. Further to this opinion, the Minister for Energy authorised the proposed modifications 25. Moreover, in mid-2010 the TSOs of the CWE region, together with the British and Scandinavian TSOs, launched a new North-West Europe (NWE) Intraday initiative. A clear development plan will be prepared in 2011 to achieve implicit coupling on the Intraday markets in the CWE region, the Scandinavian countries and the United Kingdom. The regulators in these countries are involved in these discussions. the Belgian grid. For more details on this subject, see paragraph 5.1 of this report. Thanks to the Intraday mechanism for interconnection capacity introduced in May 2007 for the southern border, 469 GWh were imported from France and 392 GWh were exported to France in Thanks to the Intraday mechanism for interconnection capacity introduced in May 2009 for the northern border, 78 GWh were imported from The Netherlands and 100 GWh were exported to The Netherlands in Intraday connections were used slightly less than 65% of the time in 2010, compared with 58% in Figure 1 below shows the evolution of the import and export capacity made available on the market on a Day-Ahead basis (monthly average), as well as the related total net usage. This figure shows that no extreme developments occurred in 2010 in terms of the use (nomination) of interconnection capacity: the monthly maximum average use was always below 1,000 MW except in December (with average imports of 1,250 MW). This result contrasts with the results obtained for 2008, marked by high imports during the period from February to May, and for 2009, marked by high exports during the period from July to September. Furthermore it appears that the seasonal reduction in import capacity did not get underway until May 2010, whereas in 2009 this occurred as early as March. B. Market results on interconnections Having exported net electrical power on an annual basis in 2009 for the first time since the liberalisation of the market, Belgium again imported electricity on an annual basis in 2010, albeit only on a very small scale. Net physical imports amounted to around 0.55 TWh in 2010, whereas net exports amounted to 1.8 TWh in Gross physical imports in 2010 amounted to around 12.4 TWh, compared with 9.5 TWh in 2009, and gross physical exports were around 11.8 TWh, compared with 11.3 TWh in A substantial proportion of the physical energy flows comes from cross-border transiting of electricity passing through 23 Decision (B) CDC Opinion (A) CDC Ministerial Decree of 26 October 2010 approving modifications to the regulations on the energy blocks exchange market (Belgian Official Journalof 4 November 2010). 17

20 3. Regulation and operation of the electricity market Figure 1: Availability and use of interconnection capacity from 2007 to 2010 MW / / / / / / / / / / / / / / / / / / / / / / / /11 Average export capacity Average import capacity Average nomination Source : CREG The table below shows that average export and import capacity rose slightly in 2010 compared with previous years. As regards import capacity, this increased in 2010 compared with the previous years. The average nomination (use) was positive in both years (indicating commercial exports), compared with negative nominations in (indicating commercial imports). In 2010, the Belgian control area was a net exporter of energy. Table 1: Average import/export capacity and average nomination per year (MW) Year Average export capacity Average import capacity Average nomination ,317-3, ,242-3,882-1, ,460-3, ,558-4, Average 2,394-3, Source: Elia data, CREG calculations The following table shows the trend in annual revenues from (import and export) capacity acquired by market players in the context of explicit auctions, valid for the following year or the following month. This table shows that in comparison with the past, the market players were able to obtain annual and monthly capacity for a lesser amount in 2010 ( 33.6 million). So they anticipated the smaller price deviations in 2010 compared with previous years, indicating better convergence of the markets in Belgium, The Netherland and France. Table 2: Annual revenues from capacities offered for auction (in millions of euros) M Annual auctions Monthly auctions Total Source: Elia data, CREG calculations When market players buy capacity, they estimate in advance what they believe will be the price differences between the Day-Ahead exchanges of the three countries (Belgium, The Netherlands and France). These differences, which are expressed on the short-term Belpex DAM market, indicate that the interconnection capacity between two given markets is saturated. In principle, the resulting congestion rent is allocated to the TSOs. However, if a market player buys interconnection capacity at the explicit auction (annual and/ or monthly capacity) and fails to use it, this capacity is allocated to the implicit market coupling on the short-term exchanges. The initial owner who has not used this capacity subsequently receives the congestion rent if there is a price difference in the direction of his capacity. 18