Congestion management at French borders

1. Congestion managementat French borders Sophie Dourlens IFRI Energy Breakfast Roundtable, 6 July 2009

2. Interconnection capacities at French borders 2500 2000 900 2000 2000 3300 3100 1800 1000 2500 950 300 • France average exchange capacity: • around 13,000 MW for export • around 8,000 MW for import • Compared to the generation capacity in France (109,000 MW), it is close to the Barcelona target of 10% • But it seems insufficient for a true electricity market integration of France with neighbouring countries… imported electricity < 7% of consumption

3. Interconnection capacities at French borders • A natural question comes: Do we need more interconnection capacities at French borders?

4. Market price differentials • Hourly price convergence between French and neighbouring markets Source: CRE’s third report on interconnection management and use Except on the French-Belgian border, electricity markets are far from integrated! • Another question: Except on the French-Belgian border, is market integration reachable without investing in new capacities?

5. Use of French interconnections • Since prices diverge during about 90% of time at French borders, interconnection capacities should be fully used 0% Cross-border capacities are not used as they should be! Source: CRE’s third report on interconnection management and use

6. The case of the French-Belgian interconnection Export (France  Belgium) Import (Belgium France) As soon as French price is smaller than Belgian price, export capacity from France to Belgium is fully used Utilisation rate When interconnection capacity is sufficient, there is price convergence Day-ahead price differential (€/MWh) • Borders between France, Belgium and The Netherlands are managed with the so called “Trilateral market coupling” (TLC) • This mechanism allows for using interconnection capacity in full consistence with prices of Power Exchanges, by managing interconnection capacity together with the economic merit order of bids and offers at the 3 markets Source: CRE’s third report on interconnection management and use

7. Price convergence within the TLC markets • The introduction of the TLC caused a strong price convergence between wholesale organised markets in France (Powernext), Belgium (Belpex) and The Netherlands (APX) Source: CRE’s second and third reports on interconnection management and use

8. The case of other French interconnections • Other interconnections of France with Member States are managed with day-ahead explicit auctions • This means that capacity and energy markets are separated: to make a cross-border trade, market participants have to • buy (or produce) energy in one country, • buy explicitly the interconnection capacity, and • sell (or consume) energy in the other country • These successive different stages, operated each day, cause inefficiencies in the use of interconnections

9. Example: French-German interconnection Flows in the opposite direction to the price differential are observed Export (France  Germany) Import (Germany France) Utilisation rate Flows in the “right” direction may not be maximised compared with the interconnection capacity Day-ahead price differential (€/MWh) Price convergence during only 10% of the time • Utilisation rate of French-German interconnection compared to price differential between wholesale organised markets in France (Powernext) and Germany (EEX): Source: CRE’s third report on interconnection management and use

10. Economic consequences • Assessment of the loss in social welfare due to the absence of market coupling at French borders: Source: CRE’s third report on interconnection management and use

11. A first conclusion… • At some borders investments in new interconnection capacity may be needed… Source: CRE’s third report on interconnection management and use But at all borders, improvements in interconnection management and use should be a short-term priority!

12. … And a new question How does CRE work for improving interconnection management and use?

13. Regional initiatives Central-South Central-West South-West France-UK-Ireland • In 2006 European Commission together with European Energy Regulators launched the Regional Initiatives in gas and electricity • In electricity there are 7 regions among which 4 involve France

14. Regional initiatives • Regulators, TSOs, Power Exchanges and market participants work together in the framework of these regional initiatives • Several projects aiming at improving interconnection management methods are discussed within this framework • For example, stakeholders in the Central-West region are working at extending the Trilateral Coupling (France, Belgium, The Netherlands) to Germany There are many other examples of projects aiming at integrating electricity markets in each region!

15. CRE’s monitoring reports • Each year CRE publishes extensive reports on interconnection management and use at French borders • The 1st report (published in May 2007) aimed at assessing the consequences of the implementation of market-based and non discriminatory mechanisms for interconnection capacity allocation at French borders • The 2nd report (published in June 2008) aimed at monitoring the existing mechanisms, explaining the “target mechanisms” agreed between all stakeholders and drawing up a list of the important issues still to be resolved to achieve these targets • The 3rd report (published very soon) aimed at monitoring the existing mechanisms, defining the current status of the discussions in progress for each of the 4 regional initiatives in which the CRE is involved and presenting the perspectives and the issues at regional and European level

16. CRE’s monitoring reports • The 3 reports are downloadable in French and in English: http://www.cre.fr/ Thank you for your attention!