RTE's European Initiatives: market operation and regional cooperation

Transcription

1 RTE's European Initiatives: market operation and regional cooperation PRESS KIT 17 JULY 2008 Press contacts Thierry Lartigau Alexia Rière +33 (0) (0) (0) (0) For more information Réseau de Transport d Electricité 1, terrasse Bellini LA DEFENSE CEDEX

2 CONTENTS I. CLOSER LINKS BETWEEN RTE, Transmission System Operator, AND THE ENERGY EXCHANGE POWERNEXT S.A... 2 II. RTE - DRIVING FORCE BEHIND THE PILOT REGIONAL COOPERATION BETWEEN FRANCE, BELGIUM, THE NETHERLANDS, GERMANY AND LUXEMBOURG...6 III. RTE - A KEY PLAYER IN «REGIONAL» EUROPEAN COOPERATION INITIATIVES APPENDIX 1 : MATURE MECHANISMS SUITED TO INCREASED CROSS-BORDER EXCHANGES APPENDIX 2 : BORDER MECHANISMS COORDINATED BETWEEN RTE AND ITS FELLOW TSOS RTE is the French electricity transmission system operator. It is a public service company responsible for operating, maintaining and developing the high and extra high voltage network. It guarantees the safety and proper operation of the power network. RTE transports electricity between electricity suppliers (French and European) and consumers, whether they are electricity distributors (ERDF and the local distribution companies) or industrial consumers directly connected to the transmission system. With 100,000 km of lines between 63,000 and 400,000 volts and 46 cross-border lines, the network operated by RTE is the biggest in Europe. In 2007, RTE posted turnover of 4,126m and currently employs around 8,300 staff. 1

3 I. CLOSER LINKS BETWEEN RTE, Transmission System Operator, and THE ENERGY EXCHANGE POWERNEXT S.A. Powernext shareholders TIGF Enel ATEL Endesa GRTgaz Total Gaz de France 1.0% 5.0% 4.9% 5.0% 5.1% 5.8% 6.7% Electrabel 6.7% 6.8% 52.8% RTE 51.0% ELIA 24.5% TENNET 24.5% EDF HGRT The electricity transmission system operators consolidate their majority stakes in Powernext S.A. When French energy exchange Powernext S.A. was created in 2001, the electricity transmission system operators holding company - HGRT, in which RTE owns a majority 51% stake - held 17% of its capital, making it a leading shareholder alongside major players in European electricity trading (Atel, edf, Electrabel, Endesa, Enel, Total) and the financial markets (Euronext, BNP-Paribas, Société Générale). 2

4 As the capital of Powernext S.A. is restructured, with the company coming under the exclusive control of industrial players, HGRT is increasing its stake to 52.8%. This move gives the transmission system operators a majority on the Powernext S.A. Board of Directors. By the beginning of May 2008, HGRT has already acquired a significant stake in Powernext S.A. through the acquisition of shares from NYSE Euronext. That made HGRT the majority shareholder in Powernext S.A., taking its stake from 17% to around 50.5%. Meanwhile, as part of a strategic reorientation for Power next S.A. to promote the creation of an organised gas market in France, Gaz de France and GRTgaz respectively acquired 6.7% and 5.1% of Powernext S.A. s capital, and took up seats on the Board of Directors in June The gas transmission system operator TIGF is also a partner to the project, and a 1% shareholder. HGRT is a holding company owned exclusively by the electricity transmission system operators in France (RTE with 51.0%), the Netherlands (TenneT with 24.5%) and Belgium (Elia with 24.5%). HGRT s corporate mission is to hold the electricity transmission system operators stake in Powernext. HGRT is chaired by Dominique Maillard, Chairman of the RTE Executive Board. Powernext S.A. is the French energy exchange. Created in 2001, it organises several transparent, anonymous markets: Powernext Day-Ahead, launched in November 2001, enabling players to hedge their daily balancing risk on the electricity market; Powernext Futures, launched in June 2004, allowing medium-term price risk coverage from one month up to three years; Powernext-Balancing GRTgaz, launched in April 2007, allowing the Transmission System Operator GRTgaz to cover its daily balancing needs gradually. Since its creation, its Board of Directors has been chaired by Pierre Bornard, who is also Vice-Chairman of the RTE Executive Board. 3

5 RTE s historic presence on the French exchange Powernext S.A. RTE was created on 1st July 2000, under the Law of 10 February 2000, which officially tasked it with transporting electrical energy in a fair and non-discriminatory manner, for all market players (French and European), via its network of 100,000 kilometres of power lines. In France, RTE constantly guarantees the real time balance between supply and demand for electricity. RTE monitors strict compliance with the operating safety rules that apply to the French electricity network, and works with its counterparts in other countries to «pilot» its part of the wider European power system, by promoting harmonious operation with the market. The European power system is an immense machine that is subject to very rigorous technical constraints. RTE strives to design, create and develop tools that allow the market to work efficiently and in line with the need to manage electrical flows and balances. In addition to its role as the operator of the «physical» network, RTE is therefore a driving force aiming to provide its customers with top quality services that guarantee fluid, secure commercial transactions. This is why, alongside other initiatives, RTE very quickly took a close interest in the development of the energy exchanges, and contributed to the studies that eventually led to the creation of Powernext. Created in July 2001, Powernext S.A. is the French energy exchange, and acts as the marketplace where supply and demand meet. It offers several advantages for market players: greater «fluidity» by concentrating supply and demand in a single location and setting a reference price for bilateral contracts between players. Powernext Day-Ahead enables generators to sell their day-ahead capacities (i.e. those available for the next day), and lets traders acquire energy at prices that faithfully reflect market conditions. RTE monitors proceedings to ensure that the commitments (injections, extractions and block exchanges between players responsible for balancing) contracted on this «organised» market are properly honoured. Through this «industrial» link, RTE is able to guarantee the physical delivery of electricity traded on Powernext right across France. For example, if a market participant is unable to physically deliver the electricity they have promised, RTE will replace it in real time. RTE then invoices the «balance responsible party» for the resulting imbalance (1). Similarly, further upstream, RTE ensures that transactions are compatible with the proper operation, balance and safety of the power system. These guarantees incumbent upon RTE lie at the heart of the public service missions entrusted to it by the Law of 10 February 2000, and constitute one of the reasons for its presence as a key shareholder in Powernext S.A. Whilst Powernext S.A. promotes flexibility and transparency in the electricity market, RTE, by fulfilling its public service responsibilities as transmission system operator, for the benefit of all without discrimination and with respect for physical installations and the importance of safety in the French power system, helps ensure the market functions smoothly and opens up to new players. (1) In practice, the guarantee of delivery takes the form of a Balance Responsible (BR) contract signed with RTE. Each BR makes a commitment to RTE to ensure that demand is equal to generation within its perimeter, and to provide financial compensation for any imbalances that do appear. The transactions conducted on Powernext Day-Ahead are ascribed to the perimeter of the BR concerned. 4

6 The partnership between the French and German power exchanges The French power exchange Powernext and its German counterpart EEX, based in Leipzig, will integrate their electricity spot markets at the end of 2008, within a European company to be set up in September, and whose registered offices will be based in Paris. Each partner will own a 50% stake in the new company. The operation between EEX and Powernext presents undeniable strategic and industrial benefits, and will make Powernext and RTE two major players in the integration of the European energy market, with a crucial influence over the spot markets and the management of congestions on international interconnections. The cooperation between EEX and Powernext is an innovative approach that will lend new impetus to efforts to create a single European electricity market. Geographically, the collaboration will initially cover Germany, France, Austria and Switzerland. These markets alone account for more than a third of Europe s electricity demand. The market coupling project launched to improve congestion management on the borders between the Benelux states, France and Germany from 2009 will be facilitated and perfected thanks to the cooperation between these two exchanges. This partnership opens the way forward for laying the foundations of what could eventually become a pan-european exchange. 5

7 II. RTE DRIVING FORCE BEHIND THE PILOT REGIONAL COOPERATION BETWEEN FRANCE, BELGIUM, THE NETHERLANDS, GERMANY AND LUXEMBOURG Innovation and European vision for the market coupling operation between France, Belgium and the Netherlands The successful market coupling operation between France, Belgium and the Netherlands Following their exemplary cooperation elsewhere, RTE and Powernext, together with their Belgian and Dutch counterparts, have proposed an innovative way of managing congestion bottlenecks that serve to restrict commercial transactions between the three countries. The «market coupling» project that has been developed aims to improve and fluidify exchanges, by optimising cross-border electricity flows across the interconnections, and minimising spread (the disparity in prices between the three markets), eliminating it altogether as soon as possible. ETSO, the European association of transmission system operators, where RTE continues to play a driving role - the Chairman of the Steering Committee is currently Pierre Bornard, also Vice-Chairman of RTE), whilst Daniel Dobbeni (also Chief Executive of Elia) is President of the association established the model for this type of market coupling operation and, along with the association of European power exchanges Europex, has recommended its implementation, notably at the Regulatory Forum of Florence, organised by the European Commission. The French, Belgian and Dutch spot markets were therefore coupled in November 2006, i.e. between the three transmission system operators (RTE, Elia, TenneT respectively) and the three power exchanges (Powernext, Belpex and APX respectively). As a prerequisite for the coupling operation, the Belgian power exchange Belpex (2) was set up in July Its shareholders are the three TSOs concerned (Elia, TenneT and RTE), along with Powernext and APX. As expected, the operation is indeed helping to harmonise prices in the three countries concerned, and results in a single price whenever there are sufficient exchange capacities to implement all the desired crossborder transactions. Where this is not the case, the «coupling» uses all the exchange capacity available in full. It is thus improving liquidity on all the power exchanges and opening the way for single European electricity market. In 2004, RTE, Elia, TenneT, Powernext and APX (the Dutch power exchange) decided to commit to a trilateral market coupling project, in consultation with market players and the energy regulators. (2) BELPEX s shareholders are Elia (60%), RTE (10%), Powernext (10%), TenneT (10%), and APX (10%). 6

8 By introducing trilateral coupling of the daily markets, the transmission system operators RTE, Elia and TenneT are improving the management and use of capacities by enabling capacity and energy to be allocated simultaneously. The transmission system operators retain responsibility for managing congestion on interconnections and guaranteeing cross-border transactions, thereby continuing to oversee the safety of the power systems. Over the course of 2007, the three prices on Powernext, Belpex and APX were identical for 63% of baseload periods (0:00-24:00) and 60% of peak periods (8:00-20:00). These results continue to improve: over the first six months of 2008, the three prices on Powernext, Belpex and APX were identical for 71% of baseload periods (0:00-24:00) and 70% of peak periods (8:00-20:00). The role of the system operators in the coupling of electricity markets The coupling of the electricity markets in several countries is a means of linking the corresponding power exchanges and their «price zones». Coupling promotes liquidity in the markets of the countries concerned and represents a step on the road towards a unified European electricity market. The coupling of power exchanges is done in close coordination with the relevant transmission system operators. The TSOs make cross-border transfer capacities available for the following day available to the power exchanges. The power exchanges coordinate their order books to ensure that these transfer capacities are used in the most efficient way possible, and inform the TSOs of the resulting transactions. The TSOs then programme the corresponding physical transfers of electricity, after first checking that network operating safety rules have been strictly followed, and implement them with a guarantee that they will be properly completed (they are said to guarantee the «firmness» of the transactions). The primary goal is to maximise the total economic surplus of all participants: a given generation volume can often be used to satisfy demand in another country at a better price. This contribution to economic optimisation of the European electricity generating fleet is one of the main positive outcomes of market coupling operations. Coupling power exchanges also enables the daily capacity of interconnections between different power grids to be used more efficiently. 7

9 A springboard towards extending the coupling arrangement to include Germany and Luxembourg in 2009 An innovation: a jointly-owned company between the TSOs operating as a single interface with the market In the wake of the success of the trilateral coupling operation, the transmission system operators and the power exchanges, with their counterparts in Germany and Luxembourg, have proposed expanding their initiative to include five countries, making up what is known as the «Central West Europe» or CWE region. In June 2007, a memorandum of understanding was signed between the five countries ministers, regulators, transmission system operators (including RTE) and power exchanges. This political agreement laid the foundations for extending the coupling of the electricity markets in the CWE region, and established the principles for closer cooperation in terms of the security of supply. Following on from this agreement, the seven transmission system operators concerned, namely RTE, Elia, TenneT, ENBW TNG, E.ON Netz, RWE TSO and Cegedel Net, agreed to create a joint, cross-border service company. Based in Luxembourg, the new company, called CASC (Capacity Allocation Service Centre), acts on behalf of the TSOs involved as a one-stop-shop, responsible for implementing and operating services relating to the allocation of transfer capacities on the borders between the five countries. This company will simplify and facilitate cross-border energy exchanges for al the parties involved in the CWE electricity market, especially by standardising the information systems and financial regulations, subject to harmonisation of the rules. Thanks to this initiative, liquidity and competition will increase in the five markets concerned. CASC will be up and running in November 2008, in order to be able to conduct the annual auctions for 2009, by offering a onestop-shop for the entire region. 8

10 Increased cooperation in terms of security of supply Again under the memorandum of understanding signed in June 2007, the seven transmission system operators of the CWE region have since recorded significant results in the field of security of supply. According to a schedule established in 2007, the seven TSOs will publish the first results of a Generation Adequacy Report for the region at the end of This work will draw heavily on expertise developed by RTE in France: every two years, as part of the mission assigned to it by the Law of 10 February 2000, RTE publishes a Generation Adequacy Report looking at the electricity supply-demand balance for the next fifteen years across the whole of continental France. Based on the method that has already proven its value in France,the publication of an extended Generation Adequacy Report for the entire region will provide a transparent, neutral source of information for all market players, which can be used to determine investments in generating facilities. It will also provide advance warning of potential imbalances that may eventually jeopardise the security of supply. An initial network development plan based on the national plans has also been presented to the governments of the five countries. A first ever harmonised report of power system incidents was tested in The experiment confirmed the feasibility of such an analysis for five countries. A system was created for classifying incidents, accompanied by a common scale for assessing the severity of incidents. Based on these rules of analysis, an incident report will be consolidated by the end of This approach is largely inspired by the methods and incident scale developed by RTE for producing the annual Power System Reliability Report. Finally, procedures for exchanging information between the TSOs control centres have also been developed to improve system safety. Towards a European Generation Adequacy Report: first results for the CWE 2008 to be published at the end of 2008 At the European level, the main long-term factors that structure the balance of the power system are numerous and constantly changing: with the period of generation overcapacity coming to an end, there are now new uncertainties surrounding the actual construction of new generating units, their technical specifications and their location; the increased number of players involved in an integrated market raises the question of the interdependence of their investment decisions; meteorological contingencies (temperature, wind, etc.) are potentially correlated between countries; renewable energies (wind, solar, etc.) are booming; it is becoming increasingly difficult to build new transmission network infrastructures. All these factors must be shared and assessed to produce an European common vision of how the electricity supply-demand balance is set to develop in the medium to long term, and move towards a European Generation Adequacy Report. Across the CWE zone, in line with the June 2007 agreement, the seven TSOs proposed new tools and analysis methods in the first six months of The principle is very similar to that for the French Generation Adequacy Report, with three interpretations: supply-demand balance, economy and market. Work is currently under way to simulate the operation of the power system in five countries, with a representation of various random phenomena that affect generation and demand (power outages, temperature, wind speeds, rainfall, etc.). An initial report will be published towards the end of Other TSOs have already shown an interest in the initiative. Such detailed studies could in the future be produced for each regional mesh in Europe, taking into account local peculiarities. They will provide the players concerned with a more detailed picture of the long term operation of the power system and electricity market, whilst objectivising the priority areas for network development. These European convergences will naturally form the basis for the future «10 Year Transmission Development Plan», i.e. a coherent overview of the security of supply challenges for the European power industry, which the «third energy package» currently being drafted will ask ENTSOE to produce. 9

11 Consultation with market players stimulates innovation and the construction of an integrated market To accompany the change, listen to the needs of market players and ensure its innovations are relevant and useful, RTE has always ensured consultation and dialogue form a key part of its efforts to implement new solutions. In conjunction with CURTE, the Transmission System Users Committee, or through specific forums, RTE looks to meet the market s expectations by consulting traders, generators and industrial consumers from right across Europe, inviting them to take part in discussions and offer their constructive comments and opinions. A dynamic approach to producing a vision of an integrated market Besides the close cooperation between the transmission system operators in the CWE region, RTE is also promoting closer links with Scandinavia, which has a very similar market model, a very complementary generating fleet (in particular with Norway s hydroelectric resources), and is increasingly well interconnected with the European continent. For example, the commissioning of the submarine cable link between Norway and the Netherlands in early 2008 is already raising the issue of a possible coupling of the two regional markets. This coupling arrangement is therefore being studied for In the medium term, RTE is therefore contributing to the creation of a uniform and secure market, by continuing to develop international interconnections and devising innovative new solutions to fluidify exchanges. Thanks to these developments, European consumers will reap the benefits of greater economic and environmental optimisation of Europe s generating fleets and improved security of supply. 10

12 III. RTE A KEY PLAYER IN «REGIONAL» EUROPEAN COOPERATION INITIATIVES The «regions» as stages in the construction of an integrated European electricity market Efforts to integrate the European networks have intensified greatly in recent years, with the aim of gradually establishing the internal electricity market whilst guaranteeing operating safety. As regards the operating methods of the electricity markets, EU Regulation 1228/2003 (3) applies to all French interconnections and most of the European interconnections. The difficult process of harmonising the rules and solutions used to access the markets, particularly for ensuring better use of interconnections, is now in the final stages. The Regional Initiatives are the regulators chosen forum for moving on to a new phase in the integration of the European markets. Geographically located at the crossroads of four European regions, RTE, which with its 100,000 kilometres of power lines is the biggest TSO in Europe, has a key role to play in European regional cooperation initiatives. (3) Regulation (EEC) No. 1228/2003 of the European Parliament and of the Council of June 26th 2003 on Conditions for Access to the Network for Cross-Border Exchanges in Electricity. North Baltic France, UK, Ireland Centre-West Centre-East South-West Centre-South 11

13 The France - UK - Ireland regional initiative The regional initiative covers France, the UK and Ireland. Its main aim is to harmonise the market rules across the region, in particular with regard to the following aspects: the management of international congestion, balancing, transparency and network access charges. All of the region s stakeholders (regulators, TSOs, customers, power exchanges, associations) are involved. Cooperation between RTE and its British counterpart National Grid (NG) is well established: in 2001, RTE and NG played a pioneering role by auctioning capacities on the undersea link between France and the UK, IFA 2000, thereby anticipating the systems that would be introduced by the European Regulation. The main work to be done over the period as part of this regional initiative concerns: a joint project between RTE and National Grid, launched in mid-2007, aiming to update the access rules and establish a new platform for allocating and nominating capacity, dedicated to the IFA 2000 interconnector, the opening of mutual access to the French and British balancing mechanisms, based on a so-called «TSO to TSO» model, between France and the United Kingdom. This project represents an important step on the road towards integrating the region s markets. The South West European initiative The South West European initiative brings together France, Spain and Portugal under the direction of the Spanish regulator. After a difficult start complicated by the major differences between the Iberian market design and that prevalent in most other European countries, an action plan for the period was adopted by all of the stakeholders concerned in July Work is currently moving forward under the direct aegis of the European Commission, through a high level body including ministers, regulators, TSOs and power exchanges. Within this framework, the French, Spanish and Portuguese TSOs (RTE, REE and REN), are together preparing the short and medium term developments planned for the region. One area of work concerns the harmonisation of capacity allocation rules, then the creation of a single auction platform for the entire region. A second concerns the transparency of the data published by the TSOs, which in 2008 was the subject of a first report by the regulators. Other, more long term projects concern the possible coupling of the Iberian and Franco-European power exchanges for daily transactions, and a continuous intraday trading platform. This harmonisation of border capacity allocation mechanisms must naturally go hand in hand with harmonisation of the rules that govern the various national markets, a task that will fall to the industry regulators. 12

14 The Centre South European initiative The Centre South European regional initiative brings together Italy, France, Austria, Germany, Slovenia and Greece. Switzerland, although not a member of the EU, is also contributing to this initiative, as it shares borders with other countries in the region. In this context, the region s TSOs are looking to improve both their technical management (e.g. calculating commercial capacities in a zone where energy flows are particularly complex to be predict and control), and their capacity allocation rules, all of course within the framework laid down by the relevant European Directives and Regulations. Common rules for allocating capacity on interconnections, drafted jointly (except for Germany), came into force on 1 January 2008 and have already allowed a degree of harmonisation across the region. Research into the possibility of a common allocation platform - known as a Single Auction Office - is also one of the priorities set by the regulators for 2008 and the years ahead, in order to achieve more far-reaching harmonisation and to promote the integration of the regional market. Studies of market coupling across the region and an analysis of the transparency of the data published are also areas where the TSOs are working together with the regulators and power exchanges, again with the aim of promoting the emergence of a true regional market. The map of developments planned to increase the efficiency of access to interconnections Planned changes to capacity allocation mechanisms on borders UK Ë Harmonising access to the region's interconnections: introduction of a "use it or lose it" mechanism and intraday access Germany and Belgium Ë Coupling of the German, Dutch, Belgian and French markets Ë Harmonisation of long term auctions Ë Creation of a harmonised intraday market mechanism Switzerland Ë Common daily auction rules between RTE and Swissgrid Spain Ë Harmonisation of access to the South West Europe region's interconnections Italy Ë Harmonisation of access to the Centre South Europe region's interconnections Ë Introduction of an intraday mechanism 13

15 APPENDIX 1: MATURE MECHANISMS SUITED TO INCREASED CROSS-BORDER EXCHANGES Energy sales between balance responsible entities continue to grow The volume exchanged on an OTC basis between Balance Responsible entities via block exchange notifications totalled 290 TWh (4) for 2007, compared with 270 TWh in 2006, an increase of 7% (for information, the rise between 2005 and 2006 was 18%, between 2004 and 2005 it was 27%, and between 2003 and 2004 the figure was 36%). Volume exchanges between Balance Responsible entities TWh The maximum monthly volume exchanged was reached in December 2007, with slightly more than 28 TWh The number of BRs is also rising strongly. There were 135 in June 2008 (compared with 122 in 2007, 98 in 2006, 87 in 2005, 79 in 2004 and 73 in 2003). N of Balance Responsible entities Mid 2008 (4) 1 TWh = 1 billion kwh 14

16 The volume of exchanges on Powernext Day-Ahead continues to rise strongly Volume traded on Powernext Day-Ahead TWh Powernext has consolidated its position in the French and European electricity market, with regular growth in the volumes traded on Powernext Day-Ahead (44 TWh in 2007, 30 TWh in 2006, 19.7 TWh in 2005, 14.2 TWh in 2004 and 7.5 TWh in 2003). Over the first six months of 2008, the volume traded was 26 TWh. A new monthly record was reached in February 2008, when some 4.9 TWh of energy was traded. The daily record was posted on 12 April 2008, with some 212 GWh traded (*) L'activité de Powernext a démarré le 26/11/2001 A mature balancing mechanism N of balancing players The balancing mechanism is a market instrument that enables RTE to draw on potential power reserves at any time, in order to deal with an imbalance between supply and demand. It was launched on 1 April As of 30 June 2008, there were some 35 balancing players. Almost two-thirds of the players registered access the mechanism from outside France (England, Germany, Switzerland or Spain). The total volume of energy called up by RTE for balancing purposes in 2007 was as follows: * (*) Powernext began operating on 26/11/2001. Mid TWh downward (3% less than in 2006), 2.8 TWh upward (28% less than in 2006). 15

17 APPENDIX 2: BORDER MECHANISMS COORDINATED BETWEEN RTE AND ITS FELLOW TSOs A auction mechanism introduced widely by RTE and neighbouring TSOs In a growing European electricity market, the numbers of commercial transactions taking place are rising fast and cross-border exchanges are becoming increasingly frequent. This situation is leading to congestion on international interconnections. The mechanisms used to allocate capacities to market players are a means of managing the «scarcity» of available capacities, whilst guaranteeing the reliability of the European power system and the security of supply. In accordance with the European Regulation (5), RTE now allocates available interconnection capacities via an auction mechanism on all its borders. These allocation methods help to ensure that requests are met in a transparent and non-discriminatory manner. In 2001, RTE began auctioning capacities on the undersea link between France and the UK, IFA 2000, thereby anticipating the systems that would be introduced by the European Regulation. In 2005, RTE conducted close negotiations with the TSOs in neighbouring countries to develop the allocation of interconnection capacities via auctions. These mechanisms have been in place since 2006 on each border, extending the system which already existed with England. In accordance with the rules approved by the French Energy Regulator CRE, auctions concerning annual, monthly and daily products take place as follows: prior to each auction session, RTE publishes a set of auction specifications on its website, indicating the nature of the product to be sold (e.g. an annual capacity band of 1,300 MW in lots of 1 MW); on the day of the auction itself, the session lasts approximately one hour, during which time bidders can submit offers, indicating the volume of capacity they wish to acquire, together with the purchase price offered. At the end of the session, the highest bids are selected in decreasing order; the payment price is the price of the lowest bid selected. The «historic» long-term contracts with other EU countries ceased to entail priority access to interconnections from 1st January Congestion management by coupling of the French, Belgian and Dutch spot markets has been in effect since 21 November 2006, contributing to the convergence of prices on the three power exchanges. In 2007, RTE, working closely with its neighbours, organised a secondary capacity market on the interconnections with Belgium, Germany, Italy and Spain. It enables players to exchange capacities acquired at annual/monthly auctions, or to ask RTE to make capacities available for sale once more subject to specific conditions. Current EU Regulation 1228/2003 stipulates that the revenues from the auctions may only be used for three purposes: to guarantee the «firmness» of exchange capacities despite contingencies, to invest in new interconnections and to lower the transmission network access charge. (5) Regulation (EEC) No. 1228/2003 of the European Parliament and of the Council on Conditions for Access to the Network for Cross-Border Exchanges in Electricity. 16

18 The map below shows the capacity allocation mechanisms used by RTE with neighbouring TSOs. More details about the rules governing capacity allocations can be found on the RTE website. The existing capacity allocation mechanisms on borders UK Ë Allocations by joint auctions (annual, quarterly, monthly, daily, etc.) with National Grid Ë Since 2001, secondary market (transfer and resale) Belgium Ë Since January 2007, joint annual and monthly auctions with ELIA Ë Since November 2006, day-ahead market coupling Ë Since January 2007, secondary market (transfer and resale) Ë Since May 2007, joint intraday mechanism with ELIA Germany Ë Since January 2006, joint annual, monthly and daily auctions with RWE and EnBW Ë Since January 2007, secondary market (transfer and resale) Ë Intra-day mechanism Swizerland Ë Priority for long-term contracts,. Ë Intra-day mechanism. Spain Ë Since June 2006, monthly, daily and intraday auctions, jointly with REE Ë Since January 2007, joint annual auctions with REE Ë Since June 2007, secondary market (transfer and resale) Italy Ë Since January 2007, joint annual, monthly and daily auctions with Terna for the direction France to Italy. Ë Since January 2007, secondary market (transfer and resale) Ë Since January 2008, joint annual and daily auctions with Terna for the direction Italy to France. 17

19 Large numbers of market players use interconnections, reflecting wider access to the electricity transmission network The sheer number of market players using RTE s interconnection access services reflects the extent to which the electric interconnections between France and its neighbours have now been opened up. A host of different market players using electric interconnections UK Belgium 24 players 30 players Germany 56 players Switzerland 27 players Spain 23 players Italy 45 players 18

20 An economic model for managing interconnection capacity shortfalls Maximum exchange capacities for each border The commercial exchange capacity between France and neighbouring countries is now around 12,000 MW and, under favourable conditions, it can even be as much as 14,500 MW (i.e. over 10% of its generation capacity). The interconnections are invaluable for the development of the European electricity market, as they are the only way for different networks to provide each other with backup in the event of incidents. Faced with the rising volume of commercial exchanges, the lack of sufficient exchange capacities is leading to congestion on the borders between different countries and their networks, stifling the development of the European power system. U.K. Spain Belgium Germany Italy Switzerland MW 1,400 MW 995 MW 2,000 MW 2,000 MW 2,200 MW 2,300 MW 2,750 MW 3,200 MW 2,850 MW 2,650 MW 3,200 MW 1,000 2,000 3,000 Import capacities Export capacities The physical capacity of a line depends on the infrastructure s technical characteristics and the time of year (capacities tend to be higher in winter). However, owing to the complex workings of a meshed network, the relationship between commercial capacities and physical capacities is a fine one. This is because the physical flows themselves depend solely on «injections» (generation) and «extractions» (consumption) at the network s various nodes, and are not determined by the exports and imports declared by market players. For this reason, RTE has developed a special method to determine commercial capacities based on the physical capacities available on the network. The commercial capacities of the various electric interconnections are shown on the graph opposite. 19