EDF
E le c t r ic it é
d e F ra n c e
Generation Investment and
Electricity Market Design
Jean-Paul Bouttes – Assaad Saab
Branche Energies – EDF
IEA – March 25-26, 2003
Electricity Restructuring :
EDF
E le c t r ic it é
d e F ra n c e
Mixed success of deregulation
Where do we stand ?
„ Rules in Turmoil : complexity and
difficulties of implementations
„ Key role of effective wholesale markets
„ Increased awareness of further challenges
„
EDF
European Power Market:
E le c t r ic it é
d e F ra n c e
Lessons learned
„
„
„
„
The power system moves away from “command and
control” planning solutions to price-based solutions
Markets play a key role in creating signals and are good at
optimising the usage of the available generation assets
Wholesale market prices have significantly decreased until
recently
Open questions for debate :
- Do deregulated markets provide enough incentives to
invest in new generation facilities ?
- How to manage the new sources of risks ?
EDF
European Power Markets :
E le c t r ic it é
d e F ra n c e
Learning by doing
„
„
„
Two key drivers : wholesale markets and crossborder trading
New approaches and challenges for risk
management :
- high volatility of electricity prices, transmission
congestion, role of “ancillary services”, new
capacity investment, …
Emergent concerns for regulators :
- abuse of market power, support of public policy
initiatives, incentives to invest
Wholesale Electricity Markets :
EDF
E le c t r ic it é
d e F ra n c e
Fragmented and still immature
„
„
A single European market remains a very long
way off
- continental perspective (France,
Germany,Switzerland, Belgium, The
Netherlands)
- Peninsula and regional perspective (Italy, Spain,
Portugal, Scandinavia, UK)
A growing awareness of remaining challenges
around market design, availability of network
infrastructure balance between supply and demand,
and behaviour of market participants
A continental perspective
EDF
E le c t r ic it é
d e F ra n c e
Snapshot of Day
Ahead power prices
(beg. July 2002)
UK
24 €/MWh
France
24.5 €/MWh
Spain
43 €/MWh
Germany
33 €/MWh
The Netherlands
37 €/MWh
A continental perspective
(cont’d)
Snapshot of Day
Ahead power prices
(end Nov. 2002)
E le c t r ic it é
d e F ra n c e
Scandinavia
44 €/MWh
UK
30 €/MWh
Germany
21 €/MWh
France
21 €/MWh
Spain
35 €/MWh
EDF
The Netherlands
30 €/MWh
A continental perspective
(cont’d)
EDF
E le c t r ic it é
d e F ra n c e
Wholesale markets are still very fragmented
across Europe
„ Issues around the interconnections
(commercial flows differ from physical
flows => constraints)
„ Retail markets will be completely opened to
competition within a few years
„
EDF
A continental perspective
(cont’d)
E le c t r ic it é
d e F ra n c e
Transmission issues : an illustration (Summer 01)
G
800
MW
G
B
2,200
MW
1,300 MW
4,000 MW CH
FR
B
2,100 MW
200 MW
1,600 MW
FR
CH
2,200 MW
IT
Commercial flows
IT
Physical flows
Wholesale Electricity Markets
and Cross-Border Trading
„
EDF
E le c t r ic it é
d e F ra n c e
A lack of appropriate instruments and rules
for cross-border trading and interconnecting
capacity allocation increases financial risks
EDF
The Challenge of Risk
Management in Electricity Markets
E le c t r ic it é
d e F ra n c e
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Adjusting risks to market situation at all times
- Market risks
(price, demand & supply uncertainty)
- Regulatory risks (environment, taxation, …)
- Congestion risks (transmission capacities, …)
- Credit risks
- Other (technological, weather, …)
Additional experience is needed for dealing with
the complexity of electricity markets (risk hedging
contracts, auctions, …)
EDF
Emergent concerns for
Regulators
E le c t r ic it é
d e F ra n c e
Abuse of market power market will
specifically monitor peak prices
„ Promotion of a generation mix (e.g.
fostering renewable energy)
„ Provision of adequate incentives to invest
(short sighted markets versus medium / long
term returns on investments)
„
Incentives from an investor’s
perspective
„
EDF
E le c t r ic it é
d e F ra n c e
Incentives (“Market”, “Command and
Control”)
‹ Possibility to enter into long term
contracts
‹ Capacity payments (Resource Adequacy
Requirement)
‹ Specific incentives to promote certain
types of generation (Green Certificates,
…)
EDF
E le c t r ic it é
d e F ra n c e
Assessing the rentability of a Gas Turbine
from the investor’s point of view
E le c t r ic it é
d e F ra n c e
10000
€/MWh
140
EDF
120
5000
100
hourly price /
duration expectancy
80
60
0
8600 8700
40
GT data
20
0
0
2000
4000
6000
8000
assessing the peaking period (price>var.cost)
conditional expectancy
• annual fixed cost : 40 € per kW guaranteed
• variable cost (gas fuel) : 80 €/MWh
scenario 1
scenario 2
scenario 3
150 €/MWh
1000 €/MWh
10000 €/MWh
100 h
30 h
5h
0,9%
7 €/kW
0,3%
28 €/kW
0,05%
50 €/kW
duration expectancy (number of hours)
duration expectancy in % of annual duration
annual margin on variable cost per kW
not high enough to invest (< 40 €/kW)
EDF
E le c t r ic it é
d e F ra n c e
As a conclusion …
The most attractive project is likely to be:
„ A competitive plant
„ With a reduced exposure to market price
risks (baseload plant)
„ Developed by a vertically integrated
company (market and credit risks
mitigation)