MARKET COUNCIL COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET Acting Board Chairman of the Non-commercial Partnership "Market Council“ M.Bystrov Electricity and Capacity Market: Today and Tomorrow MARKET COUNCIL COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET ■ Price zones of the wholesale market (areas with a regulated wholesale market) – Kaliningrad Region, Arkhangelsk Region, Komi Republic, the Far East – 4.8% of total consumption NON-PRICE AREAS ~156 GW, 74.3% of volumes Moscow ~45 GW, 21% ■ ■ PRICE ZONES (areas with a liberalized wholesale market) – European Russia and Urals + Siberia ■ ISOLATED REGIONS 1000 km 2 MARKET COUNCIL Structure of installed capacity and offer of electricity COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET As of the beginning of 2014, in the price zones of the wholesale market • Total installed capacity of the wholesale market stations – 201 GW • Peak load (10 hours 31.01.2014) – 135 GW • Annual power production (2013) – 907 billion kWh Electricity production by the wholesale market power plants in 2013, billion kWh Installed capacity of wholesale market power plants, as of the beginning of 2014, MW. 25 194 172 41 105 134 950 NPP 579 156 HPP TPP New capacity commissioning and modernization • By 2014, 16 GW of capacity was commissioned within the power delivery contracts and contracts with new Nuclear Power Plant / Hydro Power Plant ; by 2020, it is planned to introduce: Thermal Power Plant (TPP) – 14 GW, Nuclear Power Plant (NPP) – 7.7 GW, Hydro Power Plant (HPP) – 1.5 GW • Plans of RES introduction by 2020: Wind Power Plant – 3.6 GW, Solar Power Plant – 1.5 GW, Small Hydro Power Plant – 0.8 GW 3 MARKET COUNCIL Price parameters of the electricity market COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET Price dynamics in the day ahead market, first price zone, during the period from 2008 to 2013* 2,50 25,56 2,10 25,02 25,00 23,19 22,88 22,83 30,00 21,00 19,38 19,48 20,00 16,35 1,70 13,78 1,50 15,00 2 1,30 €/ MWh Price growth index, 2008 = 1 2,30 1,90 27,13 27,02 10,00 1,10 1 0,90 5,00 0,70 0,00 0,50 2008 1st half 2008 2nd half 2009 1st half Rise in gas prices by 2008 2009 2nd half 2010 1st half 2010 2nd half 2011 1st half 2011 2nd half 2012 1st half Rise in prices in the day ahead market by 2008 2012 2nd half 2013 1st half 2013 2nd half Day ahead market index, EUR/MW.h * - calculated in rubles according to the average exchange rate of Euro for the corresponding periods Peculiarities of pricing in the electricity market: The price dynamics in the day ahead market corresponds to that of regulated gas prices, except for the following cases: 1. In 2009, the price fall in the day ahead market was due to the demand contraction under the influence of the global financial crisis 2. The price fall in the day ahead market in 2011 and in the 1st half of 2012 on the background of stable gas prices was due, among other things, to an increase in generation efficiency on the background of introduction of new and reconstruction of the existing capacities within power delivery contracts 4 Structure of proceeds of generating companies MARKET COUNCIL COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET EBITDA of individual participants of the wholesale market for 2013 Structure of revenue of generating companies in the wholesale market € million 800 14% 687 23% 600 565 398 400 63% 258 200 Электроэнергия и мощность для населения по регулируемым Electricity and capacity for population at regulated prices ценам 0 Электроэнергия для ненаселения Electricity at non-regulated prices MOSENERGO (12,3 GW) Capacity at non-regulated prices Мощность для ненаселения E.ON Russia (10,4 GW) Fortum Russia (4,4 GW) Enel OGK-5 (9,7 GW) Components of the sale price for electricity subject to capacity for 2013* Year Electricity, €/MWh Capacity ("old"), €/MWh Capacity ("new"), €/MWh Total sale price, €/MWh 2011 19.11 5.30 0.97 25.38 2012 19.38 4.51 1.60 25.49 2013 21.38 5.36 2.55 29.30 * - according to the exchange rate of € of the Russian Central Bank as of 22.03.2014 (49.96 RUB/€) ** - generating capacity introduced under power delivery contracts and contracts with new Hydro Power Plant and Nuclear Power Plant objects 5 MARKET COUNCIL COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET Capacity market The electricity market is a short-term market which provides efficient load for the available generation Peak-load and reserve power plants do not receive enough funds from the electricity market to cover their fixed costs In addition to the electricity market in Russia, there is also a capacity market Principal functions of the capacity market prevention of capacity deficiency in the electric power system and creation of an optimal generation structure formation of long-term territorial price signals investment attraction Capacity market development in the near future, it is planned that long-term Today's capacity market competitive capacity selection for 4 years ahead - competitive capacity selection are conducted for the will be launched, where the existing power plants year ahead and primarily fulfill the pricing function and investment projects will compete for meeting - new capacity: a separate mechanism of capacity trade the forecasted demand and securing the guarantee for new generating units – capacity provision contracts of capacity remuneration. (guarantee of payback of an investment project for construction of new generation within 15 years with established profitability norm) - by 2020, it is planned to put into operation: TPP – 30 GW, NPP – 9.7 GW, and competitive Year of HPP – 1.5 GW 4 years capacity selection delivery In the aggregate, the electricity market and the capacity market are intended to optimize the purchasers' costs for full coverage of the costs of electricity producers and provide for long- and short-term reliability and efficiency of the power grid functioning 6 MARKET COUNCIL COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET Renewable energy sources (RES) projects selection First RES projects selection was made in September 2013 (for 2014-2017 years of commission) MW Selected 160 Second RES projects selection will be done in June 2014 (for 2015-2018 years of commission) MW 149 Capacity selection plan 800 140 750 700 115 120 600 100 100 90 80 Solar СЭС 60 Wind ВЭС 35,2 40 0 2014 2015 300 100 0 0 2016 2017 СЭС Solar 410 400 250 124 25 26 Wind ВЭС 270 235 200 15 20 500 150 124 МГЭС Small 141 Hydro 51 0 2015 2016 2017 2018 Support principles of RES with assistance of RES Capacity Supply Contracts (CSC):  the lower price project selection (auction to reduce capital expenditure)  the Contract pricing formulation excludes Regulator influence according to the pricing mechanism, macro-situation aspects already built-in (return on capital is subjected to yield of the OFZ (Federal Loan Obligations), an inflation rate also included)  localization requirement failure reduces price. Localization requirements are: • Solar Power – 2014 and 2015 – 50%, starting from 2016 - 70% • Wind Power – 2014 – 35%, 2015 – 55%, starting from 2016 - 65% 7 MARKET COUNCIL End price structure depending on the voltage level COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET 90 €/MWh 80 0,06 3,16 70 0,06 0,06 60 50 40 Other expenses 3,16 Sales markup 3,16 0,06 3,16 ! 45,4 28,2 34,76 Grid tariff 18,7 30 20 27,4 27,4 27,4 27,4 over 110 kV from 35 to 110 kV from 1 to 35 kV under 0,4 kV 10 Non-regulated price in the wholesale market for electricity and power 0 The average payment in the Russian Federation for transmission services in the structure of the electricity end price varies from 38% for high voltage to 60% for low voltage: the level of prices for the services of transmission and distribution of electricity is one of the key factors of pricing in retail markets 8 MARKET COUNCIL COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET Main trends of development of market relations in the power supply sector Wholesale market: ● improving the procedures of competitive capacity selection (transition to long-term regulation methods) ● simplifying the procedure of entry in the wholesale market ● improving the approaches to formation of zones of free overflow Retail markets ● possibility of transition to a unified group of delivery points in the territory of a subject of the Russian Federation ● extension of exchange trade in electricity and derived tools ● simplifying the procedure of sales company switching ● single standard of requirements for the guaranteeing supplier and sales company 9 MARKET COUNCIL COUNCIL FOR ORGANIZING EFFICIENT SYSTEM OF TRADING AT WHOLESALE AND RETAIL ELECTRICITY AND CAPACITY MARKET Expected results ● Development of long-term relations in the sector due to the increase of predictability and transparency of pricing in both the wholesale and retail markets ● Investments in new constructions on basis of long-term selection and conclusion of long-term agreements ● Enhancement of "self-regulation" of the wholesale and retail markets due to stronger competition between suppliers and introduction of additional mechanisms of the consumers involvement in trade ● Reduction of transaction expenses and risks in the sector thanks to the conclusion of long-term agreements and formation of long-term obligations with the price parameters determined by the market 10