Capital Weekly Conference on Energy Market Development Win

Capital Weekly Conference on Energy Market Development Win – Win Scenarios Balancing Stakeholders' Interests in Energy Market Liberalization Nikolay Minkov March 10 th, 2009 Sheraton Hotel Balkan, Sofia

Balancing Stakeholders' Interests. . . Bulgarian Experience Content § § § § A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 2

Balancing Stakeholders' Interests. . . Bulgarian Experience SEE: A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § § Moving to market economies Transforming economic capacities Mapping globalization to the region Improving industrial competitiveness Investing into old infrastructure Establishing energy markets Professionalizing services Educating consumers Integrating markets Enlarging the EU nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 3

Balancing Stakeholders' Interests. . . Bulgarian Experience SEE: Energy Sector Dynamics A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § § Energy extensive economies Energy efficiency investments Asset extensive infrastructure Capital for rehabilitation needed Environmental extensive industries Invest into environment imperatives Fast growing energy demand New sources & generation capacities Energy markets establishment Invest into regulatory capacity nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 4

Balancing Stakeholders' Interests. . . Bulgarian Experience Unbundling: Movers and Followers A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § § Inspired by large energy consumers Designed in academic labs Promoted by the IFIs Institutionalized by the EC Introduced by parliaments Supervised by governments Administered by regulators Monitored by watchdogs but … Driven by the energy industry nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 5

Balancing Stakeholders' Interests. . . Bulgarian Experience Unbundling: Poetic Drama A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers nminkov@uconomics. com LORD BARDOLPH … “When we mean to build, We first survey the plot, then draw the model; And when we see the figure of the house, Then must we rate the cost of the erection, Which if we find out weighs ability, What do we then but draw anew the model In fewer offices, or at last desist. To build at all? Much more should we survey The plot of situation and the model, Consent upon a sure foundation, Question surveyors, know our own estate, How able such a work to undergo, To weigh against his opposite: or else We fortify in paper and in figures Using the names of men instead of men, Like one that draws the model of a house Beyond his power to build it: who, half-through, Gives o’er, and leaves his part-created cost A naked subject to the weeping clouds, And waste for churlish winter’s tyranny”. … William Shakespeare, Henry IV, Part 2, Act I, Scene III Capital Weekly Conference, Sofia, March 2009 6

Balancing Stakeholders' Interests. . . Bulgarian Experience Unbundling: Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § Step I: By Accounting Step II: By Management Step III: By Legal (Incorporation) Step IV: By Ownership (Privatization) Step V: By Services (Grid vs. Sales) Step VI: Re-Bundling? . . . European Directives … Gen. Cos + Trans. Co + Dis. Cos? New State-Own BG Energy Holding Group was established nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 7

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Stakeholders A Region in Transition Unbundling Drivers Market Stakeholders Generation companies Market Balancers Trading companies Demand-Siders Challenges Ahead Wholesale companies Supply companies Energy Market Questions & Answers Transmission companies Distribution companies Eligible consumers nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 Residential consumers s et rk a M in n io t si an tr 8

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Stakeholders A Region in Transition Unbundling Drivers Market Stakeholders Generation companies Market Balancers Trading companies Demand-Siders Challenges Ahead Wholesale companies Supply companies Energy Market Questions & Answers Transmission companies Distribution companies Eligible consumers Residential consumers ir Fa nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 sk Ri on i at oc ll A 9

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Stakeholders A Region in Transition Unbundling Drivers Market Stakeholders Generation companies Market Balancers Trading companies Demand-Siders Challenges Ahead Wholesale companies Supply companies Energy Market Questions & Answers Transmission companies Distribution companies Eligible consumers nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 Residential consumers cy en ar sp an Tr r ai F 10

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Neighborhoods A Region in Transition Unbundling Drivers Market Stakeholders Commodities & Environmental Market Assets & Engineering Services Market Generation companies Market Balancers Trading companies Demand-Siders Challenges Ahead Wholesale companies Supply companies Energy Market Questions & Answers Transmission companies Distribution companies Eligible consumers Invest & Financial Services Market nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 Residential consumers Legal Services Market 11

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Balancers A Region in Transition Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Law Assemblers EC, Regional Agreements, National Parliaments Unbundling Drivers Generation companies Trading companies Wholesale companies Supply companies Energy Market Transmission companies Distribution companies Eligible consumers Residential consumers Judge Processors Courts, Prosecutors, Attorneys, etc. Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof. , Municipal & Consumer Assoc. , Media, Academia, etc. nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 12

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Balancers A Region in Transition Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Law Assemblers EC, Regional Agreements, National Parliaments Unbundling Drivers Generation companies Trading companies Wholesale companies Supply companies Energy Market Transmission companies Distribution companies Eligible consumers Residential consumers Judge Processors Courts, Prosecutors, Attorneys, etc. Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof. , Municipal & Consumer Assoc. , Media, Academia, etc. nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 13

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Balancers A Region in Transition Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Law Assemblers EC, Regional Agreements, National Parliaments Unbundling Drivers Generation companies Trading companies Wholesale companies Supply companies Energy Market Transmission companies Distribution companies Eligible consumers Residential consumers Judge Processors Courts, Prosecutors, Attorneys, etc. Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof. , Municipal & Consumer Assoc. , Media, Academia, etc. nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 14

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Balancers A Region in Transition Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Law Assemblers EC, Regional Agreements, National Parliaments Unbundling Drivers Generation companies Trading companies Wholesale companies Supply companies Energy Market Transmission companies Distribution companies Eligible consumers Residential consumers Judge Processors Courts, Prosecutors, Attorneys, etc. Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof. , Municipal & Consumer Assoc. , Media, Academia, etc. nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 15

Balancing Stakeholders' Interests. . . Bulgarian Experience Energy Market Balancers A Region in Transition Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers Law Assemblers EC, Regional Agreements, National Parliaments Unbundling Drivers Generation companies Trading companies Wholesale companies Supply companies Energy Market Transmission companies Distribution companies Eligible consumers Residential consumers Judge Processors Courts, Prosecutors, Attorneys, etc. Policy Governors Cabinet, Antitrust Commission, Energy Regulator, etc. Opinion Makers Prof. , Municipal & Consumer Assoc. , Media, Academia, etc. nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 16

Balancing Stakeholders' Interests. . . Bulgarian Experience Demand-Siders A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § More active role into market liberalization Competences to energy market design Encourage their role in market monitoring Invest into energy management solutions Invest contrariwise to energy / env verticals Association of their energy interests European consolidation of associations nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 17

Balancing Stakeholders' Interests. . . Bulgarian Experience Demand-Siders: Bulgarian Experience A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § Jul 2001 – start of market preparation Jan 2002 – 1 st eligible customers meeting Mar 2003 – bilateral market simulation 2003 – … – WG on market rules design … Sep 2003 – 2 nd eligible customers meeting Jul 2004 – market was opened (on paper) Aug 2004 – 1 st bilateral contract signed Jan 2005 – 1 st wave of contracts appeared 2005 – 07 – power traders appeared Dec 2006 – BFIEC was established Jan 2008 – design of balancing groups … nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 18

Balancing Stakeholders' Interests. . . Bulgarian Experience Demand-Siders: Industry A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § Promoter of energy market liberalization The most powerful stakeholder Lack of active role nowadays Picking-up the enterprise energy manager Lack of associated capacity today Encouragement of national associations Regional consolidations of associations European consolidation of associations Example < MKFIEC ? § IFIEC < EFIEC < SEEFIEC < BGFIEC nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 19

Balancing Stakeholders' Interests. . . Bulgarian Experience Demand-Siders: Procurement Practice A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § Price, reliability and environment issues Risk and rewards for eligible customers Contractual formats and packaging Factors to evaluate competing offers Negotiations processes and practice Scheduling and forecasting items Balancing groups establishment Lessons learned … nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 20

Balancing Stakeholders' Interests. . . Bulgarian Experience Demand-Siders: BGFIEC … SEEFIEC ? A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § Association of power interests in BG industry Too long preparatory works (3 years) Lack of understanding market phenomena The missed enterprise energy manager Needs of lobbying capacity development Needs of power sector transparency Needs of market monitoring practice Taking part into regulatory audits Cross border power trade facilitation Cross border exchange of experience Cross border association of interests nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 21

Balancing Stakeholders' Interests. . . Bulgarian Experience Demand-Siders: Commerce A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § § Professionalizing facility managers Investments into energy efficiency Market recognition of facility managers Regulatory recognition of facility managers Energy training to facility managers Lack of associated capacity today Encouraging FMAs to energy contribution nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 22

Balancing Stakeholders' Interests. . . Bulgarian Experience Demand-Siders: Residential A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § Smart Home solutions § Picking up the energy & utilities culture § Development of financing mechanisms § Association of residential energy services Example US Energy cooperatives • • Are located in 80% of the nation’s counties Are the largest electric utility network in the nation Total more than 930 local systems in 47 states Have 40 million member-owners Distribute power over 2. 4 million miles of line Serve 75% of the U. S. land mass Own $97 billion in T&D and generation assets One of the US most recognized customer satisfaction measure nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 23

Balancing Stakeholders' Interests. . . Bulgarian Experience Challenges Ahead A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers § § § Regulatory options for dispute resolutions Capacity building of National FIECs More Nat FMA attention on energy market Transport energy contribution to market dev European models for retail associations European umbrella for DS associations DS contribution to market rules DS support to contractual frameworks dev DS support to regulatory process DS support to infrastructure development DS contribution into market transparency nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 24

Balancing Stakeholders' Interests. . . Bulgarian Experience Questions & Answers A Region in Transition Unbundling Drivers Market Stakeholders Market Balancers Demand-Siders Challenges Ahead Questions & Answers nminkov@uconomics. com Capital Weekly Conference, Sofia, March 2009 25

Capital Weekly Conference on Energy Market Development Thank you for your attention! Nikolay Minkov nminkov@uconomics. com March 10 th, 2009 Sheraton Hotel Balkan, Sofia