Cross Border Intraday BE-NL Interim Solution Brussels 26

Cross Border Intraday BE-NL Interim Solution Brussels, 26 July 2010 A. Vreeman (APX-Endex) T. Kramer (Belpex) 1

Agenda • Elbas introduction • Interim solution • Technical implementation – – Trading Block bids Transmission capacity Settlement • Enduring solution – Compatibility – Parallel approach 2

Elbas today • • The only cross border intraday market in Europe Continuous 24/7 trading – Individual hours – Blocks bids • • A tool to adjust trades made in the day-ahead market before hour of delivery Fast developing liquidity: – 1. 8 TWh in 2008 – 2. 3 TWh in 2009 • • • Real-time Reliable Proven 3

The Elbas model as-is • Developed during the nineties – Customer need for adjustment of day-ahead schedules before hour of delivery – Risk and uncertainty due to expensive and unpredictable balancing market – Need for a more efficient use of the remaining cross border capacity after day-ahead trading – Potential for a better use of production flexibility across borders • Further development / extension foreseen: – – – Negative prices Smaller volume tick size i. e. 0. 1 MW instead of 1 MW (under discussion) Further volume and liquidity increase (30 % increase the last year) Further geographical growth (Benelux, the Baltic) Increased cable capacity between the Nordic countries and the continent 4

Elbas ad-interim • • Implicit cross border trading makes better use of grid capacity: Immediate improvement of current situation NL-BE Potential to link NL-BE to NO and GE: – Access to counterparts with different product mix – Access to counterparts with different weather conditions – Access to counterparts with different marginal costs – Increases the potential for flexible producers (i. e. hydro) – Reduces the risk of the balancing market – Reduces the risk of prices below marginal cost Ø Learning experience to help develop enduring Target Solution 5

Interim solution • Relatively modest cost/effort: – – Elbas as-is (only development of interfaces and supporting software) Use of existing systems and infrastructure, proven technology Relatively minor TSO efforts required No interference with other interim solutions (e. g. FR-DE-AU) • Important improvement of today’s allocation mechanism – Continuous implicit allocation, coupling of existing ID markets – Together with other regional solutions: comprehensive solution, even if links between platforms rely on trader arbitrage – Initial Scope: NL-BE – Potential: NL-DE and NL-NO targeted, other extensions can be investigated • Facilitates development of an enduring solution – Refinement of target requirements, based on learning experience – Governance framework can be re-used for enduring solution, although not a necessity – Strong commitment of APX-Endex, Belpex and Nord Pool to support establishing the enduring Target Solution, in part given by shared views and secured by similarities in shareholder structures 6

Interim solution step 1: NL-BE Elia + Tenne. T operators: • Real-time capacity monitoring • Re-use of pro-rata allocation platform Capacity Matrix Matching Algorithm Shared Order Book APX/NL market BPX/BE market Clearing/ Notification Systems (APX) Systems (APX on behalf of BPX) Elbas system: • Hosted by NPS • Separated from NPS Elbas market (as no capacity is made available yet), but the same instance is used = opportunity • Well-known, appreciated, implemented and deployed, reliable and proven (uptime 99. 98%) Local operations by APX/Belpex: • Existing membership arrangements are retained • Existing risk management, reporting and settlement systems are retained • Well-known, appreciated, implemented and deployed, reliable and proven 7

Interim solution step 2: NO-GE-NL-BE Open Capacity Matrix: GE-NL, GE-DK TSO operator(s) Capacity Matrix Master (Slave GE-NL, GE-DK) Matching Algorithm Other interim solutions (FR-DE? ) Direct Access Shared Order Book APX: NL market BPX: BE market NPS: Nordic, GE market Clearing/ Notification Systems (APX) Systems (APX on Systems (NPS) behalf of BPX) 8

Trading • Elbas supports continuous trading, where XB trading is possible if and insofar TSOs provide XB transmission capacity: what you see is what you get – If bottlenecks from BE to NL, then participants in NL will not see the sales bids from traders in BE – If there are no bottlenecks, all participants view all bids in the market: there is ONE MARKET 9

Continuous trading • A bid/offer consists of: – – – The product i. e. the instrument to be traded The volume The price Minimum volume of a bid/offer is 1 MWh Minimum price tick-size is 10 €cents • Priority order of bids/offers: – Price i. e. incoming bid/offer receives the best available price(s) – Timestamp i. e. arrival of the bid/offer to the register • Any bid/offer is binding until: – A trade happens, the bid/offer is changed inactivated or cancelled – Expiry of the instrument to be traded – A bid/offer can be changed or cancelled until it is filled i. e. it finds a counterparty in the market 10

Block bids • Execution constraint: “all-or-none” • Matching of a block bid and offer requires fulfillment of: – The length of the block – The price – The volume • Traders are free to define the block’s start and stop hours – The volume (MW) is the same for each hour – The price (€) is the same for each hour – Average Price Calculator tool can be used when placing block bids • A block bid/offer can consist of all hours open for trading, hence a block can at the maximum be up to 32 hours 11

Transmission capacity • TSOs provide confirmed capacity (ATC) to Elbas – File transfer or manual input • TSOs may at any point in time change capacities input to Elbas, if so required due to grid circumstances – TSOs have direct access to Elbas for this purpose, real-time • Elbas trading is firm – Change of capacity does not cancel Elbas trades that have already been concluded 12

Trading scheme • 12 -gate nomination scheme – Nomination gate closure every 2 hours • Trading scheme: – XB trading (competition between BE and NL orders) will be possible: • Until 1: 30 before real time for “even hours” • Until 2: 30 before real time for “uneven hours” – Belpex/BE trading closes 5 minutes before real time – APX/NL trading closes 90 minutes before real time – Continuous trading, no hindrance from “underlying” gate system 13

12 -gate nomination scheme 14

Transparency • Transmission capacities and market data (anonymous) can be accessed via the web • In addition to customer reports (own orders and trades), traders can access detailed anonymous market information via Elbas, such as: – – Price information and market depth Transmission capacities Trade ticker All in real-time • Furthermore, APX-ENDEX / Belpex systems archive all individual trade data, which can be accessed by participant via existing facilities and protocols 15

Elbas price information window 16

Elbas market depth In the Order Depth -window participants can observe bids and offers in the selected Elbas-area by Instrument Bid = buy bid Ask = sell offer Bqty = volume of the bid Aqty = volume of the offer 17

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Cross-PX settlement link • Local markets are settled as per existing clearing and settlement arrangements – Daily settlement • APXSHIP buys power in exporting Hub, and sells power at the same price in the importing Hub – Single clearing house (APX-Endex) – Daily settlement as per standard timings • Physical fulfillment as per standard balancing arrangements – APXSHIP becomes balance responsible for this specific purpose i. e. full segregation from normal business – APXSHIP delivers power to the importing PX-BRP (either APXEndex Clearing in NL, or Belpex in BE) 19

Physical fulfillment This example illustrates the scenario where there is a flow from BE to NL 20

Physical fulfillment This example illustrates the scenario where there is a flow from NL to BE 21

Enduring Solution 22

Target solution • Requirements for NWE enduring IDXB solution are currently elaborated, based on the AHAG target solution and the CWE orientation study • Exchanges see 2 basic approaches – Centralized or decentralized – Detailed assessment to be done once enduring requirements become clear • Interim solution does not hinder further development of the target model – – Technical: to be assessed, but developments will likely be needed Governance: enduring can build on interim XB shipping: easily extendible Scope: interim solution could cover substantial part of NWE region • Strong commitment of APX, Belpex and Nord Pool to work with TSOs and other Exchanges to establish the enduring CWE-Nordic 23 solution

Target solution compatibility • ELBAS as a market model – Excellent basis for the target model, as most of its features are at the root of the target model (e. g. continuous trading and implicit capacity allocation, real-time direct TSO control) – Nevertheless, some changes could be performed in order to further improve the market model, such as: • Market-based allocation in case of increase (decrease? ) of capacity • Enhanced treatment of block orders (automatic cross-matching of block and hourly products) • Introduction of more sophisticated orders to replace OTC needs • ELBAS as an IT System – Excellent basis for the target model, as it exists, builds over 10 years of experience in XBID, accepted (and asked for) by the market – Will necessitate technical changes/improvements in order to fully cope with the target market model design, once established 24

Target solution (centralized) TSO operator(s) Capacity Matrix • • Capacity Matrix Platform operator(s) TSO operator(s) Matching Algorithm Optional: could be replaced by TSOs managing capacities directly in platform FCFS not a market-based mechanism Efficiency / response times? Non-discriminatory and equal access to be secured Shared Order Book 1 APX: NL market BPX: BE market NPS: Nordic, GE market Other market operator/OTC Clearing/ Notification Systems (APX) Systems (APX on Systems (NPS) behalf of BPX) Other market operator/OTC 25

Target solution (decentralized) Regional Capacity Matrix Slave Matching Algorithm Cross matching of orders BPX: BE market NPS: Nordic, GE market TSO operator(s) Capacity Matrix Slave Matching Algorithm Platform operator(s) Shared Order Book 2 Shared Order Book 1 APX: NL market Regional Capacity Matrix Other market operator Clearing/ Notification Systems (APX) Systems (APX on Systems (NPS) behalf of BPX) Other market operator Challenges: • Liquidity split • Complex implementation (cost) efficient? • Cross matching of orders: consequences, free riding issues? 26

Parallel path approach • Interim path: – Efficient solutions across large regions that can be achieved quickly and with minimal development effort, while bringing already significant improvements • Enduring path: – Clear/tangible engagement to (help) design and implement the CWE or European target model 27

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