Day-ahead market - an year back and ahead

BG Day-ahead market- one year back

Undoubtedly, the introduction of a Day–ahead market was the most significant event of the Bulgarian electricity in 2016. The first trading day was January 19th, 2016, a week later, on January 26th, 2016, the Independent Bulgarian Electricity exchange (IBEX) was appointed by the Commission on Energy and Water Regulation (CEWR) for a nominated market operator at the electricity market.

IBEX started work with one market segment – a Day-ahead market. The second segment – a Centralized market of bilateral contracts was launched 10 months later –on October 25th, 2016.

Participants

Within a year the registered participants on the DAM reached 48 or almost 3 times more than the beginning. Buyers of energy are 40 traders and coordinators of balancing groups and 4 large energy consumers –Stomana Industry AD, Leyaro Kovashki Mashinostroitelen Complex, Zlatna Panega Cement and Mini Maritza Iztok which directly buy electricity for own consumption from the exchange.

Sellers are three companies from the Bulgarian energy holding (BEH) which ensure the general liquidity of the exchange. These are NPP Kozloduy, TPP Maritza-iztok 2 and NEK. Biovet is also entered in the DAM participants register –a private licensed CHP electricity producer.

Is DAM enough liquid?

No, according to the CEWR. In its decision №Ц-41/30.12.2016 the regulator commented that currently the Bulgarian DAM in contrast to the Romanian one, was not enough liquid in order to serve as a basis either for definition of referent price or for bundling the prices of the suppliers of balancing energy with its results.

In this first year of operation DAM liquidity was supported by an Agreement on liquidity supply between Bulgarian energy holding (BEH) and IBEX, stemming from the Case AT 39767 (BEH Electricity) –Antitrust procedure of European commission, DG Competition (link). According to the assumed commitments which aim is to be ceased the competition restriction on the wholesale electricity market in Bulgaria, BEH should offer certain minimal volumes of electricity on DAM for a five-year period in order to guarantee the market liquidity which are as follows:

First year: 293 MW
Second year: 373 MW
Third year: 484 MW
Forth year: 613 MW
Fifth year: 807 MW

Beside the volume issue the prices are the other important issue. As already said, three BEH’s subsidiaries offer almost the whole traded volume on the exchange. Such concentrated market structure creates a risk of market abuse. Thus the Decision of EC envisages price restriction –the maximum offer price should be based on marginal costs of the BEH’s subsidiaries.

Last but not least is the ownership issue. In order to avoid conflict of interests and to ensure the independence of the market operator BEH should divest the ownership of the power exchange and transfer its capital to the Ministry of Finance.

DAM – finally in Bulgaria

DAM is place where everyone can buy or sell electricity. It is enough to make a registration and to make an hourly based offer for the next day. The presence of such place for trading significantly reduces the risks for the participants, especially when they are new ones.

The anonymity of the trading guarantees the participants’ equality. The market price is calculated under certain algorithm and fairly reflects the point of intersection of the demand and supply (when there is competition).

DAM is a standard tool for electricity trading which is element of the European market model and is introduced in all EU countries in the period from 1990 to nowadays. The Bulgarian DAM is among the latest one. Its existence is a step for a market coupling with the neighboring countries. This is not as an end itself harmonization issue, the final aim is the reduction of electricity prices as a result of many more market participants, larger volumes of electricity and increasing competition.

Volume indicators

For one-year period beginning from the launch of DAM (from January 19th, 2016 to January 19th, 2017) at the power exchange were traded 2,6 mln MWh or about 7% of the gross electricity consumption in the country or about 9% of the final consumption in 2015 (without own needs of the power plants and the network losses). The average hourly load traded at the exchange was 300 MW.

The maximum daily load for the period was 480,5 MW, registered on 22.12.2016, the minimum – 52,4 MW on 14.02.2016;
The smoothest load profile was in July 2016 when the difference between the highest and the lowest load was 68,7 MW
The most dynamic load profile of the power exchange was on January 2017 – with difference 263,8 MW between the highest and the lowest
The number of the hourly deals which were over 500 MWh for the period under survey was 158 as they were often concluded between 11-15h.
On November 3rd 2016 the absolute maximum was reached for the period under the survey when 600,9 MWh were sold at 44,1 BGN/MWh. The most modest hourly volume of 3 MWh was traded on 14.02.2016 at 0,1 BGN/MWh.

Power exchange prices

The average price on the DAM for the period under the survey is 63,74 BGN/MWh. The highest average daily prices, as well the maximum spread were registered at the end of the period namely 246,24 BGN/MWh on 10.01.2017 and 13,79 BGN/MWh on 22.02.2016.

Several weeks after the launch of the power exchange the first zero and close to zero prices appeared between 1-3 h of February 2016. This trend continued in the beginning of March when the lowest hourly price was 0,08 NGM/MWh. In May 2016 for the first time was concluded deals at negative prices as the lowest hourly price was 19,56 BGN/MWh. The negative prices mean that the weak demand makes producers to offer negative prices for the supplied energy in order to avoid higher costs which may happen if generation is stopped. Likely, the periods with negative prices were again in the small hours between 2 and 5h.

The increased demand led to the highest hourly price of 341,93 BGN/MWh on January 10th, 2017 between 12-13h for the period under the survey.

A glance to the Romanian market

In 2016 at the Romanian DAM were sold 23,8 mln MWh according to the OPCOM data or about 47% of the country consumption. The number of the participants in December 2016 was 337 of which 253 were active.

Romania-consumption and DAM volume, MWh

Unlike the traded volumes, the prices of the Bulgarian and Romanian DAM are significantly close.

DAM-average monthly prices, EUR/MWh

Day ahead market – an year ahead

Surely, it can be expected:

Volumes of electricity on DAM which will be provided by BEH subsidiaries (NPP Kozloduy, TPP Maritza Iztok 2 and NEK) to increase by approximately 20% (according to the BEH’s assumed commitments for the second year, described above).
Stirring will happen on the second market segment – centralized market for bilateral contracts. The volumes which NPP Kozloduy, TPP Maritza Iztok 2 and NEK will provide are elements of the Agreement for liquidity provision between these companies and IBEX.
Third market segment will start Intra -Day Market (IDM), which is expected to have favourable impact on the prices of the balancing market. Market participants will have the opportunity to cover their imbalances though purchases and sales on IDM
BEH will transfer its control over the IBEX ownership to the Ministry of Finance.

If the reform in the energy sector goes well the exchange can operate quite successfully.

The volumes can increase significantly if the network companies start purchases for covering their technological losses from the power exchange
If the plants with long run power purchasing agreements begin to sell at the power exchange, the effect will be doubled – at one hand several times the traded volumes will increase, on the other hand the market power of the BEH subsidiaries on DAM will be reduced.
If the end-suppliers begin to buy part of the electricity necessary for the households from the exchange this will also contribute for higher liquidity driven by the strong demand
If all bilateral contracts are concluded through the power exchange the electricity trading will become more transparent
If the small Bulgarian DAM joins to the already united markets of the neighboring countries (i.e. 4MMC, the market coupling of Romania, Hungary, Chez Republic and Slovakia) the risk of breaking the competition will be finally overcome.

To make happen all these five “if” a long and complicated process have to be passed which hardly to complete in an year. It will be a success if it even starts

_{Note *1.01.2017-19.01.2017}