Deliverable 6.1

THEME [ENERGY.2012.7.1.
1] Integration of
Distributed Resources in Distribution Networks
Variable
(Deliverable 6.1)
Economic Framework of Insular Electric

Networks
Economic framework of insular electric networks
Authors
Authors
Organization
Email
Universidad de Castilla - La Mancha
pilarmenesesdq@gmail.com
Javier Contreras
Universidad de Castilla - La Mancha
Javier.Contreras@uclm.es
Celia Bueno
Instituto Tecnolgico de Canarias
cbueno@itccanarias.org
Daniel Henriquez
dhenriquez@itccanarias.org
Salvador Suarez
ssuarez@itccanarias.org
Radu Godina
Universidade da Beira Interior
radugodina@gmail.com
Tiago Mendes
Universidade da Beira Interior
tiagomendestdi@gmail.com
Radu Porumb
POLITEHNICA University of
Bucharest
radu.porumb@upb.ro
Ramona Elena Vatu
Bucharest
vatu.ramona@gmail.com
Oana Luminita Ceaki
Bucharest
ceaki.oana@yahoo.com
Gianfranco Chicco
Politecnico di Torino (POLITO)
gianfranco.chicco@polito.it
Paolo Di Leo
paolo.dileo@polito.it
Pilar Meneses de Quevedo
Spain
Portugal
Romania
Italy
Angela Russo
angela.russo@polito.it
Filippo Spertino
filippo.spertino@polito.it
Anastasios Bakirtzis
AUTH
bakiana@eng.auth.gr
Christos Simoglou
AUTH
chsimoglou@ee.auth.gr
Andreas Vlachos
AUTH
agvlachos.edu@gmail.com
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Greece
Access:
Project Consortium
Family Projects within
ENERGY.2012.7.1.1
X
topic
European Commission
Public
Status:
Draft version
Submission for Approval

Final Version
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Summary
This paper presents the state-of-the art of the electricity market structure and operation
in Spain, Canary Island, Portugal, Romania, Italy and Greece with a focus on the
distributed generation in an insular context. The main goal is to analyze recent market
rules and the remuneration of distribution in order to consider new proposals that
improve the insular regulatory framework. The new context where distribution
generation (DG) is integrated in the distribution system is the main challenge for
distribution companies to be able to meet new technical and operational requirements.
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AUTHORS ...................................................................................................................... 2
SUMMARY ..................................................................................................................... 4
1. INTRODUCTION ........................................................................................................ 9
1.1 SPAIN .......................................................................................................... 9
1.2 PORTUGAL ................................................................................................. 9
1.3 ROMANIA.................................................................................................. 10
1.4 ITALY ........................................................................................................ 10
1.5 GREECE.................................................................................................... 10
2. ELECTRICITY SECTOR ..........................................................................................11
2.1 SPAIN ........................................................................................................ 11
2.1.1 LIBERALIZATION ............................................................................ 11
2.1.2 AGENTS OF THE ELECTRICITY SECTOR .................................... 11
2.1.3 ORGANIZATION MODEL OF THE ELECTRICITY SYSTEM .......... 11
2.1.4 LIBERALIZED MARKET .................................................................. 13
2.1.4.1 CLEARING ALGORITHM ................................................... 16
2.1.5 ELECTRICITY MARKET DESIGN ................................................... 18
2.1.5.1 DAILY MARKET ................................................................. 18
2.1.5.2 INTRADAY MARKET.......................................................... 19
2.1.5.3 SERVICE MARKET ADJUSTMENT ................................... 20
2.1.6 ELECTRIC BILL IN SPAIN .............................................................. 20
2.1.6.1 REGULATED COMPONENT ............................................. 21
2.1.6.2 MARKET COMPONENT .................................................... 22
2.1.6.3 LOST IN THE WIND ENERGY SECTOR PER DEVIATION
COST
22
2.1.7 THE AUTONOMOUS REGION OF THE CANARY ISLAND ........... 23
2.1.7.1 CONFIGURATION OF THE GENERATING TECHNOLOGIES
IN CANARY ISLAND .......................................................... 24
2.1.7.2 COSTS ASSOCIATED TO NON MAINLAND SYSTEM .. 26
2.1.7.3 CANARY ISLAND ELECTRICITY PRICE........................... 27
2.2 PORTUGAL ............................................................................................... 27
2.2.1 LIBERALIZED MARKET IN PORTUGAL ......................................... 27
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2.2.2.1 AGENTS AND ENTITIES OPERATING IN THE ELECTRICITY

SECTOR 29
2.2.2.2 THE AUTONOMOUS REGION OF THE AZORES
ARCHIPELAGO .................................................................. 29
2.2.2.3 THE AUTONOMOUS REGION OF THE MADEIRA
ARCHIPELAGO .................................................................. 30
2.2.3 ORGANIZATION MODEL OF THE PORTUGUESE ELECTRICITY
SYSTEM .......................................................................................... 30
2.2.3.1 ELECTRICITY GENERATION ............................................ 32
2.2.3.1.1 ORDINARY REGIME ......................................... 33
2.2.3.1.2 SPECIAL REGIME ............................................ 33
2.2.3.2 ELECTRICITY TRANSMISSION ........................................ 33
2.2.3.3 ELECTRICITY DISTRIBUTION .......................................... 34
2.2.3.4 ELECTRICITY SUPPLY ..................................................... 34
2.2.3.5 OPERATION OF THE ELECTRICITY MARKETS .............. 35
2.2.3.6 LOGISTICS FOR SWITCHING SUPPLIERS ..................... 35
2.3 ROMANIA.................................................................................................. 35
2.3.1 LIBERALIZATION ............................................................................ 35
2.3.4 ELECTRICITY MARKET MECHANISMS ........................................ 38
2.4 ITALY ........................................................................................................ 39
2.4.2 THE WHOLESALE MARKET .......................................................... 40
2.4.3 ZONES AND ZONAL PRICES......................................................... 41
2.4.4 TARIFF SYSTEM FOR PROTECTED CATEGORIES .................... 45
2.5 GREECE.................................................................................................... 49
2.5.1 ORGANIZATIONAL ENTITIES OF THE GREEK ELECTRICITY
SECTOR .......................................................................................... 50
2.5.2 MARKET DESIGN OVERVIEW ....................................................... 52
3. EVOLUTION OF THE LEGISLATION ....................................................................53
3.1 SPAIN ........................................................................................................ 53
3.1.1 HIGHLIGHTS ON THE ELECTRICITY ACT AND ITS REGULATION53
3.1.2 OPERATING PROCEDURES OVERVIEW IN INSULAR SYSTEMS57
3.1.3 DISTRIBUTION GRID OPERATION ............................................... 58
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3.2 PORTUGAL ............................................................................................... 59

3.2.1 INSULAR SYSTEMS ....................................................................... 62
3.2.1.1 THE AUTONOMOUS REGION OF THE MADEIRA
ARCHIPELAGO .................................................................. 62
3.2.1.2 THE AUTONOMOUS REGIONS OF THE AZORES
ARCHIPELAGO .................................................................. 62
3.3 ROMANIA.................................................................................................. 62
3.3.1 HIGHLIGHTS ON THE ELECTRICITY ACT AND ITS REGULATION63
3.3.2 GENERATION OF ELECTRICITY ................................................... 64
3.3.3 ELECTRICITY TRANSMISSION ..................................................... 64
3.3.4 ELECTRICITY DISTRIBUTION ....................................................... 64
3.3.5 ELECTRICITY SUPPLY .................................................................. 65
3.4 ITALY ........................................................................................................ 65
3.4.1 EVOLUTION OF THE ITALIAN REGULATION ............................... 65
3.5 GREECE.................................................................................................... 68
3.5.1 EVOLUTION OF THE LEGISLATIVE & REGULATORY FRAMEWORK
68
4. CURRENT INSULAR ECONOMIC FRAMEWORK...............................................69
4.1 SPAIN ........................................................................................................ 69
4.1.1 GENERATION ................................................................................. 69
4.1.2 RETAILING ...................................................................................... 72
4.1.3 TRANSMISSION ............................................................................. 73
4.1.4 DISTRIBUTION ............................................................................... 73
4.2 PORTUGAL ............................................................................................... 75
4.2.1 GENERATION ................................................................................. 75
4.2.2 TRANSPORTATION........................................................................ 76
4.2.3 DISTRIBUTION ............................................................................... 77
4.2.4 RETAILING ...................................................................................... 80
4.2.5 MICROGENERATION ..................................................................... 80
4.2.6 CURRENT INSULAR ECONOMIC FRAMEWORK: CASE OF THE
AZORES ISLANDS.......................................................................... 81
4.2.6.1 GENERATION .................................................................... 81
4.2.6.2 TRANSPORTATION AND DISTRIBUTION ........................ 82
4.2.6.3 RETAILING AND COMMERCIALIZATION ......................... 83
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4.3 ROMANIA.................................................................................................. 84
4.3.1 GENERATION ................................................................................. 84
4.3.2 RETAILING ...................................................................................... 85
4.3.3 TRANSMISSION AND DISTRIBUTION........................................... 86
4.4 ITALY ........................................................................................................ 87
4.4.1 INSULAR SYSTEMS INTERCONNECTION TO THE MAINLAND .. 87
4.4.2 NON-INTERCONNECTED ISLANDS .............................................. 89
4.5 GREECE.................................................................................................... 91
4.5.1 INSULAR ELECTRIC NETWORKS IN GREECE ............................ 91
4.5.2 FRAMEWORK OF THE NII POWER SYSTEMS MANAGEMENT CODE
(NII-CODE) ...................................................................................... 92
4.5.3 BASIC CONCEPTS OF THE NII-CODE REGARDING SYSTEMS
MANAGEMENT AND PARTICIPANTS REMUNERATION ............. 92
4.5.3.1 PRODUCTION UNITS OPERATIONAL CATEGORIZATION92
4.5.3.2 UNITS REMUNERATION AND DEMAND CHARGES ....... 93
4.5.3.3 POWER SYSTEM SCHEDULING STAGES ...................... 94
4.5.3.4 GENERAL RULES FOR RES UNITS ................................. 95
4.5.3.5 EXPLICIT RULES FOR HYBRID STATIONS (RES - PUMPEDSTORAGE UNITS) ............................................................. 96
4.5.3.6 EXPLICIT RULES CSP PLANTS ....................................... 97
4.5.3.7 LONG TERM PLANNING ................................................... 97
5. SOME SOLUTIONS PROPOSED TO IMPROVE DISTRIBUTED GENERATION
REGULATION ...........................................................................................................98
5.1 SPAIN ........................................................................................................ 98
5.2 PORTUGAL ............................................................................................. 100
5.3 ROMANIA................................................................................................ 100
5.4 ITALY ...................................................................................................... 101
REFERENCES ............................................................................................................102
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1. INTRODUCTION
1.1 SPAIN
The organization of electric power systems is divided in four activities: generation, transmission,
distribution for medium and low voltages- and retailing. Moreover, electricity transmission and
distribution constitute a natural monopoly due to their networks. This structure is the same for insular
systems, though the market rules are slightly different.
First, this document provides a brief explanation of the decentralized electric organization model taking
into account the technical and economic management of the operators. The second part reviews the
Spanish legislation, both peninsular and insular, considering the main rules applicable. This analysis
relies on a revision of the current Spanish regulation and the information publicly available. Since the
transition to the liberalization of the sector, the remuneration scheme and other incentives addressed at
the special regime generation in Spain, including the islands, have been changing to adapt them to
the current situation.
The share of renewable generation and distributed generation (DG) in the Spanish electricity system
has increased significantly over the last years. The distribution companies may solve some problems
due to the integration of renewable (RES) in their networks. Thus, regulatory problems began to arise.
Besides, the economic framework is treated for each activity, especially for renewable generation and
distribution generation. Finally, some regulatory proposals will be included to improve regulation that
affects generators and distribution networks.
1.2 PORTUGAL
Energy is a key issue for sustainable development. In island and remote communities, where grid
extension is difficult and fuel transportation and logistics are challenging and costly, renewable energy
is emerging as the energy supply solution for the 21st century, ensuring reliable and secure energy
supply in such communities.
The deployment of renewable energy technologies is increasing globally, supported by rapidly declining
prices and government policies and strategies in many countries, resulting in renewable energy
solutions being the most cost-effective option in many markets today.
Dependable and reliable electricity service is critical to economic development and quality of life.
Electricity systemsparticularly those in remote areas or on islands without physical connections to
other electricity gridsmust therefore continually monitor electricity demand and produce exactly the
quantity of electricity demanded by their customers. This is a technically challenging task.
The national law followed the Electricity Directive and established the new legal framework for the
Portuguese electricity sector. Decree-Law no. 172/2006, as amended, further developed this legal
framework and established rules for activities in the electricity sector.
Following implementation of the Electricity Framework, the binding and non-binding sectors of the SEN
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were replaced by a single market system, and the generation and supply of electricity and management
of the organized electricity markets are now fully open to competition, subject to obtaining the requisite
licenses and approvals. However, the transmission and distribution components of the electricity
industry continue to be provided through the award of public concessions.
This document provides a brief explanation of the decentralized electric organization model taking into
account the technical and economic management of the operators. The second part reviews the
Portuguese legislation, both peninsular and insular, considering the main rules applicable. This analysis
relies on a revision of the current Portuguese regulation and the information publicly available. Since the
transition to the liberalization of the sector, the remuneration scheme and other incentives addressed to
the special regime generation in Portugal, including the islands, have been changing in order to adapt
them to the current situation.
1.3 ROMANIA
The Romanian energy system has undergone many changes over the years. Currently the system is
decentralized; generation, transmission, distribution and supply operate as separate activities, and
customer interaction is provided by individual suppliers.
The electricity sector in Romanian has evolved over the years to become less carbon intensive and
more sustainable. The share of fossil fuels used for electricity generation has been constantly
decreasing since 2000. The share of nuclear energy has doubled since the inauguration of the second
reactor at the Cernavoda power plant in the second half of 2007. The production of electricity from
hydroelectric units has average 25% of the energy mix over the last decades, with fluctuation depending
on factors such as drought or fossil fuel prices.
The most significant change in the Romanian energy mix is the rapid increase over the last years in
renewable energy production from sources other than hydroelectric. This trend is relevant due to the
higher generation cost associated with sources such as solar, wind and biomass.
1.4 ITALY
This document presents the state-of-the art of the electricity market structure and operation in Italy, with
some notes on the regulatory provisions in an insular context.
1.5 GREECE
Following the current trend worldwide, the Greek electricity sector has been transformed during the last
fifteen years to allow for the introduction of competition in both the generation and supply level aiming
at the maximization of the social welfare. In this context, new organizations and entities have been
created to facilitate the operation of new market mechanisms and procedures in both the interconnected
(mainland Greece) and the non-interconnected islands power systems.
In the following sections, a brief review of the legislative and regulatory framework pertaining the Greek
electricity sector along with the key organizational entities and main market design features is first
presented. Then, special attention is given to analyze the framework for energy management and market
operations in the non-interconnected power systems, in accordance with the provisions of the recently
enacted Non-Interconnected Insular Power Systems Management Code (henceforth, NII-Code).
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2. ELECTRICITY SECTOR
2.1 SPAIN
2.1.1 LIBERALIZATION
Following the general trend of liberalization of the previous monopolistic sectors all around the world,
the Spanish government set up the general framework of the liberalized electricity sector with the Electric
Power Act 54/97. This act, which was further developed by a series of Royal Decrees and Ministerial
Orders, clearly distinguished two types of activities: generation and retailing, which were liberalized, and
transmission and distribution, which remained under a regulated scheme. The economic and technical
management of the system were also considered regulated activities.
2.1.2 AGENTS OF THE ELECTRICITY SECTOR

The activities involved in the electricity sector are carried out by the following agents: electricity
generator, market operator, system operator, transmission operator, distributors and retailers. The
regulator is the National Energy Commission, whose main goal is to ensure effective competition in
energy systems and the objectivity and transparency of its operations. Additionally, the Commission
proposes new procedures to the government in order to improve the market mechanisms in collaboration
with the electric companies.
Proper functioning of the electrical system is within the framework established by Law 54/1997,
corresponding to the Market Operator (MO) and the System Operator (SO), respectively, assuming the
functions necessary for the economic management referred to the effective development of production
market electricity and ensuring the technical management of the electrical system. This Law was
derogated by the law 24/2013., except sixth, seventh, twenty-first
and
twenty-third
additional
provisions.
2.1.3 ORGANIZATION MODEL OF THE ELECTRICITY SYSTEM

The main characteristics of the Spanish electricity sector are the existence of a wholesale generation
market (also known as the Spanish pool), and the fact that any consumer has been free to choose its
supplier since January 1, 2003.
Generation facilities in Spain operate either under the ordinary regime or the special regime. The
electricity system must acquire all electricity offered by special regime generators, which consists of
small or renewable energy facilities, at tariffs fixed by Royal Decrees (RD) that vary depending on the
type of generation and which are generally higher than the Spanish market prices. Ordinary regime
generators provide electricity to the Spanish pool at marginal price or under bilateral contracts to
qualified consumers and other suppliers at agreed prices. Suppliers, including last resort suppliers, and
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consumers can buy electricity in this pool. Foreign companies may also buy and sell energy (MWh) in
the Spanish pool.
Since July 1, 2009, last resort suppliers, appointed by the Spanish government, supply electricity at a
regulated tariff set by the Spanish government to the last resort consumers (low-voltage electricity
consumers whose contracted power is less than or equal to 10kW). Since then, distributors cannot
supply electricity to consumers directly.
Liberalized suppliers are free to set a price for their consumers. The main direct activity costs of these
entities are the wholesale market price and the regulated access tariffs to be paid to the distribution
companies. Electricity generators and liberalized suppliers or qualified consumers may also engage in
bilateral contracts without participating in the wholesale market.
The market operator, known as OMIE (Iberian Energy Market Operator, comprising Spain and
Portugal), is the agency responsible for the markets economic management and bidding
process. Transmission companies and regulated distributors must provide network access to all
consumers that have chosen to be supplied in the free market by the retailers. However, these
consumers must pay an access tariff to the distribution companies. The electricity transport grid
comprises transmission lines, stations, transformers and other electrical equipment with a voltage higher
than 220 kV, as well as other facilities, regardless of their voltage, that provide transport or international
and extra-peninsular interconnections. Red Elctrica de Espaa (REE) acts as the Transmission
Operator and manages most of the transmission network in Spain. In the case of the Canary Islands,
the transmission grid consists of the lines and substations of 66 kV or higher voltages, the submarine
connection between Lanzarote and Fuerteventura and 220/132/66 kV transformers.
REE is also the System Operator (SO), which implies being responsible for the technical management
of the system as regards developing the high voltage network, in order to guarantee electricity supply
and proper coordination between supply and transmission system, as well as the management of
international electricity flows. The System Operator carries out its duties in coordination with the market
operator.
Agents acting on behalf of any individual for the purpose of participation in the production market and
the collection and payment of tolls, fees, and regulated prices remuneration shall be considered
representatives.
And, in the law Decree 6/2010 and law 24/2013, appear the figure of transmission system loads. Which
are those corporations that, as consumers, are entitled to resale of electricity for recharging energy
services. This is important to integrate the store systems in the market.
A diagram with the structure of the Spanish Electricity Market is shown below.
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International
Exchanges
Ordinary
Regime
Special
Regime
External
Agents
System
Operator
Market
Operator
Retailers
Transmission Network
Distribution Network
Domestic Consumers
at regulated tariff
Qualified
Consumes
Energy Flows
Coordination
Purchases and sales in the electricity market
Supply Contract
Network access tariff
Physical bilateral Contract
2.1.4 LIBERALIZED MARKET

The electricity production market is composed of all business transactions of purchase and sale of
energy and other services related to the supply of electricity. It includes forward markets, a daily market,
and intraday market, the resolution of technical constraints of the system, ancillary services, and the
management of deviations.
During the first functioning years of the market (until 2005), almost all of the transactions in wholesale
energy were carried out in the pool. Since then, forward markets and bilateral agreements have been
gradually put in place hand by hand with the regulatory changes. Thus, in recent years, the energy
involved in the daily market run by OMIE (the Iberian Electricity Market Operator) has reached over fifty
per cent of demand. Despite this abasement, wholesale market price still represents the main price
signal for customers and the underlying settlement of bilateral contracts, the over-the-counter (OTC)
market and forward markets organized by OMIP (Iberian Market Operator Portugal).
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MIBEL (Iberian Electricity Market) is the collaboration between the Spanish and Portuguese
governments to create a common electricity market. It started in 2001 after the entry of the Directive
96/92/EC. The aim of creating a single regional market is to allow any consumer within the Iberian
Peninsula to buy energy from any generator or retailer in Spain or Portugal or through the borders of the
Iberian Peninsula. By doing so, MIBEL benefits the consumers from the two countries and fosters the
creation of a competitive market, allowing all the participants to access to the market and perceive the
same reference price. Even though MIBEL integrates the two countries into one single market, there are
some relevant characteristics and structures of each country that are different and may affect the
performance of the market. Some of these features are the regulatory framework, how is the composition
of the generation mix, demand profiles or even the role played by the institutions.
The European electricity system started its process of liberalization in early 1998 with the approval of
the Directive 96/92/CE, which main objective was to begin the creation of an internal electricity market
for the European Union by opening both generation and retail activities to the market. Later on,
specifically in Spain, the Power System Law 54/1997 (LSE) was launch which involved the
restructuration of the sector with several measures: 1) unbundling of activities, where transmission and
distribution remained as regulated activities and retail and generation were opened to free competition
and therefore, for these last two activities, both investment and operating decisions became
decentralized; 2) the progressive liberalization to allow final consumers to choose their suppliers; 3) free
third party access to transmission and distribution networks; 4) the creation of two separate institutions
to manage on one hand the technical concerns of the system (System Operator) and on the other hand
institution in charge of the economic management aspects of the system (Market Operator). These
measures were supported with the European directive 2003/54/EC, and therefore included as well to
the Portuguese regulation, which had started its liberalization process in 1995.
There are several steps and processes followed in MIBEL in order to obtain the final schedule of
electricity generation of the units in the market one day in advance of the corresponding supply. In first
instance, the agents send their bids to the market operator. The MO incorporates these bids with the
information about the open-ended positions in the forward market from which agents have requested to
carry out the physical delivery, and the information about the declaration of the agents that have been
awarded rights to use international capacity (France and Morocco). Once this information has been
integrated, the MO clears the market and the Clearing Base Schedule (Programa Base de Casacin,
PBC) is obtained (the market clearing methodology used in the day-ahead market is explained in detail
in section 2.1.4.1). The next step is when the System Operators of each country include the bilateral
contracts in order to obtain the Daily Base Operating Schedule (Programa Diario Base de
Funcionamiento, PDBF). Based on the PDBF, the System Operators proceed to study and solve the
technical constraints of the grid that might be caused by the result of the day-ahead market and from
the declaration of the bilateral contracts; the result of this step is later used to determine the secondary
regulation reserve in order to obtain the Viable Daily Schedule (Programa Diario Viable, PDV). The
PDVD is the starting point to carry out the first session of the intraday markets. The result of each
intraday market is the Final Hourly Schedule (Programa Horario Final, PHF). Finally, the physical
balance in the network between electricity production and consumption, based on market results, is
ensured all times by the system operator through the utilization of ancillary services, this is the Hourly
Operative Schedule (Programa Horario Operativo, PHO). The schedule of energy actually generated
and consumed at the end of the day is denominated P48.Between the PDBF the results of the dayahead market plus the bilateral contracts and the PDVD, the system operator of each country (REE
and REN) performs an ex-post measure to solve the possible technical constraints that might occur in
the grid due to the PDBF schedule. It is important to highlight that this procedure in done outside the
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day-ahead market and thus it does not affect the methodology implemented to clear the market.
Nevertheless, REE implements a market instrument to solve the constraints.
The procedure used by REE to solve the technical constraints of the network is divided into two phases
that are described in the following steps:
Phase 1 starts when the System Operator receives from the Market Operator the day-ahead market
schedule (PBC) of the generators and adds the energy contracted in bilateral contracts for each hour
(PDBF)
The SO assigns production of energy to some units that use domestic coal and that were not dispatched
in the day-ahead market. This is done in accordance to the Royal Decree 134/2010, which establishes
the procedure of Guarantee of Supply for domestic coal.
The SO simulates a power flow considering this schedule and the constraints of the network; if there is
any technical constraint the SO solve it by adding some units that resolve the problems or removing
some units that cause the technical constraints until there are no more problems with the network. This
is the end of phase 1.
Phase 2 starts by readjusting the Guarantee of Supply (if they were affected by the previous step) and
then it checks if the emissions of CO2 generated with the schedule obtained so far are within the limits
established by the European Directive. If not, the SO eliminates the allocation of domestic coal due to
Guarantee of Supply.
The phase 2 finishes with the economic adjustment of the constraints. The criterion used to add or
remove units to solve the technical constraints is according to the economic order of the offers received
for this purpose. The generators covered by the Guarantee of Supply receive their variable and fixed
cost for the energy produced. The units that are added to solve technical constraints are paid for the
energy they produce with the offer price they send for this process. The units that are removed from the
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schedule because they cause technical constraints are not paid and, indeed, they have to pay the
marginal cost of the corresponding hour of the day-ahead market.
Another important structural aspect of the system, defined in the regulatory framework, is the distinction
of the generators in two big groups according to the Ministry of Industry, Energy and Tourism: Ordinary
Regime and Special Regime. The generators classified as ordinary regime are those that have
conventional plants as nuclear, fuel-oil, coal, natural gas, CCGT, hydro (with an installed capacity
greater or equal to 50 MW), and sell their energy in organized markets, bilateral contracts or to provide
ancillary services. On the other hand, the generators registered as Special Regime, are those nonconventional installations such as windmills, photovoltaic, thermo-solar, biomass, cogeneration, etc. with
an installed capacity lower or equal to 50 MW. The Royal Decree 661/2007 defines and regulates these
installations. The especial regulatory characteristics of this group are that they can sell their energy
either with a regulated tariff (feed-in tariff) or with the market price plus a premium (feed-in premium).
Moreover, the generators under a special regime have priority of dispatch in the market. The adoption
of all these policies encourages the production of electricity through renewable resources, and the effect
of them in practice is that they bid zero prices to the market.
2.1.4.1 CLEARING ALGORITHM

The foundation of the clearing mechanism implemented in MIBEL (OMIE, 2008) is the simple auction,
where the agents send their simple bids as pairs of quantity and price they are allowed to send up to
25 blocks of bids for each hour and the total amount of energy negotiated and market price are
obtained separately for each hour as the intersection of the aggregated demand and supply curves. The
model implemented to clear the market is then governed by the marginalist theory, meaning that the
market price is equal to the marginal cost (marginal bid). Besides this procedure, which is basically a
replica of the simple auction, the model includes additional conditions that ease the process of making
bids for agents and relate the result of the auction of different hours of the same day.
The first complex condition is the load gradient. The objective is to consider explicitly the ramp
constraints of the generators. The agents that want to use this condition declare a gradient (MW/minute)
that is the maximum variation of load, to rise and go down, allowed by the generator. The algorithm then
introduces this condition to transform the hourly energy scheduled to a unit into instant load profiles. The
algorithm must satisfy this condition so the result of the market is always feasible. When this condition
is satisfied, the algorithm only allows those units that do not comply with this condition to reduce their
production, not to increase it. Thereby, no agent earns more money by using this condition.
The second condition is scheduled shutdown. This measure allows the generators to define blocks of
energy so they are not taken out of the dispatch due to other conditions such as minimum income (it is
allowed only for the blocks of the first three hours of a day). The aim of this condition is to allow the
generators that are committed in a given day to progressively shutdown their units when they are not
committed in the day after. Similarly, the indivisibility condition allows setting some blocks as indivisible
and forcing the algorithm to accept them as a whole or reject them. This condition is useful when the
generators want to define their minimum technical production. The three conditions listed above were
created to satisfy technical constraints.
The last condition tries to fulfill the economic constraints of the agents, and is the most complex one
applied to the algorithm, not in terms of calculation or application but in terms of transparency. The
minimum incomes condition serves to smooth the errors that might occur when the agents are
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internalizing their complex operating costs into the simple bids. The definition of the minimum expected
incomes is expressed as a fixed term and another proportional to the energy produced i.e.
approximates the variable and fixed costs of the generators. The methodology followed when this
condition is in place is that the algorithm rejects all those bids that were initially accepted but are not
able to recover certain amount of money defined by them with the remuneration received from the
market for the whole day. Then the market is cleared again without those bids that were rejected and
the values for energy and price are recalculated.
Following figure shows how the market is cleared in MIBEL in one hour. The yellow and blue curves
represent the aggregated supply and demand bids, respectively. The intersection of these two curves
would set the energy traded and the market price for one hour under a simple auction approach.
However, when the complex bids are included into the clearing process, some supply bids that do not
satisfied with the complex conditions are rejected and a new supply curve is created (the red curve in
the figure). The intersection of this curve with the demand curve establishes the energy traded and the
market price in a specific hour.
Figure 2.1: Clearing the market in MIBEL for a specific hour (Source: OMIE)
There are several flaws that arise with the inclusion of the last condition (minimum incomes) in the
model, and they are actually related to the same problems faced in the complex models. Firstly, even
though a fixed term is allowed, this term is unique for the whole day and therefore it ignores the
commitment cost, which depends on the number of start-ups. In turn the generators are forced to
estimate how many hours will be committed and calculate the corresponding fixed complex bid. This
problem can be partly resolved sending a bid at zero price, for the minimum power, in order to avoid
unexpected shutdowns. There is no risk on obtaining uneconomic results for the generator due to the
minimum income condition is satisfied; however, this solution may not lead to an efficient economic
solution for the system as a whole.
17/105
An important issue to be managed with the minimum income condition is the criteria that must be used
in order to compare different solutions that complied with all the requirements. Due to the fact that the
order how the rejected bids are taken out of the market might affect the dispatch and the marginal price,
it affects in turn the remuneration of all the agents. For instance, lets take a unit A and a unit B that had
been committed before checking the minimum income condition and it has a bid price very close to the
marginal price in several hours of the day (they are peaking units); then the complex condition is checked
and for instance unit A is taken out because it is not recovering the costs defined in its minimum income.
After this, the market is cleared again and the resulting marginal price, recalculated without the unit A,
is higher than before and is actually profitable for the unit that was rejected and for the unit B. As a
matter of fact, if instead of having rejected unit A in first instance, but unit B, which didnt comply with
the minimum incomes condition either, the marginal price would rise similarly and the unit A would have
complied with the complex condition, so it is dispatched for those hours that is competitive. Therefore,
the criteria to decide the best solution for rejecting units when they do not comply with this condition will
affect some units and benefit others. What the model has included in the market clearing process in
order to overcome this situation is to carry out a process where several combinations of units are
evaluated (an heuristic search on tree) and determine what is the solution that affects the least the units
from the economical point of view and that guarantees that the unit committed receives at least the
minimum income. Moreover, it can be evidenced that if the units that are close to set the price (marginal
units) use the complex bids, they will not likely be committed because they will not be able to recover
their fixed term; this forces these units to internalize their fixed costs into their simple bids.
2.1.5 ELECTRICITY MARKET DESIGN

The actors in the market are skilled producers and consumers.
Unorganized markets: They are bilateral contracts (stable prices and quantities) to agree a producer
and a consumer for a fixed period of time.
Iberian energy market (MIBEL), where agents come from Spanish and Portuguese markets. The
electricity Production Market is divided into the following markets: a Daily Market, Intraday Market,
Futures Market and Services Adjustment Market.
Next-day sale and electricity purchase transactions are carried out on the Daily Market. The purpose of
the Intraday Market is to attend energy offer and demand which may arise, in the hours following the
Daily Viability Schedule. The Services Adjustment Market includes all those services of an optional
nature which the Market Operators deems necessary to ensure the systems operation, including the
Resolution of system technical restrictions, ancillary services and detour management.
2.1.5.1 DAILY MARKET

Sellers of electricity on the daily market will present electrical energy bids to the Market Operator for
each of the production and sales units they own, and for scheduling periods of a similar horizon to the
daily market.
The aim of the journal is to define market Price and the amount of energy that producers will pour into
the mains and consumers will absorb it during a certain time. This markets take place every day around
the 14 Day D-1 price of electricity for each participant fir each of the 24-hour D is fixed, and that producer
will produce and how to each hour.
18/105
The following chart shows the aggregate supply and demand curve of 2th February, 2013 published by
OMIE.
Fig 2.2 Aggregate supply and demand curves of 2th February, 2013.
Source: OMIE
2.1.5.2 INTRADAY MARKET

The intraday market is also called Market adjustment. The daily market participants can make
adjustments to their commitments production/acquisition once the final results of the daily market.
The daily market for 24 hours a day D closes at 10 p.m. on D-1. Each of the six intraday markets has
a certain period.
Table 2.1: Intraday market sessions. Source: OMIE
Opening session
Closing session
matching
Receipt of breakdowns program
Publication PHF
Skyline programming
Session 1 session 2
session 3
session 4
session 5
session 6
17:00
21:00
1:00
4:00
8:00
12:00
18:45
21:45
1:45
4:45
8:45
12:45
19:30
22:30
2:30
5:30
9:30
13:30
19:50
22:50
2:50
5:50
9:50
13:50
20:45
23:45
3:45
6:45
10:45
14:45
27 hours
24 hours
20 hours
17 hours
13 hours
9 hours
(22-24)
(1-24)
(5-24)
(8-24)
(12-24)
(16-24)
The following chart shows the aggregate supply and demand curve of 2th February, 2013 in the hour 1
and session 1, published by OMIE.
19/105
Fig 2.3 Aggregate supply and demand curves of 2th February, 2013 in the hour 1 and session 1.
Source: OMIE
2.1.5.3 SERVICE MARKET ADJUSTMENT
The adjustment services systems are:
Resolution of the security of supply restrictions

Resolution of intraday technical constraints identified in the programs resulting from the
physical bilateral contracts, daily and intraday programs.
Additional services (power reserve up, associated with the frequency-power regulation (primary
control, secondary and tertiary), control voltage of the transmission network, restoring services.
Management of deviations between generation and consumption.
2.1.6 ELECTRIC BILL IN SPAIN

End users are those covering the costs of the entire electrical system with paying their bills. The cost of
the kilowatt-hour includes two components, which are obtained separately: The regulated component
and the market component.
As of July 1, 2009 came into force a new system of electricity tariffs in which coexist one hand, the free
market, on the other hand a rate fixed by the Government: The Last Resort Rate (TUR). This rate fixed
is only for consumers with a contracted power less than 10 KW.
According to the Spanish Electricity Industry Association (UNESA), the amount of the electricity bill paid
by a consumer with Last Resort Tariff is used for different concepts, the energy (23,8%), the subsidies
to special regime (19,7%), taxes (19,4%), distribution (15,2%), amortization of the deficit (18,5%), other
cost (8,1%), transport (4,7%).
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Fig.2.4. Different concepts that pay the consumer with Last Resort Tariff.
Source: UNESA
The bill to a consumer has a term of energy, power term, electricity taxes and value added tax (IVA) and
another tax as corporation tax, business tax, environmental taxes, etc.
2.1.6.1 REGULATED COMPONENT

The Price we pay for the energy we consume is not only derived from what it costs to produce that
energy. The other extra cost includes the toll to be paid for using the power lines (transport), the
maintenance of the necessary agencies for proper operation of the electrical systems and other costs
as tariff deficit or renewable retributions.
In the following graph observed system cost since 1998 to 2010. In it is noted as system costs have
increased in recent years. The three items of significant were the access cost (40,3% in 2010), the
network costs (39,8%) and annuities to finance the deficit of regulated activities (10,5%).
Other important cost is a term associated with the compensation costs in non-mainland generation
systems. Spain has two isolated island systems; Baleares island that contain Mallorca-menorca systems
and the Ibiza-formentera systems and the Canary systems that contain six subsystems.
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Fig 2.5 Evolution of the Spanish systems cost. 1998-2010. Source: CNE
2.1.6.2 MARKET COMPONENT

This component is obtained by market mechanisms between producers and consumers in the wholesale
market on a competitive basis.
The following graph shows the components of the final national price. The daily price, intraday extra
cost, restriction extra cost, processes OS extra cost and capacity payment. The capacity payment is an
add units receiving regular regimen for higher 50 MW power. Although as a premium and should be in
the regulated component of the CNE reports included as a component of the market.
Fig 2.6 Components of the final Price (/MWh).Total domestic demand.

Source: OMIE and AEE
The following table shows the components of final average price in 2013 published by REE.
Table 2.2 Components of final average price in 2013. Source: REE
Price (/MWh)
J
F
M
A
M
J
J
A
S
O
N
D
Total
Daily market
53,21
46,90
28,41
19,33
44,12
42,03
52,24
48,98
51,58
52,74
43,47
67,43
46,19
Technical Restrictions P.O.3.2
2,27
2,42
3,88
4,16
3,26
3,20
1,28
1,88
2,25
3,26
3,29
2,69
2,81
Intraday market
-0,01
-0,08
-0,11
-0,02
-0,09
-0,14
0,02
-0,02
-0,02
-0,16
-0,04
-0,03
-0,06
Power reserve
0,39
0,42
0,84
0,76
0,19
0,00
0,00
0,05
0,21
0,93
1,19
0,33
0,44
Regulation band
1,55
1,56
1,81
1,48
1,07
1,51
1,23
1,26
1,21
1,51
1,26
1,78
1,44
Technical Restrictions in real time
0,40
0,41
0,64
0,77
0,43
0,25
0,10
0,31
0,29
0,83
0,70
0,38
0,46
Desviations
0,57
0,49
0,31
0,23
0,31
0,38
0,34
0,28
0,32
0,59
0,54
0,91
0,44
Desviations surplus
0,03
0,00
0,09
0,14
-0,10
-0,10
-0,10
-0,06
-0,10
-0,13
-0,09
-0,16
-0,05
Capacity Payments
7,09
6,95
5,71
5,46
5,27
6,10
7,31
4,69
5,36
5,33
5,45
6,94
6,00
Total Price /MWh
65,50
59,07
41,58
32,31
54,46
53,23
62,42
57,37
61,10
64,90
55,77
80,27
57,66
Energy GWh
22.057,00 19.808,00 20.598,00 18.947,00 19.367,00 19.055,00 21.532,00 20.509,00 19.592,00 19.663,00 20.361,00 21.624,00 243.114,00
2.1.6.3 LOST IN THE WIND ENERGY SECTOR PER DEVIATION COST

On the other hand, the total income market for wind as published by REE in December was 49.19
22/105
/MWh, without intraday lost and deviation cost. The deviation lost was approximately 63.000.000 .
Table 2.3 Lost per deviation cost. Source: REE, AEE

liquidation Average
lost/gain
Restrictions lost per
lost per
measure
daily price intraday
gain in real- desviation Total price Total price
desviation
production market
price
time
cost
market
market
cost
MWh
/MWh
/MWh
/MWh
/MWh
/MWh
January
6.269.208,94
47,22
-0,15
0,01
-1,29
45,79
287.067.077,36 -8.087.279,53
February
5.336.420,47
38,64
-0,12
0,01
-1,35
37,17
198.354.748,87 -7.204.167,63
March
5.742.647,72
24,06
-0,5
0,01
-1,22
22,35
128.348.176,54 -7.006.030,22
April
4.386.700,89
13,63
-0,37
0,01
-0,98
12,29
53.912.553,94 -4.298.966,87
May
3.918.967,40
41,46
-0,35
0,01
-1,39
39,73
155.700.574,80 -5.447.364,69
june
3.799.247,55
37,01
-0,44
0,03
-1,05
35,54
135.025.257,93 -3.989.209,93
July
2.840.705,15
49,24
-0,32
0,01
-1,56
47,36
134.535.795,90 -4.431.500,03
August
3.404.739,06
46,95
-0,07
0,05
-0,97
45,96
156.481.807,20 -3.302.596,89
September 3.195.379,15
47,56
-0,17
0,00
-1,16
46,13
147.402.840,24 -3.706.639,82
October
3.953.543,36
47,95
-0,33
0,01
-1,34
46,28
182.969.986,52 -5.297.748,10
November
6.396.226,47
40,17
-0,19
0,00
-0,63
39,35
251.691.511,56 -4.029.622,68
December
4.927.230,46
50,81
-0,2
0,00
-1,43
49,19
242.370.466,52 -7.045.939,56
54.171.016,62
2.073.860.797,37 -63.847.065,94
2.1.7 THE AUTONOMOUS REGION OF THE CANARY ISLAND

Compared to the Spanish mainland system, the Canary Islands electricity system is broken down into
six small-sized and electrically isolated subsystems. Interconnection between them is currently
impossible due to the deep sea depths that prevent the laying of submarine cables, with the exception
of the link between the islands of Lanzarote and Fuerteventura.
In July 2010, Red Electrica signed an agreement with Endesa by virtue of which it acquired the insular
transmission grids (66kV, 132kV and 220kV), representing Red Elctricas consolidation as the sole
transmission agent and system operator in the Canary Islands, following the existing model on the
Spanish peninsula.
The transmission grid on the Canary Islands is made up of the following elements:
Transmission lines or substations operating at a voltage of 66 kV or higher.
Submarine cable between the islands of Lanzarote and Fuerteventura.
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Fig 2.7 Component of the final Price (/MWh). Total domestic demand. Source: REE
2.1.7.1 CONFIGURATION OF THE GENERATING TECHNOLOGIES IN CANARY

ISLAND
The following table, by REE, shows various generation technologies that are available to meet the
demand in 2013 in Canary Island.
Table 2.4 Balance of electrical energy in Canary Island, year 2013. Source: REE
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Balance of electrical energy

Hydro
Coal
Fuel/gas
Internal Combustion Engine
Gas turbines
Steam turbines
Combined cycle
Auxiliary generation
Ordinary regime
self-consumption
Hydro
Wind
Solar photovoltaic
Renewable thermal
Non-renewable thermal
Special regime
Net production
Demand (b.c.-at power station busbars
Canary Islands
GWh
0
5243
2182
382
2679
3147
0
8390
-437
3
369
288
9
0
669
8622
8622
The following picture, by REE, shows various generation technologies that are available to meet the
demand in real time in Canary Island and the CO2 emissions associated with the complete set of thermal
generation facilities.
Fig 2.8.Demand for electricity in real time, structure and CO2 emissions generation. Source:
REE
The figure shows:

actual demand (yellow curve) reflects the instantaneous value of the electric energy demand.
the forecasted demand (green curve) is calculated by Red Elctrica based on the consumption
values in similar previous periods, correcting a number of factors influencing consumption such
as working patterns, climate and economic activity.
25/105
the operational hourly schedule (red stepped line) is the programmed production for the
generation facilities which, based on an economic order of merit established by the regulator, is
drawn up daily by Red Elctrica depending on the evolution of the demand.
also shown is an estimate of the total CO2 emissions produced by the complete set of
generation facilities on the Canary Islands. Additionally, by clicking on an energy source, the
graph below the generation structure shows its contribution throughout the day as well as its
associated CO2 emissions.
The following table shows the electric balance in Canary Island on Wednesday 12th march of
2014published by REE.
Fig 2.9.Daily statistics of the electrical system in the Canary Island.12th march 2014. Source:
REE
2.1.7.2 COSTS ASSOCIATED TO NON MAINLAND SYSTEM

The twelfth supplementary legislation of Real Decree 661/2007, of 25 May, by which the activity of
electricity production under special regime is regulated, establishes that in the Insular and Extrapeninsular Electricity Systems (hereinafter SEIE) the established operation procedures in these systems
will be applied and the access references to the market will be understood as access to the technical
dispatch of energy, in agreement with the conditions and requirements established in Real Decree
1747/2003, of 19 December.
This royal decree was drafted under Ministerial Orders ITC 913/2006 of 30 March, for which it approved
the method for calculating the cost of each fuel used and the procedure for energy dispatch and
settlement in the SEIE and ITC 914/2006, of 30 March.
The following table shows the monthly costs non-mainland of April 2013.
Table 2.5. Monthly Compensation, April 2013, the production of electric power in Regular
Regimen in non-mainland electrical systems. Source: REE
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Amount of
Total known
Variable cost power
REE
CNE
Meassure
SEIE
production
cost
amount
warranty
liquidation compensation
(MWh)
()
()
()
()
()
Baleares
282.742,14 42.202.539,55 24.993.123,54 17.209.416,01 14.805.030,44 27.397.509,11
Canarias (UNELCO)
632.898,88 142.099.939,06 119.305.786,11 22.794.152,95 28.681.529,16 113.418.409,90
Canarias (COTESA)
10.377,97
687.985,94
687.985,94
0,00
147.346,55
540.639,39
Ceuta
14.558,62
5.088.894,22 3.056.511,80 2.032.382,42
535.644,57 4.553.249,65
Melilla
14.584,47
4.843.410,29 3.184.477,34 1.658.932,95
521.615,67 4.321.794,62
Total
955.162,08 194.922.769,06 151.227.884,73 43.694.884,33 44.691.166,39 150.231.602,67
2.1.7.3 CANARY ISLAND ELECTRICITY PRICE

Below there are a graph shown the compensation cost of wind versus costs of ordinary generation. This
result was published by REE.The Average cost of generation in the Canary island was 220 /MWh,
while the remuneration of wind was 87 /MWh in 2013. Therefore produce with renewables in island
save costs to the system.
Fig 2.10 Compensation cost of wind versus costs of ordinary generation Source: REE
The values shown in the following table are the costs of generation in different systems SEIE (/MWh)
in 2013 published by REE.
Table 2.6 Monthly weighted average price of generation in SEIE (/MWh).Year 2013. Source: REE
SEIE
Baleares
Canarias
Ceuta
Melilla
Ene
163,66
228,56
332,51
326,39
Feb
159,29
224,06
331,57
326,15
Mar
149,41
224,63
345,44
326,53
Abr
150,08
222,84
349,15
333,80
May
147,90
223,48
339,09
318,36
Jun
163,78
221,20
337,71
330,32
Jul
151,60
224,32
334,04
326,15
Ago
145,05
224,76
326,04
316,34
Sep
147,82
223,04
327,68
324,73
Oct
152,94
225,48
331,41
327,51
Nov
140,03
223,32
327,16
315,41
Dic
144,36
221,74
329,78
329,98
2.2 PORTUGAL
2.2.1 LIBERALIZED MARKET IN PORTUGAL
Since early 2012 there has been acceleration towards liberalization of the electricity sector, especially
27/105
in the last semester of 2012. Consequently, the consumption of customers supplied by liberalized market
exceeded 26 TWh, an increase of 13% compared with same period of 2011. In 2012, the relative weight
of the free market accounted for approximately 53% of global consumption.
Government, through Council of Ministers Resolution N 34/2011 and the Decree-Law N. 75/2012,
released a schedule of extinction of regulated retail electricity prices, as provided in the Memorandum
of Understanding signed by Portugal and the European Union, European Central Bank and International
Monetary Fund.
The following table shows the amounts delivered to customers in the liberalized market (ML). These
amounts, together with the amounts of the Final Customer transitional tariffs affect the tariff calculation
by the operator of the distribution network activity and, consequently, access to networks tariffs. These
values are provided based on the structures of combined consumption of free and regulated markets in
2012, as well as electricity consumption forecasted for 2014.
Table 2.7 - Liberalized Market customers in 2013

Clients in Liberalized Market Energy
% of Energy
(GWh)
Number
Clients
of
% of Number
of Clients
Very High Voltage

High Voltage
2 192
6 388
6,4 %
18,6 %
69
273
0,0 %
0,0 %
Medium Voltage
13 091
38,2 %
21 218
0,8 %
Low Voltage
12 606
36,8 %
2 617 275
99,2 %
Low
2 974
23,6 %
27 511
1,1 %
Standard Regime of Low

Voltage
9 632
76,4 %
2 589 765
98,9 %
Total
34 277
100,0 %
2 638 834
Especial
Voltage
Regime
of

Under the Electricity Framework, the SEN is divided into six major functions: generation, transmission,
distribution, and supply, operation of the electricity market and the logistical operations that facilitate
switching electricity suppliers for consumers. Subject to certain exceptions, each of these functions
must be operated independently of other functions, from a legal, organizational and decision-making
28/105
standpoint.
The electricity sector activities are required to be developed in accordance with the principles of
rationality and efficiency in the use of resources throughout the entire value chain (i.e., from generation
to final consumption of electricity) and in accordance with the principles of competition and
environmental sustainability, with the purpose of increasing competition and efficiency in the SEN,
without prejudicing public service obligations.
2.2.2.1 AGENTS AND ENTITIES OPERATING IN THE ELECTRICITY SECTOR

Retailers: are holders of marketing authorization or registry, mainly licensed entities that buy and sell
electricity. The suppliers of last resort (CUR) are subjected to universal service obligations, by ensuring
the supply of electricity to all consumers who request it. The prices charged by the CUR are set by
ERSE.
Logistic Operator of supplier switching: is the entity responsible for managing the supplier switching
process, as well as for managing the equipment and measuring the reading, local or remote. Currently
these activities are still being developed by the operator of the distribution network in MV and HV.
Operators of distribution networks: are the concessionaire entities of the National Network of Distribution
(RND) or LV networks, engaged in the business of electricity distribution.
Operator of the transmission system: the concessionaire entity of the National Transmission System
(NTS). Besides transporting electricity, performs the function of the Global Management System.
Commercial Agent: is the entity responsible for the purchase and sale of all electricity coming from the
long-term power purchase contracts signed with producers under the ordinary regime.
Producers under the ordinary regime: entities that hold electricity generation licenses and whose activity
is not subject to a special legal regime with incentives to use indigenous renewable resources or
combined heat and power (CHP).
Special Regime Producers: are license granted entities of electricity production under specific legal
regimes, by adopting policies to encourage the production of electricity using renewable resources or
combined production technologies of heat and power (CHP).
Market operators: entities are responsible for managing organized markets, in terms of temporary, daily
and intra-day contracts.
2.2.2.2 THE AUTONOMOUS REGION OF THE AZORES ARCHIPELAGO

Concessionaire of transportation and distribution: is the entity responsible for the global technical
management of electrical systems of each of the Azores islands, transport and electricity distribution, as
well as the construction and operation of their infrastructure and electricity supply to consumers.
Bound Producers: are entities holding a binding license upon electricity production, by having signed
supply contracts bound to public electrical systems (with the concessionaire's transmission and
distribution).
Unbound Producers: entities that do not hold any binding license for electricity production or any signed
supply contracts bound to public electrical systems. These are producers who use endogenous
resources or industrial, agricultural or municipal waste and resources of combined production
technologies of heat and power (CHP).
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2.2.2.3 THE AUTONOMOUS REGION OF THE MADEIRA ARCHIPELAGO

Concessionaire of transportation and distribution: is the entity responsible for the global technical
management of electrical systems of each of the Madeira Islands, transport and electricity distribution,
as well as the construction and operation of their infrastructure and electricity supply to consumers.
Bound Producers: are entities holding a binding license for electricity production, bound by signed supply
contracts with the concessionaire of transportation and distribution.
Unbound Producers: entities that do not hold any binding license for electricity production and are
authorized to practice the activity of producing electricity.
2.2.3 ORGANIZATION MODEL OF THE PORTUGUESE ELECTRICITY

SYSTEM
The national law followed the Electricity Directive and established the new legal framework for the
Portuguese electricity sector. Decree-Law no. 172/2006, as amended, further developed this legal
framework and established rules for activities in the electricity sector.
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Fig.2.11- Organization and management of Portuguese Electricity System

The Fig. 2.11 above shows the scheme of Portuguese electricity system model.
Following implementation of the Electricity Framework, the binding and non-binding sectors of the SEN
were replaced by a single market system, and the generation and supply of electricity and management
of the organized electricity markets are now fully open to competition, subject to obtaining the requisite
licenses and approvals. However, the transmission and distribution components of the electricity
industry continue to be provided through the award of public concessions.
The Fig. 2.12 shows the simplified scheme of SENs organization, or the other way that Portuguese
electricity system model can be seen.
31/105
Generation from other

Sources (Spain)
Ordinary
Generation
Special
Generation
Regime
Regime
RNT - National Electricity Transmission Network / System Operator
RND - National Distribution Grid / RND Operator

E.
R.
S.
E.
Organized Market
and
Bilateral Contracts
Liberalized supplier
Last Resort Supplier
D.
G.
E.
G.
Bilateral Contracts
Liberalized
Consumers
Regulated
Consumers
Market
Market
Fig.2.12- Simplified scheme of SENs organization
2.2.3.1 ELECTRICITY GENERATION

Electricity generation is subject to licensing and is carried out in a competitive environment. Electricity
generation is divided into two regimes: ordinary regime and special regime. Special regime relates to
the generation of electricity from endogenous and other renewable sources (except large hydropower
plants). Special regime generation is subject to different licensing requirements and benefits from
special tariffs. A last recourse supplier, currently EDP Servio Universal, is obliged to purchase
electricity generated under the Portuguese special regime. The ordinary regime covers all other
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sources, including large hydropower plants.
2.2.3.1.1 ORDINARY REGIME

The principle of centralized planning of generation plants has been abandoned in the New Electricity
Framework. Initiatives to construct and operate new plants lie with market participants, and the
Portuguese government will only intervene to supplement private initiatives, cover market failures or
ensure electricity supply.
On June 30, 2007, all of the PPAs executed by EDP under the Old Electricity Framework have been
terminated early pursuant to Decree Law 240/2004, and accordingly the power facilities that generated
electricity for those agreements are now operated under market conditions.
In addition, EDP has regularized the status of the water concessions for its hydropower plants in
accordance with Decree-Law no. 226-A/2007, of May 31. As a result, EDP has retained the rights to
operate 26 hydropower plants under market conditions (with 4,094 MW of installed capacity) beginning
on the expiration dates previously provided in their respective PPAs until on average, 2047.
2.2.3.1.2 SPECIAL REGIME

Special regime generation is primarily governed by Decree-Law 189/88 of May 27, and the amendments
thereto (including Decree-Law no. 312/2001, of 10 December and, in respect of tariffs, Decree-Law no.
168/99, of May 18, Decree-Law no. 339-C/2001, of December 29, Decree-Law no. 33A/2005, of
February 16, and Decree-Law no. 225/2007 of May 31) (Decree-Law 189/88). However, special
regime generation is also affected by Decree-Law 29/2006 and Decree-Law 172/2006, insofar as these
relate to the SEN.
The statutory and regulatory regime applicable to the generation of renewable electricity differs from that
applicable to the generation of electricity from other non-renewable sources in relation to licenses, tariffs
and electricity sale rights.
The Portuguese special regime provides that qualified special regime operators may sell electricity to
last recourse suppliers that are required to purchase electricity under the special regime pursuant to
article 55 of Decree-Law 172/2006, of February 15. The right of the special regime operator, and the
correspondent obligation of the last recourse supplier, do not, however, limit the ability of special regime
operators to sell electricity to other suppliers of electricity operating in the market. When the special
regime operator sells the electricity to the last recourse supplier, it will receive an amount corresponding
to the tariff applicable to special regime generation for the electricity sold.
2.2.3.2 ELECTRICITY TRANSMISSION

Electricity transmission activities are carried out through the national transmission grid, under an
exclusive concession granted by the Portuguese government. Presently, the exclusive concession for
electricity transmission has been awarded to REN Rede Elctrica by article 69 of Decree-Law 29/2006,
following the concession already awarded to REN Rede Elctrica by article 64 of Decree-Law no.
182/95, of July 27.
Under the concession, REN Rede Elctrica is responsible for the planning, implementation, and
operation of the national transmission grid, the related infrastructure, as well as all of the relevant
interconnections and other facilities necessary to operate the national transmission grid. The
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concession also provides that REN Rede Elctrica must coordinate the SEN infrastructures to ensure
the integrated and efficient operation of the system, as well as the continuity and security of electricity
supply.
2.2.3.3 ELECTRICITY DISTRIBUTION

Electricity distribution under the New Electricity framework occurs through the national distribution grid,
consisting of a medium and high voltage network, and through the low voltage distribution grids.
The national distribution grid is operated through an exclusive concession granted by the Portuguese
state. This exclusive concession for the activity of electricity distribution is held by EDPs subsidiary
EDP Distribuio pursuant to article 70 of Decree-Law 29/2006, as a result of converting the license
held by EDP Distribuio under the Old Electricity Framework into a concession agreement. The terms
of the concession are set forth in Decree-Law 172/2006.
The low voltage distribution grids continue to be operated under concession agreements to be entered
into after a public tender administered by the relevant municipalities. The existing concession
agreements will be maintained but amended to comply with the new regime as provided for in DecreeLaw 172/2006.
2.2.3.4 ELECTRICITY SUPPLY

Electricity supply is open to competition, subject only to a licensing regime. Suppliers may openly buy
and sell electricity. For this purpose, they have the right of access to the national transmission and
distribution grids upon payment of the access charges set by the Portuguese Energy Services
Regulatory Authority (Entidade Reguladora dos Servios Energeticos, ERSE), an autonomous public
entity.
Under market conditions, consumers are free to choose their supplier, without any additional fees for
switching suppliers. A new entity, whose activity will be regulated by ERSE, will be created to oversee
the logistical operations that facilitate switching suppliers for consumers.
The New Electricity Framework enumerates certain public service obligations for suppliers to ensure the
quality and continuity of supply, as well as consumer protection with respect to prices, access charges
and access to information in simple and understandable terms.
EDPs licensed supplier of electricity for the liberalized market is its subsidiary EDP Commercial.
As required by the Electricity Directive, since January 1, 2007, the role of last recourse supplier has
been undertaken by an independent entity, EDP - Servio Universal, S.A., created for this purpose by
EDPs subsidiary EDP Distribuio, and by the local low voltage distribution concessionaires until the
free market is fully efficient and until the respective concession contracts have expired.
Pursuant to amendments introduced by Decree-Law 264/2007 of July 24, the last recourse supplier is
further required to buy forward energy in the markets managed by OMIP and the Sociedade de
Compensao de Mercados de Energia, S.A. (OMIClear) in the quantities and at auctions defined by
DGEG. Purchases of energy in the market managed by OMIP include listed annual, quarterly and
monthly electricity futures contracts, at base-load and with physical delivery. The purchases are
recognized for the purpose of regulated costs whenever they reach maturity.
The last recourse supplier must manage the different forms of contracts in order to acquire energy at
the lowest cost. All unneeded surplus electricity acquired by the last recourse supplier is resold on the
organized market.
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2.2.3.5 OPERATION OF THE ELECTRICITY MARKETS

The operation of organized markets for electricity is subject to joint authorization from the Minister of
Finance and the Minister responsible for the energy sector. The entity managing the organized markets
is also subject to authorization from the Minister responsible for the energy sector and, when required
by law, from the Minister of Finance. Organized electricity markets should be integrated into any
organized electricity markets established between Portugal and other EU Member States.
Generators operating under the ordinary regime and suppliers, among others, can become market
members.
The organized market corresponds to a system with different methods of contracting that allow supply
and demand of electricity to meet, encompassing the forward, daily (comprised of bulk energy
transactions to be delivered on the day after the contract date that must be physically settled) and intradaily markets (comprised of transactions that must be physically settled).
Since July 1, 2007, MIBEL has been fully operational, with daily transactions from both Portugal and
Spain, including a forward market that has operated since July 2006. MIBEL currently has at present
two market operators:
OMEL, which is the current market operator of the Spanish market, manages MIBELs spot
transactions market; and
OMIP, which is presently managed from Portugal, manages MIBELs forward transactions
market. It is planned that OMEL and OMIP will be merged into a single market operator, OMI,
pursuant to an agreement between the Spanish and Portuguese governments dated October
1, 2004, as amended.
The non-organized markets consist of bilateral contracts between the entities of MIBEL, settled either
by physical delivery or by differences and are subject to approval by ERSE in Portugal.
2.2.3.6 LOGISTICS FOR SWITCHING SUPPLIERS

Under market conditions, consumers are free to choose their electricity supplier and are exempt from
any payment when switching suppliers. In order to manage the process of switching suppliers, which
will also be required to manage the electricity reading and measurement equipment, a Logistics Operator
for Switching Suppliers (OLMC) will be created. This entity will have to be independent in a legal,
organizational and decision-making sense, from the other entities in the SEN.
Transmission, distribution and last recourse supply, as well as the logistics and terms applicable to the
operations for switching suppliers and for managing organized markets are subject to ERSE regulation.
Legislation applicable to this activity has yet to be developed. Nevertheless, until the incorporation of
the OLMC, ERSE has determined that management of the logistics for switching suppliers should be
conducted by the operator of the medium and high voltage distribution grid, which currently is EDP
Distribuio.
2.3 ROMANIA
2.3.1 LIBERALIZATION
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Although the energy market in Romanian has been fully liberalized in 2007, only 50% of the electricity
market is to operate in the free market. The remaining 50% of the energy consumed in the country is
sold to consumers so called bound. But now the government is starting to adjust the tariff system for
electricity. During 1998 2000, the Romanian power sector was restructured. In 1998 was set up the
first Government Decision no. 365/98 which establish the unbundling of the vertically integrated power
company RENEL into separate companies. In 1998 the National Electricity and Heat Authority (ANRE)
was created as a public institution responsible for the set up and implementation of regulatory framework
for the electricity sector and market operator.
The liberalization process creates competition in the buying and selling of energy and brings an
advantage to the consumers who are able to freely choose their supplier. The wholesale market
enables multiple parties to trade energy on a number of platforms, leading to transparent pricing

The activities involved in the electricity sector are carried out by the following agents: electricity
generator, market operator, system operator, transmission operator, distributors and retailers. The
regulator is the ANRE, whose main goal is to elaborate, setting up and monitor the implementation of
the mandatory regulations at national level, necessary to ensure the proper functioning of the electricity
sector in terms of efficiency, competitions, transparency and protection of the customer.
The Romanian electricity market comprised:
~60 Producers, partially regulated;
1 TSO (Transelectrica) completely unbundled, mainly state owned, fully regulated;
1 Market Operator (OPCOM) state owned, subsidiary of Transelectrica;
8 Distribution network operators/implicit suppliers fully regulated;
~104 suppliers;
~8.6 million consumers of which 8 million residential and 600 000 industrial.

The structure of the Romanian electricity market summarizing the main market players is presented in
the following figure.
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Fig.2.13.The structure of the Romanian electricity market and main market players
The Romanian energy system has undergone many changes over the years. Currently the system is
decentralized, generation, transmission, distribution and supply operate as separate activities, and
customer interaction is provided by individual suppliers.
The electricity market players are subject to accreditation by ANRE and include:
Producers/self producers
Transmission and system operators
Distribution operators
Suppliers.
Electricity trading on the Romanian market is carried out through two market segments:
regulated market;
competitive market.
The regulated electricity market is based on regulated contracts (quantities and prices are established
by Decisions and Orders issued by the President of ANRE).
According to the secondary legislation (issued by ANRE), the competitive market undertakes electricity
trading by means of:
bilateral contracts between suppliers and domestic producers, aimed at securing the electricity
consumption related to eligible customers;
import contracts of domestic producers, aimed at fulfilling the obligations stipulate by portofolio
contracts;
import contracts of suppliers;
export contracts;
contracts signed by other suppliers than those selling electricity to captive customers at
regulated tariffs;
contracts negotiated by other independent producers and self-producers than those with
existing portfolio contracts;
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spot market transactions at system marginal price.

The Romanian Energy Regulatory Authority (ANRE) is responsible entity for the creation and
implementation of the regulatory system. ANRE issued on 2003 the Commercial Code of the Wholesale
Electricity Market for the administration of the Romanian wholesale electricity market; also in 2003 the
Electricity Law no. 318 was settled.
Fig.2.14. Structure of the Romanian electricity market
2.3.4 ELECTRICITY MARKET MECHANISMS
Generated electricity is transmitted from its generation facility to customers through electricity
transmission networks owned by Transelectrica, as well as through electricity distribution
networks owned by distribution companies.
Distribution companies are fully responsible for the continuity of electricity supply and its quality.
Electricity is bought from producers, from another supplier or imported, and is sold to customers
by electricity suppliers.
Electricity supply and trading involves the provision of several services including: meter reading,
billing, cashing, ensuring the smooth running of the customer network operator interface,
concluding the supply contract and running the contract according to legal provisions,
investigating and solving customer complaints and claims in due time, informing customers on
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any changes of the legal framework, consulting services, etc.

The liberalization of the electricity market led to the setting up of electricity suppliers and of two
major market segments: the wholesale market where companies purchase electricity, and the
retail market where companies sell energy to customers using the services provided by network
operators.
2.4 ITALY
The organization model of the Italian Electricity System is represented in Fig. 2.15, making reference to
the following legenda for acronyms and translation of the terms:
Importatori: importers
Produttori nazionali: domestic producers
GSE: Gestore dei Servizi Energetici(see Section 3.2 Agents of the Electricity Sector)
Contrattazione bilaterale: bilateral contracting
Registrazione: registration
OTC: Over The Counter
PCE (Piattaforma Conti Energia a termine): Platform for energy assessment
MTE ( Mercato a TerminedellenergiaElettrica): Forward Electricity Market
MPE (MercatoElettrico a Pronti): Spot Electricity Market
Energia: Energy
TSO TERNA (RISORSE PER DISPACCIAMENTO): Transmission System Operator TERNA
(resources for dispatch)
Grossisti: wholesalers
Acquirente Unico (Single Buyer, see Section 3.2 Agents of the Electricity Sector)
Esportatori: exporters
Distributori: distribution system operators
Mercato libero: free market
Mercato tutelato: protected categories market
Mercati esteri: foreign markets
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Fig.2.15 - Scheme of the organization model of the Italian Electricity System
2.4.2 THE WHOLESALE MARKET

The Electricity Market consists of the Spot Electricity Market (MPE), of the Platform for physical delivery
of financial contracts concluded on IDEX (Spot Electricity Market)-CDE, and of the Forward Electricity
Market (MTE), as shown in Fig. 2.16.
Fig. 2.16 - Organization model of the electricity market
Spot Electricity Market

The Spot Electricity Market consists of two energy markets, that is the Day-Ahead Market MGP
(Mercato del Giorno Prima) and the Intra-Day Market MI (Mercato Infragiornaliero), and of an
Ancillary Services Market MSD (Mercato dei Servizi di Dispacciamento).
In the Day-Ahead Market (MGP), that hosts most of the electricity sale and purchase transactions, hourly
energy blocks are traded for the next day. The MGP is organized as an auction market, where bids and
offers are accepted under the economic merit-order criterion and taking into account transmission
capacity limits between zones (the Italian transmission system is divided into zones, see section 2.4.3).
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All the supply offers that are accepted in the MGP are valued at the marginal clearing price of the zone
to which they belong. This price is determined, for each hour, by the intersection of the demand and
supply curves and is differentiated from zone to zone when transmission capacity limits are saturated.
The accepted demand bids pertaining to consuming units belonging to Italian geographical zones are
valued at the Prezzo Unico Nazionale (PUN single national price); this price is equal to the average
of the prices of geographical zones, weighted for the quantities purchased in these zones.
The Intra-Day Market (MI) allows Market Participants to adjust their physical and commercial positions
with respect to trading on the Day-Ahead Market the MI takes place in four sessions: MI1, MI2, MI3 and
MI4. Supply offers and demand bids are selected under the same criterion as the one described for the
MGP. Accepted demand bids are valued at the zonal price.
The Ancillary Services Market (MSD) is the venue where the Italian Transmission System Operator
(TERNA) procures the resources required for managing, operating, monitoring and controlling the power
system (relief of intra - zonal congestions, creation of energy reserve, real-time balancing). In the MSD,
Terna acts as a central counterparty and accepted bids/offers are valued at the offered price (pay-asbid).The MSD consists of a scheduling stage (ex-ante MSD) and of the Balancing Market (MB). The exante MSD and the MB take place in multiple sessions. The ex-ante MSD consists of three scheduling
substages: MSD1, MSD2 and MSD3. The MB takes place in different sessions, during which Terna
selects bids/offers in respect of groups of hours of the same day on which the related MB session takes
place. At present, the MB consists of 5 sessions. In the MB, Terna accepts energy demand bids and
supply offers in order to provide its service of secondary control and to balance energy injections and
withdrawals into/from the grid in real time.
Forward electricity markets
To increase the flexibility of the system, the market structure was enhanced by developing forward
electricity markets.
In the Forward Electricity Market with delivery taking/making obligation (MTE), participants may
sell/purchase future electricity supplies. GME acts as central counterparty to the transactions concluded
in the MTE.
Link MTE, in the Platform for physical delivery of financial contracts (CDE), financial electricity
derivatives contracts concluded on the Italian Derivatives Power Exchange (IDEX) are executed. IDEX
is the segment of the financial derivatives market of Borsa Italiana S.p.A. where financial electricity
derivatives are traded. The contracts executed on the CDE are those for which the participant has
requested to exercise the option of physical delivery in the Electricity Market. GME acts as central
counterparty to the delivered contracts.
2.4.3 ZONES AND ZONAL PRICES

For electricity market purposes, the Italian territory is partitioned into geographical zones (Figure 2.17).
In case of network congestion, some zones are subject to different market prices the zonal prices. The
two main islands (Sicily and Sardinia) are considered as zones. The interconnections among the
geographical zones are indicated in Figure 2.18, where other zones in addition to the geographical
zones, called virtual zones, are represented. The virtual zones have been defined under two rationales.
There are six virtual zones representing the interconnection points with the (electrical) neighbouring
countries or regions (France, Switzerland, Austria, Slovenia, Corsica and Greece). Furthermore, five
zones are defines as limited production points (Poli di produzione limitata, located in Priolo, Rossano,
Monfalcone, Foggia and Brindisi), whose production can be limited to avoid network congestion caused
by the possible lower production cost of their generation groups, that could create network congestions
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in some corridors.
Fig.2.17 Territorial partition into geographical zones for electricity market purposes.Legenda for
non-English terms: Nord = North; CentroNord = North-central zone; CentroSud = South-central
zone; Sud = South; Sicilia = Sicily; Sardegna = Sardinia; Grecia = Greece; Francia = France;
Svizzera = Switzerland.
Source:http://www.mercatoelettrico.org/it/MenuBiblioteca/Documenti/20091028VademecumBorsaElett
rica.pdf
The zonal prices are defined after clearing the market in the different zones. If there is network
congestion, the zonal prices will be different. The zonal prices are used to reward the producers
operating in the corresponding zone. On the demand side, the zonal prices are only used to calculate
the Single National Price (SNP, as a weighted average of the zonal prices, by using the zonal
consumption as weighting factor). In Italian, the SNP is called PUN (Prezzo Unico Nazionale). The
SNP is introduced in the electricity bill of the consumers (no zonal price is applied to the consumers).
The differences among the zonal prices are evident in different time periods. Concerning the islands, for
example in the Annual report of the Market Operator GSE (Gestore dei Mercati energetici) for the year
2012 it is indicated that the prices in the islands in 2012 increased less than in the mainland, but the
dynamics of the prices exhibits similar trends. In particular, from Figure 2.19 it can be seen that in Sicily
and Sardinia the prices reached the maximum values in the summer period. In that period, in Sardinia
there has been a reduction of the import capacity on the SAPEI connection, leading to significant price
spikes. Figure 2.20 shows the zonal prices monitored from the GSE platform on 5 March 2014.
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Figure2.18. Geographical and virtual zones. Legend for non-English terms: Nord = North;
CentroNord = North-central zone; CentroSud = South-central zone; Sud = South; Sicilia = Sicily;
Sardegna = Sardinia; Grecia = Greece; Francia = France; Svizzera = Switzerland.
Source:http://www.mercatoelettrico.org/it/MenuBiblioteca/Documenti/20091028VademecumBorsaElett
rica.pdf
Figure 2.19.Zonal energy prices in the zones of mainland Italy (zone continentali) and in the
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islands Sicily (Sicilia) and Sardinia (Sardegna). The Delta Sud-Nord represents the difference
between the zonal prices in the zones located in the South of Italy (Sud) and in the North of Italy
(Nord).
(Source:https://www.mercatoelettrico.org/it/MenuBiblioteca/documenti/20130709RelazioneAnnuale201
2.pdf)
a) Sicily
b) Sardinia
c) Center-South
d) Center-North
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e) North
d) Italy (overall)
Figure2.20. Zonal energy prices in the some zones and in the islands (Sicily and Sardinia)
2.4.4 TARIFF SYSTEM FOR PROTECTED CATEGORIES

The market liberalization has led to the possibility to the customers of choosing the supplier. However,
the small customers who prefer to remain linked to a tariff system may be subject to the tariff provisions
indicated in the specific option protected categories service (servizio di maggior tutela). According to
this option, the electricity bill is partitioned as indicated below.
Notes on the electricity tariffs
In the electricity bill, the cost components are generally partitioned into:
A. Power and energy (selling) services (servizi di vendita, referring to the energy price);
B. Network services (servizi di rete, referring to the delivery of electricity from the power plants to
the consumers);
C. Taxes and fiscal duties.
A. Power and energy (selling) services
These services include the activity carried out by the supplier to procure and sell electricity to the
consumers. The related components are as follows:
Energy price, corresponding with the cost of electrical energy, including the transmission and
distribution losses. In the protected categories service, AEEG sets up and updates the energy
price every three months, by taking into account the expenses incurred by the Single Buyer (in
charge of buying electricity on behalf of the protected categories customers) and of the
estimation of the future expenses.
Commercialization and selling price, referring to the expenses incurred by the suppliers to
provide electricity to the consumers. In the protected categories service, AEEG sets up this
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price on the basis of the average costs incurred by an operator acting on the competitive market.
Dispatch service price, related to maintaining the operational balance of the electrical system.
In the protected categories service, this price is set up by AEEG in such a way that the
consumers pay an amount proportional to their consumption, and is updated every three
months.
B. Network services
These services include the transmission and distribution of electricity, as well as the management of
metering. These services are subject to a tariff set up by AEEG by using uniform criteria for the national
territory. The network services are not competitive, since the electrical infrastructure is unique.
The tariff coefficients referring to the network services are detailed in the electricity bill, and cover
different types of costs introduced according to specific legislation provisions.
C. Taxes and fiscal duties
There are two different components introduced in the electricity bill:
1. The national tax on consumption (imposta erariale di consumo o accisa), applied to the
electrical energy consumption independently of the type of contract. This tax is reduced for
residential consumers in their first houses when the level of consumption is lower than a
specified threshold.
2. The Value Added Tax (VAT, in Italian imposta sul valore aggiunto IVA) is applied on all the
components of the electricity bill (power and energy selling services, network services and the
national tax on consumption).
Under this conceptual structure, the tariff is composed of the following terms:
a) Base tariff, with components referring to the costs of metering (meter installation and reading),
transmission (covering the costs of electricity transmission through the national transmission
system), distribution (covering the costs of distribution and transformation of electricity in the
distribution networks), selling (covering the costs of commercialization incurred by the subject
serving the protected categories service consumers), energy and dispatch prices.
b) Components A, defined by the AEEG and collected by the CCSE, identified with the following
codes:
component A2, covering the costs for nuclear plant decommissioning and completion of the
fuel cycle;
component A3, covering the costs for promoting the energy production from renewable
energy sources (RES) and RES-like sources;
component A4, covering the costs for financing the special tariff regimes;
component A5, covering the financing of research and development activities;
component A6, covering the costs already incurred by the enterprises and not recoverable
at the moment of introduction of the liberalized electricity market (at the moment this
component is null);
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component AS, covering the costs depending on the adoption of protection measures for the
clients in economic unease (as indicated in the Inter-Ministerial decree of 28 December
2007;
component AE, covering the incentives provided to the manufacture enterprises with high
electrical energy consumption.
c) Components UC, covering the costs referring to specific aspects:
component UC3, covering the reconciliation of the costs of electricity transmission
distribution and metering;
component UC4, covering the tariff integration to the small electricity enterprises;
component UC6, covering the approved costs for service quality recovery;
component UC7, covering the costs related to the promotion of energy efficiency in the final
uses;
component PPE, covering the unbalance of the reconciliation mechanisms for the costs of
electricity provision for the protected categories service starting from the year 2008;
d) Component MCT, covering the financing of the territorial compensation for the nuclear power
plant decommissioning.
e) Component referring to the reactive (inductive) energy measured for customers with reference
power (established in the contract) higher than 16.5 kW.
Considering the various components, the component A3 is largely prevailing over the other components
(86.3% in the first trimester of the year 2014), as indicated in Figure 2.21.
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Figure 2.21.Per cent impact of the cost components A, UC and MCT for the first trimester
of 2014. Source: AEEG (Autorit per l'Energia Elettrica e il Gas)
In recent years, the overall per cent impact of the system-based costs on the prices paid by the final
users has been progressively increasing, being more than doubled in less than three years (Figure
2.22). This is due on the one hand to the improvements in the terms referring to the cost of energy and
network operation, and on the other hand on the significant incentives given to the renewable sources
(photovoltaic systems in particular). On the basis of these incentives, in 2011 the number of new
photovoltaic plants in Italy has been more than double with respect to 2010.
energy and resource purchase
network and metering
system-basedcosts
taxes
Figure 2.22.Per cent impact of the cost components on the total electricity bill for the first
trimester of 2014. Source: AEEG (Autorit per l'Energia Elettrica e il Gas)
On the basis of a specific analysis carried out by AEEG for a typical residential consumer in Italy (a
family with 3 kW of reference power, 2700 kWh of annual electricity consumption and a single-hour tariff
under the protected categories service, with tariff coefficients referring to the first trimester of 2014), the
estimated components of the electricity bill during one year has been determined (Table 2.8).
Table 2.8. Estimated electricity bill components
Source:
Autorit
per
l'Energia
Elettrica
http://www.autorita.energia.it/it/consumatori/bollettatrasp_ele.htm
il
Gas
(AEEG),
estimated costs per cent of the

(euro/year)
total costs
266
51.25%
electricity bill cost components
Selling services (for the electrical energy delivered to the final user)
Network services (tariff components for electricity transmission, distribution and
76
metering)
System-based components (A, UC and MCT)
107
National taxes and fiscal duties (additional local taxes excluded)
69
TOTAL
518
14.70%
20.75%
13.30%
100.00%
The revenues coming from the system-based cost components are given to different subjects (Figure
2.23). The large majority of these revenues (about 80%) are sent to the enterprises, prevailingly as
incentive to the production from renewable sources (about 70%). In addition, about 5% goes to the
families, again especially in the form of incentive to the production from renewable sources.
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Legenda
incentivi rinnovabili famiglie
incentivi rinnovabili imprese
altri incentivi imprese (CIP6 e CO2)
altro
stato
comuni e province
Sogin
GSE
ricerca
ferrovie
imprese minori
bonus consumatori
efficienza energetica
imprese di distribuzione
incentives for RES to the families

incentives for RES to the enterprises
Other incentives to the enterprises
(for CIP6, see below; CO2 is carbon dioxide)
others
State
cities and provinces
(see description below)
Gestore dei Sistemi Energetici
research
Rail way system
small enterprises
incentive for the consumers
Energy efficiency
Electricity distributors
Figure 2.23.Destination of the system-based cost components in the year 2011

Source: Elaboration of CCSE of data provided by AEEG, GSE,
(http://www.ccse.cc/site/informazioni/bolletta-oneri-sistema)
and
Terna
Specific aspects indicated in Figure 2.23 include the following:

CIP6: After the CIP6 Directive, the units producing electricity from RES or RES-like sources
can sell their production to the GSE at a price higher than the market price. The costs of this
incentive are funded by an increase of the price of electricity paid by the users in the bill under
the component A3. The incentive (in /MWh) is updated every three months and the values are
published on the GSE web site.
Sogin (http://www.sogin.it/en/Pages/default.aspx) is the State-owned company in charge of the
environmental remediation of Italian nuclear sites and of the safe management of radioactive
waste. On 13 February 2014, the Italian Ministry for Economic Development has issued the
Decree for the de-activation of the nuclear power plant of Caorso (Piacenza), on the basis of
which Sogin will complete the decommissioning of the plant, in addition to the other nuclear
power plants.
2.5 GREECE
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2.5.1 ORGANIZATIONAL ENTITIES OF THE GREEK ELECTRICITY

SECTOR
Since the foundation of the Greek electricity market, the activities involved in the electricity sector have
been carried out by various entities. The key organizational entities that currently regulate and operate
the electricity sector are briefly described in the following.
Regulatory Authority for Energy (RAE)
The Regulatory Authority for Energy (RAE) was established on the basis of the provisions of Law
2773/1999 and is an independent administrative authority, which enjoys financial and administrative
independence.
The financial independence of RAE is an essential condition in order to preserve the Authority's
independence. It is anticipated that the Authority possesses its own resources, i.e. revenue bonds from
the regulated industry, participation to research projects etc., while financial management is subject to
ex-post auditing by Independent Auditors and the Court of Auditors.
New competences and duties were assigned to RAE with respect to electricity and natural gas sectors
by the Electricity Law 3426/2005 and the Gas Law 3428/2005, in alignment with the relevant provisions
of Directives 2003/54/EC and 2003/55/EC. Among others, RAE advises on and approves the access
tariffs to electricity and gas networks, the terms and conditions for the provision of balancing services in
natural gas, as well as it intervenes on issues related to the security of electricity and natural gas supply.
Furthermore, on the basis of the modifications introduced with the aforementioned laws, RAE acts as a
dispute settlement authority with respect to complaints against the transmission or distribution system
operator in both electricity and natural gas sectors.
Independent Power Transmission Operator (IPTO)
The Independent Power Transmission Operator (IPTO or ADMIE) S.A. was established in compliance
with Law 4001/2011 and Directive 2009/72/EC. According to Law 4001/2011, ADMIE undertakes the
role of Operator for the Greek transmission system. As such, it performs the duties of system operation,
exploitation, maintenance and development so as to ensure the electricity supply in Greece in a safe,
efficient and reliable manner.
ADMIE is the sole owner of the Greek transmission system, in compliance with the ITO model
provisioned by Directive 2009/72/EC. Although it is a 100% subsidiary of Public Power Corporation
(PPC) S.A., the ex-monopolist in the Greek electricity sector, ADMIE is entirely independent from its
parent company in terms of its management and operation, retaining effective decision-making rights,
in compliance with all relevant independence requirements provisioned by the legislative framework. Its
mission is to ensure the electricity supply in Greece in a safe, efficient and reliable manner while
promoting the development of competition in the Greek electricity market and guaranteeing the nondiscriminatory treatment of System users.
Electricity Market Operator (EMO)
The Electricity Market Operator (EMO or LAGIE) S.A. was established in compliance with Law
4001/2011 and Directive 2009/72/EC. According to the provisions of Law 4001/2011, LAGIE performs
all activities previously undertaken by HTSO, except for those tasks currently taken over by IPTO. In
particular, it implements the rules for the operation of the Greek electricity market, including the DayAhead Scheduling (DAS) operation and the financial transactions with all market participants (i.e.
conventional producers, RES producers, traders, electricity suppliers, etc.) in the framework of the dayahead market operation.
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Hellenic Electricity Distribution Network Operator (HEDNO)

The Hellenic Electricity Distribution Network Operator (HEDNO) S.A. was formed by the separation of
the Distribution Department from PPC S.A., according to Law 4001/2011 and in compliance with
Directive 2009/72/EC. It is a 100% subsidiary of PPC S.A., however, it is independent in operation and
management retaining all the independence requirements that are incorporated within the
aforementioned legislative framework.
Figure2.24. Organizational structure of the Greek electricity sector

Company tasks include the operation, maintenance and development of the electricity distribution
network in Greece as well as the assurance of a transparent and impartial access of consumers and all
network users in general.
HEDNO S.A. is responsible for the development, operation and maintenance under economically
advantageous terms of the HEDN (Hellenic Electricity Distribution Network), so as to assure its reliable,
efficient and safe operation as well as its long-term capability to respond to the reasonable needs of the
electricity, also caring for the protection of the environment and the energy efficiency. In addition, it is
responsible for the assurance of the users access to HEDN with the most economical, transparent,
immediate and impartial way, so as to execute their activities according to the Management Permit and
the Management Code of HEDN.
The management of the non-interconnected islands power systems includes not only the network
management but also the management of the production and the operation of the electricity market of
these islands. For this activity, HEDNO S.A. is obliged to receive a management permit for the electricity
systems of the non-interconnected islands granted by RAE. Among others, this permit defines HEDNOs
obligations and rights concerning this activity, the terms and conditions required for its implementation,
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as well as the necessary means for the impartial and non-discriminative behavior of HEDNO S.A.
towards Producers and Suppliers.
Figure 2.24 illustrates the current organizational structure of the Greek electricity sector with the key
participants and services.
2.5.2 MARKET DESIGN OVERVIEW

According to the Power Exchange Code and Grid Control Code, there are four main distinct markets
operating in the Greek electricity sector, regarding the Greek interconnected power system, namely as
follows:
a) the Wholesale Electricity Market, which is currently organized as a centralized mandatory pool. In
this market, the EMO solves a bid-based short-term unit commitment problem on a daily basis
aiming at the maximization of the social welfare (or equivalently the minimization of the total
production cost minus the load utility) within the 24-hour period of the next day. In this market, all
energy transactions between the EMO and the market participants (i.e. generators, suppliers,
traders) are settled with the resulting System Marginal Price (SMP). However, since RES producers
are compensated under fixed FiTs, which are usually higher than the resulting SMP, these units
receive supplementary credits that are covered directly by the electricity consumers through an
imposed RES uplift charge. The level of this charge is decided and regularly revised by RAE.
b) the Capacity Assurance Market (through the Capacity Availability Tickets - CAT), in which energy
producers are remunerated for their units availability; this remuneration aims to cover the fixed
annual costs (e.g. loans, depreciation, etc.) of the operating units. It is noted that only the
conventional units currently participate in this market and receive credits. Even though operating
independently one from another, the wholesale market and the capacity assurance market are
related in the sense that the profits of the producers from these two markets should cover their total
annual costs (fixed and variable) in order to ensure their viability in the long-run.
c) the Transmission Rights Market, in which auctions for the allocation and assignment of
interconnection capacity rights for energy import/export from/to the neighboring countries (i.e.
Bulgaria, FYROM, Albania, Turkey, and Italy) on a yearly, monthly and daily basis are regularly
conducted. The Available Transmission Capacity (ATC) in the interconnections is offered in the
form of Physical Transmission Rights (PTRs) and the auctions are conducted by ADMIE, the
system operators of the neighboring countries, while, specifically for the Greece-Italy
Interconnection, the CASC Joint Auction Office, is in charge lately.
d) the Retail Market, in which all customers including households have become eligible as of July 1st,
2007 and all suppliers are free to define their tariff policy.
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Figure2.25. Overview of the Greek electricity market design
3. EVOLUTION OF THE LEGISLATION

3.1 SPAIN
Regulation is in the direct and/or indirect control of the government. Items recently regulated are related
to generators (feed-in tariff, premium, and power guarantee), transmission and distribution
(remuneration scheme, access tariffs) and retailing (regulated tariff for domestic consumers). Besides,
the procedures of the MO & SO are established by the government.
The rules of the electricity sector are composed of European Directives (EC), Royal Decrees-Laws
(RDL), Royal Decrees (RD), Ministerial orders (ITC), Resolutions, Market Rules (from OMIE),
Operational Procedures (OP) and National Energy Commission (CNE).
3.1.1 HIGHLIGHTS ON
REGULATION
THE
ELECTRICITY
ACT
AND
ITS
National regulation is always applied. However, for the purposes of simplification, only the most
significant applicable laws are listed below:
Law 54/1997: the organization of the wholesale electricity market began with the liberalization of
the activities of generation and retailing.
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RD 2019/1997: se organiza y regula el mercado de produccin de energa elctrica
RD 1955/2000: established the legal regime applicable to transmission, distribution and supply of
electric power and the relationships between the different balance parties.
RD 325/2008: established the tariff of electrical energy transport for installation placed in service
from 1 January 2008. This law was modified on law 9-2013.
RD 485/2009: regulated the last resource supply (TUR) since the integral tariff is abolished. The
access tariff, commonly known as Third Access Parties (TAP), is always composed of two terms, a
fixed one related to power and a variable one related to energy consumption. The invoicing of this
access tariff is carried out through the retailer and the consequent liberalization of the total electricity
supply. Thus, the retailer is the one that invoices everything to the consumers, both the cost of
accessing the network and the energy cost.
Order ITC/1659/2009: This law determines the estimated cost of wholesale contracts for calculating
the last resort tariff. The law introduce the CESUR auction.
RD 134/2010: an Integrated and Sustainable Development of Mining Regions was established to

prevent national coal power plants to disappear in the short term. Thus, another market mechanism,
the guarantee of supply constraint, was implemented dispatching national coal power plants.
Basically, it means that both the energy and remuneration price are regulated.
RDL 14/2010: set urgent measures in order to improve the tariff deficit. This affected the reduction
in the remuneration of the ordinary and special regime, as it will be explained later in section 4
(substituting RDL 6/2009). Consequently, there was a decrease in the level of Feed-in-Tariffs (FIT)
introduced in RD 1565/2010. Additionally, it stated that all DG units or groups of units larger than 1
MW must send real-time measures to the SO (one-way communication). Furthermore, there was a
limitation in the equivalent hours that received the premium in RD 1614/2010. Finally, it established
a fixed fee of 0.5/MWh for all generators regardless where the generator was connected.
Order ITC/1601/2010: regulated the CESUR auction.
RD 1699/2011: regulated the network connection facilities electricity production of small power.
RD 1544/2011: modified the RD 2019/1997.
RDL 1/2012: abolished of the economic incentives for new generation plants from cogeneration,
renewable and residues.
RDL 13/2012: established new criteria for the regulation of the transport and distribution
remuneration (substituting RD 2819/1998), criteria for returns and charges.
RDL 2/2013: established urgent measures to correct the imbalances between the costs of the
electricity sector and the revenues obtained, which it is called tariff deficit. It modified the RDL
661/2007 about the economic regulation of the production activity of the Special Regime.
Royal Decree 1047/2013 established the methodology for calculating the remuneration of the
transmission power.
RDL 9/2013: is the most recent Royal Decree Law that is explained below.
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The Council of Ministers of Spain approved a reform of the electricity sector that finally solved the
electric tariff deficit and ensures the long-term sustainability of the Spanish system. Among its cost
reduction measures, it included a renewable energy compensation scheme. New renewable energy
installations will receive the market price and, when needed, a complementary retribution to cover
their costs to attain a reasonable profitability.
The cost adjustment package includes a new transmission and distribution retribution regime. The
objective is to attain a more efficient and a cost-reduction oriented retribution system for
transmission and distribution.
The methodology for calculating the remuneration of the distribution activity is currently regulated
by Royal Decree 222/2008. In the new Royal Decree 13/2012, the retribution for the investment in
facilities is linked with the assets in service not amortized and the payments generated by the
facilities starting from January of year n+2, where n is the year of commissioning of the installation.
Another measure is related to the capacity payments for the Ordinary Regime. Under the concept
of capacity payments there are two types of services in this standard: the incentive to invest in longterm capacity and service availability in the medium term. In the current context in which electricity
demand is decreasing, there is a minimal risk of capacity deficit. Thus, it is considered urgent to
extend the reduction of the investment incentive, fixing it at 10,000/ MW/year. The previous one
was 23.400/MW/year (in RDL 13/2012). Also, it is necessary to define the medium-term availability
(in ITC 3127/2011) which is a function of three terms: RSDi,j= a x indjx PNi, where a = 5.150MWh,
indj depends on the type of installation and PNi is the net power installation.
Additionally, two measures in relation to the facilities of the special regime were approved: the
suppression of the complement for efficiency for facilities that perceive it and the suppression of the
reactive power bonus (established in RD 661/2007).
In transmission, for financial compensation, the remuneration in terms of investment will be made
for the assets in service whose investment is not recovered yet, based on their net values.
Royal 24/2013: This law derogated part of the Law 54/1997. A key element to undertaken this
reform has been accumulating, during the past decade, annual imbalances between revenues and
costs of the electricity system and has led to the emergence of a structural deficit.
Draft law RD regulates the activity of production of electric energy from renewable energy sources,
cogeneration and waste.
Insular Systems
The regulation that assigned the operation of the Canary Islands electricity system to Red
Elctrica came into force on April 10th, 2006. The most significant laws for Insular and non-mainland
Electrical Systems (SEIE Sistemas Elctricos Insulares y Extrapeninsulares) are mentioned above.
Law 11/1997regulates the Canary electricity sector.
Royal Decree 1747/2003 of 19th of December 2003 set Red Elctrica as the operator of the insular
electricity systems and established the singular conditions for developing electricity supply
operations and, more specifically, the economic dispatch of generation. Amongst its functions, Red
Elctrica has to propose a development plan for the transmission and generation facilities necessary
to achieve the level of guarantee of supply required in each one of the insular electricity systems.
Moreover, it sets up the economic dispatch and operational procedures for the insular electric
systems. They are explained in the next section.
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Law 8/2005 regulated the Canary Islands electricity system. It is attributed to the autonomous
government competences relating to the granting of permission for the construction, modification,
expansion of facilities for generation, transmission and distribution.
Ministerial Order 28th September, 2005 determined the criteria for defining the electricity
transmission network of the Canary Islands and the facilities that constitute it are made public.
ITC 913/2006: this order developed the method for calculating the cost of each of the fuels used in
insular power systems. This calculation method allows us to determine the cost of fuel to be
considered in the annual elaboration of the electricity tariff, and, consequently, the integration with
other costs in the process of settlement of the regulated activities.
The System Operator performs an economic dispatch of the production units in the extra-peninsular
systems, based on variable costs declared, and verifies them including both the value of fuel
consumption and any other costs incurred of variable nature.
The need for this generation dispatch is performed in accordance with economic criteria required to
contemplate all the variable costs of generation facilities of these systems so that these costs are
consistent with the remuneration scheme set forth in the Royal Decree 1747/2003 for the generation,
guaranteeing the highest efficiency and the lowest incidence in the quality of supply.
ITC 914/2006: this order developed the method for calculating the warranty power retribution for
regular regime. This order contains the fix 2011 retribution of warranty power of the energy systems
installed in the island.
Law 17/2007 set new features of REE in extra peninsular power systems in which REE will carry all
the functions of the market operator in relation to the settlements, payments and charges, as well
as the reception of all the guarantees.
Since the publication of Law 17/2007 of the 4th of July, 2007, Red Elctrica has also been assigned
the responsibility for managing, maintaining and developing the transmission grid in the insular and
extra-peninsular systems.
Order ITC/1857/2008, this order modified the ITC913/2006.
Resolution of 22th May, 2009 established the rules of the settlement system, the economic dispatch
and payment guarantees.
Resolution of 28th September, 2010 this law modified the ITC 914/2006. Why the peak periods,
valley and plain are revised values Festh seasonality factor for each of the defined blocks, and
annual hours of operation of standard groups used to calculate the value of the guarantee time MW
power recognized by each of the facilities of the ordinary regime generation non-mainland electricity
systems.
Law 2/2011, this law amends the law 11/1997 where the Canary electricity was regulated and the
law 19/2003 where general guidelines of the territory and tourism are approved.
Resolution of 7th march of 2011, where the parameters of the different components of the variable
cost of generation facilities ordinary regime of non-mainland electricity systems for 2011 are
updated.
Resolution of 7th march of 2011 where the unit value of annual power GPOTn guarantee (i) for
facilities ordinary regime of non-mainland electricity systems for 2011 is published.
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Royal Decree Law 13/2012 fixed the remuneration of the generation activity in insular systems
through the cost recognized for purchasing fuel and links the power guarantee payment to the actual
availability of the power plants.
Royal Decree Law 17/2012 eliminated the application of the compensation mechanism of
generation extra costs on insular systems of RDL 6/2009 under the General State Budget.
Royal Decree Law 20/2012 incorporated, in order to ensure fiscal stability and to promote
competitiveness, additional economic measures relating to the remuneration of generation power
plants in Ordinary Regime for the remuneration of the extra-peninsular electric systems and
establishes the compulsory imposition of a land tax in the access tariff of last resort for the
Autonomous Communities. It also amends the remuneration of the transmission activity,
establishing that the remuneration with respect to investment assets is recognized for the non
amortized service ones based on a financial compensation for their net values.
Royal Decree Law 9/2013: fixed the remuneration of the generation activity in non-mainland
electricity systems through the cost recognized for purchasing fuel, linking the payment of the
guaranteed power to the actual availability of the plants.
This provision states that compensation for generation extra-costs in insular systems will be
financed by the State Budget establishing that funding is only for 50% of the generation extra-costs
in insular regimes. The reason is the difficult budgetary situation, which cannot provide, in its
entirety, this extra-cost without compromising compliance with the deficit targets set for the year
2014.
Royal 17/2013: this law was writing for security of supply and increased competition in nonmainland electricity systems. This law defined that No additional remuneration may grant scheme
for production activity in the island and mainland territories who owns as hare of power generation
electricity top 40 percent in that system. There are activities for the supply of electricity: generation,
transmission, distribution, energy services recharge marketing community and international
exchanges as well as economic and technical management of the electricity system.
Order IET/1711/2013 established the method of calculation of the fixed and variable installation
costs and set of hydro-wind power of Gorona del viento production in the island of El Hierro.
Draft law RD regulates the activity of production of electric energy from renewable energy sources,
cogeneration and waste in non-mainland.
3.1.2 OPERATING PROCEDURES OVERVIEW IN INSULAR SYSTEMS

Royal Decree 1747/2003 established a dispatch based on variable costs for the extra-peninsular
systems, in which the Ordinary Regime power plants will participate in order to meet the demand of
distributors and retailers. In addition, Special Regime can also participate if the capacity installed is more
than 1 MW.
The owners or agents of the all generation power plants are obliged to communicate the System
Operator the production and demand forecasts for each programming period schedule. Ordinary
Regime generators will communicate to the System Operator the hourly availability; the net power;
minimum technical; up and down ramps; start-up times, cold and hot start-up costs, variable costs,
spinning reserve capacity, etc.
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In the case of the System Operator (SO) its main activity is the calculation of the economic dispatch of
the generation units for the insular systems, based on the declared and verified variable costs and
solving the technical and environmental constraints. The calculation of the fuel cost use and the power
guarantee remuneration for the Ordinary Regime power plants will be established. The dispatch of the
Ordinary Regime is made according to economic merit, taking into account the technical and
environmental constraints of each system. Besides, the dispatch of the production units must ensure
the availability of enough spinning reserve.
The Market Operator (MO) receives the hourly cost, the hourly availability, the energy generated by
each unit and demand forecasts of retailers from the SO. In addition to this, it computes the settlements
for each agent.
3.1.3 DISTRIBUTION GRID OPERATION

Since Distribution System Operators (DSOs) are obliged to connect all DG units to their networks, every
network upgrade required to connect a new DG unit considers the most unfavorable conditions
concerning DG.
New distribution codes are being developed and some preliminary drafts have been published by the
National Energy Commission (CNE). One of this grid codes focuses on distribution planning criteria.
When connecting new DG capacities, the DSO should balance the costs and benefits of two options:
expanding existing network capacity or postponing this investment and incurring in higher congestion
costs resulting from the bottlenecks that DG may produce. Therefore, applying planning criteria that
consider only the most unfavorable conditions for DG, albeit simple, is deemed excessively
conservative.
It is recommended to allow DSOs to be innovative so that they include DG in network planning and
provide them with incentives to do so in an efficient manner. This could be done through new distribution
grid codes. It would be unfair to place on DSOs the whole responsibility of meeting the systems needs.
Hence, regulation should also be aimed at enhancing the role of DG. Thus, for example, performance
incentives could be applied to DG together with penalties for non-compliance. This could be done via
long-term bilateral agreements between DSOs and DG. The scheme therein proposed, consists of
establishing local markets where DSOs would purchase from DG units the option to curtail DG
production for a limited number of hours per year (when load is expected to surpass a certain threshold)
in exchange for receiving a premium. These are called reliability options for DG.
This Basic Operating Procedure Distribution Network (POD) develops the technical and performance
criteria of the distribution network to be used by the manager of the distribution network (DRG) in the
field of all its facilities distribution, in order to meet the requirements of quality and continuity required by
regulations. So, in this POD is determined:
The safety criteria to be applied in the operation of the distribution network, so as to ensure
continuity of supply to the required quality to users connected to the distribution network.
The criteria for determining allowable load levels on lines and transformers of the distribution
network and margins allowable operating voltages of the nodes of the distribution network for
different operating states of the system.
The criteria to be used to impose restrictions on pouring energy generation in the distribution
network, in order to apply on treatment of solving technical constraints in the distribution of System
Operating Procedure OP 3.2 "Resolution of technical constraints."
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Management of the external networks (radial transport property and customer / generators) to the
distribution network, which influences the management to be performed by the GRD.
3.2 PORTUGAL
The evolution of the legal system of the national electricity sector is characterized essentially by two
milestones: first, with the nationalization of utilities in the electricity generation, transmission and
distribution of electric companies, by ending the state monopoly in the electricity sector hitherto relied
on public concessions granted to private entities, and a second, started in the 90s, with the reform of
the system and the liberalization of the sector in order to create, by following European policies, an
internal market for electricity at community level.
The organizational structure of the 40s electricity sector, which lasted until 1975, was based, as to the
exercise of the functions of generation, transmission and distribution of electricity through concessions
from the state to Portuguese citizens or companies.
In 1975, and as has happened in other economic sectors of the country, it was witnessed the
nationalization of the electricity sector, followed by the creation of a legal entity resulting from the
restructuring of utility companies, EDP, which was assigned on an exclusive basis and for an indefinite
time to exercise the public service of production, transmission and distribution of electricity throughout
the country.
The year of 1988 saw a huge step through liberalization by reversing the tendency of state monopoly,
in which was liberalized the activity of producing electricity from renewable energy sources and
cogeneration (special regime), which were now able to be exercised by individuals or companies, public
or private.
The 90s are marked by the privatization of EDP, the establishment of the first common rules for the
creation of the Internal Electricity Market (IEM), the creation of a separate administrative entity for the
sector, ERSE, and by the beginning of the liberalization of the sector with the setting in 1995 of the
National Electricity System (SEN), based on the coexistence of two subsystems: the Public Service
Electricity System (SEP) which translated in the regulated market, and the Not Bound or Independent
Electricity System or (SENV), which interrelated the liberalized market.
However, in 2006, with the development of the functioning of the energy market, with the deepening of
the liberalization process (in view of the development of the Iberian electricity market, MIBEL)and the
adoption of new European Union guidelines, are established new principles of organization and
operation of the national electricity system, spanning this way, the principles of the Directive 2003/54/EC
of 26 June.
With this new framework is set up an integrated SEN, where production (ordinary regime/special regime)
and marketing are pursued on a competitive basis (through license granting), and transmission and
distribution activities are performed under Public Service concessions.
In 2007, with the entrance into operation, in full extent, of MIBEL in Portugal (the spot market for
Portugal), measures to encourage market competition and liberalization in MIBEL were approved. These
measures highlight the effective implementation of early termination of the acquisition of Energy (CAE)
contracts.
Since 2009, with the adoption of a new Directive for the MIE (Directive 2009/72/EC of 13 July), measures
have been taken in line with the European guidelines for the implementation of a fully operational Internal
Electricity Market.
Given the foregoing, it is shown, then the general evolution of national and European legislation and, in
particular, the evolution of certain matters by the importance which they assume in the present study.
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In early 2011, the electricity sector saw extinguished the regulated tariffs for electricity sold to final
customers special low voltage, medium voltage, high voltage and extra high voltage, approved by
Decree-Law n. 104/2010 of 29 September. Was also approved the timetable for phasing out regulated
tariffs for sale of electricity to end customers by defining a transitional period not exceeding three years,
so that consumers can, through the option of free choice of supplier by being able to transit to the
Marketplace system.
During 2011, the Government proceeded to update the reference rate that is based on the subsidized
remuneration regime applicable to mini and microgeneration and initiated the establishment of measures
to limit the extra costs associated with the production of electricity under the ordinary regime, as well as
on the production of energy in special regime (cogeneration and renewable). CHP is also under review;
a proposal of options to adjust the low subsidized rate is expected. Decisions on future investments in
renewable, in particular in less mature technologies; will be based on a rigorous analysis of costs and
consequences for energy prices.
On the issue of taxation was eliminated the reduced rate of VAT (6%) on electricity and natural gas, with
consequent insertion of these utilities at the normal rate (23 %).
The Portuguese government through Resolution of the Council of Ministers n 34/2011 and Decree-Law
n. 75/2012, released a schedule of termination of regulated tariffs for electricity sales.
Was also published in 2012 legislation establishing the schedule of termination of regulated tariffs for
electricity sold to final customers with consumption standard low voltage (BTN) and natural gas to final
customers with annual consumption less than or equal to 10,000 m, and respective timetables for
phasing out regulated tariffs.
Regulated rates were engaged to extinction: From 1 July 2012 for electricity customers with contracted
power equal to or greater than 10.35 kVA and from January 1, 2013 for customers of electricity
contracted power with less than 10.35 kVA.
After the end of tariffs there will be a maximum period of 3 years for customers of Universal Service EDP
choose a supplier of energy in the free market:
December 31, 2014 for customers with contracted power between 10.35 and 41.4 kVA.
December 31, 2015 for customers with contracted power lower to 10.35 kVA.
In the next page is shown the time diagram of the evolution of the legislation.
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3.2.1 INSULAR SYSTEMS

The activity of power production in the Autonomous Regions of the Azores and Madeira is regulated,
not being liberalized by the fact that these regions benefit from an exception to the application of
Directive 2003/54/EC of the European Parliament and the Council on 26 June.
In 2012 occurred the beginning of a new regulatory period, which were reassessed regulation
methodologies and defined new parameters for each of the regulated activities. Briefly, for the operator,
the regulatory models underlying this regulatory period consist of:
Concessionaires of transport and distribution of electricity in the Autonomous Regions of the Azores and
Madeira - deepening the application of a regulation by economic incentives: (i) regulation of distribution
and sale of electric energy through a methodology for calculating income allowed for price cap, (ii)
definition of reference costs of fuel oil consumed in the production of electricity and (iii) encourage the
promotion of environmental performance.
In the Azores, the goals of efficiency applied to each activity are on average 2.5%. In Madeira the goals
of efficiency vary from 2.5% in transport activity and 5% in distribution.
BTE Special Low Voltage LV supply or supplies where the contracted power is (i) continental
Portugal - exceeding 41.4 kW, (ii) the Azores - less than 20.7 kW and measuring of the maximum power
is effected at intervals of 15 minutes, (iii) Madeira - exceeding 62.1 kW.
BTN Standard Low Voltage LV supply or supplies where the contracted power is (i) for continental
Portugal - exceeding 41.4 kVA, (ii) for the Azores - not exceeding 215 kVA and measuring the maximum
power Its not effected at intervals of 15 minutes, (iii) Madeira - exceeding 62.1 kVA.
3.2.1.1 THE AUTONOMOUS REGION OF THE MADEIRA ARCHIPELAGO

The Quality of Public Services Electric System of the Autonomous Region of Madeira was published by
the Regional Regulatory Decree n. 15/2004/M, in the Official Gazette no. 287 of December 9, pp. 7010
- 7038 and was responsible for its publication the Regional Directorate of Trade, Industry and Energy.
This law refers to approval by a set of Complementary Norms of calculation methodologies and
procedures for the processing of various issues of quality of service, and was published in July 2006.
3.2.1.2 THE AUTONOMOUS REGIONS OF THE AZORES ARCHIPELAGO

The Quality of Public Service Electric System of the Azores was published in the Official Journal of the
Autonomous Region of the Azores, n. # 45 of November 9, pp. 3274 - 3308, by Order No. 917/2004 of
the Regional Secretariat of Economy, being responsible for its publication the Regional Directorate of
Trade, Industry and Energy.
3.3 ROMANIA
Legislation governing the electricity supply consists of legislation (Laws, Government Decisions (DG),
Government Ordinance (GO), Emergency Government Ordinances (EGO), order) and secondary
legislation (Transmission, Distribution, Metering and Commercial Codes drawn up based on the Energy
Law, GDs and EGOs, together with other ANRE regulation and licenses granted by ANRE).
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3.3.1 HIGHLIGHTS ON
REGULATION
THE
ELECTRICITY
ACT
AND
ITS
National regulation is always applied. However, for the purposes of simplification, only the most
significant applicable laws are listed below:
Law No. 123/2012 Electricity and gas has set the general principle that energy competitive
market and electricity transaction should take place in a transparent, public, centralized and non
discriminatory way;
Law No. 111/1996 the safe deployment, regulation, authorization and control of nuclear
activities;
GD No. 1007/2004 approving the Electricity Supply Regulation to consumers;
Law No. 51/2006 communitarian services for public utilities;
Law No. 325/2006 the organization and operation of public services of central thermal energy
supply;
Law No. 134/2012 amending and supplementing Law No. 220/2008 for establishing the
promotion system of energy production from renewable energy sources;
GD No. 638/2007 fully opening of electricity and gas markets;
GD No. 443/2003 regarding the promotion of the electricity generation from renewable sources
of energy established the legal frame necessary for the promotion of the programme regarding
the increase of the contribution of renewable sources of energy to the electricity generation,
regarding the present exploitation potential of these energy sources;
GO No. 22/2008 the efficient energy use and promoting the employment of the renewable
energy sources by final consumers;
Order No. 22/2006 issued by National Regulatory Authority in the Energy Field, regarding the
approval of the Regulation on the organization and functioning of the green certificates market.
GD No.1069/2007 on approving the Romanian Energy Strategy for the years 2007 2020;
GD No. 540/2004 on the approval of the Regulation for granting authorizations and licenses
in the energy sector, as further amended and supplemented;
GD No. 90/2008 on approving the regulation for the connection of users to public electricity
networks;
GD No. 1479/2009 on the Establishment of the Support System for the Generation of
Electricity from Renewable Energy Sources.
In September 2010, ANRE issued Order No. 24/2010 to complement the Methodology for setting up
electricity distribution tariffs Revision 1 approved through ANRE Order 29/2007. The modification
refers to the way in which the competent authority verifies the investment programmes of the distribution
operators. Annually (year t), the competent authority verifies the investment programmes for the
previous year (year t-1) by making a comparison with the investment programme that was approved for
the respective year. If it found that less than 80% of the investment objectives or less than 80% of the
total value of the investment assumed through the annual investment programme have been achieved
the competent authority corrects the regulated revenues set for the following year (year t+1) through
reducing these revenues by the value in nominal terms of the expenses included in the calculation of
tariffs for the previous year (year t-1) corresponding to the unachieved investments.
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3.3.2 GENERATION OF ELECTRICITY

Electricity and thermal power generation may be carried out by business entities with domestic or foreign
capital, licensed according to the law.
The main obligations of the electricity generators are as follows:
to ensure the electricity delivery in compliance with the licenses, contractual clauses and
regulations in force;
to offer under non discriminatory terms the entire electric power available, as well as the
system technological services;
to maintain satisfactory fuel/water reserves in order to comply with its obligations of generation
and continuous supply of electricity;
to comply with operational requirements of the transmission and system operator and to
establish its own levels of operative management.
Electricity generators have mainly the following rights:
to have access to the electricity networks of public interest according to the law;
to obtain passageway for their own electric lines;
to trade the electricity and system technological services on the regulated and competition
market;
to establish the maintain their own telecommunication systems for the connection to their
generation units, consumers or the operative management levels;
to trade the co generated thermal energy.
3.3.3 ELECTRICITY TRANSMISSION

The electricity transmission is carried out by the transmission and system operator. The transmission
and system operators must draft prospect transportation plans, in compliance with the current stage and
the future trends of energy consumption and sources, by encompassing the relevant financing sources
and achievement means of transmission installations investments, taking in account the territorial
planning applicable to the areas crossed by their transmission installations. The plans are subject to the
competent authorities endorsement ANRE and to the relevant ministrys approval.
The electricity transmission network is of national and strategic interest, being in the public property of
the State. The transmission and system operator provides the transmission public service for the whole
transmission network users, under non discriminatory conditions, ensuring access to the transmission
networks to any applicant meeting the requirements of the Electricity Law.
The transmission and system operator ensures the transport and transit public system on the entire
Romanian territory, in accordance with the concluded contracts.
3.3.4 ELECTRICITY DISTRIBUTION

Distribution represents the transport of electricity through distribution networks of high, medium or low
voltage, with a nominal voltage of maximum 110 kV in view of delivering electricity to consumers without
including the supply activity. The electricity distributions networks are developed on the grounds of
economic efficiency principles, in compliance with the urbanism plans, rights in real property,
environmental protection, health and life of the individuals and energy saving principles and regulations,
according to the technical and safety norms included in the technical prescriptions.
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Distribution operators are licensed entities, having the following main powers:
To ensure the users access, under technical connection conditions;
To operate, upgrade, rehabilitate and develop electricity distribution networks, observing the
technical regulations in force;
To ensure the operative management in accordance with the distribution license;
To perform works for the development of electricity distribution networks though optimum
development programs, based on perspective studies, as the case may be, with the
transportation and system operator and through specific upgrading programs for installations;
To ensure the transit of electrical energy through electric distribution networks, at the demand
and by informing the transport and system operator, for such country areas where there is not
enough capacity in the distribution networks for the evacuation of the energy from the electrical
generators, including co generation electrical generators, in view of connecting to neighboring
countries energy systems, based on bilateral agreements, provided that incidents in the
operation of national energy system or refurbishing and maintenance works occur;
To monitor the safe functioning of the electric distribution networks along with the distribution
service performance indicators;
To make available information regarding its own activities, information that is useful to the
network users, without revealing confidential commercial information obtained via its activities.
3.3.5 ELECTRICITY SUPPLY

Electricity power supply represents an activity by which licensed legal entity sells electricity to customers.
The contract concluded between the supplier and customer for this purpose should include at least the
minimal clause set up by the competent authority in standard contracts set forth for different customers.
In this respect, Law No. 13/2007 regulates two consumer categories:
Eligible consumers: the consumer that may choose the supplier and conclude at contract for
necessary electricity supply, directly with the generator or other supplier, having access at the
transmission and/or distribution networks;
Captive consumers: the consumer which due to technical, economic or regulatory reasons
cannot choose its supplier as well as the eligible consumer who does not exercise its right to
choose a supplier. The so called implicit suppliers must conclude contracts with captive
consumers located within their licensed area.
Through GD No. 638/2007, the energy market and the natural gas market must be equally open for all
consumers.
3.4 ITALY
3.4.1 EVOLUTION OF THE ITALIAN REGULATION
Since the end of 1962 the whole electrical sector was operated under the monopoly of a single vertically
integrated and state-owned company (Enel). The transmission and distribution networks were owned
and managed by Enel, with the exception of few jurisdictions where there were local municipal electricity
undertakings.
An important act for the national energy system was the Law 9/1991, containing the rules for the
actuation of the National energy plan. One of the consequences of the Law 9/1991 was a Deliberation
called CIP6 (issued by the Interministerial Committee for Prices, Comitato Interministeriale Prezzi on
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29.4.1992 and published in the Official Journal n109 of 12.5.1992), establishing incentives for the
electricity production from renewable energy sources (RES) and RES-like plants (other than those
defined as RES in the European rulemaking).
After the publication of the European directive no. 92 of 19/12/1996, the Italian electricity business made
a gradual transition from a state monopoly system to a liberalized market.
The main steps of the re-regulation of the electricity business were marked by the following official
documents:
Legislative Decree 79/99, of 16 March 1999, addressing the restructuring and gradual liberalization
of the Italian electricity market, in line with the European Directives for the liberalization of energy
markets (ratification of European directive no. 92 of 19/12/1996). The new regulations revolutionized
the sector by liberalizing all of the components of the energy chain, the series of processes that
leads from production to the distribution to the end user. It also created three new institutional
bodies: the Transmission System Operator (TSO), the Single Buyer (SB) and the Energy Market
Operator (EMO).
- TSO. The only part of the chain in which a monopoly was maintained was that relating to
transmission and dispatching, which are entrusted to the National Transmission Grid Operator
(GRTN). The shares of GRTN were assigned free of charge to the Ministry of the Treasury. On
November 2005, ownership and management of the national grid were re-unified in a company
called TERNA, of which ENEL owns a diminishing share. In turn, the GRTN has by law given
rise to two important joint-stock companies: the Single Buyer (SB) and the Energy Market
Operator (EMO)
- SB. The Single Buyer function is to negotiate with producers and wholesalers for certain
amounts of energy so as to guarantee a national standard tariff for non-eligible customers.
- EMO. The Energy Market Operator is a joint stock company formed to manage the power
exchange in accordance with criteria of neutrality and competitiveness among generators
Furthermore, on the demand side, the Decree 79/99 established a gradual process of opening up the
electricity market to end customers by dividing them into two categories: eligible customers, i.e. able to
stipulate supply contracts with any producer, distributor, or wholesaler, and non-eligible customers, who
can only stipulate supply contracts with the distributor who provides the service in their geographical
area.
Decree of the Prime Minister's Office of 04 August 1999: in order to encourage liberalization of the
market it was also established that no single operator could produce or import more than 50% of
Italy's total energy. ENEL was obliged to sell at least 15 GW of its generating capacity through the
formation and divestment of three generating companies. The Decree 79/99 was followed on 04
August 1999 by the approval of the Decree of the Prime Minister's Office, which split off three
generation companies from Enel: Elettrogen, Interpower and Eurogen (known in Italy as the
Gencos). As concerns Distribution, the Decree 79/99 provides that only one distribution concession
can be issued in a municipality. Distribution companies in which local authorities have a stake were
granted the right to acquire from ENEL the distribution assets in all those municipalities in which the
municipal utility serves at least 20 percent of residents.
Law no. 239, 23 Aug. 2004: it was the next step in the liberalization of Italy's electricity market. It
aimed at re-organizing the entire energy sector, established that objectives and national energy
policy guidelines, as well as the general principles for their implementation, be defined by the state
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in coordination with regional governments (collectively, in the so-called State-Regions Conference).

This law established the full liberalization of the market with the result that from 1 July 2007 forward
all end customers will also be eligible customers. Other important aspects of the Law 239/2004
include the definition of the authority of the Central Government and the Regions with regard to
energy, the partitioning of the distribution and retail services, and the attention devoted to safety and
the environment. Measures in this direction include incentives for the use of clean coal, raising the
percentage of electrical energy that must be produced from renewable sources and promoting the
rationalization of consumption.
Decree of the Prime Minister's Office of 11 May 2004: it ratified a final stage in the liberalization
process of the Italian energy sector with the merging between Terna, the former Enel Company that
operated the National transmission grid, and the dispatching branch of GRTN.

The activities involved in the electricity sector are carried out by electricity producers, and by the
following agents:
Gestore dei Mercati Energetici (GME): the Italian Energy Market Operator has the mission of
organizing and economically managing the Electricity Market, under principles of neutrality,
transparency, objectivity and competition between or among producers, as well as of economically
managing an adequate availability of reserve capacity.
TERNA (the Italian Transmission System Operator) manages electricity transmission in Italy
guaranteeing its safety, quality and affordability over time. It ensures equal access conditions to all
grid users.
Gestore dei Servizi Energetici (GSE) is the state-owned company which promotes and supports
RES in Italy. In particular, GSE fosters sustainable development by providing support for renewable
electricity generation and by taking actions to build awareness of environmentally-efficient energy
uses.
Acquirente Unico (AU) is a subsidiary of the Gestore dei Servizi Energetici. AU is the Single Buyer
and is vested by law with the mission of procuring continuous, secure, efficient and reasonablypriced electricity supply for households and small businesses. It buys electricity in the market on the
most favorable terms and resells it to distributors or retailers of the protected categories service
(serviziodi maggiortutela) for supply to small consumers who did not switch to the open market.
Autorit per lenergia elettrica e il gas (AEEG): as the Regulatory Authority for Electricity and Gas,
AEEG is the independent body which regulates, controls and monitors the electricity market, from
the establishment by the law November 14th 1995, n.481. The AEEG mission includes defining and
maintaining a reliable and transparent tariff system, reconciling the economic goals of operators with
general social objectives, and promoting environmental protection and the efficient use of energy. It
provides an advisory and reporting service to the government and parliament, and formulates
observations and recommendations concerning issues in the regulated sector of electricity.
Cassa Conguaglio per ilsettore elettrico (CCSE):is a public body entered in force on 1 September
1961 (under the unification of the electricity tariffs in the Italian territory) to manage the fund for
compensating the economic losses incurred by the small electricity enterprises after the unification
of the tariffs. Now the CCSE manages the fund that delivers the money (taken from the consumers
under a specific component of the electricity bill) to various operators in the matter of renewable
sources, energy efficiency, service quality, service interruptibility, reconciliation, research, nuclear
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plant decommissioning, projects addressed to the consumers, and others.

Distribution System Operators: companies that manage electricity distribution networks. They are
responsible for network connection, electricity distribution and measurement.
Retailers: companies that sell electricity to the consumers.
Consumers: they are classified into customers of the free market, safeguard market, and protected
categories
3.5 GREECE
3.5.1 EVOLUTION OF
FRAMEWORK
THE
LEGISLATIVE
&
REGULATORY
In this section, a brief review of the main legal and regulatory documents pertaining the operation of the
Greek electricity sector since the first steps of its deregulation is presented.
In Greece, the main legislative framework regarding the organization of the electricity sector comprises
European Directives (EC), Presidential Decrees (PD), Laws, Ministerial Decisions (MD) and Decisions
of the Regulatory Authority for Energy (RAE Decisions), as follows:
Law 2244/1994: It is the first law to regulate general issues regarding the electricity production from
renewable energy sources and conventional fuels.
Law 2773/1999: It is the first milestone towards the deregulation of the electricity sector in Greece.
This law was issued within the framework of the minimum harmonization of the Greek Law to the
provisions of Directive 96/92/EC for the liberalization of the electricity market (1st Energy Package).
It promoted gradual and partial opening of the Greek electricity market and the introduction of eligible
(initially large) customers, who had the right to freely choose their electricity supplier. It is noted that
this law excluded the non-interconnected islands from market opening. On the basis of the
provisions of this law, the Regulatory Authority for Energy (RAE) was also established.
P.D. 328/2000: A new company under the name Hellenic Transmission System Operator (HTSO)
S.A was founded. The company's objective is to operate and ensure the maintenance and the
development of the transmission system in the mainland (interconnected) Greece as well as its
interconnections with neighboring grids to ensure the country's supply of electricity in a sufficient,
safe, cost effective and reliable manner.
M.D. No. D5//F1oik.8988/2001: It established the Power Exchange Code, prepared in accordance
with the provisions of Law 2773/1999.
M.D. No. D5//F1oik.8989/2001: It established the Grid Control Code, prepared in accordance with
the provisions of Law 2773/1999.
M.D. No. 4524/2001: It established the Electricity Supply Code, prepared in accordance with the
provisions of Law 2773/1999.
M.D. No. D5-IL//oik/8311/2005: It unified and amended both the Grid Control Code and the Power
Exchange Code for electricity in a single document, entitled Grid Control and Power Exchange Code
(GCPEC).
Law 3426/2005: It promoted the acceleration of the liberalization of the Greek electricity market
within the framework of the harmonization to the provisions of Directive 2003/54/EC (2nd Energy
Package), also amending critically the existing Law 2773/1999. Among others, it introduced the full
opening of the electricity market. In this context, all non-household customers were eligible since
then and all customers became eligible starting from July 1st, 2007.
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Law 3468/2006: It established the promotion of electricity produced by Renewable Energy Sources
(RES) in the internal electricity market within the framework of the harmonization to the provisions
of Directive 2001/77/EC. In addition, it set the initial feed-in tariffs (FiTs) for the remuneration of all
RES technologies installed in both the interconnected power system and the non-interconnected
(insular) power systems.
Law 3851/2010: It established the acceleration of RES development to deal with climate change
within the framework of the harmonization to the provisions of Directive 2009/28/EC. In this context,
it sets out the national targets for RES energy production so that by 2020 the electricity production
coming from RES covers at least 40% of the gross final electrical energy consumption of the country.
Main bureaucratic barriers for the installation of new RES plants were eliminated and the enacted
FiTs for all RES technologies were also amended appropriately.
Law 4001/2011: It is the second milestone towards the deregulation of the electricity sector in
Greece. It established main changes in the organizational structure of the Greek electricity market
in compliance with the provisions of Directive 2009/72/EC (3rd Energy Package). Among others,
HTSO was substituted by two new independent companies, namely Electricity Market Operator
(EMO) and Independent Power Transmission Operator (IPTO), further described in the following.
RAE Decisions 56/2012 & 57/2012: With these two decisions, the Grid Control and Power Exchange
Code was disintegrated into two separate documents, namely the Power Exchange Code, which
regulates the operation of the electricity market and the activities of the EMO, and the Grid Control
Code, which addresses the operation of the transmission system and the activities of the IPTO, in
accordance with the provisions of Law 4001/2011.
M.D. No. FEK B 832/2013: It substituted the M.D. No. 4524/2001 and established the revised
Electricity Supply Code, prepared in accordance with the provisions of Law 4001/2011.
4. CURRENT INSULAR ECONOMIC FRAMEWORK

4.1 SPAIN
In the current context, the economic framework in the Canary Islands is described below for each of the
activities of the electricity sector.
4.1.1 GENERATION
Depending on the kind of generator, power plants can be operated under the Ordinary or the Special
Regimes. Thus, the remuneration scheme is different for each regime (see ITC 913/2006).
After, some changes were introduced in ITC 1559/2010 and Resolution of 22th May, 2009.
Ordinary Regime
Within this regime, the conventional plants are included: coal, cycle combined, fuel-oil and hydraulic
power pump and reservoir. The system Operator calculates the hourly cost of generation of each
group of the Ordinary Regime production as shown below:
, , , , , ;
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where:
cg(i,h):
Total production cost of each generator of type i in hour h.
e(i,h):
Energy generated by generator i in hour h.
PMP: Peninsular Average Price (the average price of prices of all the electricity markets)
PrF(i,h):
Premium that complements the PMP.
Gpot(i,h):
Power guarantee price.
Pdisponible(i,h):
Available power of a generator of type i in hour h.
The final price in hour h, PFG(h), is calculated dividing the sum of the hourly costs of all the power plants
of the ordinary regime of the insular system by the amount of energy generated.

,
,
The Premium, PrF, that complements the Peninsular Average Price is calculated as:
, / , / !/ , ;
where / , / is the amount of the deficit / surplus distributed to generator i.
Specifically, D/S(h) arises due to the imbalance between the purchase price (explained in section 4.2)
and the final price of generation.
/ # $%, % & ;
'
and D/S(i,h) is the weight of the generator cost in the ordinary regime with respect to the sum of the
costs of generation in the ordinary and special regimes (in %):
/ ,
,
, ( ,
The deficit/surplus between generation and purchase costs will be distributed among all the power plants
of the ordinary and the special regimes involved in the economic dispatch in proportion to the relative
weights of the costs of generation.
Finally, the final remuneration that a generator of the ordinary regime receives is equal to the total
production cost of each generator i in hour h discounting the extra cost (CDESVro) for imbalances
(difference between the energy measured and the energy dispatched).
%)* , , & %$ +,
Special Regime
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It is applicable to biomass, small hydro, wind energy, solar photovoltaic and cogeneration. The
remuneration is regulated as:
, , ,-
where:
cg(e,h):
e(e,h):
FIT(e):
Retribution for generator of type e in hour h.

Energy generated by generator of type e in hour h.
Feed-in-tariff of each generator of type e.
The final remuneration is given by:

%)$ , , & %$ + ,
Where CDESVre is the extra cost for imbalances.
Warranty Power
Note that the paragraphs 3, 4 and 6, in relation to seasonal factors, periods and annual hours of standard
operation was removed by the Resolution of 28th September, 2010.
Calculated for each group i and n for an n annual period, according to the following formulates:
where:
RGpotn(i):
Pavailability (i,h):
Gpotn(i,h):
X=
Compensation for power guarantee for group i in

year n expressed in euros.
Power availability group i in hour expressed in MW.
Its value is determined at each time by the difference
between the net power of group i expressed in MW
and the restricted power group i expressed in MW at
that time. The value of the Restricted power for each
hour and for each group I shall be established by the
system operator.
Power guarantee in the year n of group i in the hour
h, Garanta de potencia en el ao n del grupo i en la
hora h, expressed in /MW.
Total number of hours a year. 8760 in a normal year
and 8784 in a leap-year.
2. The value of hourly guarantee power per MW recognized each generation facilities-mainland
electricity systems (Gpot (i,h)) is calculated as follows:
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where:
Hourly Guarantee power in the year n of the group i

in the hour h, expressed in /MW,
Annual Guarantee power of the group i in the year n,
expressed in /MW.
Seasonality factor Schedule for each non-mainland
systems and each time, peak, flat and valley period.
Annual hours of operation equivalent group i, taking
into account the standard annual hours of failure and
maintenance group.
Gpotn(i,h):
Gpotn(i):
f esth:
Hi:
Hybrid systems (Ordinary and Special Regimen)

The government of the island El Hierro, in cooperation with the local utility and the Technical
Institute of the Canary Islands, has embarked on a project that will allow it to meet El Hierros
electricity demand entirely by RES. This target is set to be achieved through a variety of measures,
including a mixed system of electricity production.
Royal Decree 1747/2003 establishing non-mainland electricity systems is developed through
ITC/913/2006 by the method of calculating the cost each approved fuels used and the procedure for
clearance and settlement of energy in non-mainland electricity systems, and ITC/914/2006 by the
method of calculating remuneration warranty set power generation facilities for ordinary regime of non
mainland electricity systems.
Gorona Wind is a unique facility whose type there is no historical data in non-mainland electricity
systems. Its mode of operation and percentage of wind power generated to meet demand and pump
have a great impact on the remuneration.
There is another possible of retribution in Canary Island that is a specific retribution for a hybrid system.
In this case according to law 2/2013 could be assigned a specific retribution. This retribution should
come in an order issued. This is the case of pumping hydro plant in El Hierro whose remuneration was
posted in Order IET/1711/2013.
This order considers hydro-pumped plant as a single facility and only pay for generated energy in the
boundary point.
4.1.2 RETAILING
Each retailing company has an obligation to pay for the purchase of power as it is explained below:
%.%, $%, % 0 $%, , / %., / % +, ;
where:
CAC(c,h):
EDC(c,h)
PMCP(h)
Cost of the energy purchased by the retailing company c in hour h.

Energy purchased in hour h by the retailing company c.
Average cost of energy for the retailers that purchase it in the market, excluding the
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imbalance costs and capacity payments.

EDC(c,h,ta)
Energy acquired by a retailing company c in hour h with an access fee, ta. The capacity
payment obligation as defined in this section does not apply to the last resort suppliers.
PCAP(h,ta)
Capacity payment price for the demand in hour h for the access tariff set by regulation.
CDSV(c,h)
Obligation to pay the imbalance extra cost by retailer c.
4.1.3 TRANSMISSION
The last methodology for calculating the transmission activity remuneration was established by the
government in RD 9/2013.
The annual remuneration of the transmission activity recognized the owner of transmission facilities is
determined by:
Ri1 Ri123(45667 Ri1 56674899: Ri1 899748955
;2=>048955
Ri;,1 IDi1
where:
Rin:
Recognized retribution to the transmission company i in year n associated to the

facilities in service in the year n-2.
Rin pre-1998:
facilities in service before 1998 in the year n-2.
Rin 1998-2007:
facilities in service during the period 1998-2007 in the year n-2.
Rin 2008-2011:
facilities in service during the period 2008-2011 in the year n-2.
; 2=>048955 Ri;,1 Remuneration recognized to the company i in year n, associated with all
facilities in service after year 2011 and still in service in the year n-2.
IDin:
Incentive for availability to be received associated to the degree of availability by
transmission facilities in the year n-2
4.1.4 DISTRIBUTION
With the new Electricity Act, since 1998, the whole distribution was regulated by a revenue control
formula. In 2008, the RD 222/2008 set a revenue formula for the four years of the regulatory period for
each DSO:
Ri= Ri?@>( 1 ,.=
Ri5 Ri5 1 ,.5 Yi5 Qi5 Pi5
Ri8 (Ri5 & Qi9 & Pi9 1 ,.8 Yi5 Qi5 Pi5
RiB (Ri8 & Qi5 & Pi5 1 ,.B Yi8 Qi8 Pi8
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Ri4= (Ri3 - Qi2- Pi2) * (1 + IA4) + Yi3 + Qi3+ Pi3
and: IAn = 0.2 * (IPCn-1 x) + 0.8 * (IPRIn-1 y),
where:
i
n
Rbase
Ro
Rn
Y
Q
P
IAn
IPC
IPRI
x,y
distribution company
number of the year
reference model retribution
reference retribution updated for the year after the reference model retribution was
calculated
retribution
revenue increment to remunerate incremental costs for supplying the incremental
demand and new DG connections
incentive/penalty for continuity of supply results
incentive/penalty for energy losses reductions
update rate for year n
variation of the rate of inflation
variation in the price index of capital goods in the relevant year
efficiency factor (set by the Ministry of Industry)
On July 13th, 2013, the calculation of the remuneration was modified. It was quite similar as before,
though the formulation has slightly changed. The two main differences are: 1)the regulatory period is 6
years and2) the remuneration associated with investment in the network, due to demand and new DG
connections, is just remunerated in the year n+2. This means that an investment in 2012 is not
remunerated until 2014.
Now, the remuneration is the following one:
Ri1 RIi1 ROM &OCDn Qi1 Pi1
where:
RIin
Remuneration for investment is recognized to the distributor i in year nassociated

with the assets in service in year n-2.
ROM &OCDni
Remuneration for operation, maintenance and other costs recognized to the

distributor i in year n associated with the assets in service in year n-2.
Qin
Incentive or penalty to the affected service quality to the distributor i with more than
100,000 customers connected to its network in year n associated with the
values obtained during year n-2.
Pin
incentive or penalty for loss reduction passed on to the distributor i with more than
100,000 customers connected to its network in year n associated with the
values obtained during year n-2.
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In essence, the calculation is the same as in RD 222/2008. The nomenclature of the first two terms is
equivalent to the previous one. Only the investments made in year n are not remunerated until year n+2.
4.2 PORTUGAL
As previously stated, the activity of power production in the Autonomous Region of Madeira is regulated
and is not liberalized, as so, this structure consists of four distinct sectors, such as production,
transportation, distribution and sale of energy and all of them provided by EEM (Electricidade da
Madeira) which is based on a broad and complex operating structure whose primary objective is the
provision of electricity to all areas of RAM (Autonomous Region of Madeira).
4.2.1 GENERATION
The electricity network of RAM (Autonomous Region of Madeira) is supplied by three main types of
energy sources, two of which - water resources and wind - are sourced from local endogenous resources
and one of which - fuel oil - is derived from petroleum. In the following table it is possible to observe the
evolution through the years of the supplied energy sources.
Table 4.1- Autonomous Region of Madeira electric energy generation by primary source
On the island of Porto Santo, the electricity generation consists of a thermal power plant and a wind
farm.
In Madeira, the power generation system of EEM includes a thermal power plant, nine hydroelectric
plants and mini-hydroelectric plants and a wind farm (Enereem). Additionally, are associated with the
thermal network a mini-hydropower plant and four wind farms, all run by private operators.
In the following table it is possible to observe the evolution through the years of the electric energy
acquisition from other entities than EEM.
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Table 4.2- Autonomous Region of Madeira electric energy acquisition from other entities than
EEM
4.2.2 TRANSPORTATION
Transportation services assure the management of driving power from the central to the early network
of medium voltage distribution. As so, the services responsible for the administration of facilities and
resources are such as the network transmission, substations, dispatch services and telecommunication
services.
The table under shows the Transmission and Distribution Network in the Autonomous regions of the
Madeira Archipelago:
Table 4.3- Transmission and Distribution Network in the Autonomous regions of the Madeira
Archipelago
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The transmission network is a structure designed to transport electricity from the power plants to
distribution substations. To minimize energy losses in transportation, high levels of tension are used,
and in the Autonomous Region of Madeira, the levels of 60 kV and 30 kV are used. These levels are
supported by transmission lines in the case of overhead lines and cables in the case of underground
network.
The 30 kV network is the most extensive and old, originated in the 50s, with rural electrification. More
recently, in the 80s, it was initiated the utilization of 60 kV voltage level, which allows higher transport
capacity and lower operating costs.
4.2.3 DISTRIBUTION
The distribution network's primary mission is to conduct energy to the facilities of each customer in the
best possible and most profitable conditions. However, for this service to be fully secured is needed the
complemented intervention of other services including: construction of new stations, transformer
stations, conservation network, street lighting and picketing. These services ensure the transformation
of high-voltage energy into energy of medium and low voltage, working thus as a key link between the
structures of production and local consumption.
Substations are facilities that transform the electrical energy of a higher tension level (60 or 30 kV)used
in the transport network for a suitable distribution for medium voltage (MV), which in the case of Madeira,
is 6.6 kV intermediate tension.
In early 2005, there were in Madeira twenty-eight substations, of which twenty-three were designed to
feed MT 6.6 kV network in Madeira and three on the island of Porto Santo, and the remaining two
intended exclusively to the transport (transfers of energy between levels 60 and 30 kV tension).
With administrative facilities located in the area of Viveiros in the district of Funchal, the distribution
network comprises the elements of the electrical network from the outputs of the substations, medium
voltage, to the customers, in particular.
The network of low voltage distribution is the transport of energy distribution to customers at low voltage,
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400 V, in the case of three-phase power supplies, and 230 V in the case of single-phase feeds. This
network is powered by transformer stations located nearby the consumption.
More details can be seen in Table 4.3- Transmission and Distribution Network in the Autonomous
regions of the Madeira Archipelago.
In the next page, it is possible to see the Transmission Network of both islands, Madeira and Porto
Santo.
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4.2.4 RETAILING
The last resort suppliers are subject to a system of regulated tariffs and prices by ERSE and in Madeira
Archipelago is the EEM. In order to provide greater convenience and accessibility to services provided
by EEM, the company has been put at your disposal a set of shops, strategically distributed to various
parts of the archipelago covered by the power grid.
In the autonomous regions, the number of clients coincides with the number of delivery points, since
there are no other active traders.
Table 4.4- Commercial data of the Autonomous regions of the Madeira Archipelago
The table above shows the commercial data of the Autonomous regions of the Madeira Archipelago.
4.2.5 MICROGENERATION
Microgeneration installations units are low power units - up to 5.75 kW, using various technologies, such
as photovoltaic panels, micro wind turbines or other equipment.
In this context, was published the Decree-Law No 363/2007 of 2 November, which establishes the legal
regime applicable to the production of low voltage electricity in small power plants (microgeneration).
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4.2.6 CURRENT INSULAR ECONOMIC FRAMEWORK: CASE OF THE

AZORES ISLANDS
Like Madeira islands, the activity of power production in the Autonomous Region of Azores is regulated
and is not liberalized, as so, this structure holds the monopoly, such as production, acquisition,
transportation, distribution, sale of electricity and the exercise of other activities related to those and all
of them provided by EDA (Eletricidade dos Aores, S.A.)which is based on a broad and complex
operating structure whose primary objective is the provision of electricity to all areas of RAA
(Autonomous Region of Azores).
4.2.6.1 GENERATION
EDA coordinates the design and construction of new generating plants and alterations to existing
facilities, according to the planning of the Company and ensures the management and maintenance of
all production equipment of various islands.
By 2012, the power generation system operated directly by EDA consisted of ten thermoelectric plants
with a total installed capacity of 219MW. There are eight wind farms on the islands Santa Maria, So
Miguel, Terceira, Graciosa, So Jorge, Pico, Faial e Flores, with a total installed capacity of 25 MW,
twelve hydroelectric plants with a total power of 8.2 MW, and also two geothermal power stations
belonging to SOGEO (which belongs to EDA), with an output of 23 MW.
The annual electricity production reached 804.6 GWh, corresponding to a decrease of 4.2% over the
previous year. This production, the thermoelectric park contributed 72.0%, with a dominance of the fuel
production, reflected by 63.3%.
In the renewable energies, stands out the energy output from geothermal sources, which contributed
16.7% of the total and 31.9% of the island of Sao Miguel. The energies of hydro, wind and other origin
showed, compared to last year, variations of -13.9%, 90.0% and -5.4% respectively. The growth in wind
power is justified by the start of operation (November 2011) of new wind farm of Graminhais (So Miguel
Island) with an installed capacity of 9 MW.
Table 4.5- Electricity Generation (GWh) by origin, 2008-2012 of the Autonomous regions of the
Madeira Archipelago
2008
2009
2010
2011
2012
Var.% 11/12
Thermic
587,7
595,5
592,5
570,2
560,5
-1,7
Fuel
525,4
525,4
523,4
501,2
493,6
-1,5
Diesel
62,3
70,10
69,1
69,0
66,9
-3,2
Hydric
25,3
22,4
32,3
33,0
28,4
-13,9
Geothermic
170,3
161,7
173,6
185,6
134,1
-27,8
Eolic
21,9
31,1
33,7
33,0
62,7
90,0
Other
0,0
0,1
0,3
0,4
0,4
-5,4
Total
805,2
810,9
831,4
822,3
786,0
-4,4
The islands of So Miguel and Terceira contributed 52.8% and 26.2%, respectively, of the total energy
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given into the net. Emphasis is placed in the fact that the plants do Caldeiro, in San Miguel, and Belo
Garden, on Terceira, have a corresponding output at about 52% of the total energy emitted in the region
which can illustrate the difficulty in obtaining the benefits of economies of scale given the geographical
discontinuity of the region.
Table 4.6- Emission of electricity by Island 2008-2012, of the Autonomous regions of the Madeira
Archipelago
2008
2009
2010
2011
2012
Var.% 11/12
Santa Maria
19,7
20,4
21,5
21,0
19,8
-5,6
So Miguel
435,3
437,1
447,6
440,2
415,1
-5,7
Terceira
203,5
204,2
20,8
208,3
206,2
-1,0
Graciosa
13,3
13,3
13,7
13,3
13,0
-2,1
So Jorge
27,3
28,8
30,3
30,5
29,4
-3,3
Pico
42,9
43,9
46,1
46,5
43,9
-5,7
Faial
50,6
50,2
50,7
49,6
46,5
-6,3
Flores
11,4
11,7
11,9
11,5
10,8
-6,1
Corvo
1,2
1,3
1,3
1,3
1,3
-1,7
Total
805,2
810,9
831,4
822,3
786,0
-4,4
4.2.6.2 TRANSPORTATION AND DISTRIBUTION

The EDA, S. A. as concessionaire of the Transmission and Distribution of Electricity in the Autonomous
Region of Azores, manages this activity through a process of continuous improvements in efficiency and
productivity. Under the concession contract management system, transmission and distribution of
electricity signed with the Autonomous Region of the Azores, the EDA has a responsibility to pursue the
activity that is the object of the concession for a period of 50 years beginning from October 12, 2000,
the date of approval of Resolution N 181/2000 published in the Official Journal, Issue I, N 41/2000.
The distribution systems of electric power are not identical in all the islands. Thus, in So Miguel,
Terceira and Pico islands with larger area, the system consists of a network of transportation and a MV
distribution network (medium voltage) with different voltage levels.
As for Graciosa, So Jorge, Faial, Flores and Corvo MV distribution networks are established on the
level of 15kV voltage. On the island of Santa Maria there is an underground network of MT 6 kV nearby
thermal power station of the Airport and in the remaining island MT distribution is made with overhead
and underground infrastructure at the level of 10 kV.
Tables4.7-4.8 Transmission and Distribution (MV/HV) in 2012, of the Autonomous regions of the
Madeira Archipelago
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Transmission and Distribution (MV/HV)
2012
Km)
Santa Maria
79,8
So Miguel
744,7
Terceira
396,0
Graciosa
63,8
So Jorge
127,2
(in Transmission and Distribution

(MV/HV)
Pico
Faial
Flores
Corvo
Total
2012 (in Km)

213,2
135,2
84,3
1
1845,2
4.2.6.3 RETAILING AND COMMERCIALIZATION

In Autonomous Region of Azores, the activity of sale of power and energy related services is governed
by ERSE - Energy Services Regulatory marketing, competing EDA acting as the guarantor for the supply
of electricity to consumers, particularly the most vulnerable, in terms of quality and continuity of service.
Electricity rates to be charged to consumers are set annually by ERSE - Energy Services Regulatory
Authority, according to the rules laid down in the Tariff Regulations, where, besides the methodology for
determining the level of income to provide for each rate, if the features tariff calculation methodology
and the manner of determining the tariff structure.
Since 2010, it has achieved an effective convergence in terms of average price for the types of supplies
electricity to MV, BTN and BTE, which was preserved in 2012.
In 2012, electricity consumption reached 731 GWh, resulting in an overall decrease of -5.1% over the
previous year, by verifying a declining demand in both voltage levels, corresponding to -3.5 % in medium
voltage and low voltage at -6.1%.In the same year, the distribution network supplied 121,943 customers,
representing an increase of 0.2%.
Table 4.9 -Number of customers and consumption by clients from 2008 to 2012
2008
2009
2010
2011
2012
Var.% 11/12
N of Clients
117 413
119 356
121 164
121 715
121 943
0,2
LV
116 763
118 692
120 485
121 025
121183
0,1
MV
650
664
679
690
760
10,1
Power Consumption (GWh):
753,7
756,7
778,6
770,8
731,3
-5,1
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Domestic
253,5
256,5
271,3
266,8
249,3
-6,6
Trade and Services
252,3
251,0
256,4
254,5
246
-3,3
Public Services
89,0
87,8
89,6
87,5
82,9
-5,2
Industrial
125,6
127,3
127,5
127,2
119,6
-6,0
Public Illumination
33,4
34,2
33,7
34,8
33,5
-3,7
The market in the region is characterized by its small size and high dispersion with a predominance of
trade and consumer services (including utilities), with 45.0% of the consumption structure, followed by
domestic and industrial uses, with 34.1% and 16.4%, respectively. It should also be noted that the
islands of St. Miguel and Terceira were responsible for 78.9% of supply of electricity and for 73.3% of
contracts with customers.
Fig.4.1 -Consumption per capita from 2008 to 2012
4.3 ROMANIA
In the current context, the economic framework in the Great island of Braila is described below for each
of the activities of the electricity sector.
4.3.1 GENERATION
Prices of renewable energy are estimated for each manufacturer side and are set for 1 kWh of electricity:
))0
D,0
E23=F,0
where:
PW,t preferential tariff [MDL/kWh];
RRt necessary revenue [MDL];
W prod,t energy produced [kWh];
t indicate the variable value for year t.
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))0 *%0 *%0 # 0 %'@2 %3(G,0 H045
where:
ODCt - Operational and maintenance costs expected;
OthDCt other production costs;
Ccap capital costs;
Cref,t production cost of the fuel;
Desv(t-1) financial deviations in year (t-1) that must be taken into account for tariff calculation of year t;
*%0 I%0 %0 %*0
where:
LCDt expenses for remuneration of company staff for biofuel production in year t;
CMDt material expenses of company for biofuel production in year t;
COMDt operation and maintenance costs related to company installations for production of biofuel in
year t;
$0,K
%G@'J,0 %0,K +G,K
$ K
where:
Cfacq,t the acquisition cost of fuel;
Cft,y price for equivalent fuel of type y [MDL/tons];
Vf,y estimated amount of fuel [tons];
Eft,y specific energy content of the fuel type y expected to be used;
Efey the energy content of equivalent fuel.
4.3.2 RETAILING
Each retailing company has an obligation to pay for the purchase of power as it is explained below:
59
2L
% 2L # %; E!
;M5
where:
Cpk is the capacity of energy purchased;
k is the index that designates the manufacturer;
j is the index that designates primary energy source;
59
% NOP # %;NOP E!

;M5
where:
CPZU the amount of electrical energy purchased from the DAM
%
NQ
59
# %;NQ E!
;M5
where:
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CPE the amount of electrical energy purchased from the balancing market.
%
CIMP energy capacity imported.
RSN
59
# %;RSN E!
;M5
59
GJ
% GJ # %; E!
;M5
Cfq the amount of electrical energy purchased from the supplier q.

1
2L
%T # %;
LM5
GJ
% NOP % NQ % RSN # %; E!

JM5
CF the total amount of electricity purchased by supplier F;

n the number of electrical energy producers;
m the number of electrical energy suppliers.
4.3.3 TRANSMISSION AND DISTRIBUTION

The last methodology for calculating the transmission and distribution activity remuneration was
established by the ANRE in Decision Nr. 6/2012.
transmission
-- --9 , ,( X0
->2 Y->2= , ,( Z: X0
-.; \
% -- ->2 ] )
1
- - _
!
1 & +F5 1 & +F8 1 & +F
1 & `;
distribution
- -= , ,( : XF
- -= , ,( : XG
where:
I inflation rate;
Ie previous price inflation, (Ie = 1);
Kd, kf, kt coefficients that take into account the change of volume of energy distributed (provided,
transported) than corresponding volumes of electricity;
Pc price average 1kWh of electricity purchase;
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PNj unpaid share of population in total delivered energy cost;

R price correction that takes into account the difference between actual calculation factors used and
the tariffs initially set to specification;
TAij delivery charge electricity consumers connected to networks with group j voltage level i;
TD fee for the distribution of electrical energy;
TDo basic tariff for distribution of electrical energy;
TDsp dispatch services fee;
TDspo basic tariff dispatch services;
TP electricity tariff produced;
TT electrical energy transportation fee;
TTo basic tariffs for transporting electricity.
4.4 ITALY
4.4.1 INSULAR SYSTEMS INTERCONNECTION TO THE MAINLAND
The Insula Project is a project realized by Terna for joining Italy to its islands with an avant-garde
submarine cable network. With this project, Terna has the objective of strengthening the grid that joins
the islands of Sicily, Elba and Ischia to the Italian mainland and of creating a new submarine electricity
bridge to the island of Capri and between Capri and Ischia. The total amount of the investments for the
Insula Project equals nearly 2.3 billion euros. In this way, Ternas commitment continues to strengthen
the grids meshing. In the last 15 years, the grid united Italy from the North to the South and the Country
continues to be united also thanks to 300 building sites that are operational throughout the national
territory.
Some notes on the main connections between Italian islands and the mainland are reports below.
SACOI (Sardinia-Corsica-Italy)
The HVDC ItalyCorsicaSardinia (also called SACOI; SardiniaCorsicaItaly) is a 200 kV, 300 MW
HVDC interconnection used for the exchange of electric energy between the Italian mainland, Corsica
and Sardinia (Figure 4.2). It has been initially used since 1965 as a unipolar HVDC system with two
terminals, then it has been extended to a three-terminal HVDC system operatingsince 18 December
1992. It has been the first case in the world of multi-terminalHVDC system. It is unusual, having more
than two converter stations as part of a single HVDC system, and (as of 2012) is one of only two multiterminal HVDC systems in operation in the world. The scheme is a monopole using a mixture of
overhead line and submarine cable for the 200 kV high voltage conductor, and sea return for the neutral
current. The overhead lines and submarine cables are duplicated, with both circuits being installed on
the same towers.
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Figure 4.2. The SACOI connection

Sardinia - Mainland connection (SA.PE.I.)
The SA.PE.I. (SArdegna PEnisola Italiana) also represents the first phase of the Insula Project: it
starts from the mainland (Civitavecchia) and connects to the Sardinia Island. This connection (bipolar
link HVDC, 500 kV, 1000 MW) represents the arrival point of a strong acceleration path for developing
the national electricity grid for which Terna invested 4 billion euros from 2005 to 2010, four times the
amount invested in the previous five years. This commitment allowed building 2,200 km of new electricity
lines, 6 times the 380 km built in the previous five years that allowed recovering the gap that placed Italy
among the Countries with the lowest HV grid development level. This infrastructure has been operating
since 2012 and was defined the record breaking electricity bridge. With its 435 km is indeed the longest
submarine connection in the Mediterranean and the deepest in the world with 1,640 meters of depth. To
build the SA.PE.I., Terna invested 750 million euros and this infrastructure will allow the electricity
system to save 70 million euros per year, thanks to the elimination of bottlenecks between the Sardinia
area and the rest of the electricity market. Moreover, from an environmental point of view, over 500
thousand tons a year of CO2 in the atmosphere will be avoided, resulting from a greater use of
renewable energy.
Sicily-Calabria connection (Sorgente-Rizziconi)
This project is being implemented and will allow joining Sicily with Calabria through a 105 km long
connection, 38 km of which in submarine cable between Sorgente (in Sicily in province of Messina) and
Rizziconi (in Calabria in province of Reggio Calabria). It is the longest 380 kV AC submarine cable ever
built in the world. Once the power line is completed, for which Terna is investing over 700 million euros,
the quality and safety of Sicilys electricity grid will improve. This grid is old and poorly interconnected
with the rest of the Country. Significant benefits will also be achieved from an environmental point of
view: in addition to building 82 km of new power lines in the province of Messina and Reggio Calabria,
67 km will be buried and 170 km removed of existing overhead lines. Lastly, the new power line will
allow avoiding CO2 emissions for nearly 670,000 tons a year.
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Interconnecting Campanias islands with the mainland
Terna is planning to build a submarine cable system for a total of 90 km that will connect the islands of
Capri and Ischia to each other and to the mainland for a total investment of approximately 130 million
euros. The first segment of the electricity ring between Torre Annunziata and Capri, 30 km long, has
been submitted for authorization. The project aims at increasing the safety of the electricity system in
the islands that, owing to their present unreliable electricity production systems and to the lack of a
connection with the continental grid, risk being affected by black-outs, particularly during the summer
months. The project will also allow the electricity system to save nearly 15 million euros a year and
reduce CO2in the atmosphere by approximately 127,000 tons a year. The 150 kV Capri-Torre
Annunziata connection represents an important step of Ternas commitment. Therefore, it is continuing
to strengthen the meshing of this grid which in the past 15 decades joined Italy from North to South and
that continues to be joined thanks to the over 200 building sites already operating throughout the national
territory. In addition to the Torre Annunziata-Capri connection, Terna is also strengthening the 150 kV
Cuma-Lacco Ameno power line and the Cuma-Patria connection (Ischia). The aim of these projects
is to increase the safety and reliability of the electricity supply in the island to minimize blackout risks,
mainly during the summer months when tourism and consequently consumption increase. For these
projects a total investment of nearly 150 million euros is expected. The projects will lead to significant
environmental and economic advantages.
Island of Elba Tuscany connection
A 132 kV submarine electricity cable between Piombino and Porto Ferraio will connect the Island of Elba
to the Italian mainland. The power line that was already submitted for authorization and for which Terna
expects to invest nearly 50 million euros will be nearly 39 km long, 33 of which built in submarine cable
and 6 in buried cable. The connection will allow safely managing the islands electricity system by
ensuring greater energy reserves particularly during the summer months when the energy demand
reaches 40 MW. In addition to building the submarine connection, Ternas project also includes
strengthening the existing 132 kV S. Giuseppe Porto Ferraio electricity line whose works are already
in progress.
4.4.2 NON-INTERCONNECTED ISLANDS

For the non-interconnected islands, the typical solution used in the past (and generally still in place) to
provide electricity has been the installation of diesel generation groups. The electricity provided with
these systems is costly, because of the low efficiency of the groups and of the need of transporting the
fuel to the islands. In order to avoid excessive costs for the inhabitants of the islands, in the electricity
tariffs a specific option was introduced, according to which the inhabitants paid with the same tariff
applied to the residents in the mainland, while the local power company received a reward given by the
difference between the cost of electricity production and the tariff paid by the residents. This mechanism
is still in place to cover the higher operation costs incurred by the small electricity enterprises that are
not compensated through the revenues obtained from the tariff options established by the AEEG. The
amount of money to form the fund used for this reward is taken from the electricity bill of all the Italian
customers through an additional term named UC4, variable with the customer categories and electricity
consumption levels.
More specifically, Terna (as the responsible of the dispatch service in the national territory) identifies the
generat ion units considered as essential for the security of the non-interconnected electrical networks.
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These essential units are subject to the rules established by AEEG (articles 63, 64 and 65 of the
Deliberation no. 111/06), referring to the re-integration of the generation costs. The amount of this reintegration is calculated as the difference between the variable costs recognized to the production units
and the price of the electricity cleared in the day-ahead electricity market.
Table 4.10 provides a list of non-interconnected power grids for the smaller Italian islands. The
Pantelleria Island, involved in SiNGULAR, is one of these islands. The population living in these islands
is of about 47,000 inhabitants. In many cases, the number of persons living in the islands changes
substantially during the year, because of the strong touristic attractiveness of the islands.
The overall amount of money coming from the component UC4 of the electricity bill, stored in the account
for tariff integration to the small electricity enterprises (Conto per le integrazioni tariffarie alle Imprese
Elettriche Minori - IEM) and delivered to the enterprises entitled to receive the tariff integration is
indicated
in
the
Annual
balance
of
the
CCSE
(for
example,
see
http://www.ccse.cc/cms/uploads/fckarchive/files/BILANCIO%20def%2021-02-14.pdf for the Annual
balance 2012).
Table4.10. Islands not interconnected with the mainland in Italy, containing essential
production plants for the security of the electrical system
island name
power plant name
owner
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4.5 GREECE
4.5.1 INSULAR ELECTRIC NETWORKS IN GREECE
Apart from the Greek mainland interconnected power system, Greece also comprises around 30 insular
systems, namely the Non-Interconnected Islands (NII) systems. The electricity networks of these
systems are characterized as distribution grids. According to Law 4001/2011, the Distribution Network
Operator (DNO) on these systems is the same entity as the respective one for the mainland grid,
whereas the energy management and market operations are conducted by a distinguished entity. For
each activity a separate license is required, and a separate code will be applied, namely the Distribution
Network Code and the NII Power Systems Management Code.
In accordance with the provisions of Law 4001/2011, both entities are currently unified in the same legal
entity, namely HEDNO S.A, briefly described in the previous section.
Regarding thermal production, the entire installed capacity in all islands currently belongs to PPC SA,
which is also the only supplier in the islands. Regarding RES, there are numerous producers operating
mainly wind parks and PV units in many islands across the Greek territory. Regarding PVs, there is
widespread installation of PV units (ground-mounted and rooftops) belonging to numerous owners
throughout the islands.
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4.5.2 FRAMEWORK OF THE NII POWER SYSTEMS MANAGEMENT

CODE (NII-CODE)
NNI-Code clauses provide the framework for energy management and market operations in the NII
systems. More specifically, NNI-Code covers the following issues:
The procedures for participants (generation and supply) entry and operation, the management of
relevant registers, and the participants contracts.
The specifications and procedures of energy management infrastructure, namely the control
centers, the IT systems, and the energy metering systems.
The scheduling, dispatch and real-time operation procedures.
The security of supply planning in the long-term (i.e. generation system expansion planning,
systems merge planning) and the short-term (i.e. planning for remedial actions on supply
emergencies and maintenance planning).
The market mechanisms for energy, capacity and ancillary services, the remuneration procedures,
the financial/logistic procedures for the respective transactions, and the public service obligations
regarding supply in the NII.
The requirements, specifications and characteristics of the system operation, as well as of
participants infrastructure, with respect to the system operation, and relevant categorization.
Contents and organization of manuals, authorized to be issued by the System Operator.
Penalization for code violations.
Transparency of operations - procedures and access to information.
Gradual activation of code provisions for a transition period of five years.
4.5.3 BASIC CONCEPTS OF THE NII-CODE REGARDING SYSTEMS

MANAGEMENT AND PARTICIPANTS REMUNERATION
4.5.3.1 PRODUCTION UNITS OPERATIONAL CATEGORIZATION
Besides their technology, units are also categorized by their ability to provide firm power or energy, and
the ability to provide controllable/dispatchable power. The concepts of firm power provision and
dispatchability are regarded from the System/Market Operators point of view, i.e. the ability of the units
to be controlled (i.e. receive dispatch orders) and the ability to provide a guaranteed capacity, volume
of energy, or profile, on which the Operator can be based to schedule both energy and ancillary services
with respect to the scheduling horizon.
In this context, generating units are categorized as follows:
Firm capacity fully dispatchable units: These units declare their available maximum power.
Examples of such units are conventional thermal units (with fossil fuels, biomass fuels, etc.) and the
large reservoir hydro plants.
Firm profile non-dispatchable units: These units declare a guaranteed hourly schedule profile.
Examples of such units are wind/PV farms (which may declare guaranteed minimum hourly
volumes, based on weather forecasts and/or storage support), small size reservoir hydro plants,
small size pumped-storage units with/without primal renewable energy source, CSP units
with/without small size storage support, etc..
Firm energy partial-dispatchable units: These units declare a guaranteed energy volume for the
scheduling horizon that can be dispatched according to a declared maximum power capability.
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Examples of such units are medium-size reservoir hydro plants, medium-size pumped storage units
with/without primal renewable energy source, CSP units with medium-size storage support.
Non-firm
non-dispatchable units: These units declare only their availability status. Examples of such
units are wind farms and PV parks.

Hybrid stations (RES - pumped-storage stations) are regarded as a specific type, provided explicitly by
Laws 4001/2011 and 3468/2006. These stations exploit primitive intermittent RES to store energy, and
then use the stored energy for electric energy injection with dispatchable units. Annually, at most 30%
of the stored energy may be absorbed directly from the grid, i.e. from other than the stations individual
RES units. These stations operate with the obligation of providing a guaranteed capacity for a specific
number of hours in each day, equivalently termed guaranteed energy. A capacity payment and an
energy tariff are provided, while a specific charge tariff is also provided for the energy withdrawn directly
from the grid.
4.5.3.2 UNITS REMUNERATION AND DEMAND CHARGES

Thermal units are remunerated on the basis of a pay-as-benchmarked-cost concept.
For each category/technology of thermal units, a set of benchmarked parameters are used for the
remuneration of the variable cost, the start-up cost, and the capacity cost. Benchmarking methodology
and results are provided in the respective manual. Derogation of individual units is possible and a
respective procedure is also provided.
Prior to each calendar month, the SO computes, for each thermal unit, its variable cost curve, using
benchmarked technical parameters, and other relative cost parameters (i.e. fuels cost, CO2 cost, etc.).
The variable cost curves are taken into account for the solution of the day-ahead scheduling. The
methodology details for computing the monthly variable cost curves are provided in the authorized
manual.
Thermal units are remunerated for their actual (metered) energy injection and their actual capacity
availability, on a calendar-month basis. More specifically:
For the actual metered energy injected in the grid, the payment is computed using the Unit Variable
Cost Curve, for the respective month.
For the total incidents of unit start-up, the payment is computed using the Unit Start-Up Cost per
type of start-up (hot, warm, cold), as computed by the SO.
Based on the thermal units variable cost curve and the actual energy injections, the SO computes the
ex-post thermal production weighted average cost, namely the System Average Variable Cost, per NII
system and dispatch interval. Furthermore, the SO computes the System Maximum Variable Cost and
the overall NII Average Variable Cost.
RES are remunerated for energy and capacity (not all technologies) according to specific tariff policies,
provided by other legislation acts. All RES units are remunerated for their actual metered energy
injection and their actual capacity availability, when applicable, on a calendar- month basis.
Thermal and RES units that provide active power control ancillary services are remunerated on a
calendar-month basis, for the capability of each reserve, according to the units technical characteristics,
at a predefined /MW price, per type of service and each discrete NII system. Units are remunerated for
their actual availability of providing the services during the real-time operation, and not for the services
reservation at the scheduling (i.e. day-ahead, real-time dispatch) processes.
Furthermore, units are charged for deviations as follows:
For instructed deviations, no special payment is provided, since the units production is remunerated
for the actual metered energy injected in the grid.
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For uninstructed deviations, a charge equal to the absolute volume of units deviation at a price
equal to the 120% of the maximum Average Variable Cost of the respective dispatch interval is
imposed.
Suppliers charges are computed on a calendar-month basis, as follows:
Regarding the variable cost of energy:
For each dispatch interval, the volume of each suppliers actual energy absorbed from the grid
is apportioned in thermal generation and RES volumes.
The portion of thermal generation volume is charged at the system Average Variable Cost
The portion of RES generation volume is charged at the monthly Average Variable Cost.
Regarding the start-up costs of thermal units, the total cost of units start-up rated by the monthly
sum of energy absorbed by each supplier with respect to the monthly sum of energy absorbed by
all suppliers, is charged to each supplier.
For ancillary services, the total cost ancillary services rated by the monthly sum of energy absorbed
by each supplier with respect to the monthly sum of energy absorbed by all suppliers is charged to
each supplier.
The energy demand of hybrid stations storage units, when absorbing energy from the grid, is charged
to specific tariffs, as defined in contract and relevant licenses.
4.5.3.3 POWER SYSTEM SCHEDULING STAGES

The scheduling operations comprise 3 distinct stages/procedures, detailed as follows:
Rolling day-ahead scheduling: The first stage is a rolling day-ahead scheduling aiming to provide the
commitment and production hourly plan for the next 24 hours. The horizon is distinguished in two
subsequent 12-hour sub periods (period A and period B). At this stage, producers, depending on unit
category, declare their available capacity, 24-hours production profiles or daily energy volumes. The
schedule is solved for the entire 24-hours horizon.
Declarations of full dispatchable firm capacity units and declarations of demand profiles may span more
than one subsequent days-ahead in the same month. In this case, no resubmission is required until the
gate closure of each respective day.
The day-ahead schedule is updated, during the dispatch day, only regarding period B. In this phase,
RES units with production profiles or daily energy volumes, update their declarations, with respect to
period B. For medium and small power systems, where no declarations of production profiles or daily
energy volume are submitted, no updated scheduling for period B is conducted.
Demand profiles declarations are compulsory, nevertheless handled as indicative, in the view of
facilitating the SO load forecasting process. Regarding the day-ahead schedule, the SO also performs
a process for estimating the operating constraints and penetration limits of RES and forecasts the
required operating reserve margins.
Other parameters considered for the day-ahead scheduling:
Technical parameters of generating units (e.g. technical minimum generation, ramp rates, minimum
time being in operation after startup (minimum up time) and minimum time being offline after a shut
down (minimum down time), etc.)
The variable cost function of each thermal unit, expressed in blocks of quantity (power)-price pairs
The start-up cost of thermal units per start-up type (hot, warm, cold)
The cost of ancillary services.
The status of each unit, in the dispatch interval preceding the day-ahead scheduling horizon.
The power balance and ancillary services (active power regulation services) system requirements
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and inter-zonal power flows constraints, when applicable.

The existence of must-run units.
The objective of the day-ahead scheduling is to allow as high as possible penetration of RES, that is
technically feasible, maintaining system security, at the lower cost of thermal generation. The energy
declared from RES units should be entirely absorbed, if technically possible, considering also special
rules of RES operation. In case of energy balance or ancillary services infeasibility, the day-ahead
scheduling is resolved taking into account the guaranteed energy of hybrid stations and the respective
declarations for energy absorption from the grid. In case of persistent infeasibility, demand shedding is
scheduled, according to a predefined priority list.
The second phase, namely the 12h-ahead scheduling, aims to update the commitment and production
schedules, considering updated declarations, if any, only by RES units, (as a result of more accurate
forecasts) with respect to the upcoming 12-hours horizon.
The solution of the day-ahead scheduling algorithm provides:
The indicative commitment and output level of thermal units.
The hourly schedule of production level of units declaring hourly-profiles or daily energy volumes.
The expected penetration of non-dispatchable units.
Rolling 20-min dispatch operation: The second stage is a rolling 20-min dispatch operation with a 4hahead horizon. At this stage, the energy production of dispatchable units is scheduled taking into
account short-term updated load and intermittent sources forecasts, as well as other updated information
regarding system operating state and units availability. The objective of the dispatch operation is to
secure normal state of operation, maintaining as close as possible the day-ahead schedule, reallocating
reserve margins (active power regulation), maximizing the technically feasible and secure penetration
of RES and minimizing the cost of thermal units. At this stage dispatch orders are issued, regarding the
output levels, the start-up or shut-down of dispatchable units and the load of hybrid stations storage
units. Especially regarding intermittent energy sources, set-point orders, i.e. maximum allowed output,
are issued.
Real-time operation: Finally, in real time operation, automatic generation control is conducted, taking
into account primary and secondary control capabilities of units in order to alleviate frequency deviations.
At this stage, automatic dispatch signals are issued to units, along with manual dispatch orders.
The NII-Code provides the definition and content of dispatch orders: Following an ex-post process, on
a calendar-month basis, deviations from dispatch order are computed outside the margin of accepted
tolerances. Depending on the dispatch orders type, frequency and size of deviations, respective
penalties are computed and imposed to the units.
The NII-Code provides an explicit definition for required ancillary services and respective requirements
for units providing such services. Compulsory provision of ancillary services form dispatchable units is
imposed through respective contracts.
4.5.3.4 GENERAL RULES FOR RES UNITS

In general, RES energy is injected in first priority, as opposed to thermal conventional power. Priorities
among RES units are also defined. The NII-Code integrates all prioritization rules, provided by primary
legislation, and provides also additional ones. Furthermore, energy curtailment priority rules are
provided, when the available RES power is not technically possible to be injected in the system. The
general rules for the energy injection provided by RES units are summarized below:
The energy produced by RES units (including those of hybrid stations) is injected in priority, as opposed
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to CHP units.
The priority of energy injection of RES units is subject to the technical minima of must-run thermal units
and thermal units required for ancillary services, in case that RES dispatchable unit cannot cover
ancillary services requirements.
The reserve capability of committed thermal units should at least satisfy the respective reserve required
for a minimum level of RES injection. The level is expressed as a coefficient rate of the total demand
(excluding hybrid stations demand from grid) which is decided by the SO. This rate should be greater
than 35% or 30% for large or medium-small size systems, respectively.
In case that available RES energy is not technically feasible to be injected in the system, for a dispatch
interval, the following principles are applied to determine the required energy curtailments:
Energy curtailment of RES plants is ordered, when no further reduction of thermal units output is possible
(considering the technical minima of must-run thermal units and thermal units required for ancillary
services)
Energy curtailment of RES plants is ordered when no further reduction of CHP units output is possible
(considering the respective technical minima)
Dispatchable units of hybrid stations are committed in priority with respect to thermal and CHP units.
Energy curtailment of RES plants (including hybrid and CHP plants) is analogically computed, bounded
by their technical minimum output.
Analogical curtailment of dispatchable RES units is computed on the basis of the scheduled output in
each dispatch interval, which is computed by optimally dispatching the available daily energy in all
dispatch intervals of the scheduling horizon. For non-dispatchable units, analogical curtailment is
computed:
At the day-ahead stage, on the basis of the forecasted energy.
At the real-time dispatch stage, on the basis of the maximum declared capacity.
In case that the RES energy curtailment leads to feasible de-commitment of unnecessary thermal units
(respecting the operational rules for normal and secure system state), then the residual load is redispatched analogically to RES units, dispatchable units of hybrid stations and CHP units (with this
priority).
If de-commitment of RES units is required, CHP units are de-committed in first priority. In case that
further de-commitment is required, then:
RES units and dispatchable units of hybrid stations that do not provide ancillary services are decommitted gradually, until a feasible day-ahead or real-time dispatch is resolved. The SO is responsible
for a rolling selection of de-committed units, in order to satisfy, on an annual basis, an equal curtailment
for all units.
RES units and dispatchable units of hybrid stations that provide ancillary services (active power
regulation) are de-committed in last priority.
For RES units which declare firm 24h profiles, energy injection higher than the declared output is
allowed, subject to the above operational rules, the forecasted energy potential per technology type and
the available installed capacity of each unit.
In any case, regarding energy injection from non-dispatchable RES units, active power reserve
requirements should be satisfied. Specific rules for quantifying these requirements are analyzed and
published annually in studies conducted by the SO.
4.5.3.5 EXPLICIT RULES FOR HYBRID STATIONS (RES - PUMPED-STORAGE

UNITS)
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The RES-pumped-storage stations participate in the day-ahead scheduling under the following
additional rules:
The daily energy volume is declared upon producers choice. It may be higher, equal or lower than the
guaranteed energy. However, each station should always be capable of providing the guaranteed
energy, if requested by the SO; the producer submits a preliminary declaration for the amount of energy
that is necessary to be absorbed form the grid, in case that guaranteed energy is requested, but not
available. This declaration includes also the hourly capability of storage units.
Hybrid plants must provide active power reserves, according to their technical capabilities and dispatch
orders.
The offered daily energy production and demand for storage from the grid are dispatched by the SO,
aiming to optimize the system efficiency and costs. Grid demand for storage is subject to curtailment,
when it is not technically feasible to be balanced by thermal units. Storage demand that is balanced by
hybrid stations individual RES units is not considered in scheduling dispatch operations, and respective
demand profile is chosen by the producers.
Individual RES units of hybrid stations inject energy to the grid, in the following priority cases:
For balancing the pumped storage demand of the station (load following by individual RES units)
For substituting the scheduled output of dispatchable units of the station, up to a percent rate
specified in participation contracts, under the condition that hybrid stations dispatchable units cover
extra required reserves.
For directly balancing the system demand, under the uniform operational and penetration rules
applied to any non-dispatchable unit.
For the remuneration of RES plants injected energy and computation of deviations, the above priorities
are applied as well.
The storage demand of each hybrid plant must follow the output of individual RES units of the station.
Deviations are allowed within acceptable tolerance (5% minute average, 3% monthly average).
Alternatively storage units may operate under system load frequency control in conjunction with
individual RES load following. The SO may order, if imposed by normal and secure operation of system,
the curtailment of hybrid plants pump load equally the output of individual plants RES
4.5.3.6 EXPLICIT RULES CSP PLANTS

The code provides additional rules for Concentrated Solar Power (CSP) Plants, with respect to
deviations from the stations schedule. More specifically:
The tolerance of the minute average deviation from the declared 24-hours profile or issued schedule
is set equal to 5% of the scheduled output.
Deviations of hourly schedules/declared profiles, for any upcoming dispatch interval within the
dispatch day, are allowed up to 30% of the scheduled output, upon producers 2-hour notice, prior
to deviations.
Stop of plants operation (no availability), for any upcoming dispatch interval within the dispatch day,
is allowed upon producers 3-hour notice, prior to the incidents.
The two latter options are upon producers choice, and can be exercised up to 15 times per year.
4.5.3.7 LONG TERM PLANNING

a. Capacity planning per technology
A special issue provided in the NII-Code is that in the generation expansion studies the required capacity
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of thermal units is distinguished per technology and type of conventional units. i.e. for a list of
conventional generation categories, a maximum required capacity must be defined. The requirements
list is significant, since the maximum power is the upper bound of the capacity that will receive the
respective capacity payment. When a capacity requirement is fulfilled, new entries are allowed, yet with
no capacity payment.
b. Planning Studies and Operation rules for RES
Operational rules are defined for RES units and relevant studies are authorized by the NII-Code to
provide quantitative and qualitative correlation of RES penetration with respect to system operational
states, demand conditions, reserve requirements, etc.. SO is authorized to conduct two types of annual
studies, defined as follows:
Studies for optimizing the commitment and operation of RES and hybrid units, concluding in possible
revisions of RES operating and penetration rules.
Studies for determining the feasible expansion of RES and hybrid plants, considering operating and
penetration rules and concluding in respective capacity limits.
Studies should provide feedback for the necessary grid expansion or upgrade and the terms included in
relevant participation contracts.
The NII-Code provides the fundamental principles and methodology for the conduction of such studies.
These are further detailed in the authorized manual.
5. SOME SOLUTIONS PROPOSED TO IMPROVE

DISTRIBUTED GENERATION REGULATION
5.1 SPAIN
Regarding the role of the distribution system operator
It is necessary to enable the figure of the distribution system operator (DSO), not only as the
responsible of the exploitation, maintenance and development of its network, but also as the operator
of the ancillary services of the distribution generation and developer of the Distribution Operational
Procedures (PODs) in order to optimize DG integration and the contribution in continuity of supply and
power quality. These procedures should be specific for the distribution generation, basically to define
the requests for connection to the grid and improvements in protections and security.
It is required to define the role of the DSO as a consequence of the establishment of the telemetering
and the need to integrate GD and electric vehicle.
Regarding information exchange
Nowadays there is no legislation that allows a DSO to acquire information from the transmission
network and DG, which impairs DG integration and guarantee of supply.
Regarding the technical constraints, the distribution system operator must communicate the SO any
constraint due to DG. This is not functional, so an important aspect to consider is that the DSO should
be capable to inform DGs directly in order to obtain the best management of the grid.
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Regarding security of supply

DG follow power factor set points that do not fit the local needs of controlling reactive voltage causing
some quality problems, therefore it is required to enable legislation that allows a DSO the management
and control of the reactive voltage of distribution generation.
Regarding quality of service
Recently, quality of service is being involved due to the uncontrolled implantation of the distribution
generation causing overvoltage problems.
The System Operator highlights the requirements to improve in terms of regulation (developing PDOs),
demanding an active participation of distribution generators in ancillary services.
Depending on the features of the generation and demand, and the flexibility in each region, higher or
lower DG penetration levels should be allowed at low voltages.
At the moment, generators choose the manner they send the metering to the control centre of REE, the
generation control centre or via DSO. The increasing penetration of distribution generation requires a
change in the operational procedures that allows generators sending real-time signals to the DSO.
Adequate definition of energy storage in the regulatory framework.
The energy storage systems are not included in the Spanish regulatory framework, with the exception
of the hydraulic pump.
In the law Decree 6/2010 and law 24/2013, appear the figure of transmission system loads. Which are
those corporations that, as consumers, are entitled to resale of electricity for recharging energy services.
This is important to integrate the store systems in the market.
In island is important to introduce the concept of energy store in the electricity market. Hydro pumped
systems, batteries, Flywheel and Electric car.
In the Royal Decree 1699/2001is regulated the grid connection of the production of lower power. In
this Law says In generating circuit to the measuring equipment cannot be interleaved any generating
element other than the allowed facility or accumulation.
Regulation of the net balance for small installations.
In the RD 1699/2011 was mentioned that in four month could be published the next regulation of the net
balance. Today is not published.
The net balance allow main pour the excess produced by a system of consumption in order to be able
to use the excess later.
Remove barriers for small producers
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The small producers have to register like a big producer of electric power, registering for pay tax,
quarterly payments, filling model 586 to pay 7% of the energy produced, access cost, etc.
5.2 PORTUGAL
The National Action Plan for Renewable Energy predicts strong 2020 investment in electricity generation
based on renewable energy sources leading to: (i) a greater weight of the special regime in electricity
consumption, and (ii) a underutilized thermoelectric capacities that will start to exist primarily for security
of supply, given the intermittency / irregularity of renewable energy.
As a vision for the future, the energy policy is oriented to ensure energy supply guarantee, economic
and environmental sustainability of the sector and quality of energy services, and to contribute to job
creation, regional added value and competitiveness of the regional economy.
With regard to commercialization, the trend is towards increasing consumers in liberalized market, where
the market regulated will only be applicable to the most economically vulnerable consumers,
beneficiaries of a social tariff.
As regards to payment mechanisms:
The power currently installed in special regime, specifically wind power will cease to benefit, largely,
from the feed-in tariff, ultimately between 2020 and 2025.Since the lifetime of the wind farms is about
20 years, the last 5 years of operation the energy produced will be sold in the market, keeping,
predictably, however, its priority access to the grid. It is however expected that new investments continue
to benefit from a feed-in tariff mechanism.
Regarding production under the ordinary regime, (i) the Power Purchase Agreements into effect expire
in 2021 in the case and Tejo Energia and in 2024 regarding Turbogsand (ii) the thermoelectric and
hydroelectric plants with current Maintenance Costs of Contractual Balance cease to benefit from this
scheme until 2027.It is expected that the installed thermal power will be paid largely by the availability
payments if part of PNEARs investment plan is going to be implemented and that large hydropower
projects, which are included on renewable energy are paid by its production.
5.3 ROMANIA
The main strategic guidelines of the Romanian energy policy are:
- Sustainable development to maintain energy efficiency along the whole resource production
transport distribution consumption chain through an optimal organisation of production and
distribution processes and the reduction of total consumption of primary energy relative to the value
of products and services; to increase the share of energy produced from renewable sources in total
consumption and in power generation; to promote the production of heat and electric power in highly
efficient co generation plants, to utilize secondary energy resources; development and innovation
in the energy sector with an emphasis on improved energy and environmental efficiency and to
reduce the emissions of greenhouse gases and atmospheric pollutant emissions
- Competitiveness to develop and further improve competitive markets for electricity and energy
sector services; to promote renewable resources through the use of Green Certificates in the context
of regional integration; to develop the White Certificates market for the efficient use of energy; to
create a regional energy exchange and to ensure Romanias continued involvement in the
consolidation of energy markets at European level.
Romania will increase the share of renewable resources in the final energy consumption to 24% in 2020.
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Enhanced energy efficiency will bring about a reduction in the consumption of primary energy by 20%
and that of final energy consumption by 18%.
5.4 ITALY
In the current situation in Italy the two main islands (Sicily and Sardinia) are considered as two
geographical zones (interconnected with the mainland) for the purpose of determining the zonal prices.
Due to their location and type of connection, declaring these islands as geographical zones is a natural
consequence. In practice, the presence of congestion in the interconnection lines may depends on the
time periods along the day. Both Sicily and Sardinia have a significant potential for installing and exploit
renewable sources, and this may lead to situations of either lower or higher prices in the islands with
respect to the electrically neighboring zones in the mainland at different time periods.
A different situation occurs for the smaller islands not interconnected with the mainland. In these cases,
the effects of the incentives given to the operator of the local generation system (typically managing
diesel groups that in some cases could have relatively low energy efficiency and relatively high
emissions) are negatively impacting on the possibility of introducing local generation from renewable
sources. The situation could be counterbalanced by the introduction of penalties for the emissions (e.g.,
a carbon tax) together with appropriate incentives for energy production from renewable sources.
However, specific aspects have to be taken into account, such as the need of maintaining a suitable
generation available for the provision of ancillary services (such as load following and reserves), together
with possible regulatory constraints linked to the visual impact of the sources or the impact on the local
habitat or architecture. Further analyses are needed, both on the technical side and for policy
development. These analyses may also take into account the evolution of the role of the local distribution
system operator. In the presence of grid-connected distributed resources, the distribution system
operator could be assigned also the task of coordinating the control of the network, according with overall
objectives of system security, efficiency, controllability, power quality and reliability (service continuity),
sending to the owners of the local resources the information and signals to control these resources.
Controlling the voltage / reactive power channel and guaranteeing an appropriate amount of reserves
are two of the most challenging aspects to be addressed.
In relatively small islands, availability of more local generation could enable the operators to study the
possibility of introducing an amount of electric vehicles, managing the overall system optimization in
order to host the corresponding capacity. The data to support the optimization procedures should come
from enhanced metering of all the consumers connected to the local network.
The opening towards the integration of distributed resources may lead to the establishment of new rules
to be introduced in the grid codes of the insular systems, especially concerning grid connection issues.
New policies for demand response and flexibility may be added to enable better exploitation of the
distributed resources at the user side, establishing proper rules for metering the electricity consumption
and sending the signals to be elaborated.
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REFERENCES
Spain
Comisin Nacional de la Energa (CNE)
http://www.cne.es/cne/doc/legislacion/NE_LSE.pdf
http://www.cne.es/cne/doc/publicaciones/cne112_09-anexo-POD9.pdf
http://www.cne.es/cne/doc/smartgrids/Acta_6Reunion_gt.pdf
http://www.cne.es/cne/doc/publicaciones/cne112_09.pdf
http://www.cne.es/cne/doc/smartgrids/Acta_8Reunion_gt.pdf
Boletn Oficial del Estado (BOE)
https://www.boe.es/boe/dias/1997/11/28/pdfs/A35097-35126.pdf
http://www.boe.es/boe/dias/2000/12/27/pdfs/A45988-46040.pdf
http://www.boe.es/boe/dias/2009/04/04/pdfs/BOE-A-2009-5618.pdf
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Red Elctrica de Espaa (REE)
http://www.ree.es/ingles/seie/canarias/sistema_canario.asp
http://www.ree.es/seie/pdf/RD1747-2003_EXTRAPENINSULARES.pdf
Gobierno de Canarias
http://www.gobcan.es/energia/normativa/energiaelectrica/
http://www.gobiernodecanarias.org/energia/normativa/energiaelectrica/Orden28Septiembre2005.pdf
http://www.gobcan.es/energia/normativa/energiaelectrica/Orden%20ITC%201559_2010.pdf
http://www.gobcan.es/energia/normativa/energiaelectrica/Resolucion22Mayo2009(liquidacione s).pdf
Portugal
Entidade Reguladora dos Servios Energticos
www.erse.pt
http://www.erse.pt/pt/electricidade/qualidadedeservico/relatoriodaqualidadedeservico/Documents/Rela
trio QS 2012 ERSE SE.pdf
http://www.erse.pt/pt/electricidade/liberalizacaodosector/informacaosobreomercadoliberalizado/2013/
Comunicados/Relatorio_ML_201311.pdf
http://www.erse.pt/pt/electricidade/tarifaseprecos/2014/Documents/Caracterizao
Procura
EE
2014.pdf
Electricidade da Madeira
http://www.eem.pt/images/stories/documents/annualreport2011.pdf
http://www.eem.pt/images/stories/documents/rel_contas2011.pdf
http://www.eem.pt/images/stories/documents/SEPM_2012.pdf
http://www.eem.pt/images/stories/documents/RQS2012.pdf
http://www.aream.pt/download/islepact/ISEAP_Madeira_EN.pdf
http://www.eem.pt/
DGEG - Direco-Geral de Energia e Geologia
http://www.dgeg.pt/
EDA - Electricidade dos Aores
http://www.eda.pt/Mediateca/Publicacoes/Lists/RelatrioQualidadedeServio/Attachments/4/RAQS 2012
Final.pdf
http://www.eda.pt/Mediateca/Publicacoes/Lists/RelatrioseContas/Attachments/21/RC EDA 2012.pdf
http://www.eda.pt/EDA/DocsDistribuicao/CARE 2012.pdf
http://www.eda.pt/Paginas/default.aspx
EDP - Energias de Portugal
http://www.edp.pt/pt/investidores/assembleiasgerais/assembleiasanuais/2013/Assembleia
Anual
2013/EDP_RC2012_PT.pdf
http://www.edpsu.pt/pt/edpsu/RQS/Relatrio QS 2012.pdf
http://www.edpsu.pt/pt/edpsu/Relatrio e Contas/Relatrio e Contas 2012.pdf
REN - Rede Elctrica Nacional
http://relatorioecontas2012.ren.pt/media/498695/ren_rc_2012.pdf
BPI - Banco Portugus de Investimento
http://quartarepublica.files.wordpress.com/2011/04/bpidt.pdf
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Romania
National Regulatory Authority (ANRE)
http://www.anre.ro/decizii_ordine.php
http://www.anre.ro/informatii.php?id=212
http://www.anre.ro/documente.php?id=1231
http://www.anre.ro/informatii.php?id=328
http://www.anre.ro/documente.php?id=1007
Opcom (www.opcom.ro)
http://www.opcom.ro/tranzactii_rezultate/tranzactii_rezultate.php?lang=ro&id=53
http://www.opcom.ro/intraday/imgomx.php?lang=ro
Electrica (www.electrica.ro)
http://www.electricafurnizaretn.ro/Utileinformatii-pentru-clienti/Legislatie-in-domeniul-energetic.html
http://www.electrica.ro/clienti/legislatie/
http://www.electrica.ro/domenii-de-activitate/distributie/
http://www.electrica.ro/domenii-de-activitate/tranzactii-reglementari-si-servicii/piata-concurentiala/
http://www.electrica.ro/domenii-de-activitate/servicii-energetice/
Italy
Acquirente Unico (AU)
http://www.acquirenteunico.it
Autorit per lenergia elettrica e il gas (AEEG)
http://www.autorita.energia.it/
Cassa Conguaglio per il Settore Elettrico (CCSE)
http://www.ccse.cc
Gestore dei Mercati Energetici (GME)
http://www.mercatoelettrico.org/
Gestore dei Servizi Energetici (GSE)
http://www.gse.it
SOGIN
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http://www.sogin.it/en/Pages/default.aspx
TERNA
http://www.terna.it
Greece
Hellenic Regulatory Authority for Energy, [Online]: www.rae.gr
Hellenic Independent Power Transmission Operator (IPTO), [Online]: www.admie.gr
Hellenic Electricity Market Operator (EMO), [Online]: www.lagie.gr
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<http://www.rae.gr/en/codes/main.htm>
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THEME [ENERGY.2012.7.1.

Economic Framework of Insular Electric

Economic framework of insular electric networks

Universidad de Castilla - La Mancha

Universidad de Castilla - La Mancha

Instituto Tecnolgico de Canarias

Instituto Tecnolgico de Canarias

Instituto Tecnolgico de Canarias

Universidade da Beira Interior

Universidade da Beira Interior

Ramona Elena Vatu

Oana Luminita Ceaki

Politecnico di Torino (POLITO)

Politecnico di Torino (POLITO)

Pilar Meneses de Quevedo

Politecnico di Torino (POLITO)

Politecnico di Torino (POLITO)

Economic framework of insular electric networks

Submission for Approval

Economic framework of insular electric networks

Economic framework of insular electric networks

Economic framework of insular electric networks

2.2.2.1 AGENTS AND ENTITIES OPERATING IN THE ELECTRICITY

Economic framework of insular electric networks

3.2 PORTUGAL ............................................................................................... 59

Economic framework of insular electric networks

Economic framework of insular electric networks

Economic framework of insular electric networks

Economic framework of insular electric networks

2.1.2 AGENTS OF THE ELECTRICITY SECTOR

2.1.3 ORGANIZATION MODEL OF THE ELECTRICITY SYSTEM

Economic framework of insular electric networks

Economic framework of insular electric networks

2.1.4 LIBERALIZED MARKET

Economic framework of insular electric networks

Economic framework of insular electric networks

Economic framework of insular electric networks

2.1.4.1 CLEARING ALGORITHM

Economic framework of insular electric networks

Economic framework of insular electric networks

2.1.5 ELECTRICITY MARKET DESIGN

2.1.5.1 DAILY MARKET

Economic framework of insular electric networks

2.1.5.2 INTRADAY MARKET

Economic framework of insular electric networks

2.1.5.3 SERVICE MARKET ADJUSTMENT

The adjustment services systems are:

Resolution of the security of supply restrictions

2.1.6 ELECTRIC BILL IN SPAIN

Economic framework of insular electric networks

2.1.6.1 REGULATED COMPONENT

Economic framework of insular electric networks

2.1.6.2 MARKET COMPONENT

Fig 2.6 Components of the final Price (/MWh).Total domestic demand.

2.1.6.3 LOST IN THE WIND ENERGY SECTOR PER DEVIATION COST

Economic framework of insular electric networks

Table 2.3 Lost per deviation cost. Source: REE, AEE

2.1.7 THE AUTONOMOUS REGION OF THE CANARY ISLAND

Economic framework of insular electric networks

2.1.7.1 CONFIGURATION OF THE GENERATING TECHNOLOGIES IN CANARY

Economic framework of insular electric networks

Balance of electrical energy

The figure shows:

Economic framework of insular electric networks