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Italy may rethink PUN for Day-ahead electricity market coupling

31 Aug 2012 18:58:17 | edem

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Italy could rethink the mechanism behind its Day-ahead market to help market coupling, as price spreads between different market zones have tightened, according to a draft of the country's national energy strategy obtained by ICIS.

The national energy strategy outlines targets and priorities for Italy's energy industry. The document, which is dated from August, will be put to public consultation within the next few weeks.

At present, Italy's national single price (PUN) is the average of the six different zonal prices in the Day-ahead market, weighted for total purchases and net of purchases for pumped-storage units and by neighbouring countries. Supply offers accepted by market operator GME are remunerated at the corresponding zonal price, while accepted demand bids are valued at the national PUN price.

The draft strategy said this mechanism is a burden to Italy in Europe's Day-ahead markets harmonisation process. At present, the nation is coupled with Slovenia only (see EDEM 31 December 2010), but the EU is keen to see member states' Day-ahead markets harmonised by 2014 (see EDEM 26 March 2012).

"When it comes to coupling with the other European markets, maintaining a zonal selling price different from the buying price (which is the national PUN) is not an insurmountable obstacle, but still would result in the need to set up purpose-built solutions," the draft said.

Because of that need, the draft questions whether the mechanism should be revamped in the medium to long term.

Tighter zonal prices

The zonal mechanism was introduced to eliminate territorial inequalities, particularly between northern and southern regions, and the zonal price differences stem from deficiencies in the electricity grid and the lack of competition in some regions, the draft said.

"The absence of the PUN would have had unsustainable effects in past years for a good portion of the southern regions, and this would still be so for the islands of Sicily and Sardinia − [at least] for Sardinia when the Sapei [interconnector with mainland Italy] is down," the document said.

But the zonal spreads have tightened in recent years, with grid improvements and new power-plant construction, and the draft said only the Sicily zonal price would retain a high premium to the national price, at least until its interconnector's operational launch, which is expected in 2014-2015.

Last year, the average spread between the Sardinia zonal PUN and the national PUN stood at €7.70/MWh, according to data from market operator GME. In 2009 − before the Sapei interconnector entered into operation − it stood at €18.29/MWh.

However, the spread between the Sicily zonal price and the national PUN averaged €20.88/MWh in 2011.

One trader, however, said that, while the Sapei interconnector coming online certainly managed to cut the average spread between Sardinia and the mainland, it failed to cut the volatility of the Sardinia price.

"It's not that certain that the Sicily-mainland link would mean that the country is ready to give up the zonal mechanism," the trader said. SM

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