Czech Republic Steps Up

    By Alan Chandler,
    Logica, London, UK

    The history of the Czech power industry reaches back to the last quarter of the 19th century to the time of the industrial revolution. During this period the first plants for the production of energy were established, and from the beginning these were used for industrial purposes and lighting of public areas.

    The rapid growth in consumption in the 1890s was limited by the fact that only a direct current was used and it was only with the development of the transformer and synchronous alternator at the beginning of the 20th century that further developments in the power sector occurred. After 1945 all private and city energy companies were nationalized into a single, state owned organization, CEZ (Ceske Energticke Zavody).

    After the fall of the communist regime, eight regional distribution companies were separated from CEZ, which with its 26 electric power stations continues to play a dominant role in production. Independent power producers currently have 25 per cent of the market for power generation.

    In 1994 the regional distribution companies were privatized and although private investors took a stake, the state continued to hold the majority share. In the same year CEZ separated its transmission system into a subsidiary company called CEPS.

    The government’s programme to liberalize the energy market commenced with the new energy law, which was approved by parliament and came into force on 1 January 2001. The new law covers liberalization of the electricity, gas and heating industries with the principal of regulated third party access (TPA) to customers.

    The Czech Ministry of Trade and Industry is responsible for introducing competition and has appointed a regulator to monitor and control the monopoly elements of the market.

    The energy law stipulates a progressive opening of the electricity market in the Czech Republic which will start in 2002 for producers of over 10 MW of installed output and customers with an annual consumption above 40 GWh. By 2006 the market will be opened completely.

    The law also defines the rights and responsibilities of individual participants in the market, who may be producers, traders, authorized customers, protected customers, transmission system operators, and operators of distribution systems. Prices for electricity are liberalized. Prices for transmission and distribution services are, due to their monopoly character, regulated by the state.

    The new approach

    In common with most new energy markets, the commercial process of buying and selling energy is separated from the physical process of delivering that energy over the wires. The operator of the transmission system (CEPS) continues to be responsible for undertaking the physical delivery of electricity and because of this has to be given information about the commercial trades that have taken place so it knows what electricity flows to expect over the network.

    Figure 1. The Czech Republic’s market will be progressively liberalized
    Click here to enlarge image

    Trading will not perfectly represent the actual demand by end customers – and may not match generation if problems occur – so CEPS has to maintain a balance in the network, providing a regulation mechanism by means of competitive trade with supporting services. Traders who cause imbalances by failing to buy or sell the right quantity of electricity will have to pay CEPS for the errors at high rates.

    The law also requires a new institution – a market operator that has two main roles: the organization of a short-term trading market and the calculation and settlement of imbalances. This market operator, named OTE, was founded in July 2001.

    The organized market will support short-term trading close to the time of electricity transmission so that traders can correct for changing conditions (for instance weather often affects end customer demand) and minimize their imbalance charges – this will be supported through anonymous auctions.

    Auctions will be either daily (for the trading of electricity for transmission during the next day) or, in a later phase of the market, as a sequence of four auctions per day (for trading electricity for transmission in a six hour window later in the day).

    Figure 2. The trading system will initially cover imbalance settlement, short term trading and financial settlement.
    Click here to enlarge image

    To calculate the imbalances of market participants the OTE obtains measurements of electricity flows via an interface with the transmission and distribution system operators who are responsible for taking the appropriate meter readings. Additional information is received from the transmission operator on the support services purchased and prices paid which are used to maintain the network balance.

    The market operator checks how complete the data is and performs aggregation and reallocation for each market participant, comparing this to their previously reported contracts. From these calculations the responsibility for imbalance can be determined and the necessary payments worked out.

    The market operator will manage financial settlement of trades conducted on the short-term market coupled with settlement of payments for imbalance. Receipt and transfer of information to and from financial institutes, management of credit risks by ensuring the current position of the participant by using the relevant instruments, and accounting reconciliation are also OTE’s responsibility.

    OTE also has to manage the registration of market participants, registration of purchase and transfer points on the network and allocation of market participants who then become responsible for the imbalances.

    The IT systems approach

    Immediately after OTE was created it initiated selection proceedings for the supply of the core IT infrastructure in order to ensure a functioning electricity market by January 2002. OTE required the supplier to build the system within four months and operate it for eight years.

    Logica’s presence in the Czech Republic, coupled with its experience of running similar markets since 1989 (the initial opening of the first competitive energy market in the UK) convinced OTE that Logica was the right company to take the prime contractor role for this contract and lead a consortium that comprises Sun Microsystems and the Spanish companies Soluziona and OMEL.

    The solution for OTE is extendable in order to cover the various phases of market opening all the way to full domestic competition in 2006. However, the initial activities covered are:

    • Imbalance settlement
    • Organization of short term trading
    • Financial settlement and financial risk management.

    The information system is formed by three basic application modules: Prodis CEM, SIOM and B@FIR.

    Prodis CEM covers all the required functions in connection with data collection and processing according to the market rules. This includes the relevant registers of participants and metering points used in settlement. Prodis CEM also supports the switching process, where end users can change their supplier, leading to an update in the meter point register of who is responsible for imbalances.

    SIOM covers all the required functions of the short-term market, evaluation and settlement of imbalances. In addition, the software is flexible to allow for the introduction of within-the-day markets. Mechanisms for passing on technical information from bilateral trades by market participants, including the relevant checks is also covered by the software.

    B@FIR is a special banking module derived from Logica’s work in the finance sector, which is fully compliant with the payment infrastructure of the Czech Republic and its local laws. The task of the module is to ensure the management of financial flows between monetary accounts of market participants and the accounts of the market operator, while providing information essential for the management of the financial risks of the market operator.

    The selected modules fulfil the requirements for a robust solution for the Czech market, and can demonstrate long-term operational stability from elsewhere. Integration of programme modules is ensured by the use of the unified Oracle 8i database, supplemented by the services of an integration layer. The system has to support high availability, with parts of it needing to be available to trading partners on a 24 hours-a-day, seven-days-a-week basis. Appropriate parts of the system are duplicated to ensure that this level of availability is met.

    The entire infrastructure of the electricity market operator is made up by a necessary network, separating security and communication elements. Communication with market participants takes place via the internet network, where market participants’ additional investment costs are reduced to a minimum, since market participants require only a web browser for basic access to the system.

    Communication with operators of transmission and distribution systems and selected banks shall take place via the internet or by fixed lines with use of the XML protocol. Security of the communication with market participants is maintained via the use of encryption mechanisms using a Public Key Infrastructure (PKI).

    The data centre will be set up at Logica’s offices in Prague, where Logica will be responsible for the administration and maintenance of applications and technical infrastructure. Support to market participants will also be provided through a continuous hot-line service.

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