With deregulation, European transmission system operators now have to think not only about the physical movement of electricity but also about the effects of the electricity market on grid performance.

Spero Mensah, Jean-Marc Cachet,
Alstom’s Transmission and Distribution sector, France

The European Union is moving towards full-scale electricity market deregulation in 2007. Countries outside the European Union, but planning to become members in the future, are also deregulating their electricity markets along similar lines.

Network management at Transpower New Zealand, where the e-terra solution is installed
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Although the European Union is setting deadlines for achieving certain stages of deregulation, each country is adopting its own approach, which takes into account the history of electricity supply in each state and the particular features of each nation’s political and economic situation.

The idea of a European deregulation blueprint is a long way from being achieved. Even within the US, where deregulation is well advanced, different states are operating different systems and only now is the industry looking at a standard market design.

European countries, both inside and outside the European Union, are borrowing ideas from each other and putting in place market mechanisms that resemble those of their neighbours but differ in the finer details.

Alstom, through its Transmission and Distribution sector, is one company that has developed comprehensive expertise and solutions to deploy the IT and application infrastructures required to successfully operate deregulated markets. Its e-terra product range has been tested to the full in deregulated markets around the globe, including Europe, the US, Australia and New Zealand. The flexibility of the e-terra solution is key, as it can be adapted to differing market situations. Secondly, Alstom has experience in the physical exchange of electricity and supplies all the equipment, such as Energy Management Systems (EMSs), needed for the physical management of the grid.

In moving from an electricity monopoly situation to a fully deregulated market, it is generally recognised that countries must carry out several essential steps. After initial government legislation has been passed, key to successful deregulation is, ironically, a regulatory body to oversee the process of market restructuring. So far, only Germany has opted not to have a regulator.

Beyond this, existing “vertically integrated” utilities must be “unbundled”, that is, split into several parts. Usually the first step is the creation of an independent transmission operator, and the establishment of a regulatory policy that enables all market participants to have equal and open access to the transmission system.

The next stage is the separation of the generation side of the business from the distribution side, and then the sale of generation and distribution assets to independent companies. At the same time, industrial and commercial sites must be allowed by law to select their energy suppliers, in order to create a competitive environment.

Rates and tariffs for transmission services also need to be determined. At this stage, the country needs to develop the IT and applications infrastructures to operate the market system.

The ultimate stage of the deregulation process is the opening of the electricity market to households, leading to the emergence of energy retailing companies, independent from the traditional distribution companies. Energy retailers and traditional distribution companies then share the use of medium and low voltage networks through which power is distributed to the end customer.

Hungary is a typical example of a European country following this general path. It began deregulating in the 1990s, when the state electricity company, MVM, sold off various power plants to private investors such as Tractebel and RWE.

Mavir, the Hungarian Power System Operator Company, was separated off from MVM to create an independent system operator of the transmission network. Six distribution operators emerged from the unbundled MVM, three owned by E.ON, one by Electricité de France (EdF) and two by RWE. However, both generators and distributors were operating in a semi-monopolistic environment, with long-term generation contracts giving fixed prices and revenues, and fixed regional distribution areas guaranteeing monopoly distribution.

All this is beginning to change. In January 2003, Hungary passed a law allowing industrial sites to buy electricity from any producer. This follows the EU blueprint, which aims to have deregulation for industrial and commercial consumers completed in all countries by mid-2004.

Balancing system

Alstom won a contract with Mavir to introduce an electricity market operation system, the heart of which is a balancing system. Mavir neither generates or distributes energy, and therefore has no control over the supply and demand of electricity. However, as the transmission system operator, it has responsibility to ensure that it guarantees a high-quality electricity supply to its customers and must therefore balance the generation and the load in its system at all times. This is done by market means. Mavir receives bids and calculates the market clearing price at which it buys electricity from the generators and sells it to the distributors or large industrial customers.

As yet, Hungary has not established a power exchange market, where power is traded like any other commodity with no regard for its physical transfer. The power system operator simply uses a market-based mechanism to balance the system to ensure that the transmission of electricity is carried out efficiently and smoothly.

The web-based system uses Alstom’s e-terraMarket software solution. It will operate 24 hours a day, seven days a week. It has to be completely reliable, and to ensure this, Alstom incorporates redundant components into the system architecture so that it runs even in the case of failure of one component. The delivered system is backed up by internet support from the company’s European base at Massy, France, and from a local Hungarian software firm, with which Alstom works.

The Hungarian system includes a minute energy market, which is a reserve market whereby the generator promises to supply power within 15 minutes. This provides an insurance for Mavir, should it need to buy energy quickly to balance its system. The generator is paid for both the service, i.e. the “promise to deliver”, and for the electricity itself when it is used.

An important part of the system is the balance circle feature, which will become increasingly essential as the market advances. The balance circle records direct transactions between generators and distributors organized outside the auspices of Mavir. Although not part of the financial transaction, Mavir has to be kept informed of the physical transaction in order to balance the system.

The system also has a cross-border capability. Hungary’s transmission capacity with its neighbours is limited, so it needed a mechanism for adjusting the price to reduce the demand.

Grid management

Other countries’ needs go beyond the introduction of a software solution. Implicit in the process of deregulation is the need for a certain level of efficiency of operation of the transmission system itself. Without a well managed grid, it is difficult to implement market deregulation, as making physical and financial transactions of electricity on a daily, even hourly, basis requires a reliable transmission management system capable of supporting and measuring physical flows of energy.

In Romania, Alstom has won a raft of contracts for improving the management and control of the transmission grid, as well as for a Market Management System to operate the country’s nascent deregulated energy market. Having the same company carrying out all the work has obvious advantages for the customer as compatible software can be used for running the energy management systems and market systems.

The smooth running of any transmission grid relies on an EMS collecting all the system information from substations and equipment all over the grid and relaying this information back to dispatch centres, which manage the flow of electricity around the grid. Information collected is relayed across telecommunications systems.

In Romania, Alstom will supply, deliver and commission a full EMS to cover transmission operator Transelectrica’s national dispatch centre, the back-up centre and a territorial dispatch centre in Bucharest, plus four territorial dispatch centres in Craiova, Timisoara, Cluj and Bacau.

This contract includes the full hardware architecture for the centres, including servers, workstations and associated communication and peripheral equipment. Alstom’s e-terraPlatform software solution for energy management will be installed to run the EMS. The company will also supply 25 remote terminal units to power plants, enabling the EMS to exchange information with all the country’s power plants as well as with the substations. The e-terra solution will also provide automatic power generation control functions and interface with the market operator, Opcom. The contract also includes supplying a dispatch training simulator system.

Alstom has equipped several dispatch centres in the US
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The Romanian market is partially liberalized, with some of the country’s power plants already privatized, the transmission operator Transelectrica in place and distribution companies in the process of being privatized. Alstom is supplying Opcom, with an advanced market management system capable of carrying out full power exchange activities.

It includes balancing market, reserve market and various ancillary services, such as voltage regulation, whereby generators and industrial sites are paid to ensure a certain level of reactive power on the grid, and ‘blackstart’, whereby generators provide the means to quickly restore the network after a partial or total blackout. The market management system will include significant Romania-specific content, supplied by a local partner. It will operate under a different model from Hungary’s and will not use the ‘balance circle’ concept. The Romanian market model has a similar design to that of the Spanish market.

Inside the EU, Alstom has also put in place a balancing market mechanism for RTE, the French transmission system operator. The French electricity supply industry is gearing up for mid-2004 and is already partially liberalized. EdF still owns much of the production – France’s electricity is 75 per cent nuclear – but there are other independent producers such as SNET and Energy du Rhone. Several big industrial and commercial groups also produce energy for their own needs and are in a position to sell any excess capacity.

Distribution has traditionally been in the hands of about 140 municipalities and EdF, with some municipalities also owning generation facilities. The municipalities have geographically defined areas and, before the liberalization of the French market, were obliged to sell any excess generation capacity to EdF.


The Romanian contract follows on from another won by Alstom, in consortium with Japanese firm Itochu, to create a national fibre optic telecommunication network for Transelectrica’s electrical power transmission grid. All power transmission networks rely on communications networks to transmit and receive vital information between substations, regional electricity control centres and national control centres.

In overhauling the whole system, Transelectrica will not only improve its grid communications but will also have a telecommunications network which it may choose to exploit in other ways than just for its own private use. Under the contract, substations, control centres, Transelectrica’s headquarters and all its transmission subsidiaries will be connected to the system. The network will be ‘fully meshed’, allowing direct communication between all parts of the system.

Alstom will deliver and install all the necessary equipment for accessing the telecommunications network and will use the latest Dense Wave Digital Multiplexing (DWDM) and SDH (Synchronous Digital Hierarchy) technologies.

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Alstom’s e-terra charts software, traces the significant real-time values of the system, and digitally projects them to the operators via large wall-mounted plasma screens

The high-capacity private digital telephone network will be used by the utility for all its telecommunication needs, and the new system will include 48 high-capacity telephone exchanges, facilities for videoconferencing and an automatic system for detecting and pinpointing faults in the fibre-optic network. It will also provide a non-switched voice and data telecommunication system for operational purposes, fully separated from public operators.

Coping with deregulation

The future in European energy market is not easy to predict, but it can safely be said that ongoing change is likely to be the order of the day. The UK, one of the first countries to deregulate its electricity market completely at the beginning of the 90s, has already changed its market design, moving over to The New Electricity Trading Agreement in March 2001.

Other countries will no doubt refine their systems and, as international trading increases, the need for a standard market design is also likely to emerge. However, Europe is currently only at the stage of establishing common terms of reference for exchanging information and data between transmission system operators, so such a step would appear to be years away.

Whatever the future brings, it is certain that companies supplying software systems and hardware technology for deregulation, will have an important role to play in the development of the European energy market.