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The Iberian Energy Derivatives Exchange

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This document is for information purposes only. The relevant provisions of the Auction Rules and of the corresponding Market Rules adopted or approved by OMIP and OMIClear prevail in all respects.

Update 12 August, 2015.

Who is it for?

Given the characteristics of the product, the auction is intended primarily for photovoltaic solar and thermosolar producers. However, any agent fulfilling the requirements can participate freely in this auction as a seller if it sees fit.

The requirements are generally (i) those defined for participation in the auction as a vendor and (ii) to have an agreement with a clearing member of OMIClear (Clearing House) which enables settlement of the positions resulting from the auction on OMIClear.

We are very small, should I want to participate?

The minimum quantity that can be sold at the auction is 100kW (0.1 MW). Therefore, to limit the risks caused by malfunctions, participation is recommended where there is at least 200kW (0.2 MW) installed.

What are the benefits of the auction?

Unlike other products which are normally negotiated in forward markets (principally Baseload products), the auctioned product is specifically tailored to solar production. Therefore, the solar auction allows producers (directly or through their representatives) to reduce risk by setting the forward price of energy.

Because the product is new, using an auction mechanism concentrates liquidity to make the process transparent, competitive and reliable.

The auction is organised by an independent body such as OMIP, ensuring non-discriminatory and transparent treatment.

Finally, for the auction to take place, a purchaser is required. The participation of Endesa as purchaser guarantees stable purchasing volumes for producers.

Why participate in the auction: Will I make money from this auction? Will I beat the market?

In the futures market, there can be no certainty of winning or losing. However, selling production (or a part thereof) in this auction fixes the sale price and reduces risks from price fluctuations in the spot market (OMIE) impacting the producer's economic performance.

Why quarterly?

Initially the auction will be launched with quarterly products (split into monthly products) so that producers can cover pricing risk in their production.

Depending on the success of the auction, longer-term products may be included.

Will the auction be conducted in three simultaneous auctions, one for each month, or just in a single auction for the quarter which afterwards, when registering the trades at the Clearing House, the quarters will be disaggregated in the three months mentioned?[1]

The auction will be a unique auction of a quarter ahead product which afterwards will be fractionated (cascading) into three months when the trades are registered on OMIP platform for clearing on the Clearinghouse, in order to have three monthly contracts.

Why is Endesa purchasing at the auction?

The production profile of photovoltaic energy responds better to peak consumer electricity demand than other technologies. Due to its position as the company with the leading market share in Spain, buying photovoltaic energy is a good option for Endesa to manage this position.

Why can’t other agents participate as buyers?[2]

The SPEL Solar auction is a private initiative of Endesa. If other agents have any interest in participating in the auction as buyers, should contact and consult directly with Endesa.

Why the profile of Zone IV of RD413/2014?

Seeking a profile which will cover the production of the greatest possible number of plants, zone IV has been chosen as it includes the majority of photovoltaic power installed in Spain. There is also high correlation with the profiles of other areas which also enables the possibility of adjusting exposure by quantity.

Why a fixed profile and not actual production?

Solar production is generally stable over time and the use of a solar profile provides a reasonably accurate representation of actual production.

The use of actual production would generate a product that could not be auctioned because each plant has small differences; it would also entail access to meters, measurement complaints, etc.

What does it mean that it is a financial profile?

In the case of producers, the fact that it is a financial settlement does not affect their normal operations: to continue selling energy on the OMIE markets, maintaining the relationship with their representative, they continue to settle with OMIE and REE, etc.

The financial settlement brings price certainty for that part of production that exactly matches the profile that is the object of the auction (Zone IV RD413/2014).

Will selling at this auction cover my entire production?

Depending on the exact location of the plants and the technology used, there is likely to be additional production outside the auctioned profile. This additional production would not be covered at the auction price.

What risks can a producer cover with the auction?

The auction product is a swap contract in which the seller at the auction obtains the difference between the fixed price resulting from the auction and the SPEL Solar Index published by OMIP (Which is the market price modulated by the Zone IV coefficients applicable on each day); the seller receives this difference from OMIClear when it is positive, and is required to pay the difference when it is negative.

Without including penalties for deviations, the producer receives the OMIE price for the energy it sells. By combining the revenue obtained from the sale of the swap contract in the auction, the producer receives a fixed price for the energy sold in the auction (provided that hourly production is equal to or greater than the energy sold). Therefore, participation in the auction enables a price hedging strategy.

In the case of solar, although the profile is very stable, on occasion small variations occur in production (clouds, shadows, contaminations...) which may result in minor differences between what is produced and what is sold at auction; this generates a small speculative component of risk of profit or loss (depending on the relationship between the market price at that time and the resulting price in the auction).

Additionally, a speculative risk may be generated in the event of plant failures, because energy is sold for a number of hours while not being produced. This effect can be minimized by taking out insurance against loss of earnings.

The producer can reduce the effects caused by plant failure and small variations in production by selling a quantity less than the quantity of installed power plants.

Before the effective date of the auction, can the process be suspended or cancelled?[3]

Yes: by Endesa’s decision, which however has expressed its firm intention to hold the auction.

What will happen in the case of a suspension of the auction in the day of the celebration?[4]

In the case of suspension of the auction by decision of the technical manager, it will try to resume it on the same day. If this is not possible, the auction will be cancelled. This solution is the one that best protects the interests of buyer and sellers, to the extent that market conditions may change significantly during the suspension.

Will the auction be cancelled once concluded?

No: Endesa is a firm buyer and undertakes to accept the price resulting from the auction in all circumstances.

Does the rules of the auction and the product have to be approved by the regulators?[5]

The solar product is a new product within the portfolio of products and services offered by OMIP and OMIClear, which in a first phase is launched for the registration of transactions resulting from the auction. For this purpose, OMIP and OMIClear have filed the registration in the Comissão do Mercado de Valores Mobiliários (CMVM) of the general contract clauses of the SPEL Solar product and the necessary changes in the compensation rules.

The auction rules are not subject to authorization or registration of the authorities since it is a private initiative proposed by Endesa, translated into bilateral agreements between Endesa and agents who freely choose to participate in the auction as sellers.

How does the auction work? Is there their a price limit at the auction?

The auction has a starting price set by Endesa; this is the maximum price at which Endesa is willing to buy. It will be communicated to potential sellers before the auction and will be high enough to attract sellers.

In the event that the quantity offered at the starting price exceeds the volume which Endesa is willing to buy, successive bidding rounds will be held, following a Dutch auction model, with the price being progressively reduced round by round. The mechanism in each round is the same: the Auction Manager (OMIP) announces a price at the beginning of each round and sellers make their new offers to sell at the new price (less than the price of the previous round). As the price falls, the selling interest will drop until the volume of sales and purchases match at a certain price, which will constitute the result of the auction. This auction method ("Dutch Auction") is a system commonly used in the organisation of auctions. The auction is conducted electronically.

I am not a member of OMIP. How I can participate in the auction?

There are two ways to participate in the auction



Are guarantees required? Why are guarantees required if I am a producer?

In the period between the auction being held until delivery of the energy, there will be variations in the estimation of the price that will prevail upon conclusion of the contract, making the settlement on OMIClear either positive (gain for the Seller) or negative (loss for the Seller). Because, it cannot be known in advance whether settlement will result in a gain or loss upon delivery, OMIClear requires guarantees from both parties (seller and buyer) to ensure that the creditor party (buyer or seller, depending on the movement of prices) is able to obtain settlement when collected in arrears.

Although the vendor is a producer, the Clearing House must be able to ensure that the buyer receives settlement, because settlements by differences in the futures market are identical for sellers and buyer.

OMIClear will calculate the guarantees and perform the settlement procedure in accordance with the corresponding Circular Notice approved by financial regulators and available on its website.

What does the auction cost?

The costs of participating in the auction are defined by OMIP and OMIClear; They are public, equal for all and only vary (i.e. are not fixed) insofar as participating in the auction without obtaining allocation entails no cost to sellers.

Seller costs are limited to commissions, which vary depending on the energy allocated at the auction, and are as follows:

  • Auction trading (0.075 euros /MWh)
  • Clearing (0.07 euros/MWh)



Is there a reserve price?

The auction has no reserve price: the starting price represents the maximum that the buyer is willing to pay to purchase energy.

The starting price will be calculated by the buyer based on a methodology designed to arrive at a starting price that is attractive for sellers while fair for the buyer.

What is the schedule for the auction?

The exact dates depend on approval by the financial regulator of the auction process. OMIP/OMIClear have already submitted a request for approval of the product.

  • Pending the above approvals, the following schedule is planned
  • Pre-qualification phase: beginning in late June
  • Qualification phase: beginning in early July
  • Execution of the auction: last week of September (21-25). This date is dependent on approval by the regulator.


Why the qualified agents list is not published and just the list of successful bidders?[6]

To prevent possible situations of collusion and / or other anti-competitive behaviour.

The auction rules establish the obligation to report the identity of the successful bidders without indication of the volume assigned to each seller.

How do you justify that Endesa have access to the list of pre-qualified and qualified agents and sellers do not have access to these lists?[7]

Although the process of pre-qualification and qualification are conducted by OMIP in his role as manager of the auction, when a participant signs the declaration of acceptance and adherence to the rules of the auction, is holding a contract with Endesa Generación SA, as a promoter of the auction, so that the respective identity will be known.

In addition, knowing the list of pre-qualified and qualified agents, does not confer any competitive advantage to Endesa, since the fact that an agent is pre-qualified or qualified does not necessary involves the effective participation in the auction, or even participating, that the agent will be a successful bidder.

Besides the identity of the bidders, what other information will be provided?[8]

The total volume traded in the auction and the final price.

Additionally the successful bidder will be informed only about its allocated volume.

Endesa will have access to the information on the amounts allocated to each seller?[9]

No: OMIP will not provide this information to Endesa.

Could we have more intervals in the information provided in each round such as Cesur auctions (0-66%, 66% -100%, etc.)?[10]

The possibility of having more intervals on the information provided in each round has been positively evaluated.

In accordance, the table of Annex 1, paragraph 75 b) has been changed as follows:

Intervals

Meaning

(0 ; 66%)

0% < Demand excess (%) < 66%

(66% ; 100%)

66% ≤  Demand excess (%) < 100%

(100% ; 150%)

100% ≤  Demand excess (%) < 150%

(150% ; 200%)

150% ≤  Demand excess (%) < 200%

(≥200%)

200% ≤  Demand excess (%)

 

 

 

 

 

DISCLAIMER

The English language text below is not an official translation and is provided for information purposes only. The original text of this document is in the Spanish language. In the event of any discrepancies between the English translation and the Spanish original, the Spanish original shall prevail. Whilst every effort has been made to provide an accurate translation we are not liable for the proper and complete translation of the Portuguese original and we do not accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

 



[1] Updated 12 August 2015.

[2] Updated 12 August 2015.

[3] Update 12 August 2015.

[4] Updated 12 August 2015.

[5] Updated 12 August 2015.

[6] Updated 12 August 2015.

[7] Updated 12 August 2015.

[8] Updated 12 August 2015.

[9] Updated 12 August 2015.

[10] Updated 12 August, 2015.

      



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