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The Iberian Energy Derivatives Exchange

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MIBEL

 

   Minimise

1. The Iberian Electricity Market ( MIBEL), constitutes a joint initiative from the Governments of Portugal and Spain, with a view to the construction of a regional electricity market.
 
With the materialisation of MIBEL, it becomes possible for any consumer in the Iberian zone to acquire electrical energy under a free competition regime, from any producer or retailer that acts in Portugal or Spain.
 
MIBEL's main goals are:

  • To benefit the electricity consumers of both countries, through the integration of the respective electric systems;
  • To structure the market organisation based on the principles of transparency, free competition, objectivity, liquidity, self-financing and self-organisation;
  • To support the development of the electricity market of both countries, with the existence of a single reference price for the whole of the Iberian Peninsula.
  • To allow all the participants free access to the market, under equal conditions of rights and obligations, transparency and objectivity;
  • To promote economic efficiency of electrical sector companies, encouraging free competition amongst them.

2. The convergence of the Portuguese and Spanish electrical systems was formally initiated with the signing of the "Protocol for collaboration between the Portuguese and Spanish Administrations for the formation of an Iberian Electricity Market", in November 2001. In that document, the two countries established the foundations necessary to begin cooperation between the various entities with responsibilities in the sectors framework- administrations, regulators and operators - with a view to harmonising the participation conditions of economic agents on MIBEL.
 
3. Subsequently, at the XVIII Portuguese-Spanish Summit, that took place in Valencia, in October 2002, the organizational model for MIBEL was decided, based on the existence of the Iberian Market Operator (Operador de Mercado Ibérico -OMI) and the main goals for creating MIBEL were established. The conclusions from the summit allowed anticipating the construction of MIBEL as an intermediary regional approach of the integration of the national markets into a single European market, following a phased building model, based on three main pillars:

  • Establishing a physical support platform for the Iberian regional market, supported by the development of transport infrastructures and the articulation of energetic planning and transport networks.
  • Harmonisation of legal and regulatory framework of the economic conditions for participating on MIBEL and of the systems operational procedures.
  • Harmonization of the economic conditions of participating on the market, through the convergence of methodologies to define fees, competitor transition costs, access conditions to the interconnections, markets, degree of openness and the formation of an Iberian Market Operator (Operador de Mercado Ibérico - OMI).
  • The Governments of Portugal and Spain also agreed that, during the transitory period before the constitution of OMI, the management of the organised markets of MIBEL would be based on an interconnected bipolar structure, where:
  • The management of the day and intraday market would be under the responsibility of the Spanish division;
  • The derivatives markets would be under the responsibility of the Portuguese division.

4. At the XIX Portuguese-Spanish Summit, that took place in Figueira da Foz, in November 2003, the Portuguese and Spanish Economy Ministers signed a Memorandum of Understanding relative to the conditions necessary to complete MIBEL.
Amongst these conditions, the signing of an International Agreement was foreseen, which would formalise the creation of an Iberian electricity market. This marked the launch of the integration of the Portugal and Spain electrical systems.
 
5. The "Agreement between the Portuguese Republic and the Kingdom of Spain for the Constitution of an Iberian Electrical Energy Market" was signed in Lisbon, January 20th 2004. The document contained a plan for the integration of the electricity markets, moving towards a common market for both countries.  The Agreement consolidated the foundations for the construction of this market, outlining the general development of the project, not just at a legislative and regulatory level but also outlining the market's operational solutions.
 
One of the most significant aspects of this Agreement was the reciprocal recognition of agents. In other words if an agent were granted the status of producer, marketer or other, by one country, this would imply automatic recognition by the other country, granting equal rights and obligations to that agent. Besides this, the Agreement also established the foundations for the new market. 
 
As integration factors of MIBEL, two divisions were foreseen, responsible for the management of the organised markets, before the creation of OMI:
    
     a. OMEL (Spanish division), responsible for the management of the day and intraday market;
     b. OMIP (Portuguese division), responsible for the management of the derivative markets.
 
Under the terms of this Agreement, the launch of MIBEL and the start of the integrated working of the two MIBEL divisions should have happened on April 20th 2004.
 
6. However, various circumstances of political and legal nature prevented the launch project on April 20th 2004. This led to the two Governments deciding to review the MIBEL constitution project, which was formalised with the signing of a new International Agreement. 
 
7. This Agreement was signed on October 1st 2004, under the scope of the XX Portuguese-Spanish Summit, which took place in Santiago de Compostela. This Agreement, already approved by both countries, substituted the Agreement signed on January 20th, and introduced some adjustments to the MIBEL organisation. Of the topics covered, this Agreement:

  • Obligates the parties to develop, in a coordinated way, the legislation needed for the running of an integrated market;
  • Establishes the trend towards tariff harmonisation;
  • Establishes which entities can act on MIBEL;
  • Formalises the constitution of a single Iberian Market Operator, and the phases which will lead to its creation, in accordance with the Memorandum of Understanding signed at the Portuguese-SpanishSummit in Figueira da Foz;
  • Establishes limits to the company organisation of the market operators, taking into account their integration;
  • Foresees the existence of financing means of the Market Operators namely by the tariff, with a view to its future self-financing;
  • Defines the contractual modes on MIBEL;
  • Foresees the adoption of measures to promote liquidity and competition on MIBEL;
  • Establishes the powers of the MIBEL's Regulatory Board (that integrates the sector regulators of the two countries), the Market Agents Committee (that integrates representatives from all the intervening entities on the market) and the MIBEL Economic and Technical Management Committee (that integrates the Market and System Operators of the two countries);
  • Defines the means for regulation, consultation, supervision and management of MIBEL, as well as the legal regime relative to infringements, sanctions and competent jurisdiction.

The Agreement of Santiago de Compostela recognising the difficulties and slowness to remove the obstacles that prevented the launch on April 20th, as well as the inconvenience of promoting the launch of MIBEL within an unstable framework, susceptible to conditioning its success, decided that the launch of MIBEL would take place until June 30th 2005.
 
8. However, notwithstanding the international commitment, the expected difficulties in overcoming the pre-launch period were aggravated due to political and legal factors that would not permit the official launch of MIBEL in the timeframe foreseen in the Santiago de Compostela Agreement, namely:

  • Significant political changes in Portugal, with the election of a new Government, which only came into power in March 2005;
  • The lack of legal developments needed to launch the MIBEL derivatives market;
  • Uncertainties in the regulatory framework of MIBEL, provoked by the Spanish government initiative to produce a "White Book" on the electrical sector, and its impact on the organisational and working model of MIBEL.

9. At the XXI Iberian Summit, that took place November 18th and 19th 2005, in Évora, the Governments of Portugal and Spain restated their commitment to building the Iberian Electricity Market (Mercado Ibérico de Electricidade - MIBEL) and its extension to the Iberian Natural Gas Market (Mercado Ibérico do Gás Natural - MIBGAS), agreeing that, following the approval of the Santiago Agreement, firm steps would be taken, during 2006, to create MIBEL, namely:

  • In a first phase, it was decided that priority be given to the launch of the OMIP/OMIClear derivatives market. The date for the launch was set for July 2006;
  • With the entry into force of the Santiago Agreement, to immediately constitute a Regulators Board, under the terms defined in article 11 of that Agreement;
  • Publish, in each country, until May 1st 2006, to come into force on July 1st 2006, a legal arrangement that establishes the conditions and the obligation to acquire energy by the regulated distributors or traders of each country on OMIP/OMIClear;
  • Prepare a regulatory convergence plan, which establishes a calendar for the harmonisation of each country.s regulations, in accordance with European legislation and with the principle of the national markets symmetry of openness, to be presented at the following Portuguese-Spanish Summit.

10. As agreed in Évora’s Summit, the entry into force of the MIBEL Derivatives Market effectively happens in July 2006, more precisely in day 3. There was too, the startup of the Regulators Committee.
 
11. In November 24th and 25th 2006, during the XXII Portuguese-Spanish Summit of Badajoz the Governments of Portugal and Spain reiterated their commitment to expanding the Iberian Electricity Market (MIBEL), to extending to the Iberian Natural Gas Market (MIBGAS) and to establishing an agreement that would allow the formation of oil and natural gas reserves within the Iberian zone.
 
The two Governments decided to request, from the Energy General Directors, a regulatory compatibility plan to be presented by February 28th 2007, which will include a common energy contracting model for last resort distributors and retailers of both countries, both spot and derivatives, to be executed under the scope of OMI – Iberian Market Operator. 
 
The Governments of Portugal and Spain also decided:

  • To implement the Iberian spot market, until the end of the 1st Quarter of 2007, through coordinated interconnections management based on market splitting and explicit auctions as proposed by the Regulators Committee.
  • To request from the Regulators Committee, taking into consideration the regulatory compatibility plan, a review of the interconnections mechanism proposal and a proposal for the power guarantee mechanism, which respects each countries’ specificities. This is to be presented until May 31st 2007.
  • In accordance with that stated in the Santiago Agreement, the Energy General Directors should propose the general OMI organisation and management principles by February 28th 2007. The implementation model should be detailed and scheduled by OMIP and OMIE in conjunction, until May 31st 2007 and to be completed by the end of 2007.
  • Taking into account that stated in article 7 of the Santiago Agreement:
  • Maintain the compulsory percentage of 10% purchase of energy by regulated distributors on OMIP during 2007.
  • Organise in a prudent manner, and until the end of 2007, Iberian virtual capacity auctions.

The two Governments recognise the need to reinforce the oil and natural gas supply’s security, through the constitution of safety reserves, and the importance of forming these reserves in an economically efficient manner. Thus, it was agreed that an Agreement should be signed in the short term that allows the operators to form the necessary oil product and natural gas reserves, within both countries.
 
12. In order to fortify MIBEL and in line with the Santiago de Compostela Agreement and the decisions made at the Badajoz Iberian Summit, the Governments of Portugal and Spain, drew out, on March 8th 2007, a regulatory compatibility plan based on six core initiatives:
 

  1. Definition of OMI’s general organisation and management principles to be implemented until October 2007 based on 2 shareholder holdings with head offices in Portugal and Spain that will each hold 50% of the market managing companies, managed by a common Board of Directors;
  2. Strengthen the communication between System’s Operators, through the exchange of stakes between REN and REE and speeding up the strengthening of the interconnections;
  3. Definition of common rules to increase competition on MIBEL and reduce market power, be it in terms of introducing the concept of a dominant Iberian operator with harmonised limits and restrictions between the two countries, or executing of virtual capacity auctions for new retailers to enter or by the termination of CAE’s;
  4. Promote the liberalization and definition of a tariff convergence plan, through a last resort tariff policy, the harmonisation and convergence of interruption mechanisms and access tariffs, the creation of a harmonised mechanism for energy acquisition by last resort retailers and distributer, the convergence of the role of logistical operators when changing retailer and a harmonised plan for substituting meters;
  5. Implementation of interconnection management mechanisms based on market splitting and explicit auctions that optimise the use of interconnections and competition in an Iberian context;
  6. Harmonization of the power guarantee mechanisms, taking into account the specificities of each system, to be implemented until July 2007. 

Regarding the creation of MIBGAS (Natural Gas Iberian Market) the two Governments decided to create various working groups with the aim of creating and solidifying this market, equating the possibility of creating an Iberian hub of international standards. Taking into consideration these objectives and until October 2007:

  • CNE and ERSE should prepare a document identifying the functional and organization principles of MIBGAS;
  • REN and ENAGAS should prepare an investment plan and strengthen the natural gas  interconnections and storage capacity;
  • The General Management of both countries should prepare an agreement on Iberian natural gas reserves maintenance.

13. Following the Badajoz Summit and the regulatory compatibility agreement, signed in March 2007:

  • The market splitting mechanism began on July 1st 2007 although an interconnection management coordination mechanism, based on explicit auctions, was not constituted due to lack of legal cover in Spain.
  • The compulsory energy acquisition percentage for regulated distributors or retailers on OMIP during 2007 and the first half of 2008 was set at 10%.
  • During June and September 2007, the first virtual capacity auctions in Spain took place, organised jointly by Endesa and Iberdrola, and in Portugal, organised by REN Trading.

14. At the XXIII Portuguese-Spanish Summit, that took place in Braga on January 18th and 19th 2008, and with a view to speeding up the development of the Iberian Electricity Market, both Governments signed in Braga the Amendment Agreement of the Santiago de Compostela Agreement with the following fundamental points:

  • Builds the foundations for the Iberian Market Operator (OMI), based on two management entities with investment stakes, with head offices in Portugal and Spain and cross stakes of 10% where each company will hold 50 % of each of the market management companies. Timings are set for the constitution of OMI.
  • Establishes the role of last recourse retailers on the derivatives market.
  • Regarding the supply of competition, establishes the concept of dominant operator and the range of possible consequences, as well as foresees the execution of VPP.
  • Clarifies some points in relation to the economic management of the interconnection between Portugal and Spain
  • The principles regarding the setting of last recourse tariffs are agreed upon.
  • The role of the Regulators Board is detailed

At the Summit, and relative to the digital meters, both Governments agreed that the introduction of these technologies should be carried out progressively, taking into account the normal periods for meter renewals, the evolution of technological conditions and guarantying that there will be no extras costs for the consumer.
Both Governments showed their interest in moving forward with the creation of MIBGAS, committing to studying the proposals in the functional and organisation principles document prepared jointly by CNE and ERSE.

15. The XXIV Portuguese-Spanish Summit took place in Zamora, on January 22nd 2009, where both Governments agreed to the definitive constitution of the Iberian Market Operator through the integration of both operating organisms, until June 2009, and the creation of a joint working group to accompany the process. The Governments also decided to propose the nomination of Eng. José Carvalho Netto, to the managing entities, as OMI Chairman.
Also stated was that the work to strengthen the electrical interconnection, foreseeing the installed capacity reach 3000 MW in 2014, was moving along without problems. The Project for the gas interconnection between Viseu and Zamora was launched, at the same time a working group was created for regulatory harmonisation between the two countries.

16. The International Treaty signed in Braga was published in Portugal on March 23rd 2009 and in Spain, December 11th 2009.

17. In order to act in accordance with the provisions of the International Treaty, the company OMIP -Iberian Market Operator, SGPS, S.A. (Portuguese Holding) was incorporated, to which was transmitted all the shares representing OMIP´s share capital. Subsequently, on October 18th 2011, the last changes were made in the corporate plan to the definitive constitution of the Iberian Power Market Operator (OMI), namely:

  • An exchange of shares between the Portuguese (OMIP SGPS) and Spanish (OMEL) holdings took place leaving OMIP and OMIE being held in equal parts by these two OMI holdings;
  • REN, which had a 90% stake of the Portuguese Holding Company reduced its participation to 45% through sales to several agents. In the near future REN´s participation will be further reduced to 10% of the OMI capital.
18. At 10th of November, took  place in Madrid the first meeting of the common Board of Directors of the companies that manage the Iberian Electricity Market – OMIE (spot market) and OMIP (derivatives market), thus, accomplishing another important step towards the implementation of the OMI.