What are the highlights of ENTSO-E’s Winter Outlook?

The European Network of Transmission System Operators for Electricity's (ENTSO-E's) Winter Outlook Report (2022-2023) of 1 December 2022 provides an assessment of the security of electricity supply across Europe for the winter season ‘22/’23. The importance of this report is heightened in the context of Russia’s continued military aggression against Ukraine.

• The Winter Outlook report identified adequacy risks that are higher compared to previous winters. The main stresses are found in the systems of Ireland, France, Southern Sweden, Finland, Malta and Cyprus.
• The EU electricity system still heavily relies on gas, but favourable weather conditions can reduce this dependence.
• There are additional risks identified for the winter that may materialise and have a substantial impact on the adequacy situation, especially if they coincide. In particular, close follow-up is needed on the uncertainties around nuclear availability, as well as coal supply.

What is ACER’s assessment of the ENTSO-E’s Winter Outlook?

ACER emphasises that European solidarity to keep electricity flowing across EU Member State borders over the coming winter is a key contributor to security of supply.

ACER`s Opinion on ENTSO-E’s Winter Outlook takes into account the extraordinary circumstances and:

• Welcomes ENTSO-E`s efforts to expand the scope of analysis and take a more agile approach in response to the uncertainties posed by Russia’s invasion of Ukraine.
• Agrees with ENTSO-E that efficient market integration and pooling of resources are key for adequacy support this winter. In general, resource-sharing in the spirit of EU energy solidarity is a key element supporting the resilience of the European power system.
• Recognises that some Member States may be more exposed to adequacy risks than others, and that some transmission system operators (TSOs) may have to constrain cross-border capacity available for trading to varying degrees to maintain operational security.
• At the same time, such measures should not be overused as they may become detrimental to the overall European security of supply situation. In the context of adequacy assessment, constraints should be applied as an exception rather than a default option.
• As ACER has pointed out previously, Europe’s energy solidarity is being tested with the continuing war in Ukraine. If some countries were to pursue strictly national short-term energy interests, others would likely suffer.

Access the ACER Opinion on ENTSO-E Winter Supply Outlook.

The European Court of Auditors (ECA) has published (31 January) a Special Report: Internal electricity market integration.

ACER welcomes the attention given by ECA to EU electricity market integration. As we have stated, on the record, in our ACER reply to ECA;

• ACER would have welcomed a more balanced overview of the huge efforts and achievements made in integrating national electricity markets;
• Europe’s power system is the most integrated in the world;
• Europe’s success in progressing with integrating the electricity system is the result of the efforts of many and ACER would have welcomed the recognition of this complexity and effort.

ACER is committed to delivering on its mandate and to maintaining a focus on the evolving energy situation.

See the ECA report and the ACER reply.

Following the Board of Appeal’s Decision of 7 July 2022, ACER has amended its previous Decision No 14/2021 of 3 November 2021 on the long-term capacity calculation methodology of the Core capacity calculation region.

In the amendment of the methodology, ACER has reached a consensus with regional regulatory authorities and Transmission System Operators (TSOs) on the improved provisions related to the validation process of calculated capacities.

What is the methodology about?

Long‐term cross-border capacity calculation promotes effective long‐term cross‐zonal trade. It allows for long‐term planning and provides hedging opportunities by calculating reliable capacities and making them available to market participants at an early stage.

The long-term capacity calculation methodology of the Core region covers yearly and monthly capacity calculation processes by applying the flow-based approach, which is compatible with the day-ahead capacity calculation methodology applied since June 2022.

The Core region comprises of 13 countries: Austria, Belgium, Czech Republic, Croatia, France, Germany, Hungary, Luxemburg, the Netherlands, Poland, Romania, Slovakia and Slovenia.

What are the main amendments of the methodology?

Article 17 of the Proposal describes the capacity validation process performed by the Core TSOs and the Coordinated Capacity Calculator.

ACER amended Article 17 by listing the situations in which a TSO may change the long-term capacity on their own critical network elements with contingencies (CNECs) during the validation process.

The list mentions all situations possibly requiring a correction of the long-term capacity for reasons of operational security during the validation stage. ACER has introduced additional paragraphs of Article 17 in order:

• To cover exceptional topologies from the outage planning coordination process, not modelled through the reference timestamps and common grid models (CGMs);
• To list the situations and operational security limits which the flow-based approach is unable to capture. While thermal limits can be modelled with the flow-based approach, voltage limits, short-circuit current limits, frequency and dynamic stability limits might not be;
• To explicitly cover the situations where the operational security limits could be modelled with the input data for the flow-based approach, but they would be overwritten by the application of the minimum RAM; and
• To introduce changes to the reporting obligations for all listed validation situations.

What are the next steps?

The Core long-term capacity calculation methodology is planned to be implemented by the end of 2024.

Access the ACER’s Decision 03-2023 and its Annex I, Annex Ia and Annex II.

Europe’s spot electricity markets have an automatic maximum price limit adjustment mechanism in case of extraordinary high prices. ACER has approved changes in the methodologies for automatically increasing the maximum price limit in case of price spikes. The timely adjustment of those price limits is needed to ensure security of supply this winter through optimal short-term dispatch of generation, efficient use of interconnections and to encourage demand response. The amended methodologies will lead to a more gradual increase of the day ahead and intraday market price limits than with the previous rules.

What are the methodologies about?

With expected high prices on the electricity markets ahead, ACER urged the Nominated Electricity Market Operators (NEMOs) to submit proposals to amend the Capacity Allocation and Congestion Management methodologies related to:

• The Harmonised Maximum and Minimum Clearing Price (HMMCP) methodology for Single Day-Ahead Coupling (SDAC); and
• The Harmonised Maximum and Minimum Clearing Price (HMMCP) methodology for Single Intraday Coupling (SIDC).

These methodologies define Europe’s single day-ahead and intraday electricity markets’ maximum and minimum price limits. Following receipt of the NEMOs’ proposals in September 2022, ACER has reviewed and now approved the amendments to the HMMCP methodologies. ACER considered this review as a high priority and approved the amendments in an expedited manner, issuing the HMMCP SDAC Decision and the HMMCP SIDC Decision two months before the legal deadline.

What are the benefits of the changes?

The methodology amendments update the conditions that will lead to fewer and smaller adjustments of the price limits. This will allow market participants to get used to the new price limits, allowing new generation and demand response to enter.

See examples of the effects of the amendments here.

The combined effect of these amendments will be to more gradually adjust the short-term electricity market price limits, effectively limiting a cascading effect of increases in case of repeated extreme prices resulting from the current methodology, while conserving the benefits of timely adjustments of the price limits on the efficiency of the European spot markets.

Additionally the automatic adjustment mechanism is introduced for intraday markets, triggering price limits adjustments on the intraday auctions, currently planned to be launched in the first months of 2024.

Access the ACER’s HMMCP SDAC Decision and ACER’s HMMCP SIDC Decision.

How else to reduce price spikes in the coming months?

Price spikes can occur more frequently if electricity generation together with cross-border interconnector capacity is not enough to serve demand. Making interconnector capacity available for trade and encouraging demand response is vital to ensure security of supply over the coming winter.

Therefore, and irrespective of the decisions, in the coming months, ACER reiterates its plea for:

• Transmission System Operators (TSOs) to make sufficient cross-zonal interconnector capacity is available for electricity cross-border trade; and
• Market participants to bring significant demand response to the market.

Congestion income is the revenue that Transmission System Operators (TSOs) collect in the event of congestion when allocating electricity cross-zonal capacity.

How Member States can use the congestion revenue they collect is specified in the EU law. National Regulatory Authorities (NRAs) must report to ACER (the EU Agency) on the use of electricity congestion income. ACER has updated its recommendation to regulators on how to do so.

Why did ACER update its Recommendation?

• Regulation on an emergency intervention to address high energy prices (October 2022) allows Member States to use the surplus congestion income to also finance measures in support of final electricity customers.

• The Methodology for the use of congestion income will for the first time come into full effect for the NRAs reports to be published in early 2023.

• Gained experience in the first two years of the NRA reporting on the amounts and use of congestion income.

Hence, ACER has updated its original (2020) Recommendations to NRAs.

What’s new in ACER’s recommendation?

• Discontinuity of collecting some project specific data that is already available to ACER (e.g. commissioning date, capital expenditure etc.);

• More options provided for the NRAs to prove the cross-border relevance of projects where congestion income is used;

• The possibility to indicate the support for electricity customers as a use of the collected congestion income is now included; and

• Clarification of certain terms and clearer phrasing.

Access the ACER (2022) Recommendation.

As part of its electricity wholesale market monitoring, ACER conducted a study on the prequalification processes for the provision of balancing services. The ACER study:

• Provides an overview of the different electricity balancing prequalification approaches in Europe;
• Identifies some practices that may be considered by grid operators to remove market entry barriers for new and small market participants, including consumers, in providing balancing services.

Transmission System Operators (TSOs) must keep the electricity system constantly in balance. To maintain system frequency, TSOs procure balancing services from Balancing Service Providers (BSPs).

EU rules (the Electricity Balancing Regulation) require TSOs to develop prequalification processes for potential BSPs. This allows potential BSPs (such as generators or consumers) to provide proof that they fulfil the requirements for rendering one or more types of balancing services necessary to guarantee the grid frequency.

How does this ACER study support EU security of energy supply and consumers?

Demand response programmes allow consumers to adjust their consumption at key times to help grid operators to manage peak electric demand and lower system costs. Currently consumers do not participate to a large extent in electricity markets. However, the flexibility that smaller market participants (including demand response, distributed generation and energy storage solutions) could provide is needed more and more for security of supply. ACER strives to remove barriers that hamper these smaller market participants entering and participating in electricity markets.

For example, some consumers are capable of providing balancing services through bi-directional charging of their electric vehicles (EVs). For the integration of electric vehicles into balancing services, a prequalification process is necessary. This process should prove the technical suitability of the assets for providing the different types of balancing products. In the product prequalification processes for providing balancing services, the TSO verifies the compliance of the assets of the BSP with the technical requirements set by the TSO.

What are ACER’s key findings?

Overall, there is considerable scope for grid operators to reduce market entry barriers to new and small market participants, including small-scale demand response, in providing balancing services.

• Electricity balancing prequalification approaches differ significantly across Member States (MSs) and across balancing products.
• Only a few TSOs apply a simplified approach to product prequalification for some balancing products on a general basis.
• Prequalification of groups of units is still not possible in some MSs. Moreover, where it is possible, some TSOs do not allow generation and consumer/demand units to be aggregated in the same group. This may represent an entry barrier for new market participants that aggregate multiple types of units (e.g. EVs, solar PV panels, household consumers, etc.).
• In the first-time prequalification of groups comprising small units (e.g. EVs, solar PV panels, household consumers, etc.), a few TSOs still require each individual unit to prequalify separately. On the contrary, some TSOs make simplifications or exceptions to simplify and speed-up the prequalification of these groups.
• There is considerable room for TSOs to simplify the re-prequalification of groups when they are subject to changes in units such as add-ons and removals. Some TSOs limit the need for this re-prequalification to only significant changes.

The ACER study showcases some practices that could be considered by TSOs to improve and simplify the product prequalification process for new and small market participants, including demand response:

• Setting a product prequalification for groups aggregating any type of technology;
• Setting a threshold for re-prequalification only after significant changes in prequalified units or groups;
• Using type-approval for small units;
• Verifying the compliance of assets to technical requirements during the service delivery rather than before.

Access the ACER Study.

Check out the interactive charts (filter by country or balancing service).

ACER was mandated by the European Commission to draft a framework guideline on demand response.

Many consumers want to actively participate in energy markets. 'Demand response' essentially means a change in electricity consumption as customers (individually or collectively) respond to some market signal such as a change in electricity prices or some financial incentive to increase/decrease/shift the timing of their electricity consumption. In the context of this framework guideline only active participation of demand response in electricity markets is covered.

ACER’s framework guideline sets out the main principles for the development of a binding EU-wide rules on demand response. The new rules aim at facilitating the participation of more demand response including consumers’ electricity demand, storage and distributed generation (e.g. rooftop solar panels, electric vehicles) in the wholesale electricity markets, as well at facilitating the market based procurement of balancing, congestion management and voltage control services needed by grid operators. The following areas are covered:

• General requirements for market access to be specified at European level to ensure a level playing field for the participation of all the resources in the electricity wholesale markets;
• Principles for ‘prequalification’ aiming at simplifying the process and removing entry barriers for everyone (such as consumers with solar panels or electric vehicles or small storage facilities such as batteries) in different services to system operators. Prequalification processes allow potential providers (such as generators or consumers) to give proof to the grid operators that they fulfil the requirements for rendering one or more types of services (such as balancing, congestion management and voltage control) necessary to guarantee the secure operation of the system;
• Principles for the coordination of market-based procurement of congestion management, voltage control and balancing services with other wholesale markets and between (distribution and transmission) system operators ensuring coherence in interaction across different markets and timeframes; and
• Requirements for market-based procurement of products used for electricity congestion management and voltage control.

ACER thanks stakeholders for their input to the public consultation in summer 2022. See ACER’s Evaluation of the responses received.

ACER submitted the framework guideline to the European Commission on 20 December 2022.

What are the next steps?

Once ACER’s framework guideline is cleared by the European Commission, ENTSO-E and the EU DSO Entity will be asked by the Commission to draft (within 12 months) the proposal for the new binding EU rules. A drafting committee including ACER and some stakeholders, to support them in this work will be established. ACER will consult and review the proposed new EU rules before submitting them to the European Commission.

Access the Framework Guideline on Demand Response.

ACER publishes today its Report on the implementation of the Inter-Transmission System Operator Compensation mechanism (ITC) covering the year 2021.

ACER issues these yearly monitoring reports since 2012, as required by the European Commission Regulation no. 838/2010.

What is the ITC Fund?

The ITC fund compensates transmission system operators (TSOs) for the costs incurred on national power systems for hosting cross-border flows of electricity (transits). The ITC fund seeks to cover the costs of:

• The incurred transmission losses;
• Making infrastructure available.

What did the 2021 ITC monitoring report find?

• The ITC fund in 2021 amounted to €364.5 million, reaching its highest-ever value for the third year in a row. For 2021, this is explained by an almost 20% rise in the volume of transmission losses due to transits.
• There is a decrease in the value of losses for the vast majority of the ITC Parties (TSOs or groups of TSOs participating in the ITC mechanism) in 2021 compared to 2020.
• The losses values of individual ITC Parties that are rather volatile from year to year plus the changing volumes of losses due to transits significantly affect the net ITC compensation of several ITC Parties. The volatility occurs mainly because:
  • Power exchange prices are most frequently used as a basis to value the losses;
  • ITC Parties determine ex ante the value of losses for the ITC mechanism on a yearly basis.
• In 2021, the ITC Parties contributed 96.6% to the ITC fund, while the contribution of the Perimeter countries (non-participating countries connected to the ITC Parties’ networks) remained around 3%. The reasons for the significant decrease of Perimeter countries’ compared to the 2011-2019 period are:
  • Decrease of the volume of the scheduled flows between the Perimeter countries and the ITC Parties;
  • Decreased Perimeter countries’ fee; and
  • Increased overall amount of the ITC fund.

What are ACER’s next steps?

ACER considers that in light of extreme price volatility and in line with the general tarification principle of cost reflectivity introduced by the Regulation on the internal market for electricity, there may be room for improvements on how, when and/or how often the values of losses are determined for the purpose of the ITC mechanism.

Access the Report.

On 30 November 2022, the European Network of Transmission System Operators for Electricity (ENTSO-E) submitted to the EU Agency for the Cooperation of Energy Regulators (ACER) its proposal for the European Resource Adequacy Assessment (ERAA 2022). The assessment is mandated by the Clean Energy Package legislation and its purpose is to monitor the risks to security of electricity supply and identify adequacy concerns up to 10 years ahead.​​​

Following the approval of the ERAA methodology by ACER in October 2020, ENTSO-E needs to carry out an annual ERAA to assess whether the EU has sufficient electricity resources to meet its future demand.

Member States set their own electricity reliability standard that indicates their necessary level of security of electricity supply.

By comparing these results, ERAA aims to identify potential resource adequacy concerns in the EU and provide an objective basis for assessing the need for additional national measures ensuring security of electricity supply such as the introduction of temporary capacity mechanisms.

What are the next steps?

ACER has 3 months, until 28 February 2023, to reach a decision on ERAA 2022. Given this short timeline, ACER is not going to carry out a public consultation. However, interested third parties may submit observations on ERAA 2022 to ACER-ELE-2022-21(at)acer.europa.eu.

Deadline for submitting observations is 30 December 2022.

Access the related ACER public notice, including instructions for submitting any observations.

The EU Agency for the Cooperation of Energy Regulators (ACER) issued the long-term capacity calculation methodology for the Core capacity calculation region (Core region) with its Decision No 14/2021 of 3 November 2021.

Following the Board of Appeal’s Decision A-001-2022 of 7 July 2022, ACER will revise the methodology and amend its Decision.

What is the methodology about?

The Core region comprises of 13 countries: Austria, Belgium, Czech Republic, Croatia, France, Germany, Hungary, Luxemburg, the Netherlands, Poland, Romania, Slovakia and Slovenia.

Long‐term cross border capacity calculation promotes effective long‐term cross‐zonal trade. It allows for long‐term planning and provides hedging opportunities by calculating reliable capacities and making them available to market participants at an early stage.

The long-term capacity calculation methodology for the Core region covers yearly and monthly capacity calculation processes by applying the flow-based approach, which is compatible with the day-ahead capacity calculation methodology applied since June 2022. The Core long-term capacity calculation methodology is planned to be implemented by the end of 2024.

What are the next steps?

In the amendment of the methodology, ACER plans to improve the provisions related to the validation process of calculated capacities by the Core transmission system operators.

ACER expects to reach its decision by 25 January 2023