The national regulatory authorities (NRAs) of the Nordic Capacity Calculation Region requested from ACER an extension of six months to agree on the Nordic Transmission System Operators’ (TSOs’) proposed amendment to the market-based cross-zonal capacity allocation methodology.

The Nordic Capacity Calculation Region comprises the following 3 countries: Denmark, Finland and Sweden.

What is the market-based allocation process?

The market-based allocation process compares the market value of cross-zonal capacity for the electricity balancing capacity market with the forecasted market value for the day-ahead electricity market. It then allocates the capacity to the market that generates the most welfare by using the cross-zonal capacity, which:

• allows the integration of balancing capacity markets;
• creates welfare;
• lowers the costs for the procurement of balancing capacity;
• lowers the costs for tariff payers; and
• ensures security of supply.

What are the next steps?

ACER intends to decide promptly on this request from the Nordic NRAs.

Access the Public Notice.

The European Commission held a public consultation on the reform of the EU’s electricity market design from 23 January 2023 to 13 February 2023.

ACER and the Council of European Energy Regulators (CEER) in their joint response welcome the European Commission’s attention to long-term markets as the key enabler for investment stability and affordability for consumers.

The ACER-CEER response to the Commission’s consultation comprises their replies to the questions asked by the Commission in its consultation as well as additions to the replies in the Annex (also submitted to the Commission as part of our consultation response). In the Annex, ACER and CEER delve deeper into elements that are subject to consultation:

1. contracts for differences; and
2. obligations on suppliers to offer fixed-price contracts to household consumers.

In addition, the Annex highlights several important aspects of the electricity market design framework that were not addressed by the Commission in its consultation, yet in our opinion, have a significant impact on electricity market functioning:

3. The adequacy of minimum cross-zonal electricity capacity requirements;
4. The importance of the integrated intraday and balancing market;
5. Continuous growth of implementation delays in key integration projects;
6. The adjustment mechanism for decrease of maximum clearing and bidding prices; and
7. Legal framework for offshore wind.

Read the ACER-CEER Response and Annex.

The transmission system operators (TSOs) submitted to ACER a proposal for the harmonised methodology for cross-zonal capacity allocation for the exchange of balancing capacity or sharing of reserves.

The allocation of cross-zonal capacity allows the integration of balancing capacity markets, creates welfare, lowers the costs for the procurement of balancing capacity, hence lowering costs for tariff payers, while ensuring security of supply.

The processes covered by the methodology (i.e. co-optimisation and market-based process) compare the market value of cross-zonal capacity for the balancing capacity market and for the day-ahead electricity market, and allocates the capacity to whichever of these markets generates the most welfare by using the cross-zonal capacity.

The methodology will provide harmonised rules and processes and will therefore replace the existing methodologies for co-optimisation and regional market-based processes.

How does ACER contribute?

ACER will assess the methodology proposed by the TSOs and revise it where necessary.

What are the next steps?

ACER has six months (until 16 June 2023) to decide on the TSOs’ proposal.

To collect the views of stakeholders, ACER’s public consultation on the TSOs’ proposal will be launched end of March for four weeks (provisionally foreseen from 30 March to 27 April).

An ACER workshop will take place on 19 April 2023.

ACER’s policy paper on the further development of the EU electricity forward market:

• Identifies problems of this market segment, among which market fragmentation and lack of integration are the main ones; and
• Recommends solutions (e.g. regional virtual trading hubs to pool liquidity). Such regional hubs need to be complemented by accessible transmission rights to cover the remaining risks of the market participants.

This policy paper serves as ACER’s key recommendations on how to change the Forward Capacity Allocation Regulation.

Background

In the electricity forward market, market participants can trade electricity up to multiple years ahead of its delivery allowing them to protect or hedge themselves against future price fluctuations. Currently, with the exception of the Nordic region, each zone has its own market, bridged by transmission rights issued by the transmission system operators (TSOs). This leads to a fragmented and unequal distribution of the liquidity amongst the different national markets. Unlike the day-ahead and intraday markets, the EU forward market does not work as a single integrated EU market.

While this problem has been partially addressed in the short term markets through the allocation of cross zonal capacities, ACER identified scope to vastly improve long term forward markets.

What are the proposed changes?

ACER proposes a set of changes to improve the functioning of the EU electricity forward market:

1. Creation of virtual trading hubs combined with the issuance of transmission rights between bidding zones and those hubs;
2. Improved allocation of the transmission rights (more frequent, over longer period of time, in revised quantities) by the TSOs;
3. Transmission rights issued in the form of financial obligations; and
4. Optionally, the possibility to assign market making tasks.

What are the expected benefits of the changes?

• Regional hubs will attract and pool the liquidity of many zones, thereby significantly increasing the forward market liquidity.
• Hedging products at such hubs will cover the majority of price risks faced by market participants, whereas the remaining risk would be covered by transmission rights issued by the TSOs.
• Other proposed changes aim to make these transmission rights more accessible, liquid, as well as to better match the hedging needs of the market participants.

What are the next steps?

The recommended policy options are ACER’s proposal for changes to the Regulation on Forward Capacity Allocation. To continue the revision process of this Regulation, the European Commission could request ACER to make a recommendation that would list the proposed amendments. Following the issuance of such recommendation, the European Commission could initiate the comitology phase.

To present its policy paper, ACER organises a workshop on 13 March 2023.

Access the ACER’s policy paper on the further development of the EU electricity forward market.

ACER launches today a targeted consultation on draft amendments to the association documents of the European Network of Transmission System Operators for Electricity (ENTSO-E).

ACER is seeking views from stakeholder organisations, in particular organisations representing the system users, including customers.

Next steps

In order to make an informed assessment ACER invites stakeholder organisations to submit their comments by 17 February 2023. ACER has two months to provide an opinion to the European Commission.

Access the targeted consultation.

Every two years, ACER publishes a practice report on electricity transmission and distribution tariff methodologies.

This third edition of ACER’s electricity network tariffs report:

• Reviews the tariff methodologies across EU Member States and Norway;
• Focuses on selected topics (i.e. cost models, cost cascading, injection charges, connection charges, reactive energy charges and time-of-use network tariffs ); and
• Provides recommendations to regulators on how to improve national tariff setting.

What's the relevance of ACER's network tariffs report?

Network tariffs recover the costs to grid operators in developing and operating transmission and distribution networks, which assets are playing a key role in the energy transition.

Network tariffs are designed at national level in multiple ways. Regulators seek to find the right balance between various tariff-setting principles such as cost recovery, cost reflectivity, efficiency, non-discrimination, transparency, non-distortion, simplicity, stability, predictability and sustainability. The integration of renewables, increased demand via electrification, a more active role of network users and affordability in the context of the energy crisis all add further complexity. Hence, the need for ACER’s regular assessment of whether the tariff methodologies continue to be appropriate.

National regulatory authorities (NRAs) are required to take ACER’s report into consideration when fixing or approving transmission or distribution tariffs, or their methodologies.

What does ACER recommend?

The Report provides recommendations to the NRAs:  

• To evaluate the pros and cons of applying incremental or forward-looking cost models;
• To collect network costs, classified by different voltage levels;
• To differentiate a proposed list of cost categories and identify for each of them the most appropriate cost drivers for allocation to the tariff structure;
• To set an appropriate tariff basis for injection charges;
• To consider connection cost-sharing between current and future network users;
• To monitor the evolution of costs due to voltage control and reactive energy management, and to review reactive energy charging where costs deem significant; and
• To investigate the need for time-of-use signals, evaluate their impacts and avoid optionality where they are introduced to reflect system costs.

The report also reiterates previous ACER recommendations (e.g. on frequency of setting tariff methodologies and updating tariff values, stakeholder involvement, transparency and structure of tariffs).

What are the next steps?

ACER plans to:

• Continue to engage with stakeholders into discussions on best practices in tariff setting; and
• Issue the next edition of the Report (planned end of 2024/early 2025) and monitor how NRAs are taking the ACER recommendations into consideration.

Access the report.

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.