On 16 November 2021, the EU Agency for the Cooperation of Energy Regulators (ACER) received a proposal from the European Network of Transmission System Operators for Electricity (ENTSO-E) for the first pan-European resource adequacy assessment (ERAA 2021). The purpose of the assessment is to monitor the risks to security of electricity supply and identify adequacy concerns.

​​​Following the approval of the ERAA methodology 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. ERAA describes the expected level of security of supply for a ten-year horizon.

Member States set their own electricity reliability standards based on the value of lost load and the cost of new entry for generation or demand response. The reliability standard indicates the necessary level of security of electricity supply for a given Member State.

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.

To date, ENTSO-E performed the European Mid-term Adequacy Forecast (MAF) with the same ten-year time horizon. Mandated by the Clean Energy Package legislation and based on ACER-approved methodologies, ERAA replaces the MAF and will be key in improving the monitoring of security of electricity supply in Europe.

In order to inform its assessment, ACER invites interested third parties to submit their observations by 7 December 2021 to ACER-ELE-2021-011(at)acer.europa.eu.

The deadline for ACER to reach a decision on ERAA 2021 is 17 February 2022.​

Access the related ACER public notice. 

The European Green Deal sets ambitious targets that require vast investments into the electricity network. Some estimates claim the sector will need to double the investments rate into new infrastructure to help enable the green transition.

While recognising different hurdles on this path, from financing to public acceptance, the EU Agency for the Cooperation of Energy Regulators (ACER) believes special focus should be given on how to facilitate the most efficient use of the existing grid and technologies. In this context, the regulatory framework has an important role to play in promoting innovative investments and providing the right incentives to increase the efficiency of the electricity transmission network and therefore unlock its full potential.

How can the regulatory framework incentivise smart investments?

ACER has inquired the role of regulation in incentivising smart investments to improve the efficient use of electricity transmission assets in a new position paper, published today.  

In its position paper, ACER:

• Recognises the need to improve incentives for innovative solutions, especially those focusing on network efficiency and bringing immediate benefits to end consumers.

• Acknowledges the traditional regulatory framework favours high cost solutions over less costly ones - therefore affecting the setting Transmission System Operators (TSOs)’ work in and influencing their choices.

• Suggests a paradigm shift promoting a benefit-sharing regime to complement the classical cost-based remuneration scheme of the rate-of-return regulation. This will improve the efficiency in the usage of existing infrastructure and provide the incentives to invest in innovative assets.

• Explores the potential introduction of Key Performance Indicators (KPIs) to measure, in a harmonised way across Europe, the impacts and benefits of TSOs investments, as well as of KPI-based incentives to sustain innovative solutions.

What are the main conclusions?

ACER concludes the introduction of a benefit-based remuneration scheme can potentially represent a strong incentive for regulated entities to improve their efficiency, both when utilising future and existing infrastructure.

What comes next?

Register to ACER infoflash not to miss any updates on this topic!

Read ACER Position Paper to find out more.

The EU Agency for the Cooperation of Energy Regulators (ACER) publishes today its report on  implementation of the Inter-Transmission System Operator Compensation mechanism (ITC) covering the year 2020.

In this latest edition, ACER notes the Inter-Transmission System Operator Compensation Fund amounted to 352.8 million Euros, reaching its highest ever value. The increase is mainly due to a significant increase (29%) of the losses volume due to transits in 2020 compared to 2019.

ACER also observes that after a gradual decrease of the weighted average of transmission losses costs in the period 2012-2017, it started to increase, reaching 51.21 EUR/MWh in 2020 (45% higher than its value in 2017).

In 2020, perimeter countries contributed with 10.8 million Euros to the Fund, reducing their contribution by almost 50% if compared with the previous year. This contribution is also the lowest value since the ITC Fund was established. ACER concludes this is due by the significant decrease in the volume of the scheduled flows between the Perimeter countries and the ITC parties in 2020 as well as the decrease of the Perimeter countries’ fee.

Access the Report. 

Background:

The Inter-Transmission System Operator Compensation (ITC) mechanism was established by the European Network of Transmission System Operators for Electricity (ENTSO-E) to compensate transmission system operators (‘TSOs’) for the costs incurred on national transmission systems due to hosting cross-border flows of electricity (‘transits’).

The ITC Fund is mainly a redistribution of yearly payments among the participating TSOs (‘ITC Parties’) who receive compensation from the ITC Fund based on the transits they carry and contribute to the ITC Fund based on their net import and export flows.

Non-participating countries connected to the ITC Parties’ networks (‘Perimeter countries’) pay a transmission system use fee for their scheduled imports from and scheduled exports to the ITC Parties’ networks.

The EU Agency for the Cooperation of Energy Regulators (ACER) today submitted to the European Commission its Preliminary Assessment of Europe’s high energy prices and the current wholesale electricity market design.

The European Commission, in its “toolbox” Communication of 13 October 2021, tasked the Agency with carrying out an assessment of the current wholesale electricity market design by April 2022, and providing a preliminary assessment by mid November 2021.

What’s in ACER’s preliminary assessment?

The ACER Preliminary Assessment complements the analysis already presented in ACER’s Note on the High Energy Prices, published in October.

The Agency’s Preliminary Assessment:

• provides some key factors for the relatively uneven electricity price impacts across Member States, and shows how countries with high gas dependency and low interconnectivity were more exposed to high electricity prices;

• looks at how the move towards more spot pricing of gas in Europe (rather than long-term contracts) has yielded significant benefits over the past decade and how this relates to price volatility issues going forward;

• includes key characteristics of the current electricity market design, adding ACER’s initial perspective on certain price volatility issues, and (in light of the current political debates) on alternative market design approaches including the notion of possibly decoupling electricity market outcomes from gas price dynamics through price caps or technology-dependent average prices;

• adds the latest data and analysis from ACER’s energy market monitoring on related dynamics in the European electricity market; and

• provides an initial outline of ACER’s upcoming April 2022 assessment.

What to expect in the ACER April 2022 assessment?

In its broader assessment due in April 2022, ACER will provide an analysis of:

• the benefits and drawbacks of the current wholesale electricity market design and related matters;

• the issue of sufficient revenue certainty in electricity markets in view of the massive  investment needs up ahead; and

• the options for cushioning or shielding end-consumers from perceived excessive levels of price volatility that impact affordability.

What’s next?

ACER will hold a workshop with stakeholders in the first half of February 2022.

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Access the Preliminary Assessment of Europe’s high energy prices and the current wholesale electricity market design.

The EU Agency for the Cooperation of Energy Regulators (ACER) has reached a decision on the proposal for the long-term capacity calculation methodology of the Core capacity calculation region (Core LT CCM) in cooperation with the regional regulatory authorities and transmission system operators (TSOs).

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

The calculation methodology promotes effective long‐term cross‐zonal electricity trade by calculating reliable capacities and making them available to market participants at an early stage.

As such, long-term capacity calculation allows for long‐term planning and provides hedging opportunities.

In particular, the methodology will apply:

• in the yearly and monthly time frame

• a flow-based approach, compatible with the Core day-ahead capacity calculation methodology

• multiple grid scenarios for the calculation of flow-based parameters

• flow-based parameters for explicit flow-based long-term auctions

• in 3 years from now: starting from the yearly auctions for 2025 and the monthly auctions for January 2025

How did ACER contribute?

In April 2021, the Core regulatory authorities for energy asked ACER to decide on the methodology.

In the past 6 months, ACER has carried out additional analyses and consulted with relevant stakeholders to take an informed decision.

Following these consultations, the Agency has amended the initial Core TSO proposal to improve the efficiency, transparency and non-discrimination of the long-term capacity calculation process, as well as to ensure its compatibility with day-ahead and intraday markets.

Read more on the ACER’s Decision 14-2021 on Core LT CC methodology and its Annexes.

The EU Agency for the Cooperation of Energy Regulators (ACER) publishes an updated analysis on the implementation of the Grid Connection Network Codes, looking at the:

• Network code on requirements for grid connection of generators,

• Network code on demand connection, and

• Network code on requirements for grid connection of high voltage direct current systems and direct current-connected power park modules.

The latest editions of the Implementation Monitoring Reports concerning the Grid Connection Network Codes were published in December 2020. The analyses showed an overall satisfactory level of implementation, but also highlighted a few compliance issues in various Member States.

Following these publications, ACER requested regulatory authorities to provide an update of their national information (in particular those that were not compliant with the Grid Connection Network Codes).

The analysis published today provides an update based on the replies collected from the national regulatory authorities.

What are the latest findings?

ACER confirms the satisfactory implementation status as indicated in the previous reports. However, the analysis shows that only a few of the identified non-compliances have been addressed.

The report also outlines some key policy recommendations and invites relevant parties to ensure full compliance with the Network Codes. In particular, it emphasises:

• the importance of implementing the connection rules stipulated in the Network Code on requirements for grid connection of high voltage direct current systems, and

• the need for further actions to bring national legal frameworks into full compliance with the harmonized rules of the Grid Connection Network Codes.

Access the report.

The EU Agency for the Cooperation of Energy Regulators (ACER) and the Council of European Energy Regulators (CEER) publish today the new edition of the Electricity Wholesale Markets Volume of the 2020 Market Monitoring Report (MMR).

The MMR presents the main results of monitoring the European internal electricity and gas markets and recommends further actions to foster their integration. It comprises three ​Volumes, analysing respectively: the Electricity Wholesale Market, the Gas Wholesale Market, and the Energy Retail Market and Consumer Protection. 

Historical highs in European energy prices in 2021

This MMR relates to 2020 data. While energy prices decreased in 2020 (in response to the COVID-19 pandemic), wholesale energy prices increased significantly in Q3 2021 (by around 200% since April 2021). Even though various factors have contributed to the high energy prices in Europe, the main driver for the high rise in wholesale electricity prices is the surge in the price of natural gas, caused mainly by a tight global LNG market.  See the separate ACER Note on High Energy Prices (October 2021) for insights on the drivers, the impact, and certain policy considerations (such as how to protect vulnerable consumers).

Barriers to efficient price formation and easy market entry and participation: room for improvement

For the first time, this Volume of the MMR includes an assessment of barriers to price formation, as well as to entry and participation of new and small market players. ACER analysed eleven potential barriers and found they exist, to varying degrees, in most of the European Member States.

Regarding efficient price formation, a number of issues stand out as barriers, including insufficient cross-zonal capacity and liquidity. The report identifies several main barriers affecting new and small players. These include:

• Lack of a legal framework to enable entry and participation in the various market segments.

• Stringent requirements, e.g. related to prequalification or aggregation, hindering participation in balancing markets.

• Insufficient retail competition or incentives for consumers to participate more actively.

The report concludes that significant room for improvement can be found by removing wholesale price restrictions, reviewing requirements related to prequalification and aggregation, and urgently finalising the transposition of the Electricity Directive.

COVID-19 and market integration: progress despite the pandemic

The report underlines the drop in demand (annual decrease of 4.1 % compared to 2019) related to the pandemic in the first half of 2020, which exacerbated the decrease in electricity prices observed in the preceding year.

For the first time, renewable energy sources generated more electricity than fossil fuels.

In this context, Member States’ efforts towards market integration continued; particularly in the integration of the EU intraday markets (continuous intraday volumes increased by nearly 32% in 2020). As a consequence of the day-ahead markets’ integration, the level of efficiency in the use of cross-zonal capacity (87%) scored the highest across all short-term timeframes in 2020.

Interruptibility schemes: suggestion of a market-based approach

Interruptibility schemes refer to national programmes dedicated to demand-side response, organised by transmission system operators (TSOs) for temporary load interruption or reduction. For the first time, the report includes an assessment on interruptibility schemes services, identifying four of them: adequacy, balancing, congestion management and contingency reserves. ACER promotes a market-based approach in their usage to increase their efficiency in fostering security of the European electricity supply.

Our recommendations: market coupling, 70% target, barriers and adequacy

ACER and CEER reiterate their recommendation to:

• Finalise the implementation of the single day-ahead and single intraday market coupling

• Gradually increase the level of cross-zonal capacity (still far from the 70% binding target)

• Removing all types of wholesale price restrictions, reviewing requirements related to prequalification and aggregation and urgently finalise the transposition of the Electricity Directive.

• Establish an appropriate reliability standard, perform sound adequacy assessments at the EU and national level and only adopt capacity mechanisms where resource adequacy issues are forecasted

Would you like to find out more?

Read the MMR Report – Electricity Wholesale Volume.

The EU Agency for the Cooperation of Energy Regulators (ACER) found improvements in the selection of projects of common interest (PCIs) for trans-European energy infrastructure such as a list of gas projects where sustainability criteria has been considered and a more objective process for selecting electricity projects. However, in both ACER Opinions on the matter published today, one on gas projects and another one on electricity's ones, ACER also notes shortcomings including lack of transparency in the assessment methodologies.

The opinions also include the view of National Regulatory Authorities on specific candidate projects and provide further recommendations for future PCI selection processes.

ACER acknowledges the efforts by the European Commission to enable a smooth selection process, despite the pandemic-related difficulties prevailing at the time of the PCI selection.

Selection of gas projects resulted in shorter PCI list

The path towards decarbonisation shows in the selection of a shorter list of projects in the field of gas, where sustainability criteria has been considered.

In its opinion, ACER also highlights positively the fact the consultation period for PCI candidates was extended and that the indicators used in the infrastructure needs' methodology were simplified and aligned with the projects assessment's methodology. Furthermore, consistency was improved by applying the same threshold value across Regional Groups for project selection.

More objective selection process for electricity projects

In the field of electricity, ACER welcomes the European Commission’s steps towards a more objective selection process. This has been achieved by reducing the number of potentially subjective benefits established by project promoters and by eliminating the enhanced socio-economic welfare approach used in the previous PCI selection round.

Shortcomings for an in-depth analysis

Due to a lack of transparency in the assessment methodologies, ACER was not able to assess fully the consistency of the application of the criteria and the cost-benefit analysis in accordance to the EU Regulation for Trans-European Energy Infrastructure. In addition, while the regulation requires the consideration of multiple scenarios when selecting electricity projects, only one scenario was used.

ACER calls on the Regional Groups, responsible for proposing and reviewing projects of common interest, to continue their work on further improving the transparency of the process and the methodologies for assessing the candidate PCI projects taking into account ACER’s recommendations included in its Opinions.

Access the electricity PCI Opinion (its Annex) and the gas PCI Opinion.

On 24 July 2021 at 16:36 CET, due to a major incident in France, the transmission systems of Portugal and Spain, together with a small part of the French transmission system, were disconnected from the synchronous area Continental Europe for just over 30 minutes.

Based on preliminary data of transmission system operators (TSOs), the system separation is classified as a scale 2 or “extensive” incident as per ENTSO-E’s Incident Classification Scale (ICS).

According to the ICS Methodology, for scale 2 incidents, a final report shall be prepared by an Expert Panel, where relevant National Regulatory Authorities (NRAs) and the European Agency for the Cooperation of Energy Regulators (ACER) may be involved upon their request.

ENTSO-E has therefore set up an Expert Panel and has invited ACER and relevant NRAs to join it. The Expert Panel will first meet today, on 22 October.

The investigation of the Expert Panel will be based on the Interim Report that ENTSO-E is currently finalizing.  This Interim Report, which will be published on 12 November 2021, will contain the data, initial findings on the sequence of events and timeframes related to the incident. 

Expert Panel’s Final Report will have recommendations

The Expert Panel will prepare a Final Report, which shall describe the sequence of events and details of the transmission outages. It will also explain the causes and contain recommendations to prevent such incidents in the future.  The Expert Panel’s Final Report shall be published in first quarter of 2022.

ACER and ENTSO-E are committed to fulfilling their legal obligations specified in the System Operations Guideline and ICS Methodology. In line with the provisions of those documents, the Expert Panel will be chaired by a representative of a TSO not affected by the incident whilst all the members will contribute to the deliverables assigned on equal basis in order to ensure high quality and consistency of the final report.

ACER and ENTSO-E will continue together to provide timely information about the incident.

Access ACER-ENTSO-E Press Release.

Energy commodity prices have reached unprecedented high levels across Europe. Gas prices in October 2021 are 400% more expensive than in April 2021. Power prices have increased by 200% (driven mainly by the increase in gas prices). Governments are interested in identifying the key drivers and in determining if it is a temporary shock or a permanent shift. The answers to these issues will help inform their policy response.

Today, the EU Agency for the Cooperation of Energy Regulators (ACER) publishes a note providing data and insights on the recent high energy prices in Europe. ACER’s note on high energy prices:

• identifies the drivers and the impact on price levels across Europe;
• provides the dominant market outlook of how long it is likely to last;
• looks at certain market behaviours; and
• touches on some important policy considerations (both short term and longer term).

Why are energy prices so high and how long will it last?

While various factors have contributed to the high energy prices in Europe, the main driver is the surge in the price of natural gas, caused mainly by a tight global LNG market. Forward markets expect a significant drop in wholesale prices for gas and electricity in spring 2022. A key variable in the very near term is the upcoming winter and its implications for gas demand.

Policy considerations – short term and longer term

The European Commission’s is preparing  a “toolbox” of measures that national governments could use to respond to price hikes without endangering the functioning of EU wholesale markets. This note by ACER touches on a few select policy considerations related to this response, namely:

• disproportionate effects of high prices on vulnerable consumers and the possibility for Member States to mitigate this in the short term without unduly distorting fundamental market signals;
• the functioning and rationale of the current EU electricity market design vis-à-vis the current high prices;
• certain issues related to gas supply going forward such as possible joint purchasing of strategic gas reserves as well as possible obligations for gas storage; and
• longer term transition trajectories and the link to holistic policy.

Today’s energy price squeeze is a reminder of Europe’s still high-dependency on imported fossil gas and the inherent volatility of global commodity markets. It is also a reminder that a well-designed energy transition pathway going forward will rely on holistic policy that targets demand just as much as supply, focusing on both the short-term and the long-term. As such, Europe’s transition pathway will likely need to be a more “managed transition” in the years ahead with both government and regulatory monitoring playing a significant role.

See also the ACER Director’s presentation on Europe’s energy prices to Finance Ministers at the 4th October Eurogroup meeting.