For the first time, the Report assesses the state of play in the implementation of capacity remuneration mechanisms in the different Member States. These developments are a source of concern to both the European Commission – which earlier this year launched a sector enquiry - and to the Agency – which has been working on this issue since late 2012 following a request from the ITRE Committee of the European Parliament for an Agency Opinion; that Opinion was delivered in February 2013 and the Agency has continued to work on the issue since. The Agency’s main concern was, and still is, the possibility that national, uncoordinated approaches to system adequacy might have a detrimental impact on the functioning of the IEM. Regional coordination of adequacy assessments and regional capacity remuneration mechanisms (or at least cross-border participation in such mechanisms) are ways to avoid, or at least minimise, any such detrimental impact. There is no evidence, however, that such regional coordination is implemented at present.

A further important challenge facing the European energy sector is the integration of an increasing share of renewable-based generation, part of which is not as easily programmable as “conventional” resources. This calls for greater system flexibility, primarily in the electricity sector, but also in gas, given that gas-fired power stations may offer a source of flexibility for the electricity system. Short-term markets – and in particular Intra-day and Balancing markets in electricity – are becoming increasingly important in this respect. The Agency welcomes the recent breakthrough in the deadlock which has delayed the Cross-Border Intra-Day (XBID) project for almost three years and notes the new expected date for go-live in Q4 2017. The Agency urges the European Commission, whose intervention was instrumental in breaking the deadlock, to maintain its involvement to ensure that this target date is respected and, if possible, brought forward. The Report analyses the functioning of the Intra-day and Balancing markets, confirming that the implicit allocation of cross-border capacity in the intra-day timeframe delivers a more efficient use of such capacity.

In the gas sector, we focus on the functioning of gas hubs and on trading between them. Earlier this year, the Agency published its revised and updated Gas Target Model. That Model calls for a self-assessment by National Regulatory Authorities of the functioning of their national gas markets and proposes measures – including regional integration – to overcome those situations in which the structure of the national sector is not conducive to competition and liquidity in the market.

A further important section of this Report assesses the functioning of retail markets, where consumers can directly reap the benefits of the liberalisation and market integration process. It is clear that our objective should not be the creation of a EU-wide retail market, where consumers will be able directly to access suppliers located in any of the Member States, but rather to ensure that sufficient competition is created in national retail markets. This should be pursued by facilitating the entry of new suppliers and promoting the engagement of consumers, so that they can take full advantage of greater choice and better prices. The results presented in the Report still show a mixed picture in this context: consumers continue not to switch even in the presence of significant potential savings. While switching rates do not themselves provide conclusive evidence regarding the functioning of retail markets – for example, low levels might be consistent with both highly competitive and immature markets – the picture emerging from a newly developed “composite indicator” is a very varied one across the EU, with some national markets clearly exhibiting scope for improvement. CEER has launched its own considerations as to what constitutes a well-functioning retail market. Work will therefore continue to pinpoint any remaining retail market barriers and to identify how they can be removed. Until then, we will have not have fulfilled our mandate of establishing an internal energy market for the benefit of consumers providing them with the “New Deal” envisaged by the Energy Union Strategy.

The data used for compiling this Report have been collected or provided by the European Commission, National Regulatory Authorities, and the European Networks of Transmission System Operators for electricity and gas. We are grateful for their contribution and cooperation, and in particular to colleagues in National Regulatory Authorities who have played a key role in assessing national developments. Above all, our sincere appreciation goes to our colleagues in the market monitoring team at the Agency for their sustained effort in continuously monitoring market developments and in producing this Report.

The Agency and National Regulatory Authorities stand committed to continue their work at EU, regional and national level to contribute towards the establishment of a well-functioning, competitive, secure and sustainable internal market in energy to the benefit of Europe’s consumers and to play our role in the implementation of the Energy Union Strategy.