ACER-CEER Annual Report on the Results of Monitoring the Internal Electricity and Gas Markets in 2016
The downward trend in wholesale electricity prices observed in previous years continued in 2016. In parallel, price spikes occurred significantly more frequently than in previous years, with 1,195 occurrences in Europe in 2016, which is around five times the average over the preceding four years. These spikes were observed more often in the Member States (MSs) with the tightest adequacy margins, such as Belgium, Finland, France and Great Britain. Although these spikes may reflect efficient price formation at times of scarcity, they also highlight the importance of addressing security of supply efficiently and in a coordinated manner.
In 2016, different degrees of price convergence were observed across Europe. The average absolute dayahead (DA) price spreads ranged from less than 0.5 euros/MWh on the borders between Portugal and Spain, the Czech Republic and Slovakia, and between Latvia and Lithuania, to 10 euros/MWh or more on all British borders, the borders between Austria and Italy, and between Germany and Poland (see Table i). This confirms the relevance of maximising the amount of tradable cross-zonal capacity, particularly on borders with the highest price spreads.
The Baltic, the Core (Central-West Europe (CWE))1 and the South-West Europe (SWE) regions recorded the highest annual increases in the frequency of intraregional full price convergence in 2016. In these three regions, the DA price differential was, respectively, below 1 euro/MWh in 71%, 39% and 30% of the hours in 2016. The factors explaining these developments include investments in new interconnector lines in the Baltic and SWE regions and the go-live of Flow-Based Market Coupling (FBMC) in the Core (CWE) region.
While FBMC does indeed contribute to increasing price convergence, recent experience in the Core (CWE) region illustrates that FBMC alone is not sufficient to deliver an integrated electricity market. Full price convergence dropped in this region from 48% in the first three quarters of 2016 to 11% in the last quarter, due to high DA prices in France and Belgium. These high DA prices were mainly the result of a significant number of nuclear reactors being offline in these countries, combined with a significant reduction in the level of tradable cross-zonal capacity during the second semester of 2016.
