Main challenges of market integration

• The main challenge of electricity market integration is long-term markets. It is important to improve liquidity in the European forward markets. Member States’ Transmission System Operators (TSOs) must ensure sufficient capacity is available for cross-zonal trading when needed, especially in the short-term markets, which are now developed (coupled) throughout Europe, and face the challenge of ensuring cross-zonal capacity availability. The next significant step in the market evolution is the development of long-term markets.
• Scarce forward hedges have increased liquidity in the spot market. Hedging is a simple way to manage crisis uncertainty. However, measures like collateral requirements and high bank guarantees forced some market participants to switch from organized forward trading to spot or bilateral trading (potentially increasing volatility).
• On balancing markets, the limited engagement of TSOs and data availability are hindering the success of balancing platforms.
• In 2022, congestion income (i.e. the revenue generated as a result of congestion in electricity transmission systems) increased by more than three times compared to 2021 across Europe, accompanied by a surge in remedial costs (challenging overall price stability). Member States can address congestions without additional operating costs (i.e. grid topology change, phase shifter transformer usage). On the other hand, remedial measures (like re-dispatching, countertrading, or curtailment of allocated capacities) can come at a significant cost – potentially discouraging the deployment of renewable energy sources (RES).

What are ACER’s recommendations?

• Improve cross-border electricity trade to strengthen market integration (and its resilience).
• Advance the progress of forward electricity markets by expanding their development and utilizing Long-Term Transmission Rights (LTTRs) for hedging.
• Reinforce the engagement of TSOs in balancing markets. This could be done by considering slower balancing reserves to manage price fluctuations more effectively.
• Manage re-dispatching expenses and promote the deployment of renewable energy sources, particularly in those regions with high RES-generation potential. This will clearly support the energy transition goals and ensure compliance with the legal requirement to stay below the 5% curtailment limit.