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.

Over the years, market players have raised numerous issues with access to gas transmission capacity at the borders between the European Union (EU) and the Energy Community, as well as within the Energy Community itself. As a consequence, the EU Agency for the Cooperation of Energy Regulators (ACER) and the Energy Community Secretariat (ECS) jointly held a public consultation to investigate how the market assesses access to capacity in the region, receiving 15 responses. As a follow up of the analysis, ACER and ECS publish today a joint summary note of the responses.

Among others, market users identified obstacles related to transparency, lack of connection between transmission capacity and commodity markets and gas quality standards. They also pointed out possible solutions including:

• full adoption and application of the EU and Energy Community regulatory framework (e.g. Network Codes)

• greater regulatory oversight and

• addressing market dominance.

ACER and ECS call upon the national regulatory authorities (NRAs) and transmission system operators (TSOs) to follow up with the relevant market players on these issues. These actions can take place at regional level through the Gas Regional Initiative South-South East, whereas specific interconnection points may require action from individual NRAs and TSOs.  

Find out more in the Summary Note.

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 Energy Retail and Consumer Protection Volume of the 2020 Market Monitoring Report (MMR) with the support of the Energy Community Secretariat. The volume focuses on retail market competition, retail prices, and consumers, including the importance of consumer engagement in the energy transition.

The Energy Retail Market and Consumer Protection is the last volume published from the MMR, which comprises two other volumes: the Electricity Wholesale Market and the Gas Wholesale Market.

Energy Retail markets monitoring in 2020: what is new?

Important price variations occurred in the course of 2020 and 2021

 First the economic decline of COVID-19 with plummeting gas prices and later the rebound following 2020 with a tight LNG supply caused considerable price variations. The unprecedented market conditions risked businesses and households’ ability to pay their energy bills. The Volume focuses on 2020 and the COVID-19 related market conditions, while the recently published ACER note makes observations in relation to the high energy prices of the last two quarters of 2021.

Market concentration

Besides the limited improvements in this area, the majority of retail energy markets in the EU are highly concentrated, which can limit consumer choice to choose alternative suppliers. 

Retail prices differ

The prices consumers paid for their energy continue to be very different across the EU in 2020. Compared to 2009, when the first comparable research was carried out, average electricity household prices increased faster than inflation. This has corresponded with a significant increase in the penetration of renewable electricity generation within the EU, resulting in a lower dependence on imported fossil fuels for energy consumers within the EU.

Regulated prices still play a role

The existence of regulated prices in some Member States can limit the entry of new suppliers, reduce consumer choice, and form barriers to price formation.

Comparison tools for consumers are key

To be able to shop around for better prices and services, smart meters and reliable comparison tools are essential. Smart meters also enhance market information, but their roll out is not timely. Comparison tools are available to the majority of EU electricity and gas consumers. However, there still remains some consumers who do not have access to these tools. Only one comparison tool for electricity meets the requirements as outlined in Directive (EU) 2019/944 signalling room for improvement for EU energy consumers.

How did retail energy prices perform in 2020?

The report shows that average energy prices in 2020 decreased for households for both electricity and gas. Average industrial prices instead recorded a slight decrease in electricity and a historic low in gas.  

The analysis also shows that the difference between wholesale and retail prices widened again in 2020. Strong correlations between retail and wholesale energy prices are observed when wholesale energy prices increase. However, a weaker correlation is noted with regard to a fall in retail prices following a fall in wholesale energy prices. Such “sticky retail prices" when there are wholesale price declines can result in energy consumers paying higher prices than efficient markets would suggest for their energy consumption.

While it is not expected that retail prices will always decrease at the same rate as wholesale price reductions, empowering energy consumers may assist in placing downward pressure on suppliers to decrease retail prices. Such empowerment will become vital during the energy transition.

How can consumers be further engaged?

The Clean Energy for All Europeans package recognises the important role that European energy consumers will play in achieving decarbonisation goals. At present, consumer engagement in retail energy markets is limited in some EU countries due to the presence of regulated prices. As these countries move to market-based prices, the energy consumer will have a wider choice of retail suppliers.

The rate of consumers switching suppliers ranges from 1% to 20% across the EU. As regulated prices are phased out, consumer participation will need to increase. However, consumers need to have the right tools, allowing them to make informed decisions. Among them, smart meters providing consumers with real-time information on their energy consumption; and comparison tools, which help consumers find the best offer for their needs  and are still only available in 25 and 19 EU Member States for electricity and gas, respectively. 

Consumers can also become engaged by submitting complaints to their energy supplier. Such engagement can result in improvements in the service provided. The report notes that millions of complaints were filed by consumers to their suppliers (and distribution system operators, DSOs) in 2020, most often regarding invoicing issues to their suppliers and metering-related issues to their DSOs. 
 

Would you like to find out more?

Read the MMR Report – Energy Retail and Consumer Protection.

Market players have no interest in making long term commitments that pay for gas network expansion according to the latest report on the monitoring of incremental capacity published by the EU Agency for the Cooperation of Energy Regulators (ACER).

The report investigates the incremental capacity cycle between July 2019 and July 2021 and focuses on those regulatory decisions approving projects to proceed to the incremental process’ final stage.

What is the incremental capacity process?

The incremental capacity process mandates transmission system operators (TSOs) to investigate whether some degree of non-binding interest for new capacity can be found at EU gas markets’ borders. If TSOs find sufficient demand, they design a project based on the expressed interest and submit a joint project proposal (including the economic parameters to carry out a viability test) to the concerned national regulatory authorities for coordinated approvals.

In the final step of the process, TSOs request binding commitments from the market through an auction of the incremental capacity based on the approved economic parameters. The project is implemented by TSOs only when the market commitments lead to a viable project where revenues exceed the expected costs.  Otherwise, the incremental project is not implemented.

This process of market testing is repeated every odd year on all EU gas markets’ borders.

What is the role of ACER?

ACER monitors the process to ensure it allows for greater interconnectivity and a better functioning of the internal gas market without burdening the existing network users.

What are the report’s main findings?

The analysis showed that, despite TSOs found significant non-binding interest from the market on gas networks expansion (in about one third of the assessed market borders), the market was not willing to convert such interest into any binding contracts that would pay for the capacity increase.  As a consequence, no new capacity was developed by the incremental auctions in the latest cycle (2019-2021).

When comparing the results with the previous cycle (2017-2019), the report finds not a single unit of gas transmission capacity developed on the basis of the incremental process after four years.

This outcome can be explained by:

• the maturity and saturation of the gas transmission capacity’s market

• by market players factoring in the European Union’s and national climate and energy policies in forecasting the evolution of the gas market, or

• the market finding unattractive the current access conditions to incremental capacity.

ACER reminds the importance of having a network expansion based on robust demand indications to ensure the overall efficiency of the incremental process. This is particularly key in the current gas market, and in view of achieving the European Union’s climate and energy policy objectives.

Find out more in 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.

The EU Agency for the Cooperation of Energy Regulators (ACER) has initiated the procedure for requesting further information to Nominated Electricity Market Operators (NEMOs) operating in the Single Intraday Coupling (SIDC) market.

The information is needed for reconstructing the trading dynamic and the local view of the Shared Order Book in the SIDC market and thus for allowing ACER to fully comply with its mandate of monitoring the wholesale energy markets pursuant Article 7 of REMIT.

What are the next steps?

ACER intends to reach a decision by the end of January 2022. To take an informed decision, ACER will consult involved parties in the course of November 2021.

What are the benefits?

Providing ACER with the relevant information allows the Agency to monitor effectively the European wholesale market’s integrity and transparency, particularly the Single Intraday market, according to REMIT.  

Deterring market participants from manipulating the market, ensuring trust in the functioning of the markets and fostering market integration have the ultimate goal of protecting the interest of companies and consumers.

Access the Public Notice.