Europe’s electricity spot markets have an automatic maximum price adjustment mechanism in case of extraordinary high prices. ACER is reviewing the methodologies for automatically increasing the maximum price limit in case of price spikes. As part of its review, ACER seeks stakeholder input via a public consultation and a public workshop (3 October).

With expected high prices on the electricity markets ahead, on 2 September, ACER urged the Nominated Electricity Market Operators (NEMOs) to submit proposals to amend the Capacity Allocation and Congestion Management methodologies related to:

• the Harmonised Maximum and Minimum Clearing Price (HMMCP) methodology for Single Day-Ahead Coupling (SDAC) and,
• the Harmonised Maximum and Minimum Clearing Price (HMMCP) methodology for Single Intraday Coupling (SIDC).

These methodologies define Europe’s single day-ahead and intraday electricity markets maximum and minimum price limits. Following receipt of the NEMOs’ proposals on 15 September, ACER is now conducting its review of the HMMCP methodologies.

Why change the rules?

With expected high prices on the electricity markets ahead, ACER considers this review as a high priority. The aim of the review is to limit the frequency of increases of the maximum clearing price in the spot markets, allowing consumers and market participants to gradually and better adapt to the scarcity situation in the market.

In addition to this urgent review, a full HMMCP SIDC methodology revision is needed to account for the forthcoming implementation of the SIDC auctions as well as for a newly developed automatic mechanism for adapting the maximum and minimum clearing price limits of the SIDC continuous market.

How does ACER contribute?

ACER ensures that the amendments proposed by all NEMOs are in line with the Regulation on the internal market for electricity, the Capacity Allocation and Congestion Management guideline and fulfil the legal obligations. ACER will assess if the proposed amendments are fit-for-purpose considering the exceptional market situation and its possible evolution.

Process

ACER formally has six months (until 15 March 2022) to reach a decision on the NEMOs’ proposals but the Agency aims to conclude its review much faster.

To collect the views of the stakeholders, an ACER public consultation on the NEMOs proposed amendments runs from 19 September to 9 October 2022.

ACER also invites interested stakeholders to a public workshop on 3 October 2022.

What to remain vigilant of in the coming months?

Price spikes can occur more frequently if not enough cross-border interconnector capacity is made available for trade and/or demand response is not being brought to the market. In some instances, this may even endanger security of supply.

Therefore, and irrespective of the ongoing review of the mechanism, in the coming months, ACER calls on:

• Transmission System Operators (TSOs) to make sufficient cross-zonal capacity available for cross-border trade.
• Market participants to bring significant demand response to the market.

Access the Public Notice.

Access the Public Consultation page.

Access the Public Workshop page.

The EU Agency for the Cooperation of Energy Regulators (ACER) has reached a decision on how to address the insufficient risk hedging opportunities on the bidding zone borders between Finland and Sweden.

An assessment performed by the National Regulatory Authorities (NRAs) indicated insufficient hedging opportunities in the Finnish bidding zone. To improve such opportunities, NRAs can request their Transmission System Operators (TSOs) either to issue long-term transmission rights (LTTRs) or to ensure the availability of other long-term cross-zonal hedging products that support the functioning of the wholesale electricity markets. As the NRAs could not reach an agreement on this matter, they have referred to ACER for decision.

What is ACER’s recommended solution?

Having assessed the case, ACER considered that issuing LTTRs on the bidding zone borders between Finland and Sweden would come with considerable risks for the existing electricity forward market design in the Nordic region. ACER also noted that there are other less intrusive measures that could be at least as effective in improving hedging opportunities; for example measures to support the existing contracts for difference, called Electricity Price Area Differentials (EPADs).

ACER’s decision requests the Finnish and the Swedish TSOs not to issue LTTRs but instead to ensure the availability of other long-term cross-zonal hedging products. Since EPAD coupling appears to be the most effective solution, ACER recommends the TSOs to submit a proposal for EPAD coupling to their NRAs.

What is EPAD coupling?

EPAD coupling is a solution where long-term cross-zonal capacity from TSOs can be implicitly allocated in an auction of EPADs for the relevant bidding zones. With such implicit allocation, a bid for hedging demand in one bidding zone could be directly matched with a supply bid in another bidding zone if more efficient. This can ensure an optimal use of cross-zonal capacity and provides the need hedging opportunities.

ACER’s decision aims to promote long-term cross-zonal trade by improving the availability of long-term cross-zonal risk hedging opportunities on the bidding zone borders between Finland and Sweden.

Access the Decision 12-2022.

Europe’s single day-ahead electricity market has an automatic maximum price adjustment mechanism in case of high prices. ACER wants to review the methodology for automatically increasing the maximum price limit in case of price spikes.

Under the Harmonised Maximum and Minimum Clearing Price (HMMCP) methodology, if prices in any zone reach 60% of the maximum price, it triggers an increase in the maximum price limit 5 weeks later. Price spike incidents in April in France and more recently in the Baltic area each triggered the need for an automatic increase of the harmonised maximum clearing price for Single Day-Ahead Coupling (SDAC).

Why change the methodology?

With expected high prices on the electricity markets ahead, ACER urges a review of the HMMCP methodology to limit the frequency of increases of the maximum clearing price in the single day-ahead market allowing consumers and market participants to gradually and better adapt to the scarcity situation in the market.

Process to change the methodology

First the Nominated Electricity Market Operators (NEMOs) must propose an amendment to the HMMCP methodology. Then, ACER formally has 6 months to reach a decision but aims at conducting the process in a significantly more rapid manner.

Upcoming public consultation

• ACER urges the NEMOs to propose amendments to the HMMCP Methodology for ACER’s approval.

• In the second half of September (and conditional on the NEMOs’ submission), ACER will run an expeditious public consultation on the NEMOs’ proposals.

What to remain vigilant of in the coming months?

Price spikes can occur more frequently if not enough cross-border interconnector capacity is made available for trade and/or demand response is not being brought to the market. In some instances, this may even endanger security of supply.

Therefore, and irrespective of the ongoing review of the mechanism, in the coming months, ACER calls on:

• Transmission System Operators (TSOs) to make sufficient cross-zonal capacity available for cross-border trade.

• Market participants to bring significant demand response to the market.