ACER’s policy paper on the further development of the EU electricity forward market:

• Identifies problems of this market segment, among which market fragmentation and lack of integration are the main ones; and
• Recommends solutions (e.g. regional virtual trading hubs to pool liquidity). Such regional hubs need to be complemented by accessible transmission rights to cover the remaining risks of the market participants.

This policy paper serves as ACER’s key recommendations on how to change the Forward Capacity Allocation Regulation.

Background

In the electricity forward market, market participants can trade electricity up to multiple years ahead of its delivery allowing them to protect or hedge themselves against future price fluctuations. Currently, with the exception of the Nordic region, each zone has its own market, bridged by transmission rights issued by the transmission system operators (TSOs). This leads to a fragmented and unequal distribution of the liquidity amongst the different national markets. Unlike the day-ahead and intraday markets, the EU forward market does not work as a single integrated EU market.

While this problem has been partially addressed in the short term markets through the allocation of cross zonal capacities, ACER identified scope to vastly improve long term forward markets.

What are the proposed changes?

ACER proposes a set of changes to improve the functioning of the EU electricity forward market:

1. Creation of virtual trading hubs combined with the issuance of transmission rights between bidding zones and those hubs;
2. Improved allocation of the transmission rights (more frequent, over longer period of time, in revised quantities) by the TSOs;
3. Transmission rights issued in the form of financial obligations; and
4. Optionally, the possibility to assign market making tasks.

What are the expected benefits of the changes?

• Regional hubs will attract and pool the liquidity of many zones, thereby significantly increasing the forward market liquidity.
• Hedging products at such hubs will cover the majority of price risks faced by market participants, whereas the remaining risk would be covered by transmission rights issued by the TSOs.
• Other proposed changes aim to make these transmission rights more accessible, liquid, as well as to better match the hedging needs of the market participants.

What are the next steps?

The recommended policy options are ACER’s proposal for changes to the Regulation on Forward Capacity Allocation. To continue the revision process of this Regulation, the European Commission could request ACER to make a recommendation that would list the proposed amendments. Following the issuance of such recommendation, the European Commission could initiate the comitology phase.

To present its policy paper, ACER organises a workshop on 13 March 2023.

Access the ACER’s policy paper on the further development of the EU electricity forward market.

ACER launches today a targeted consultation on draft amendments to the association documents of the European Network of Transmission System Operators for Electricity (ENTSO-E).

ACER is seeking views from stakeholder organisations, in particular organisations representing the system users, including customers.

Next steps

In order to make an informed assessment ACER invites stakeholder organisations to submit their comments by 17 February 2023. ACER has two months to provide an opinion to the European Commission.

Access the targeted consultation.

REMIT (Regulation on Wholesale Energy Market Integrity and Transparency) provides the EU framework for the transparency and integrity of energy markets and deters market participants from manipulating the market. Thus, it has an important role in protecting the interests of companies and consumers and ensuring trust in energy markets.

What is the REMIT Quarterly?

The REMIT Quarterly is ACER’s main channel of communication with stakeholders on REMIT-related matters, providing updates on ACER’s REMIT activities.

The 31st edition covers the last quarter of 2022 and features:

• An assessment of the operation and transparency of different categories of organised market places and ways of trading, detailing market participants’ activity and the trends in REMIT data reporting and data collection;
• The statistics for registered reporting mechanisms’ (RRMs') contingency reports;
• An updated overview of the sanction decisions for the year 2022, with 350 REMIT cases under review at the end of the fourth quarter; and
• A summary of the most recent updates of REMIT documents.

Find out more.

Every two years, ACER publishes a practice report on electricity transmission and distribution tariff methodologies.

This third edition of ACER’s electricity network tariffs report:

• Reviews the tariff methodologies across EU Member States and Norway;
• Focuses on selected topics (i.e. cost models, cost cascading, injection charges, connection charges, reactive energy charges and time-of-use network tariffs ); and
• Provides recommendations to regulators on how to improve national tariff setting.

What's the relevance of ACER's network tariffs report?

Network tariffs recover the costs to grid operators in developing and operating transmission and distribution networks, which assets are playing a key role in the energy transition.

Network tariffs are designed at national level in multiple ways. Regulators seek to find the right balance between various tariff-setting principles such as cost recovery, cost reflectivity, efficiency, non-discrimination, transparency, non-distortion, simplicity, stability, predictability and sustainability. The integration of renewables, increased demand via electrification, a more active role of network users and affordability in the context of the energy crisis all add further complexity. Hence, the need for ACER’s regular assessment of whether the tariff methodologies continue to be appropriate.

National regulatory authorities (NRAs) are required to take ACER’s report into consideration when fixing or approving transmission or distribution tariffs, or their methodologies.

What does ACER recommend?

The Report provides recommendations to the NRAs:  

• To evaluate the pros and cons of applying incremental or forward-looking cost models;
• To collect network costs, classified by different voltage levels;
• To differentiate a proposed list of cost categories and identify for each of them the most appropriate cost drivers for allocation to the tariff structure;
• To set an appropriate tariff basis for injection charges;
• To consider connection cost-sharing between current and future network users;
• To monitor the evolution of costs due to voltage control and reactive energy management, and to review reactive energy charging where costs deem significant; and
• To investigate the need for time-of-use signals, evaluate their impacts and avoid optionality where they are introduced to reflect system costs.

The report also reiterates previous ACER recommendations (e.g. on frequency of setting tariff methodologies and updating tariff values, stakeholder involvement, transparency and structure of tariffs).

What are the next steps?

ACER plans to:

• Continue to engage with stakeholders into discussions on best practices in tariff setting; and
• Issue the next edition of the Report (planned end of 2024/early 2025) and monitor how NRAs are taking the ACER recommendations into consideration.

Access the report.

On 22 December 2022, the Council Regulation (EU) 2022/2578 established a gas market correction mechanism (MCM) to protect EU citizens and the economy against excessively high energy prices. It enters into force on 1 February 2023 for a period of one year and tasks ACER with the calculation and publication of the MCM reference price.

Based on the daily collected data, ACER will publish the MCM reference price no later than 23:59 CET every weekday. Find the daily MCM reference price here.

Prices on 1 February 2023 are well under the MCM activation levels.

What is the MCM reference price and how is it calculated?

The MCM reference price is the average price of several Liquefied Natural Gas (LNG) marker prices as assessed by different entities and the front-month National Balancing Point (NBP) derivative settlement price.

In order to calculate the daily MCM reference price, ACER needs the following information:

• The LNG Northwest Europe Marker price assessment;
• The LNG Mediterranean Marker price assessment;
• The LNG Northeast Asia Marker price assessment;
• The front-month NBP derivative settlement price; and
• The price of the ACER’s daily LNG price assessment report.

The values of the three LNG marker price assessments are derived from data administered by Platts Benchmark B.V. and Argus Benchmark Administration B.V. As the MCM reference price is expressed in EUR/MWh, ACER uses European Central Bank’s Euro foreign exchange rates for the currency conversion where needed.   

When is the MCM activated?

According to the Regulation, the MCM can only be activated as of 15 February 2023.

The MCM is activated if the front-month TTF derivative settlement price:

• exceeds 180 EUR/MWh for three consecutive working days, and
• is at least €35 above the MCM reference price for the same period of time.

In the event the MCM is activated a notice stating that a market correction event has occurred is published on the ACER website no later than 23:59 CET on the day of event.

Upon the activation, orders on TTF derivatives (front-month to front-year) €35 above the MCM reference price cannot be accepted. Should the MCM reference price be lower than 145 EUR/MWh, the MCM bidding limit is set at 180 EUR/MWh. 

The MCM bidding limit applies until:

• ACER publishes a deactivation notice 20 working days from the market correction event if the MCM reference price is below 145 EUR/MWh for three consecutive working days; or
• The European Commission suspends the MCM in case of significant deterioration of the gas supply situation in the EU.

Learn more about the MCM.

What are the highlights of ENTSO-E’s Winter Outlook?

The European Network of Transmission System Operators for Electricity's (ENTSO-E's) Winter Outlook Report (2022-2023) of 1 December 2022 provides an assessment of the security of electricity supply across Europe for the winter season ‘22/’23. The importance of this report is heightened in the context of Russia’s continued military aggression against Ukraine.

• The Winter Outlook report identified adequacy risks that are higher compared to previous winters. The main stresses are found in the systems of Ireland, France, Southern Sweden, Finland, Malta and Cyprus.
• The EU electricity system still heavily relies on gas, but favourable weather conditions can reduce this dependence.
• There are additional risks identified for the winter that may materialise and have a substantial impact on the adequacy situation, especially if they coincide. In particular, close follow-up is needed on the uncertainties around nuclear availability, as well as coal supply.

What is ACER’s assessment of the ENTSO-E’s Winter Outlook?

ACER emphasises that European solidarity to keep electricity flowing across EU Member State borders over the coming winter is a key contributor to security of supply.

ACER`s Opinion on ENTSO-E’s Winter Outlook takes into account the extraordinary circumstances and:

• Welcomes ENTSO-E`s efforts to expand the scope of analysis and take a more agile approach in response to the uncertainties posed by Russia’s invasion of Ukraine.
• Agrees with ENTSO-E that efficient market integration and pooling of resources are key for adequacy support this winter. In general, resource-sharing in the spirit of EU energy solidarity is a key element supporting the resilience of the European power system.
• Recognises that some Member States may be more exposed to adequacy risks than others, and that some transmission system operators (TSOs) may have to constrain cross-border capacity available for trading to varying degrees to maintain operational security.
• At the same time, such measures should not be overused as they may become detrimental to the overall European security of supply situation. In the context of adequacy assessment, constraints should be applied as an exception rather than a default option.
• As ACER has pointed out previously, Europe’s energy solidarity is being tested with the continuing war in Ukraine. If some countries were to pursue strictly national short-term energy interests, others would likely suffer.

Access the ACER Opinion on ENTSO-E Winter Supply Outlook.

The European Court of Auditors (ECA) has published (31 January) a Special Report: Internal electricity market integration.

ACER welcomes the attention given by ECA to EU electricity market integration. As we have stated, on the record, in our ACER reply to ECA;

• ACER would have welcomed a more balanced overview of the huge efforts and achievements made in integrating national electricity markets;
• Europe’s power system is the most integrated in the world;
• Europe’s success in progressing with integrating the electricity system is the result of the efforts of many and ACER would have welcomed the recognition of this complexity and effort.

ACER is committed to delivering on its mandate and to maintaining a focus on the evolving energy situation.

See the ECA report and the ACER reply.