Today, ACER publishes its assessment report on the effects of the Market Correction Mechanism (MCM) on energy markets and security of supply.

Background to the MCM

The MCM Regulation (December 2022) establishes a Market Correction Mechanism to protect citizens and the economy against excessively high gas prices. The MCM sets a bidding limit on certain financial derivatives traded at EU exchanges with the aim of limiting EU gas prices. This bidding limit is activated when specific conditions are met.

The Regulation tasks ACER and the European Securities and Markets Authority (ESMA) with assessing the market effects from the introduction of the Market Correction Mechanism (MCM) and submitting their MCM effect assessment reports to the European Commission by 1 March 2023. Both reports are intended to assist the Commission in its decision of extending the MCM to the derivatives traded at other Virtual Trading Points (‘VTPs’) in the EU and in assessing whether the key design elements of the MCM need to be reviewed.  ACER and ESMA already published preliminary reports on 23 January 2023. ESMA also published their final MCM effects assessment report today.

MCM seems not to have a discernible gas market impact to date

Neither ACER nor ESMA have identified significant impacts (positive or negative) that could be unequivocally and directly attributed to the adoption of the MCM.

However, one should not infer from this that the MCM might not have any impacts on financial and energy markets or on security of supply in the future. ACER and ESMA continue to emphasise the need to regularly monitor gas markets and gas trading activities to identify risks and to assist in detecting potential impacts of the MCM in the future.

Challenges of extending the MCM to derivatives linked to other EU Virtual Trading Points (VTPs)

• ACER finds valid arguments for extending the MCM only to VTPs where the liquidity of gas derivative trading is modest to high. ACER considers that the extension of the MCM to other VTPs would not likely lead to significant negative effects in gas markets.
• ACER finds valid arguments for using the same activation and de-activation conditions, making use exclusively of the Dutch TTF front-month price and the same dynamic price-bidding limit at the EU VTPs (where the MCM is extended to other VTPs).

No technical reasons to review the key design elements of the MCM

• ACER could not identify a need for revising the price references used for calculating the reference price.
• ACER could not identify technical reasons to change the current activation or de-activation conditions of the MCM or for changing the dynamic price-bidding limit.

ACER will continue monitoring the effects of the MCM in energy markets and on security of energy supply.

ACER Market Correction Mechanism Effects Assessment Report.

ESMA Effects Assessment of the impact of the Market Correction Mechanism on financial market.

Further information on the Market Correction Mechanism.

Mandated by law, the European Resource Adequacy Assessment (ERAA) is ENTSO-E’s annual assessment of the risks to EU security of electricity supply for up to 10 years ahead. ENTSO-E is the European association of Transmission System Operators (TSOs) for electricity.

The ERAA should provide an objective basis for identifying electricity adequacy concerns and assess the need for any additional national measures ensuring security of electricity supply such as the introduction of temporary capacity remuneration mechanisms.

In the ACER Decision published today, ACER decided to neither approve nor amend ENTSO-E’s ERAA 2022.

ERAA 2022 was not approved by ACER

On ERAA 2022, ACER finds several positives:

• ACER acknowledges ENTSO-E’s substantial efforts to improve ERAA 2022 in the context of an unprecedented energy crisis.
• ACER points to improvements on some methodological aspects, such as the investment model and demand-side response, and input assumptions.
• ACER recognises ENTSO-E’s enhanced stakeholder engagement and transparency.

However, ACER also finds room for improvement:

• ERAA 2022 has certain simplifications or deviations from the methodological framework that compromise the robustness of the assessment.
• ERAA 2022 underestimates the revenues that capacity resources could make in the energy market, and the volume of cross-zonal capacities.
• ERAA 2022 should be aligned with the European Union’s Fit-for-55 policy objectives.

Hence, ACER considers that ERAA 2022 does not provide a fully objective basis for identifying the risks to European security of electricity supply. In particular, the underestimation of revenues in the energy market does not adequately capture the opportunities for existing power plants to continue running to meet system needs (instead of retiring) or the incentives to attract new resources in the power system. Similarly, the quantity of cross border electricity trade is underestimated in the ERAA 2022 report. For example, Member States are making electricity supply available to neighbours particularly for security of supply reasons (one example being France becoming a net importer in 2022 per French nuclear production being particularly low). Such underestimations may lead to incorrect policy decisions with possibly negative implications for the integration of the electricity market and/or result in higher costs to consumers.

All in all, against this background ACER has decided it is not in a position to approve ERAA 2022.

ERAA 2022 was not amended by ACER

ACER considered amending ERAA 2022 and concluded that it would not be feasible within the required 3-month decision-making timeframe. An amended ERAA 2022 would be of limited value given that ERAA 2022’s scenarios are becoming increasingly outdated in the current, fast-evolving context.

ACER guidance for ERAA 2023

ACER’s decision provides recommendations intended as guidance for ENTSO-E to ensure a successful implementation of the next edition of ERAA. These concern primarily the use of reliable and transparent input data (in particular scenario assumptions reflecting the EU’s Fit-for-55 objectives) and the effective implementation of the methodological framework (in particular the robust consideration of market revenues and cross-zonal capacities).

The ERAA assessment is the cornerstone of the EU`s long-term adequacy framework, foreseen in the (2019) Clean Energy Package of EU legislation to provide (from 2021) an objective basis to identify electricity adequacy concerns. A robust pan-European security of supply assessment is a much-needed input for Member States, and even more so in the context of the ongoing war in Ukraine and the energy crisis. ACER and the NRAs are committed to continue working together with ENTSO-E and the TSO community to close the remaining implementation gaps for a robust ERAA 2023.

Access the ACER Decision and its Annex.

The annual ACER Market Monitoring Report (MMR) presents the main results of monitoring the European internal electricity markets and recommends further actions to foster their integration.

In 2023, ACER will publish a series of topical overviews of the energy market situation, covering the year 2022. The Wholesale Electricity Market Monitoring 2022 – Key Developments published today is the first of these publications.  

What were the main wholesale electricity trends in 2022?

• The energy crisis combined with a mild winter led to a decrease in electricity consumption, especially during the last quarter of 2022. Demand reduction resulted in lower power generation.
• Although electricity production from renewables remained almost constant, emissions increased due to the rise in coal and gas power generation, and low nuclear production.
• Installed capacity of renewables reached a new record in 2022, while coal-installed capacity decreased. However, the use of coal-fired power plants significantly increased since 2020. See the ACER’s interactive dashboard for the evolution of generation from renewable energy sources compared to fossil fuels (by selecting the years 2020 and 2022).
• A sharp increase in day-ahead prices. The post pandemic economic recovery and Russia's invasion of Ukraine dramatically affected gas prices, which led to an increase in electricity prices across the EU.
• Forward markets also reached high price levels in 2022, especially for products for delivery in autumn and winter months.
• Negative day-ahead electricity prices reached pre-2019 levels. This seems to be correlated with demand reduction, as 50% of the negative prices were observed during the last quarter of 2022 and 20% in December alone.

ACER shall adopt a recommendation for identifying good practices for the treatment of investment requests for projects of common interest (PCIs), as tasked by the (2022) Regulation on guidelines for trans-European energy infrastructure.

In light of revised Trans-European Networks for Energy (TEN-E) provisions, and building on the experience gained with latest cross-border cost allocation (CBCA) investment requests, ACER is updating its (2015) CBCA Recommendation.

As part of this process, ACER invites stakeholders to submit their views on the existing CBCA Recommendation, including:

• Scope of ACER CBCA Recommendation;
• Role of scenarios and of cost-benefit analysis in the cross-border cost allocation;
• The allocation and compensation mechanism; and
• Cross-border cost allocation for offshore projects.

The public consultation will run from 23 February until 31 March 2023.

What are the next steps? 

ACER will evaluate the received feedback and take it into consideration when drafting the document.

The updated CBCA Recommendation shall be adopted by 24 June 2023.

Access the public consultation.

ACER publishes today its report on Italy’s proposed gas transmission tariffs. ACER assessed the proposed methodology to calculate the gas transmission tariffs, including:

• The distance cost driver that is used to calculate tariffs in the Italian network;
• The discounts proposed for the exit point to Malta; and
• The proposed application of tariffs for the region of Sardinia.

What are ACER’s main findings?

Whilst acknowledging that the public consultation of the Italian National Regulatory Authority, ARERA, is very well documented and very informative, ACER recommends that ARERA improves:

• The proposed commodity-based tariffs; and
• The proposed approach to setting tariffs in the region of Sardinia.

Access the report on the Italian gas tariffs.

Access all ACER reports on national tariff consultation documents.

The national regulatory authorities (NRAs) of the Nordic Capacity Calculation Region requested from ACER an extension of six months to agree on the Nordic Transmission System Operators’ (TSOs’) proposed amendment to the market-based cross-zonal capacity allocation methodology.

The Nordic Capacity Calculation Region comprises the following 3 countries: Denmark, Finland and Sweden.

What is the market-based allocation process?

The market-based allocation process compares the market value of cross-zonal capacity for the electricity balancing capacity market with the forecasted market value for the day-ahead electricity market. It then allocates the capacity to the market that generates the most welfare by using the cross-zonal capacity, which:

• allows the integration of balancing capacity markets;
• creates welfare;
• lowers the costs for the procurement of balancing capacity;
• lowers the costs for tariff payers; and
• ensures security of supply.

What are the next steps?

ACER intends to decide promptly on this request from the Nordic NRAs.

Access the Public Notice.

The European Commission held a public consultation on the reform of the EU’s electricity market design from 23 January 2023 to 13 February 2023.

ACER and the Council of European Energy Regulators (CEER) in their joint response welcome the European Commission’s attention to long-term markets as the key enabler for investment stability and affordability for consumers.

The ACER-CEER response to the Commission’s consultation comprises their replies to the questions asked by the Commission in its consultation as well as additions to the replies in the Annex (also submitted to the Commission as part of our consultation response). In the Annex, ACER and CEER delve deeper into elements that are subject to consultation:

1. contracts for differences; and
2. obligations on suppliers to offer fixed-price contracts to household consumers.

In addition, the Annex highlights several important aspects of the electricity market design framework that were not addressed by the Commission in its consultation, yet in our opinion, have a significant impact on electricity market functioning:

3. The adequacy of minimum cross-zonal electricity capacity requirements;
4. The importance of the integrated intraday and balancing market;
5. Continuous growth of implementation delays in key integration projects;
6. The adjustment mechanism for decrease of maximum clearing and bidding prices; and
7. Legal framework for offshore wind.

Read the ACER-CEER Response and Annex.