The EU Agency for the Cooperation of Energy Regulators (ACER) has decided not to grant the Swedish Transmission System Operator (TSO) a derogation from the requirement to provide minimally 70% of the transmission capacity for cross-zonal trade (‘70% requirement’).

What is the decision about?

The 70% requirement is one of the cornerstones of the internal market for electricity. However, the relevant  Regulation 2019/943 on the internal market for electricity (Regulation) allows a temporary derogation for the TSOs who cannot comply with this requirement. The derogation may be granted under strict conditions and is subject to the agreement between the concerned National Regulatory Authorities (NRAs) or, in case of their disagreement, the decision on granting such a derogation is submitted to ACER.

Background

On 6 October 2021, the Swedish NRA (Energy Markets Inspectorate, Ei) received the request from the Swedish TSO (Svenska kraftnät, Svk) for a derogation from the 70% requirement for multiple electricity interconnections for the year 2022.

Ei decided that Svk should be granted the derogation for the interconnectors between the bidding zones Finland – Sweden 3 (FI-SE3) and Sweden 3 - Denmark 1 (SE3-DK1). However, the Finnish NRA (EV) and the Danish NRA (DUR) opposed granting the derogations to Svk due to various reasons. Among others, EV and DUR highlighted that the Svk’s request for derogation is incomplete and that Svk does not provide sufficient efforts to ensure required level of redispatching and countertrading to support the 70% requirement. The question of derogation was therefore submitted to ACER.

In its decision of 26 October 2022, ACER concluded that the derogation from the 70% requirement should not be granted to Svk.

How did ACER contribute?

ACER has thoroughly assessed Svk’s derogation request against the relevant requirements specified in the Article 16(9) of the Regulation, and analysed the Svk’s application of the 70% requirement in the previous years.

The assessment confirmed that:

• The derogation was not necessary for maintaining operational security;
• The derogation request did not provide the minimum capacity targets,
• The derogation request did not provide the methodology on how to avoid the discrimination between internal and cross-zonal exchanges.

Based on the above, ACER has concluded the derogation should not be granted.

Access the Decision 17-2022.

Europe’s long-term electricity market relies on so-called long-term transmission rights (LTTRs), which allow market participants to hedge their exposure across bidding zones. The allocation of those LTTRs is currently not coordinated across different borders, which leads to inefficiencies in some capacity calculation regions (CCRs).

To enable the implementation of the long-term flow-based allocation in the Core and Nordic CCRs, and following the all Transmission System Operators’ (TSOs’) proposals, the EU Agency for the Cooperation of Energy Regulators (ACER) is reviewing three proposals for amendments of forward capacity allocation methodologies related to:

• Single allocation platform, including the methodology for sharing costs for its establishment, development and operation;
• Congestion income distribution; and
• Sharing costs incurred to ensure firmness and remuneration of LTTRs.

As part of its review, ACER seeks stakeholder input via:

• Public Consultation, which runs from 26 October to 23 November 2022;
• Public Workshop on 17 November 2022.

Why change the rules?

Cross-zonal capacity is currently allocated at the long-term electricity market with no coordination between different borders (i.e. using a flow-based allocation approach), which leads to inefficiencies in some CCRs. The proposed amendments include requirements for flow-based allocation of LTTRs, aiming to make the long-term market more efficient and align it with the day-ahead market design.

In particular, this revision is needed to enable the implementation of two ongoing projects for long-term flow-based capacity calculation and allocation in the Core and the Nordic CCRs.

How does ACER contribute?

ACER will assess the amendments proposed by all TSOs and revise them where necessary in order to ensure their contribution to market integration, non-discrimination, effective competition, proper functioning of the market, and their compliance with the Regulation on the internal market for electricity and the Forward capacity allocation guideline.

What are the next steps?

ACER has six months (until 28 March 2023) to decide on the TSOs’ proposals.

To collect the views of the stakeholders, ACER’s Public Consultation on the TSOs’ proposed amendments runs from 26 October to 23 November 2022.

ACER invites interested stakeholders to register for a Public Workshop, which will take place on 17 November 2022.

Access the Public Notice.

ACER sees the coming months as a likely key ‘make or break’ moment for EU energy market integration; one where fully making available cross-border capacities for gas and electricity flows will prove key.

Europe’s energy solidarity is being tested with the continuing war in Ukraine. Prices are high. Using different gas supply routes has resulted in network congestion and disrupted gas market’s price integration (see graphs 1 and 2 in Annex). Some Member States face significant supply challenges that are unlikely to go away soon. Other Member States, even if net exporters of energy, depend on imports for significant hours during the year.

If some countries were to pursue strictly national short-term energy interests, e.g. via restricting energy exports, others would likely suffer.

This requires heightened vigilance from regulators, system operators and governments alike.

The solution needs to be European solidarity. Why?

• Maximising capacities for cross-border trade will improve the security of supply of the EU as a whole and help to stabilise electricity and gas prices.
• Cross-border capacity is crucial for market integration (see graph 3 below in Annex), and it is even more critical during an energy crisis where supply margins can become much tighter.
• Electricity imports could be essential for all (see graph 4 below of the import ~ export swings from 2021 to 2022, and how reaching the ‘70% target’ of making electricity interconnection capacity available for cross-border trade be vitally important for many Member States, including those that are predominant electricity exporters)
• Restricting flows between countries is often claimed to be a ‘last resort’, but experience shows that it may be deployed early on to protect what are perceived to be national interests. If all Member States were to ‘play it safe’ and restrict trade, many countries would sooner or later find themselves worse off.

Hence, important role for Member State governments, network operators and regulators to:

• Refrain from announcing export restrictions (‘do not count on me’) which may lead to a contagious effect.
• Make themselves aware of current grid congestion and, alongside system operators, pursue near-term practices to help alleviate this.
• Refrain from reducing cross-border capacity and strive hard to meet the EU rule of 70% of electricity interconnection capacity being made available for trade with neighbours (see graph 5 below which shows critical challenges in meeting the minimum 70% target for electricity).
• Maximise available interconnection capacity for gas flows (implementing congestion management procedures, careful maintenance planning, dynamic recalculation of available capacity, etc.).
• Increase monitoring and, where relevant, enforcement actions towards rules related to cross-border energy trade.
• Raise awareness of how cross-border energy trade is vital to keeping the lights on and houses warm.

See further details, including graphs, in the ACER Press Release.

• New joint ACER–ESMA Task Force
• Enhanced market surveillance and enforcement

The EU Agency for the Cooperation of Energy Regulators (ACER) and the European Securities and Markets Authority (ESMA) are strengthening their cooperation to further improve information exchange and avoid potential market abuse in Europe’s spot and derivative markets.

The two EU agencies have a long-established cooperative relationship considering the interlinkages between spot and derivative energy markets. One of the fora where this cooperation takes place is the Energy Trading Enforcement Forum (ETEF) where the energy National Regulatory Authorities (NRAs), the financial National Competent Authorities (NCAs), ESMA and ACER discuss implementation issues concerning market abuse rules and share their experience in relation to their supervisory activity and enforcement actions to ensure consistency across the EU.

New joint ACER–ESMA Task Force

Market manipulation and its effects may occur across borders, between electricity and gas markets and across financial and commodity markets, including in emission allowances. Regulatory oversight of potential market abuse of the trading in energy and financial products falls under two EU regulatory frameworks, namely the EU Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) and the Market Abuse Regulation (MAR).

While leveraging existing cooperation tools, ACER and ESMA are establishing a joint Task Force to reinforce their cooperation and enhance coordination in respect of the exchange of data and knowledge among their staff and respective national authorities.

This enhanced coordination will further support the investigations and enforcement so that the rules are applied with vigour and in a convergent and holistic way in all national jurisdictions.

Enhanced market surveillance and enforcement

In the current energy crisis characterised by high prices and price volatility, vigilance in detecting market manipulation and insider trading is more important than ever to ensure confidence in EU wholesale energy and financial derivatives trading.

NRAs and NCAs have both supervisory and enforcement responsibilities at national level. At EU level, ACER maintains its own market surveillance system whilst both ESMA and ACER have supervisory convergence and coordination responsibility.

The joint ACER–ESMA Task Force will provide a framework for broadening cooperation on the monitoring of energy and energy derivatives markets. ACER and ESMA are also ready to cooperate in additional areas in the future. This could notably be the case in the context of the possible new LNG benchmark currently under consideration by the European Commission, and with an enhanced monitoring of risks in energy markets, helping to preserve financial stability in EU markets.

ACER and ESMA are committed to promoting supervisory oversight of wholesale markets for energy and financial derivatives by supporting NRAs and NCAs in effective enforcement of possible breaches of the rules and in assisting the European Commission in its work.

Access the Press Release.

The EU Agency for the Cooperation of Energy Regulators (ACER) publishes today its first stand-alone report on the performance of Member States (MSs) regarding security of electricity supply in 2021 (‘Report’). The Report extends the depth and scope of past reporting on the subject in ACER market monitoring reports.

The Report looks into three main areas:

• The implementation of the methodologies to calculate the value of lost load, the cost of new entry and the reliability standard by MSs;

• The short- and long-term adequacy assessments at European and national level; and

• The measures implemented by MSs to address security of electricity supply concerns.

The report does not cover measures deployed as a response to the current crisis.

What are the Report’s key findings?

• MSs gradually implement the ACER’s harmonised methodology to calculate the value of lost load, the cost of new entry and the reliability standard defining the necessary level of security of electricity supply. However, non-uniform approaches in implementation need further attention.

• The short-term and seasonal adequacy assessment framework is largely in place. Only two incidents were identified in 2021 and were tackled by Transmission System Operators (TSOs) in a coordinated manner to avoid possible supply interruptions.

• While ENTSO-E’s pan-European resource adequacy assessment is under development, MSs assess security of supply at a national level. Out of the 14 national assessments conducted in 2021, 7 revealed adequacy concerns in at least one of the next ten years. 

• Cost of additional capacity mechanisms rises to €5 billion in 2021 (+81% from 2020) and is expected to reach €7 billion in 2023, largely directed to conventional power generation. ACER raises attention on potential lock-in effects stemming from long-term contracts and points to incompatibility of such capacity mechanisms’ outcomes with future climate and energy targets.

What are the next steps?

ACER will intensify efforts to monitor the implementation of the adequacy-related methodologies at European and national level and will continue to report on security of supply measures, including those applied as a response to the current energy crisis.

Access the Report.