The path from regional electricity markets to a pan-European market

Building a comprehensive EU market integration strategy

The prospect of introducing an increasingly large share of RES into European electricity markets should be seen as an opportunity, which will bring new impetus to market integration. The combination of larger and more liquid wholesale markets and new grid investment opens up more possibilities to accommodate intermittent generation, reinforce security of supply and allow deployment of RES, with the least cost to society.

This EURELECTRIC eport champions an EU market integration strategy based on the development of robust regional markets, which build on best practices and pilot projects.

Eurelectric believes in an oil-spread approach, thus paving the way for a pan-European market to emerge from a CWE-Nordic core market, which will gradually expand as neighbouring regions and countries link up to it over time. Although recent developments in regional markets have been a firm step in the right direction, they have been insufficiently market-focussed and are unlikely to develop organically into a fully fledged pan-European market. In EURELECTRIC’s view, an overall EU market integration strategy is urgently needed and should:

  • be an inclusive process embracing all pan-European countries. In particular it needs to set out the market fundamentals, with which countries with recently liberalised energy markets need to comply in order to develop liquid wholesale markets with trustworthy prices;
  • be focussed on a limited number of priorities conducive to market integration. In practical terms, this should be done by enlarging spot markets through day-ahead market coupling and the introduction of continuous cross-border intra-day trading platforms;
  • build on governments’ commitments, market forces and best practices to develop robust regional markets as a stepping stone to the development of a pan-European market;
  • ensure a high level of coordination between regions, allowing them to develop in a consistent manner, on the basis of specific target models (covering all trade timeframes) and following well-defined roadmaps. Such a process will require an interactive interplay between the regions and a supervisory/monitoring function.

Eurelectric recognises that an important step was made in 2009 when agreement was reached within the Project Coordination Group on five target models for forward, dayahead, intra-day and balancing markets and capacity calculation. This work, which was widely acknowledged at the 17th Florence Forum, has been continued through the establishment of the ERGEG Ad Hoc Advisory Group (AHAG). Whilst this group will help to foster greater coordination and progress on the ground through the implementation of concrete projects, it was not given the task of liaising with regions, nor of engaging in
essential dialogue with them on the implementation of the target models and roadmaps. A comprehensive EU market integration strategy should therefore address this missing link.

To address this, Eurelectric recommends establishing a genuine culture of cooperation within and across the regions so that governments, regulators, TSOs, Power Exchanges (PXs) and market stakeholders, with the assistance of the European Commission, are all closely involved in making the single electricity market become a reality. This requires:

  • governments to take on a more active role in creating political momentum by drawing up a detailed and well defined Memorandum of Understanding (MoU), which will set the priorities of the regional cooperation, with the primary aim of fostering wholesale markets. Following this, regular Ministerial meetings should be held to oversee and monitor the implementation of the MoU;
  • the European Commission to define a more comprehensive market integration strategy. Furthermore, the Commission needs to allocate sufficient resources to regional markets, maintain a strong presence and lead in the AHAG and ensure that regular reports are submitted to the EU Council of Ministers on regional market strategy and state of progress.
  • the regulators to cooperate closely in order to speak and act within the region with one voice. The involvement and commitment of regulators is key in ensuring consistency across the regions in line with the roadmaps. Likewise greater synergy should be built between governments’ projects and regulators’ initiatives; in cases where they both exist, they are currently insufficiently linked;
  • the TSOs to work more closely with one another within and in particular across the regions, in order to coordinate their actions and implement market solutions, which will facilitate inter-regional integration. Of equal importance is the need to strengthen cooperation between TSOs and PXs, facilitated by mediation where appropriate;
  • PXs to put in place mechanisms which comply with the needs of the market. They also need to establish robust and reliable cooperation with TSOs. Even greater cooperation is needed between the PXs themselves so that their role as market facilitator prevails over their commercial ambitions;
  • market stakeholders to be involved extensively and early on in the process of market integration. Arrangements developed by regulators, TSOs and PXs alone are unlikely to result in efficient market-based solutions unless they allow active stakeholder participation at an early stage. Consultation with market parties should preferably, but not exclusively, take the form of an open dialogue as part of a stakeholder platform. Of greatest importance is the development of a genuine culture of dialogue which allows frequent interaction between TSOs, regulators and PXs.

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