EURELECTRIC Members face serious and urgent problems with market integration

News Article

Stakeholders in Europe’s electricity markets are noticing a decrease in market integration due to reduced traded volumes and (increased) congestion caused by missing infrastructure. This is partially due to the growing location-specific and highly variable renewable generation. It is also partially a governance issue for European regulators and TSOs to solve.

Available interconnector capacity has been decreasing over the last years, making it difficult to trade across borders. At the same time, physical flows have been changing in pattern over the last years especially in the occurring loop flows. EURELECTRIC therefore supports the ongoing efforts of the ENTSO-E Bidding Zone Study, which should help to understand how to improve the configuration in a way that enables the single European Market.

EURELECTRIC takes note of the fact that there may be underlying needs to change bidding zone configuration. However, it must be acknowledged that this could be a challenge for current hedging needs and that new financial products must evolve. Changes in bidding zones must be based on expectations of market efficiency and technical network constraints feeding into a cost-benefit analysis from a cross border perspective. It is EURELECTRIC’s desire that the implementation of the new network code for congestion management (CACM) also includes the creation of proper procedures and safeguards for when and how bidding zones are reviewed, and occasionally changed. This process should be well coordinated with the ENTSO-E Bidding Zone Study and, where possible, aligned in process and timing.

Failure to realise network development plans is a major cause of concern, as missing infrastructure can force markets to split. In cases where plans to increase capacity exist, but little happens due to NIMBY or other procedural problems, EURELECTRIC urges political action. Delaying infrastructure development may cause unnecessary strains on markets, and force markets into splitting to solve structural congestions which could have been dealt with by building more infrastructure or by redispatching and countertrading. In this context, the German – Austrian bidding zone is an area of great concern. Significant physical loop flows in the grids of its Eastern neighbours prevent proper market functioning for the respective market participants. EURELECTRIC sees an increased role for coordinated action, where bidding zone reviews better reflect underlying networks instead of geographical borders. In the future, bidding zones could be merged or split, and the future governance of such zones must be further discussed in the context of a regional approach to system operation amongst the Member States concerned and their neighbours and other stakeholders.