We recognize that the electricity market suffers from liquidity issues. Eurelectric supports evolutions or initiatives aiming at bringing benefits in terms of liquidity of the forward market. A better liquidity improves the hedging of the risks for all market participants (producers, suppliers, aggregators, …) of the forward market. This initiative from ACER and CEER is therefore welcome and seen as a good starting point for further discussions. However, we regret that ACER report focuses on LTTR which is only a part of the problem and does not address some of the fundamental factors concerning hedging. We encourage to pursue the discussions with stakeholders on a larger scope.
Efficiency of forward market needs liquidity. Liquidity requires simplicity and transparency. Some of the ACER proposals (options 2 to 5) are introducing high level of complexity that could jeopardize the attractiveness of forward markets. We also want to remind that unstable regulatory framework also leads to important liquidity reduction. This can be for instance observed currently in the Iberian market where the recent interventions in the spot market led to an important reduction of liquidity in the forward market. Another important impact on the liquidity is that EMIR put a stop to the use of non-fully backed bank guarantees in the power and gas sectors from March 2016, which lead to reduction of liquidity in the market.
The current consultation take place in a context of high prices and discussions about how to improve the electricity market design. Upcoming FCA revision will probably as well. We take note that ACER-CEER focuses in this report and consultation on the 3 years’ time horizon of forward markets adapted to hedging decisions of market participants and not on longer time horizon adapted notably to investment decisions. Eurelectric believes that there is a need for complementary mechanisms / long-term price signals to ensure the necessary investments with view to the energy transition toward the net zero objective. Hence, we welcome the upcoming publication announced by ACER-CEER of another policy paper dedicated to relevant tools to be developed for hedging long-term investments (cf. page 4 of the report). A wide stakeholder involvement and consultation process is of course expected on this topic.
By ticking "neutral" for some options, this should be interpreted as a call from our side for further assessment of the impact of the options on liquidity of forward markets. Our comments on those options should be considered as our initial reactions based on our current understanding of the measures. We would however welcome further discussions on those options to be able to finetune our positioning.
At this stage, we consider that some of the options may not fit a “one-size-fits all” approach and would require further assessment.