EU to roll out cross-border price zones under power market 2.0

Europe’s power market 2.0 will be characterised by sprawling price zones spanning across several EU member states, a sharp rise in intra-day cross-border trade, while renewable energy producers in one country will be able to earn market-based subsidies given out by another.

This is European Commission’s vision for a “future-oriented” electricity market, according to a draft document leaked on Thursday.

The commission will push for greater regional cooperation to realise the goal of a single European market which has proven somewhat elusive so far despite progress made through the coupling of markets on a day-ahead basis.

At the core of the draft proposal is a drive to strengthen the status of wholesale market prices as an investment signal for those looking at sinking capital into power generation assets, cross-border interconnectors and demand side management.

Consequently the commission warned strongly against wholesale market price caps in the document, in a bid to allow sufficiently high peak prices, which it said are needed for investment and to successfully integrate renewables into the power generation complex.

Allowing price peaks

Renewables producers should be exposed to these high peak prices which will mean they need to hedge against the risk that their generation forecasts deviate from actual production, the commission said.

It added: “If necessary, existing provisions excluding particular means of power generation from normal market rules have to be revisited.”

As planned renewable dispatch can change up to a few minutes before delivery, the paper highlighted the importance of setting up an EU-wide intraday market to allow over- or under-supply from renewables to be spread as close as possible to real time.

An EU wide intraday market is currently envisaged for 2017.

Well-functioning short term markets including high peak prices should be linked to forward markets through hedging to provide a revenue stream and as such investment signals in generation and infrastructure.

In addition, this would lead to demand-side management which would also help with integrating renewable and providing security of supply, it said.

Cross-border subsidies

The commission is also gearing up for another go at forcing open renewables subsidy schemes to cross-border participation. “A more coordinated regional approach to support schemes could deliver considerable gains, among others by promoting cost-efficient development of renewable generation in optimal geographic locations,” the draft said.

Cable laying

Key in combining regional markets and integrating renewables will be the development of physical infrastructure.

The commission has already identified crucial electricity interconnections which need to be built to better connect certain regions such as the Baltic states, the Iberian peninsula, the northern seas and central and south eastern Europe in its projects of common interest list.

But it also warned that some member states do not use the substantial revenues from congestion charges – revenues stemming from transporting power from low price areas to high price areas – to build or reinforce interconnections. “This should change and these funds could be put to effective use in building Europe’s electricity system,” the commission said.

To turn its power market 2.0 vision into reality the commission wants to change the role of both European regulatory body ACER and European transmission system operator (TSO) umbrella group ENTSO-E. “The need for increased coordination between transmission system operators may, in addition to the establishment of regional operational centres, require a stronger ENTSO-E,” the draft said.

In addition the role of distribution grid operators needs reconsidering, the paper said, as the system will become more decentralised with small scale power generation and demand side management.

The powers and independence of ACER should be strengthened so it can arbitrate in regional and EU disputes, the draft said.

It has been criticised by sources on grounds that national regulator and member states can effectively limit the power of ACER on a European wide level through limiting the amount of funds they provide. Therefore ACER has often called for increased funding in line with greater powers and responsibilities.

The final version of the commission’s legislative proposal on power market 2.0 is expected to be made public on 15 July. A legislative proposal is due to follow in 2016.

The leaked draft was published online on Thursday. The commission refused to comment on its authenticity although its contents were very much in line with market design details that have emerged in recent moths. martin.degen@icis.com