Europe’s electricity grid operator group is unlikely to recommend a split of the French or Polish bidding zones in a forthcoming bidding zone review.
This is partly because the primary focus of the review has been the potential German-Austrian split, according to the European Federation of Energy Traders (EFET), with the necessary consensus for a split of any other zones not even being sought.
The European Network of Transmission System Operators (ENTSO-E) is investigating several scenarios as part of its review, including the splitting of some large bidding zones and merging of smaller ones ( see EDEM 11 April 2017 ). The report could be published as soon as September but the official deadline is March 2018.
The issue of whether ENTSO-E will back the conclusion of the Agency for the Cooperation of Energy Regulators (ACER) in recommending separate German and Austrian bidding zones – as expected – has dominated discussions.
ICIS understands that ENTSO-E is also looking at two German and one Austrian zone but this would appear to be a more unlikely option.
“Political consensus has built up between Germany and its neighbours [excluding Austria] for a split of the German-Austrian bidding zone,” Jerome Le Page, EFET’s manager for European markets told ICIS. “The attention of member states, regulators and stakeholders has focused on that.
“There is little likelihood of political consensus developing for a split in the French or Polish bidding zones.”
The move towards the expected break-up of the German-Austrian zone has been politically disruptive (see ICIS briefing here on the German-Austrian bidding zone split). The change would require a considerable shake-up for stakeholders involved, and this has dampened any enthusiasm for further upheavals.
“The stability of bidding zones is important and it would endanger markets to have another split or merger, say six months, or even a year or two, after a German-Austrian split,” said le Page.
“It is not workable to have changes too frequently, especially as sixty to seventy percent of liquidity in those countries is on the forward market,” he added, a reference to the amount of volume that must be settled against numbers generated in the bidding zones.
For example, power derivatives exchange EEX has previously said energy traders have around €25bn worth of open positions that settle against an index generated in the joint German-Austrian zone ( see EDEM 1 September 2017 ).
The association of the electricity sector in Europe, Eurelectric, has cautioned against the risks associated with bidding zone changes in its official position on the matter: “Just the ongoing risk of repeated bidding zone changes in the short- or medium-term – even without these changes actually taking place – undermines investment signals as well as the forward market,” the group said.
EFET’s Le Page was not aware of French or Polish regulators even holding discussions with stakeholders about bidding zone splits.
A split of either the French or especially Polish single bidding zones would probably divide liquidity and have a negative impact on the markets concerned.
“We prefer active, competitive, liquid markets so a split would be a problem in France or Poland, which are not so active, competitive or liquid,” said Le Page.
This was supported by a French trader at a utility: “The French power market is not very liquid and from a trading perspective a split could to some extent kill liquidity,” he said.
ACER recommended a split in the German-Austrian bidding zone to ease the problem of loop flows of electricity through Germany’s eastern neighbours. This problem has developed because of Germany’s strong electricity demand in the industrial south and renewable supply in the north.
A logical argument could be made to split the French and Polish bidding zones because there are similar geographical mismatches of electricity demand and supply.
In Poland, for example, coal-powered generation, which makes up the biggest part of the energy mix, is based largely in the southwest, while demand is focused on the cities in the northeast.
A trader on the Polish market said the country’s grid operator currently required some power units to run because of their location. “So it’s not the case that the cheapest power plants run, but rather those that are in the right place to generate power for any given part of the country, and that is one argument that could work in favour of splitting the zone,” he said.
However, loop flows have not been a problem, which would indicate interconnector capacity with Poland is sufficient. firstname.lastname@example.org