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Internal electricity market (dir 2009/72/EC) and progress reports on internal market (unit 336)

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The third package of energy liberalization has set up the milestone of completion of internal energy market (IEM) by year 2014, for both gas and electricity. In order to do so, targets were established and rules and process specified in order to achieve the targets. The lecture will explore the definition, meaning, content and perspectives of the internal energy market target for the power sector, focusing on the requirements set up by directive 2009/72/EC and on the monitoring activity to fulfil it.

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Internal electricity market (dir 2009/72/EC) and progress reports on internal market (unit 336)

  1. 1. Internal electricity market; Directive 2009/72/EC; progress reports on internal market Fulvio Fontini Department of Economics and Management University of Padua, Italy and Co-chair ESS TF, ACER/CEER Ljubljana and Bruxelles
  2. 2. In this presentation, we shall focus on: a) the multilevel approach laid down up by the Directive 2009/72/EC and followed by the various bodies involved to achieve the internal energy market in electricity b) the progress reporting activities about it. Content of the presentation:
  3. 3. 1. The top-down and bottom-up approach to the IEM target: ACER, ENTSO-E and Regional Initiatives. Content of the presentation: 2. The Target Models for the electricity sector: I. Market Coupling; II. Cross-Border Intraday; III. Long Term Transmission Rights; IV. Capacity Calculation.
  4. 4. Content of the presentation: 3. Monitoring electricity markets: the Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets
  5. 5. • Bring the benefit of market integration to to European consumers and industries has long been the aim of the European regulation of Electricity and Gas • The Third Energy Package has set up a coherent set of rules, procedures and institutions to achieve this target. 1) Top Down and Bottom –Up Approach to Market Integration
  6. 6. • The rational is to spell out market design at all levels (i.e. for all time frames, Countries, Borders) to foster the accomplishment of the Internal Market in Electricity through a proper set of Network Codes • This is the Top-Down approach of regulation to the IEM target. 1) Top Down and Bottom –Up Approach to Market Integration
  7. 7. • However, there was (and partially still is) also a bottom-up approach: throughout time several local initiatives were implemented to solve local obstacles to exchange (in particular power exchange) among two or more close Countries, focusing in particular on cross border exchange. 1) Top Down and Bottom –Up Approach to Market Integration
  8. 8. • The European Regulatory Group for Electricity and Gas (ERGEG) launched in 2006 Regional Initiatives, aiming at bringing together stakeholders (Regulators, TSOs, etc.) to foster integration at regional level. • The RI focused on seven regional electricity markets in Europe, as an interim step to creating a single-EU electricity market: 1) Top Down and Bottom –Up Approach to Market Integration
  9. 9. • Baltic (EST, LT, LI); • Central-East (AU, CZ, DE, HU, PL, SL, SI); • Central-South (AU, FR, DE, GR, IT, SI); • Central-West (BE, FR, DE, LU, NL); • Northern (DK, FL, DE, NO, PL, SW); • South-West (FR; SP, PL); • France-UK-IE. 1) Top Down and Bottom –Up Approach to Market Integration
  10. 10. • Regional Initiatives coexist with the top- down approach. Some competences progressively reduced/absorbed by the work carried on by ACER to implement the IEM target. 1) Top Down and Bottom –Up Approach to Market Integration
  11. 11. • However, ERI still play an important role. E.g.: The NWE Price Coupling = market coupling of all the bidding areas within the CWE, Nordic and Baltic regions and GB using a single algorithm (the Price Coupling of Regions) 1) Top Down and Bottom –Up Approach to Market Integration
  12. 12. All stakeholder agreed on the need to develop a common view on the intermediate aims to reach the ultimate goal of the Internal Energy Market. 2) Target Models Four “Target Models” were set up: I. Market Coupling; II. Cross-Border Intraday; III. Long Term Transmission Rights; IV. Capacity Calculation.
  13. 13. Integration of market through implicit allocation of cross-border capacity (single algorithm to clear interconnected markets, capacity is used on the basis of its implicit value, i.e. price differential across zones). 2) Target Models  Target model of Market Coupling:
  14. 14. 2) Target Models The Target Model for the day-ahead: a single European price coupling => no “wrong-way” flow and improved use of cross border capacity.
  15. 15.  Target Model for the Cross-Border Intraday 2) Target Models Aim: a single European continuous implicit mechanism for cross-border Intraday, which allows to continuously trade intraday and perform short-term arbitrage.
  16. 16.  Target model for the Long Term Transmission Rights 2) Target Models Either Financial TR or Physical TR with use-it-or- sell-it condition (except where cross-border financial hedging products are available in liquid markets).
  17. 17.  Target Model for Capacity Calculation Flow-Based Capacity Calculation Method for Short-Term Capacity Allocation: instead of pre- defining a certain level of maximum commercial exchange capabilities for each border between bidding zones (NTC), flow-based calculates endogenously critical margin of each “critical” grid element. 2) Target Models
  18. 18. Priority has been given (and NC adoption most advanced) on:  Capacity Allocation and Congestion Management NC (Guideline): a harmonised approach to cross-border electricity trading in Europe, set out the rules for congestion management, i.e., the management of scarce transmission capacity among different parties. 2) Target Models
  19. 19. The Target Models have been identified to bring about the benefit of the IEM to consumers in EU: However, this implies the need to measure and evaluate the integration of the Energy Markets at the EU level. Such a competence and duty has been attributed by regulation 713/2009 to ACER, pursuant article 11. 3) Market Monitoring
  20. 20. ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2013. It is a comprehensive study of (barriers to) competition in energy markets in Europe, performed by ACER and CEER. Focuses on Electricity and Gas, not just on cross border issue. 3) Market Monitoring Report
  21. 21. It is huge: 279 pages! Here we focus just on electricity (with exceptions). Sections: 1) Retail markets 2) Wholesale markets and network access 3) Consumers protection and empowerment All pictures are taken from CEER/ACER MM Report 2014 3) Market Monitoring Report
  22. 22. 1) Retail markets. A crucial topic also for the Commission. Huge effort to standardize and compare different retail markets in different countries. 3) Market Monitoring Report Some critical findings: a) retail prices are different across EU and are rising, even in a period of continued low economic growth, mostly due to non-contestable charges.
  23. 23. 3) Market Monitoring Report
  24. 24. 3) Market Monitoring Report
  25. 25. 3) Market Monitoring Report b) Weight of RES-E support scheme is unevenly distributed across MS and for some MS is a significant part of the final price
  26. 26. 3) Market Monitoring Report
  27. 27. c) Retail competition is unevenly distributed across MS. There is a limited switching behaviour. 3) Market Monitoring Report
  28. 28. 3) Market Monitoring Report
  29. 29. 3) Market Monitoring Report
  30. 30. 1) Wholesale Markets and Network Access Reasons: two fundamental pillars of ACER and NRAs activity to implement the Third Package. Moreover, network access is explicitly mentioned in art. 11 of Reg. 713/2009 A) Progress in D-A price convergence; B) progress in market coupling; 3) Market Monitoring Report
  31. 31. 3) Market Monitoring Report
  32. 32. 3) Market Monitoring Report
  33. 33. 3) Market Monitoring Report
  34. 34. 1) Consumers Empowerment (application of Dir. 72/2009): testing implementation of Third Package, in particular a) Supplier of Last Resort; b) Vulnerable consumers (NB: no common definition). 3) Market Monitoring Report
  35. 35. 4) Market Monitoring Report S.O.L.R.: a mean to guarantee the Universal Service Obbligation, foreseen for Electricity but not for Gas
  36. 36. 3) Market Monitoring Report
  37. 37. End of Presentation. Thank You! E-mail: fulvio.fontini@unipd.it

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