IEM: Electricity Market I.
Filip Černoch
cernoch@mail.muni.cz
The electricity system
Networks
• Transmition networks are networked grids of long-distance
power lines.
• Run by transmission system operators (TSOs)
• Usually a natural monopoly – heavily regulated.
• Unbundled (ISO, ITO, ownership unbundling).
• Balances the supply and demand of electricity, participates on
allocation of available transmission capacity.
• Distribution networks take power from TSO and distribute it
to consumers. Managed by distribution-systém operators
(DSOs). Smaller RES are generaly fed into the DSO
ENTSO-E + ENTSO-G
• They develop the standards and draft network codes to help
harmonise the flow of electricity and gas across different
transmission systems.
• They coordinate the planning of new network investments and
monitor the development of new transmission capabilities.
Europe-wide 10 year investment plan to help identify gaps
every two years.
Independent regulators (NRAs)
• Independent both from industry and government´s interests.
Separate legal entities, have their own budget.
• Can issue binding decisions to companies and impose penalties
on those that do not comply with their legal obligation.
• Generators, network operators and suppliers have to provide
them with acurate data.
• Are required to cooperate with each other (ACER).
ACER
• Drafting guidelines for the operation of cross-border electricity
networks and gas pipelines.
• Reviewing the implementation of EU-wide network
development plans.
• Deciding on cross-border issues if NRAs cannot agree or if
they ask it to intervene.
• Monitoring the functioning of the IEM including retail prices,
network access for electricity produced from RES, and
consumers rights.
Power exchanges
• The trading platforms to exchange members submitting bids
for buying and seling power.
• Optional, anonymous, accessible to all participants that satisfy
admission requirements.
• They ensure a transparent wholesale price formation
mechanism by matching supply and demand.
• They ensure that trades are delivered and paid.
Market structure
• Spot markets
• Day-ahead = hourly products with next day delivery.
• Intra-day = hourly products with delivery after 60 minutes and more.
• Futures
• Future delivery, either physical or financial (financial clearing only for hedging
and speculation purposes).
• Balancing market
• To balance the grid, organized by TSOs.
Installed electricity capacity, MW
Gross Electricity Generation, TWh
Latest development: from liberalization to
harmonization of the regulation…
• Hamonisation of the rules on wholesale markets (detecting of
market abuse, prohibiting of using of insider information or
the spreading of incorrect information).
• Regulation of who can use cross-border infrastructure and
under what conditions.
• Access to infrastructure (exemptions from TPA to implement
risky investments which cannot be made otherwise).
• Rules on government intervention (state aid for RES, backup
capacity…).
• Consumer rights and protection.
…and market unification.
• Target model – agreed blueprint for the architecture of both
electricity and gas market. To harmonize cross-border trading
arrangements and link national markets through efficient use
of infrastructure carrying electricity.
• Network Codes (Capacity Allocation and Congestion
Management and others) and Framework Guidelines.
= to encourage cross-border trade to decrease the prices.
Issue 1: From liberalizing the sectors to
integrate them into the IEM
• By building the cross-border infrastructure
• By integrating the national trading mechanisms
Cross-border infrastructure
• Grids designed to serve to the national states, not for crossborder
trading.
• Interconnectors are expensive, attract local opposition and
disputes about the costs and benefit distribution, they invite
competition.
• Every MS should have interconnection capacity equal to at least
10% of its total generatin capacity by 2020 (15% by 2030). Still
missing in 12 countries.
• Supported by European Energy Programme for Recovery, by
Projects of Common Interests (EU budget + European Fund
for Structural Investments), TEN-E…
Electricity interconnection (2014-2016)
Integration of the wholesale electricity
markets
• Primarily focused on day-head markets.
• DA market coupling through the coupling of cross-border
electricity exchanges. Coupling of regional electricity markets –
Nordic market, Central West, North West Europe…
• (DA) market coupling optimises interconnection capacity
utilisation (calculation and allocation) and facilitates linking of
buyers and sellers on either side of a border.
• Cross-border capacity allocation is carried out together with the
financial energy settlement in one single operation at the
exchange (no need for prior reservation of capacity) = implicit
auctioning.
Connection of the intra-day and balancing
markets
• In comparison with DA markets intra-day and balancing markets
are largely national or bilateral.
• Dutch-German border.
• Dutch-Belgium border.
• Nordpool Elbas platform.
• Dutch-Norwegian NorNed interconnector.
• Great Britain on BritNed.
Sources
• IEA (2014): Energy Policies of IEA Countries – The European Union.
• EC (2017): EU Energy in Figures.
• ACER (2016): Market Monitoring Report 2015 – Electricity and Gas
• European Parliament (2016): Understanding electricity markets in the EU.
• European Commission (2017): Second Report on the State of Energy Union:
Monitoring progress towards the Energy Union objectives – key indicators.