Why (and how) to regulate Power Exchanges in the EU market integration context?

Power Exchanges (PXs) are key market institutions in open and market-based electricity industries. This paper aims at contributing to the ongoing debate on why and how to regulate Power Exchanges in the EU market integration context. . The paper starts by stating that two different types of PXs have to be distinguished, i.e. "Merchant" PXs and the "Cost of Service Regulated" PXs. The paper continues by comparing the typical incentives of these two types of PXs to perform the basic PX tasks in an isolated national market and in a market integration context. The paper concludes by deriving from this analytical frame the most relevant regulatory actions..Regulation, Exchanges, Grid access, Power Markets.

Implicit Auctioning on the Kontek Cable: Third Time Lucky?

Cross-border capacities in Europe are currently inefficiently used. Implicit auctioning is about eliminating these cross-border trade inefficiencies by internalizing the arbitrage into the auction procedures of the Power Exchanges that are organizing trade nationally. On the Kontek Cable, implicit auctioning has been implemented without price coordination between the involved Power Exchanges. This implementation, referred to as “volume or dome coupling” as opposed to “price coupling”, has been argued to be institutionally easier to implement. The Kontek Cable experimented with three different implicit auctioning implementations whose performance we analyze empirically in this paper. We find that the third implementation is significantly outperforming the previous two implementations, but in this third implementation stakeholders partly abandoned the volume coupling approach they initially believed to be a viable alternative to price coupling.electricity, transmission, congestion management, market coupling

Mobilizing Cities towards a Low Carbon Future: Tambourines, Carrots and Sticks

In the transition towards a decarbonized energy system, we need city authorities to lead by example as public actors, to govern the actions of the private urban actors as local policy makers, and to conceive and manage the implementation of an integrated approach as coordinators, which we introduce in this paper as three levels of city smartness. Local governments however have institutional disincentives to act, and if they do act, they are confronted with urban actors that are reluctant to follow. This paper analyzes how city pioneers in Europe have been able to overcome these disincentives thanks to a combination of local circumstances and interventions by higher levels of government. We categorize the state of the art instruments that have been used by higher levels of government into “tambourines”, “carrots”, and “sticks”, and reflect on how the state of the art could be improved.cities; climate change; governance

Power Exchange Auction Trading Platform Design (Ontwerp van een veilingsysteem voor elektrische energiebeurzen).

Deze studie analyseert de door elektrische energiebeurzen georganiseerde veilingen in Europa. Beurzen zijn instituties die de groothandel in elektrische energie vergemakkelijken. De meeste beurzen organiseren aparte veilingen een dag voordat de levering plaatsvindt voor elk uur van de volgende dag. Generatoren, grootverbruikers, leveranciers en handelaars optimaliseren hun portfolios via deze handelsplatformen.Initieel organiseerden de meeste beurzen in Europa handel binnen nationale grenzen. In toenemende mate worden ze ook betrokken bij het organiseren van grensoverschrijdende handel. De veranderende context impliceert nieuwe uitdagingen maar hernieuwt ook de discussie over hoe vroegere uitdagingen werden aangepakt.Dit werk geeft inzicht in de problemen waarmee beurzen te kampen hebben. Het veilingsysteem is gemodelleerd als een optimalisatieprobleem met beperkingen en alternatieve oplossingen worden onderzocht. In zijn rol als veilingmeester, ontvangt de beurs door marktpartijen geïntroduceerde orders en beslist dan welke orders te aanvaarden en aan welke prijzen de contracten worden afgerekend. Het nemen van deze beslissing is niet vanzelfsprekend door netwerkbeperkingen, order formaten (blokorders) en politieke beperkingen. De tekst is onderverdeeld in drie delen die respectievelijk deze themas bespreken.

First series of cross-border cost allocation decisions for projects of common interest : main lessons learned

QM-02-15-058-EN-NFollowing the procedure introduced by the TEN-E Regulation, thirteen power and gas infrastructure projects from the list of “projects of common interest” have recently received a cross-border cost allocation decision. These decisions include twelve coordinated decisions by national regulatory authorities and one decision by the Agency for the Cooperation of Energy Regulators (ACER). • For most projects, the countries that are expected to apply part of the investment on their own territory are also a net beneficiary of the project. In one case, the cost benefit analysis indicates that the costs clearly outweigh the benefits for one of the involved countries (i.e. net loser). The decision has been to compensate this country. In three cases, countries have agreed to a cross-border cost allocation with compensation, even if none of the involved countries is expected to be a net loser. • In this brief, we determine the extent to which this first series of cross-border cost allocation decisions complies with the TEN-E Regulation, ACER’s Recommendation, and FSR’s recommendations. We find that the expected improvement in cross-border cost allocation decisions is ongoing, but the gap between practice and recommendations remains. • To reduce the gap, we have updated our recommendations into six lessons learned: [1] revisit the significance threshold and the interaction with the Connecting Europe Facility, [2] promote the good practice of using market tests to improve the cross-border cost allocation decision, [3] require a complete cross-border cost allocation decision, [4] continue to use the results of the cost-benefit analysisto facilitate innovative cross-border cost allocation decisions, [5] continue coordinating these decisions for strongly interacting projects, and [6] start including binding commitments in the decisions, especially with respect to the commissioning date

Smart Regulation for Smart Grids

Climate change and security of supply policies are driving us towards a decarbonization of the electricity system. It is in this context that smart grids are being discussed. Electricity grids, and hence their regulatory frameworks, have a key role to play in facilitating this transformation of the electricity system. In this paper, we analyze what is expected from grids and what are the regulatory tools that could be used to align the incentives of grid companies and grid users with what is expected from them. We look at three empirical cases to see which regulatory tools have already been applied and find that smart grids need a coherent regulatory framework addressing grid services, grid technology innovation and grid user participation to the ongoing grid innovation. The paper concludes with what appears to be a smart regulation for smart grids.Regulation, innovation, electricity, grids, transmission, distribution

Modeling the Cost of Achieving a Renewable Energy Target: Does it Pay to Cooperate Across Borders?

Electricity markets are increasingly integrated across borders, but transmission and renewable energy policies often remain local and uncoordinated. In this paper, we analyze how cooperative behavior in developing renewable energy technologies across borders and/or cross-border transmission capacity investment can reduce the cost of achieving a renewable energy target. We use a three step equilibrium model with: i) transmission investment, ii) generation investment and iii) electricity market that we apply to an interconnected two zone system. We find that it pays to cooperate if the zones have different renewable energy sources, but the success of a renewable energy cooperation also depends on cooperation in transmission development, which is therefore an important interaction to take into account in renewable energy policy discussions.renewable energy; transmission network; electricity market; modeling

The issues that shape strategy

Companies do not only compete in markets; they also compete on social and political issues. Depending on the business opportunities or threats they identify related to an issue, companies will behave as veterans that defend the status quo in an industry, as reformers that will work with the authorities to change the rules of the game, or as heroes that help solve an issue. In this article, we identify the typical elements of success for each of these three generic nonmarket strategies. We do this based on a framework that focuses on the framing of issues, the alliances that can be mobilized around an issue, and the arenas that can be used to make a move

Electricity market reform : what is (not) in the European Commission proposal

In 2022, we experienced an unprecedented energy crisis. Governments intervened to help consumers pay their bills and to apply revenue claw-back mechanisms on utilities. ACER identified a total of 400 emergency measures. The European Commission has also been tasked to draft a market reform proposal in record time. Two main reasons why we like the proposal: it preserves the pricing mechanism of the short-term electricity markets; it complements the existing electricity markets with regulatory measures to address the main concerns that emerged during the crisis: energy poverty and inflation; insufficient hedging by consumers and retailers; difficulties in accessing cheap renewables by consumers; and investment uncertainty. Recommendation to improve the proposal: it could include the development of detailed guidelines for the implementation of two-way CfDs. Developers that sign such a contract should still be exposed to the incentives of short-term wholesale and balancing prices. Risk for the trilogue negotiations: The proposal does not foresee that Member States can continue with revenue claw back mechanisms and/or (regulated) long term contracts for existing assets. Some Member States might want to add that option to the proposal. Undermining investor confidence in this way would be unfortunate because we have to speedup investments to comply with the Fit-for-55 Package. Need for a bigger reform (with impact assessment during the next Commission mandate): If we modernize and Europeanize capacity mechanisms, they can guide the investments we need in backup solutions for a renewable-based system, which includes demand response and storage

Decarbonizing the European Electric Power Sector by 2050: A tale of three studies

If Europe is serious about climate change, it has to reduce its overall greenhouse gas emissions by 80% by 2050, thereby effectively going to a (near-) zero carbon energy and thus, electricity system. The European Climate Foundation, Eurelectric, and the International Energy Agency have consequently published a study elaborating on the final goal of this transition. The studies project scenarios of how such a (near-) zero electricity system would look like and provide recommendations on the policies needed to guide the transition. In this paper, we observe that these studies tell a tale with many similarities. In spite of increased energy efficiency, the electricity demand is projected to increase substantially, with up to 50% from today towards 2050, due to shifts from other sectors towards electricity. This demand will be supplied by a minimum of 40% electricity generation by RES, with the remainder being filled up with nuclear and fossils with CCS. The importance of grid reinforcement, expansion, and planning in this context is emphasized in all three studies. While all three studies further recommend relying on the EU ETS for the transition, the European Climate Foundation and the International Energy Agency consider continuing with targets for RES in combination with a more harmonized EU RES support scheme.European Energy Policy; Electric power generation; decarbonization