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Market Coupling and the Capacity Allocation and Congestion Management Regulation

New Functions for Power Exchanges in a Better Regulatory Environment?

Published online by Cambridge University Press:  07 May 2018

Régine FELTKAMP  and
Gerrit HENDRIKX
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Abstract

This article assesses the manner in which Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (“CACM”) alters the legal context within which power exchanges (“PXs”) perform their activities related to market coupling. By submitting the cooperation among the newly-introduced NEMO-entities, and between these NEMOs and TSOs, regarding market coupling to a new set of rules, CACM affects the market coupling activities of PXs in different ways. This article in particular examines from the power exchanges’ perspective (1) the need for the increased regulation introduced by CACM, (2) how CACM affects their activities in the context of market coupling and (3) whether CACM contributes to a better governance of market coupling.

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Articles
Information
European Journal of Risk Regulation , Volume 9 , Issue 2 , June 2018 , pp. 208 - 226
Copyright
© Cambridge University Press 

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Footnotes

*

Attorney Bar of Brussels (MODO advocaten) and Professor at Law VUB.

**

Attorney Bar of Brussels (MODO advocaten) and Scientific Researcher VUB.

References

1 [2015] OJ L 197/24.

2 CACM, Art 84.

3 [2009] OJ L 211/15, hereafter “Regulation (EC) No 714/2009”.

4 See eg the former Regulation (EC) No 1228/2003 on conditions for access to the network for cross-border exchanges in electricity, OJ L 176/1, Art 5 and Art 6, and the, currently applicable, Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC [2009] OJ L 211/55, Art 6(3), Art 12(c), (d) and (e) and Art 15(5) and Annex 1 to Regulation (EC) No 714/2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 [2009] OJ L 211/1, Art 3.

5 Consentec, Analysis of Cross-Border Congestion Management Methods for the EU Internal Electricity Market (Final report, 2004) 19–21 and 38 and R Füss, S Mahringer and M Prokopczuk, Electricity Market Coupling in Europe: Status Quo and Future Challenges (Mark 10 2017) University of St Gallen, School of Finance Research Paper No 2015/12, 2 and 6.

6 European Commission, DG Competition Report on Energy Sector Inquiry (SEC 1724, 2006), 180 and Füss, Mahringer and Prokopczuk, supra, note 5, 3 and 9.

7 R Feltkamp and C Musialski, “Electricity markets and the functioning of spot power exchanges. A Belgian perspective” [2010] TBM, 20–21.

8 Füss, Mahringer and Prokopczuk, supra, note 5, 10 and Sia Partners, “European Market Coupling: blessing or torment?”, <energy.sia-partners.com/20160913/european-market-coupling-blessing-or-torment>, accessed 19 March 2018.

9 Single day-ahead coupling is defined as “the auctioning process where collected orders are matched and cross-zonal capacity is allocated simultaneously for different bidding zones in the day-ahead market” (CACM, Art 2, 26). Single intraday coupling is defined as “the continuous process where collected orders are matched and cross-zonal capacity is allocated simultaneously for different bidding zones in the intraday market” (CACM, Art 2, 27).

10 We restricted our analysis of governance issues to these topics, since they seemed the most relevant for what concerns CACM’s impact on PXs, which is the main subject of this article. Other aspects of governance covered by CACM, such as TCM to be adopted by the TSOs or cooperation between the regulatory authorities, are – while interesting – of lesser relevance for the subject this article covers.

11 Feltkamp and Musialski, supra, note 7.

12 See also Meeus, L, Purchala, K and Belmans, R, “Development of the Internal Electricity Market in Europe” (2005) 18(6) The Electricity Journal 25 CrossRefGoogle Scholar, <www.researchgate.net/profile/Leonardo_Meeus/publication/222819752_Development_of_the_Internal_Electricity_Market_in_Europe/links/00b7d52fe7e910c78a000000.pdf>, 2, accessed 19 March 2018.

13 The guidelines adopted by ENTSO-e or the European Commission could also specify, to the extent required to achieve the regulation’s aim, details of rules for the trading of electricity (Regulation (EC) No 714/2009, Art 18(3)(b)).

14 According to these principles, amongst others, network congestion problems must be addressed with non-discriminatory market-based solutions, transaction curtailment procedures must only be used in emergency situations, the maximum capacity at the interconnectors must be made available to market participants, market participants need to inform TSOs about their intention to use allocated capacity in a timely manner, transactions that relieve the congestion must never be denied and the revenues resulting from capacity allocation must be used to guarantee the availability of allocated capacity and for network investments that maintain or increase interconnection capacities.

15 An analysis of these guidelines falls outside the scope of this contribution, but it should be noted that these guidelines set forth some general principles (eg TSOs should accept all commercial transactions, there should be no restriction of access to interconnectors if there is no congestion), methods for congestion management, requirements of coordination among TSOs in respect of capacity allocation and congestion management, a timetable for market operations, rules on transparency and rules on the use of congestion income.

16 It should be noted that the provisions of CACM only concern the implicit allocation of available cross-border capacity – this with the sole exception of CACM, Arts 64–67, which (under certain conditions) allow the explicit cross-border capacity allocation as a transitional measure in the single intraday market.

17 According to recital 7 to CACM, two different approaches for calculating the available cross-border capacity are allowed: a flow-based approach (ie a capacity calculation method in which energy exchanges between bidding zones are limited by power transfer distribution factors and available margins on critical network elements) on the one hand, and an approach based on coordinated net transmission capacity. As the flow based approach takes into account that electricity can flow via different paths and optimises the available capacity in highly interdependent grids (CACM, recital 4), CACM requires that the common capacity calculation methodologies for the day-ahead and intraday market time-frames use the flow based approach (CACM, Art 20(1)), except if the TSOs jointly request the competent NRAs to apply the coordinated net transmission capacity approach in regions or bidding zone borders other than North-West Europe, Central Eastern Europe or South East Europe and provided that the TSOs demonstrate that a flow-based approach would not be more efficient and the level of operational security in the concerned region would be equivalent (CACM, Art 20(7)).

18 [2011] OJ L 326/1. See in this respect R Feltkamp, “Insider trading and market manipulation in wholesale energy markets – The Impact of REMIT” in B Delvaux, M Hunt and K Talus (eds.), EU Energy Law and Policy Issues (Intersentia 2014).

19 CREG, Study on the governance of power exchanges: competition of regulation (study (F)140130-CDC-1289), 2.

20 Regulation (EC) No 714/2009, Art 1.

21 For example, Article 5 CACM allows certain member states to introduce (under certain conditions) a NEMO monopoly, CACM, Art 76(2) allows TSOs in a region or member state to contribute to the NEMO costs, CACM, Art 80(4) allows NEMOs and TSOs cooperating in a certain region to determine themselves how regional costs shall be shared among them and CACM, Art 80 leaves the sharing of national costs to the discretion of the participating actors in a given member state.

22 Consolidated Version of the Treaty on European Union [2012] OJ C 326/13, Art 5(1) and Protocol (No 2) to the Consolidated Version on the Treaty on the Functioning of European Union [2012] OJ C 326/206, Art 1.

23 Consolidated Version of the Treaty on European Union [2012] OJ C 326/13, Art 5(3).

24 Consolidated Version of the Treaty on European Union [2012] OJ C 326/13, Art 5(4).

25 See also the critique formulated in section III3 in respect of CACM’s legal basis.

26 See eg Füss, Mahringer and Prokopczuk, supra, note 5, 10.

27 See eg L Meeus, “Why (and how) to regulate power exchanges in the EU market integration context?” (2011) 39 Energy Policy, 1470 and CREG, Study on the governance of power exchanges: competition of regulation (study (F)140130-CDC-1289), 3 and 23. For a description and critical analysis, see R Feltkamp and G Hendrikx, “Power Exchanges and Capacity Allocation and Congestion Management: A New Role in a Better Regulatory Environment?” (2017) 16 OGEL 8.

28 Feltkamp and Hendrikx, supra, note 27, 8–9.

29 European Commission, Proposal for a regulation of the European Parliament and of the Council on the internal market for electricity, (COM(2016) 861 final/2), 19 and 39-46.

30 CACM, Art 2, 23.

31 For a more detailed description of the tasks, see Feltkamp and Hendrikx, supra, note 27, 9–11.

32 As such, NEMOs will receive orders from market participants, match and allocate these orders in accordance with the single day-ahead and intraday coupling results, publish prices and settle and clear the contracts resulting from the trades (CACM, Art 7(1)).

33 All NEMOs, therefore, have the responsibility to: (1) develop and maintain the algorithms, systems and procedures for single day-ahead and intraday coupling; (2) process input data on cross-zonal capacity and allocation constraints; (3) operate the price coupling and continuous trading matching algorithms; and (4) validate and send the single day-ahead and intraday coupling results to the NEMOs (CACM, Art 7(2)).

34 CACM allows them to delegate all or part of any of their tasks, on their own responsibility, to one or more third parties provided these are able to carry out the delegated task at least as efficiently as the delegating NEMO (CACM, Art 81(1)).

35 Unless specified otherwise, the authority competent for designating NEMOs is the national regulatory authority (CACM, Art 4(3)).

36 Interestingly, CACM allows any entity – and not only PXs – to perform the listed tasks by becoming a NEMO through designation.

37 These designation requirements pertain to, amongst others: (1) financial, technological and operational resources; (2) cost-efficiency; (3) non-discriminatory treatment of market participants; and (4) transparency and confidentiality.

38 CACM, Art 6(2).

39 CACM, Art 4(4). A deviation from this principle is only allowed in case a national legal monopoly for trading services exists in the member state concerned at the time of the entry into force of CACM. Member states are then allowed to designate only the NEMO which best meets the designation criteria. Nine different member states (namely Bulgaria, Czech Republic, Greece, Hungary, Italy, Portugal, Romania, Slovakia and Spain) used the exception, and designated a sole NEMO with a monopoly status.

40 R Feltkamp and G Hendrikx, “Who are the NEMOs for day-ahead and intraday market coupling” [2016] EEJ 6, 65. See also the list of designated NEMOs ACER must maintain according to CACM, Art 4(10), <www.acer.europa.eu/en/Electricity/FG_and_network_codes/CACM/Pages/NEMO%20list.pdf>, accessed 19 March 2018.

41 CACM, Art 4(2).

42 CACM, Art 4(8) and (9).

43 CACM, Art 4(5). The receiving member state is only entitled to refuse a NEMO designated in another member state to offer trading services on its territory in the four limitative instances set forth in CACM, Art 4(6).

44 Feltkamp and Hendrikx, supra, note 40, 64.

45 CACM, Art 4(5).

46 CACM, Art 4(8). However, if a NEMO does not comply with the designation criteria in relation to its activities in a receiving member state, the designating authority of this receiving member state can, if the NEMO does not restore compliance within three months after being notified of its non-compliance, suspend the right of the NEMO to offer intraday and day-ahead trading services in this member state until such time as the NEMO restores compliance (CACM, Art 4(9)).

47 For a brief analysis of this question, see Feltkamp and Hendrikx, supra, note 27, 14–16.

48 [2009] OJ L 211/15.

49 CACM, Art 9(6).

50 CACM, Art 7(3).

51 CACM, Art 37(1).

52 CACM, Art 37(2).

53 CACM, Art 36(3).

54 CACM, Art 40(1) and Art 53(1).

55 CACM, Art 9(2).

56 CACM, Art 9(4).

57 CACM, Art 9(7).

58 In which case the relevant TSOs will have to agree to the proposal with the qualified majority applicable to TSOs laid down by CACM, Art 9(3).

59 CACM, Art 9(3) juncto Art 63(1).

60 CACM, Art 9(8).

61 CACM, Art 9(8).

62 CACM, Art 80(4).

63 CACM, Art 9(4). It is unclear whether the TCM adopted under the supervision of the European Commission are subject to approval by the relevant NRAs.

64 CACM, Art 9(10).

65 CACM, Art 9(11).

66 CACM, Art 9(12).

67 The amended MCO-Plan has ultimately been approved by the NRAs on 20 June 2017 (which may be consulted at <www.europex.org/wp-content/plugins/download-attachments/includes/download.php?id=3664>, accessed 19 March 2018). For all other TCM, an amended proposal has been submitted to the NRAs for approval on 13 November 2017. No amended proposal was submitted for the harmonised maximum and minimum clearing prices, as the NRAs referred it to ACER, which adopted the proposal by ACER decisions 04/2017 and 05/2017.

68 The European Commission has recognised the need to strengthen the powers of ACER for those cross-border issues which require a coordinated regional decision in order to contribute to faster and more effective decision making (European Commission, Proposal for a regulation on the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators, (COM(2016) 863 final), 7–8). Art 5(2) of the proposed regulation therefore gives ACER the competence to decide on terms and conditions or methodologies to be adopted under a network code or guideline (ibid, 38–39).

69 CACM, Art 8(1).

70 CACM, Art 8(2).

71 CACM, Art 9(1).

72 CACM, Art 7(1).

73 CACM, Art 10.

74 CACM only contains a rule which limits the scope of the cooperation between NEMOs by dictating that this cooperation must be strictly limited to what is necessary for the efficient and secure design, implementation and operation of single day-ahead and intraday coupling (CACM, Art 7(4)).

75 Note that Art 6(1) of the proposed new Electricity Regulation (the “Winter Package”) intends to require TSOs and NEMOs to jointly organise the management of the integrated day-ahead and intraday markets and to cooperate at Union level, or on a regional basis (European Commission, Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity, 30 November 2016 (COM(2016) 861 final), 42). However, no further clarification on the obligations to cooperate is given.

76 Eg the proposal for a back-up methodology (CACM, Art 36(3)) or the proposal on harmonised maximum and minimum prices (CACM, Art 41(1) and Art 54(1)).

77 Concerning the adoption of TCM, such a failure might not result in a deadlock in decision-making, since specific voting rules apply and certain decisions can be taken by NRAs in cases where the involved parties do not seem to reach an agreement. However, CACM does not foresee in voting rules for decisions to be taken by NEMOs and TSOs in the context of their obligation to cooperate (eg day-to-day management).

78 In the absence of any specific rule in CACM, it seems that NEMOs and/or TSOs would be able, under the conditions imposed by the applicable national law, to hold the NEMO or TSO that failed to cooperate (eg by imposing unreasonable conditions) accountable for any damages they incurred.

79 See Feltkamp and Hendrikx, supra, note 27, 23–24.

80 CACM, recital 23.

81 CACM, recital 24.

82 CACM, Art 75.

83 CACM, Art 80(1) and (2).

84 CACM, Art 80(3)–(5).

85 CACM, Art 76(1).

86 CACM, Art 76(3).

87 CACM, Art 80(5).

88 CACM, Art 80(3).

89 The fact that a NEMO is designated or operating in different member states is thus irrelevant.

90 CACM, Art 80(4).

91 CACM, Art 76(3).

92 CACM, Art 75(2).

93 CACM, Art 9(8)(e).

94 European Commission, Proposal for a regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (COM(2016) 863 final/2), 38–39 and 42–43.