Regions – the future for the European
Internal Electricity Market?
CERRE Executive Seminar, Brussels, 23 February 2017
Professor Nils-Henrik von der Fehr
Joint Academic Director, CERRE
University of Oslo
Ex postElectricity
evaluationNetwork
The European
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Ex post and
evaluation
Paradoxes
Dilemmas
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National models – but electricity does not respect borders
Limited interconnection – but gains from trade are considerable
National responsibility for security of supply – but incidents affect all
Voluntary process – but costs and benefits are not equally shared
Push for regionalisation – but members may differ considerably
Self-sufficiency in capacity – but energy cannot be contained
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Ex postofevaluation
Content
the Report
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Introduction
The Current Internal Energy Market Paradigm
What Has Happened ‘Regionally’?
Gains from Cooperation and Integration
Criteria for Defining Regions
Responsibilities, Functions and Instruments
A More Mandatory Regional Future?
Governance
Conclusion
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Ex post
evaluation
Status: A Series
of National
Models, but...
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Gradual integration of (wholesale spot) markets
– Multi Regional Coupling of day-ahead markets covering 85 per cent of Europe
– on-going process on intraday markets
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Regional coordination of infrastructure or system development
– Ten Year Network Development Plan (TYNDP)
– Projects of Common Interest (PCI)
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Regional cooperation on system operation
– operational/security coordination centres/service providers,
– Network Codes: Capacity Calculation Regions
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European governance institutions
– ACER, CEER, ENTSOE
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post evaluation
Gains fromEx
Cooperation
and Integration
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Generation efficiency
– technologies with complementary characteristics
– location of generation capacity
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Security of supply
– pooling resources with idiosyncratic variations in input/output
– access to balancing resources and reserves
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Competitive pressure and liquidity
– market expansion
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Few studies that attempt to quantify (overall) gains
– Newbery, Strbac and Viehoff (2016): EUR 2.4 billion per year from market coupling
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Ex post
evaluation
Criteria
for Defining
Regions
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Technical
– synchronisation: but market integration and coordination across non-sync. areas
– interconnection: will undermine the rational for integration
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Economic
– economies of scale and scope: may be exhausted before complete integration
– externalities: arguments both for centralised and local control
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Governance
– responsibilities and liabilities: political sovereignty
– regulation: requires comparable regions
– institutions: ‘similarities’
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Ex post
evaluation
Responsibilities,
Functions
and Instruments
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‘Deepness’ of regionalisation
– integration of responsibilities, functions and instruments: merger of TSOs
– coordination of functions and instruments: regional coordination bodies
– cooperation on instruments: voluntary agreements between TSOs
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Regional structure(s)
– single: ‘clean’, but not well tailored to responsibilities, functions and instruments
– multiple: tailored, but difficult to oversee and govern
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Process of regionalisation
– ‘big bang’, directly to final design, one-time realisation of transaction costs
– gradual, towards final design, continual realisation of transaction costs
– ‘organic’, voluntary, without defined pace or final design, small transaction costs
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Measurement of performance: how to asses if a region performs well?
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Ex post evaluation
A More Mandatory
Regional Future?
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Markets
– day ahead: almost done, through (slow) voluntary process
– intraday: exposes voluntary nature of development
– Capacity Allocation and Congestion Management (CACM) Code
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Infrastructure planning and investment
– TYNDP and PCIs
– not lack of cooperation or coordination, but regulatory obstacles
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System operation
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less cooperation than in markets and infrastructure
national competence, TSOs responsible for incidents, liable for compensation
no strong track record for the ISO model
more indirect approach may deliver more results
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Ex post
evaluation
A Regional
Structure
Emerging?
• Capacity Calculation Regions
– ENTSOE proposed 11
– ACER settled on 10
• Could develop into six with new interconnections
– North West, South West, Baltic, South East, Italy N, Italy-Greece
• Multi-Regional Coupling covers three first of these
– a driver for further integration?
• Instability of regional groupings may be concern for market players
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Ex post
evaluation
Governance
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Regulatory governance structure
– cooperation between NRAs: more regulators than regions (cf. Nordic & Irish exp.)
– regional regulators: requires correspondence with industry regional structure
– single, European-level regulator: compatible with any regional structure
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Regional regulators
– requires transfer of power from Member States
– not compatible with multi-layered regional industry structure
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The Winter Package
– Regional Operation Centres (ROCs), taking over responsibilities from TSOs
– overseen by regional groupings of NRAs under ACER umbrella
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Ex post
evaluation
Conclusion
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No ‘one size fits all’ solution to the regions issue
Solutions may differ between infrastructure, market and system operation
Regional structure should not threaten Market Coupling of Regions
Market integration may be a driver for integration in other areas
Regional security coordination service providers may define the future
Fate of Winter Package governance proposal critically dependent upon
willingness of Member States to give up competence
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