Comments on: How integrated are European electricity markets?

By: Paul Hunt

Paul Hunt — Fri, 18 Jun 2010 07:59:50 +0000

I think the following: http://www.nera.com/NewsletterIssue/NL_ERI_Issue%2037_Final.pdf
from Graham Shuttleworth of NERA sheds some light on the problems/issues being discussed here and outlines a rational and sensible way forward,

By: Georg Zachmann

Georg Zachmann — Wed, 16 Jun 2010 09:50:28 +0000

Dear Stefano,
Thank you for your reply. I fully agree with your comments. Both points were not mentioned in the blog but briefly addressed in the Policy Brief (http://www.bruegel.org/uploads/tx_btbbreugel/1006-Electricity_Single_Market-PB.pdf).
(1) Trilateral Market Coupling had a measurable effect on price convergence (now in 70% of the hours there is no more price difference between F, BEL and NL) and it essentially stopped “internal” flows against the price direction. This success is, however, not easily replicated in larger, more meshed systems. In a nutshell the reason is that electricity flowing from Northern Germany to Southern Germany will always partly pass through the Netherlands, Belgium and France. As in the current system, Southern and Northern Germany have the same electricity price, electricity will flow against the price direction at some border as soon as congestion at any of the borders forces prices to diverge (Flows: N-D -> NL -> BEL -> F -> S-D Prices: N-D ≤ NL ≤ BEL ≤ F ≤ S-D ≤ N-D). Furthermore, it is highly likely that Germany faces internal congestion (difficult to prove without appropriate data). This congestion is dealt with by rescheduling (expensive countertrading) and possibly curtailing international transfer capacities. In the presence of such non-market barriers (artificial uniform price zone and internal congestion) just “merging” the order books of the power exchanges involved will not do the job. Consequently, implicit auctioning alone will not provide better signals for international power plant scheduling – and thus cost reductions. Therefore, a true single market is only possible when the scheduling of power plants (and not only the net export of price zones) is coordinated internationally by regionally differentiated price signals.
(2) RES production in Germany is likely to cause several European TSOs to increase their security margins when calculating net transfer capacities. The academic problem is, that methodologies for calculating NTCs are not published and that it is thus impossible to judge, whether decreasing transfer capacity was entirely due to increasing installed wind capacity. Consequently, creating transparency with respect to the calculation of NTCs is essential to understand the effect of wind power on cross-boder trade.

Best
Georg

By: Stefano Verde

Stefano Verde — Tue, 15 Jun 2010 20:47:37 +0000

Dear Georg,
thanks for focusing on this issue on Energy Policy Blog. I dare to comment on your post because I have just completed a paper on your same evaluation on EU market, it will be published in the next weeks in Italian language on Energia review and if you manage to “chew” some Italian language I will be pleased and glad to send it to you!
Well, let me start from the end: in my research I almost completely agree with your conclusions, namely European markets are not sufficiently integrated yet and since 2005 (end of preliminary EU sector inquiry) few steps forward have been made so far. 2002 Barcelona council targets have not yet been reached in most of the main EU countries (i.e. ITA, DE, FR, ES, PT, GR, PL) and interconnectors capacity is still not sufficient.
Nevertheless, let me point your attention to some steps that have improved the situation if you compare it with 2005. Here I refer mainly to congestion management mechanisms and to implicit auctions. Successful experience in the TLC market coupling is now drawing more interest in market coupling projects and thanks to implicit auctions some of the hinders you mentioned in your entry may be removed (partially and as far as physical capacity is enough), adverse flows may be limited and a better use of existing capacity is being made.
Finally, German example would also deserve some thoguhts on the effect of intermittent RES on import/export flows both with explicit and implicit auctions, wouldn’t it?
Hope I could be of any help and thanks for any feedback on my post as well.
Stefano