Cross-Border Participation in Energy Markets Needs Improvement

The allocation of cross-border capacity across the time frames is suboptimal and the intraday time frame is neglected.
Published: Tue 22 Sep 2015

It is important that solutions for cross-border participation in different capacity markets are implemented. The reason for this is because there doesn’t seem to be any movement towards a harmonised market design any time soon.

This is according to Paul Giesbertz, Vice President Regulatory Affairs, Statkraft Markets, who will be presenting at EMART Energy. He says that there will instead be a patchwork of different power market designs, with different types of capacity markets and strategic reserve solutions.

Cross border participation

He points out that crossborder participation in energy markets still needs further improvement. The allocation of crossborder capacity across the time frames is suboptimal and in particular, the intraday time frame is neglected. Crossborder participation will also be important wherever capacity markets are implemented.

“ Market parties should be available to offer their capacity across borders to capacity markets in neighbouring countries and must be exposed to the same rules as the domestic parties. Transmission system operators (TSOs) will have some key roles to play. Firstly they need to assess how much cross-border transmission capacity is available and allocate this to the market. This capacity does not need to be 100% firm as this also doesn’t apply to the national transmission capacity. Secondly, TSOs need to cooperate for all the registration and settlement tasks”.

The European Commission is trying to achieve a single Internal energy market, while Member States remain responsible for security of supply.

Cross-border trade remains crucial to increase efficiency and keep costs for consumers low. However, it will also continue to fuel the difficult process which ultimately should result in a truly internal energy market, explains Mr Giesbertz.

Energy-only market design challenges

Acceptance of scarcity by society and acceptance of scarcity prices by competition authorities will be a major challenge, explains Mr Giesbertz.

He adds that there is the political will to accept scarcity prices however, competition authorities will have huge difficulties to judge whether scarcity prices are justified or are caused by the abuse of market power. This will cause uncertainties and may unduly restrict market participants to offer available capacity at high prices during scarcity.

At the same time, it ’ s important to understand that a pure Energy Only Market (EOM) remains a theoretical concept.

Germany is implementing an “ improved ” EOM while at the same time initiating a series of market interventions. Flexible gas-fired capacity and pump storage seem to be the only technologies without support.

Flexibility cannot solve the capacity issue

Flexibility and capacity are not interchangeable. Flexibility is a characteristic of capacity. A well-functioning energy market will give the correct signals to market parties to invest in improving flexibility.  

But, the concern remains whether an EOM will deliver sufficient capacity, especially in markets with a growing share of zero marginal cost intermittent generation.

A capacity market can then help reduce the dependency on uncertain scarcity rents.

The role of the DSO

According to Mr Giesbertz, the role of the distribution system operator (DSO) won’t change much.

Their responsibility remains to ensure an efficient and secure transmission through the distribution grid. However, DSOs are facing huge and complex challenges, because of the ongoing developments on distributed generation and storage (like in electric cars) and demand response.

He recommends that DSOs are given the opportunity to enter into contracts with market participants like prosumers, but only for the purpose to optimally manage their responsibility for the distribution grid. Economic regulation should incentivize DSOs to enter into such contracts if this results in a more efficient distribution system.

Secondly, cooperation with other DSOs and the TSOs need to be strengthened as flexible capacity located within the distribution grid should also be available for congestion management in other locations of the grid and for system balancing, he adds.

In conclusion, Mr  Giesbertz says he is looking forward to having discussions with representatives from National Regulatory Authorities and TSOs  at EMART Energy.