The ”Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2012″ was jointly presented last week by the Agency for the Cooperation of Energy Regulators (ACER) and the Council of European Energy Regulators (CEER). It notes that progress has been made towards the implementation of the Third Energy Legislative Package and the completion of the internal energy market. Yet consumers are not in a position to reap the full benefits of the internal market, and had to see post-tax electricity prices rise on average by 4.6% for households and 5.2% for industrial consumers in 2012 and post-tax gas prices by even 10% respectively 11% despite low economic growth. Large disparities in pre-tax electricity and gas prices for both households and industrial consumers persist across the EU, even between countries with similar retail market frameworks.
The report covers retail electricity and gas prices, access to networks including access of electricity produced from renewable energy sources, and compliance with the consumer rights laid down in Directives 2009/72/EC and 2009/73/EC. It focuses on the remaining barriers to the completion of well-functioning electricity and gas markets in view of the approaching 2014 deadline.
The report finds a continuing internal market development and improvements in line with the EU’s energy objectives. In particular, the analysis of wholesale electricity markets shows that market coupling has facilitated price convergence and intraday markets have made it easier for renewables to become a successful market player. It notes that the growing phenomenon of ‘unscheduled flows’ in parts of Europe constitutes a barrier to the further integration of the internal market, arguably giving rise to wholesale price divergence and reduced market efficiency.
For gas, the reports says that, although price correlation between European hubs remains high, price differentials in parts of Europe remain significant, leading to substantial welfare losses. With a few exceptions in North-West Europe, the liquidity of gas hubs is considered still unsatisfactory, whilst congestion remains a significant feature at a number of interconnection points and in some cases contractual congestion is not reflected in physical congestion.
Barriers to entry were found to persist in many national retail markets, thus hampering retail competition and consumer choice. Moreover, despite the economic downturn, consumer prices for electricity and gas are identified as havin increased in the majority of Member States. These prices differ remarkably across national markets, with no sign of convergence. Finally, regulated prices were found to remain a prominent feature of European retail energy markets, with little progress towards their removal recorded last year. Imperfect integration and retail market fragmentation throughout the EU have led to significant social welfare losses for European energy consumers, in the order of several billion euros in 2012 (gross of the cost of any required investment in new transmission or transportation infrastructure). The report’s findings therefore highlight the need for a renewed effort towards the removal of barriers to market efficiency.
2. Case Study: The French-German Intraday Trade
In the Part I Section 3 on wholesale electricity markets and network access and the subsection 3.4. on the barriers to completing the internal market access, the report contains an in interesting case study on the French-German intraday trade and the results of the new trade mechanism introduced in late 2010.
The new mechanism provides implicit interconnection capacity allocation and continuous exchanges on the electricity markets. Furthermore, it couples intraday markets operated by the Power Exchange in France and Germany and aggregates the liquidity in these markets in a single Shared Order Book.
The report concludes that ”the implementation of continuous implicit intraday trading at the French-German border has noticeably contributed to increased liquidity within both intraday markets. Cross-border intraday trade and the utilisation rate of cross-border capacity have also improved. The case study has shown that an important share of the intraday trade at the German-French border is done closer than two hours to real time, enabling market participants to keep their position in balance close to delivery, hence contributing to the more efficient integration of intermittent RES generation.”
3. Loop Flows
Also in part 3 in subsection 3.4.1. on loop flows, re-dispatching and countertrading, the report points out that loop flows pose a threat to the efficient functioning of the internal energy market and to secure grid operation because they are not controllable and may lead to greater remedial action for transmission system operators. Loop flows are increasingly occurring, the report states, and names Germany as a country from which loop flows often originate due to the growing input of variable renewable energy. The report describes the impact of loop flows as well as the necessary countermeasures by the TSOs such as re-dispatching, counter-trading and capacity curtailment.
4. Case Study: Network Access for Biogas in the German Gas Sector
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