Brussels The planned reform of the European electricity market design is an opportunity to eliminate massive inadequacies in the regulation of this market. This is how the European Court of Auditors sees it. “The internal market for energy has developed too slowly in recent years. Now there is momentum to do something about it,” said Mihails Kozlovs, a member of the Court of Auditors, to the Handelsblatt.
The EU Commission has announced that it will present proposals for changes to the design of the electricity market before the end of this quarter. Above all, fundamental questions such as whether electricity from renewable energies should be remunerated at fixed long-term prices will be discussed.
According to a report published by the European Court of Auditors this Tuesday, there are still a few other aspects that urgently need to change. For example, the regulation that came into force ten years ago to prevent manipulation (Remit) is not being fully used. “Therefore there is a risk that the EU electricity market will be distorted by market manipulation to the detriment of end customers,” the report says.
The market is prone to manipulation
Kozlovs explains: An example of market abuse could be for electricity producers to misrepresent their capacity in order to inflate prices and solicit government support.
Another possibility of manipulation is to block connections from one national power grid to another in order to prevent electricity from being imported. “The result of such manipulations are artificially high prices to the benefit of generators and network operators and to the detriment of electricity consumers,” says Kozlovs.
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To prevent this, the EU stipulates that market participants on the electricity market report their transactions. But two and a half years after the introduction of this obligation, the number of transactions increased so much that the corresponding IT system collapsed, which has happened more frequently since then.
“Repeated failures meant that the data required for market surveillance was not available from July 2020 to March 2021,” says the Court of Auditors’ report. “During this period, there was virtually no effective market surveillance and cases of market abuse may have gone undetected.”
Kozlovs also criticizes the equipment of the responsible regulatory authority Acer. Only six people are employed there to prevent manipulations in the market, which is far too few.
The areas are divided incorrectly
In order for the electricity market to function well, it is important that the electricity bidding zones correctly reflect the existing line bottlenecks. In the north of Sweden, for example, electricity prices are often lower than in the south. Because the lines between the parts of the country are insufficient to transport the cheap electricity from the north to the south.
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Grid expansion and the right design of the electricity bidding zones are “the key to the growth of cross-border trade and the integration of renewable energy sources into the internal market,” writes the Court of Auditors.
Actually, Germany should also be divided into zones. Since this is not the case, the balance in the grid has to be bought at high cost with additional power generation. The Acer authority analyzes such shortcomings, but cannot remedy them. That would be a matter for the EU member states, who would resist it. In Germany in particular, such a division is unpopular.
The market rules are not sufficiently questioned
The EU has regulated the complex trade on the electricity markets in part without detailed impact assessments, the Court of Auditors continues. For example, the pricing methods on coupled electricity exchanges have not been fully analyzed. Crisis situations were not taken into account and it was not simulated how flexible electricity demand reacts to changes in wholesale prices.
Kozlovs believes that the EU can no longer afford such an approach, especially with a growing share of renewable energies in the power grid. “We very much hope that the EU Commission will now carry out a comprehensive impact assessment,” he warns.
However, it is questionable whether this will happen. The consultation process launched by the EU Commission lasts just three weeks. If the Commission wants to stick to its schedule, it will then have just under seven weeks to draft a legislative proposal. She is obviously hoping to have a law in place before the European elections in spring 2024. To do this, the EU legislators, the Parliament and the Council, would have to work unusually quickly.
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