European Union Electricity Market Research Articles

Electricity markets regulations: The financial impact of the global energy crisis

Amid the global energy crisis, we examine the impact of electricity market regulations in the European Union (EU). Pursuing an integrated EU electricity market inadvertently heightened the interdependence between gas and electricity prices. The EU energy crisis, triggered by the gas supply shock, amplified power prices and their volatility. These volatility spikes led to substantial margin increases on power futures contracts crucial for mitigating electricity price risks. The increase in margins placed a substantial financial burden on EU power utilities. We document an almost eight-fold surge in required collateral for long positions in front-month EU power futures contracts during the one-year duration of the crisis. Throughout the crisis, EU utilities experienced lower sales and profitability compared to their US counterparts, and a portfolio of EU power utilities significantly underperformed a counterfactual portfolio of US power utilities.

De Facto Rule-Making Below the Level of Implementing Acts: Double-Delegated Rule-Making in European Union Electricity Market Regulation

Abstract Within the area of electricity market regulation, a practice has emerged in which the chain of delegation has gone beyond the European Commission, resulting in double delegation. During 2015–2017, the European Commission adopted implementing regulations requiring detailed European terms, conditions and methodologies (TCMs) for electricity markets and system operation to be jointly adopted by national energy regulators. Should the latter fail to agree within a predefined time limit, rule-making would move to the Agency for the Cooperation of Energy Regulators. This rule-making procedure entails that, depending on the dynamic within the procedure, different actors would adopt the TCMs. This article examines how double-delegated rule-making unfolds in a novel and emerging practice, evolving beneath implementing acts. By analysing the factors behind whether TCMs are adopted jointly by national agencies or not, the study investigates whether this form of delegated rule-making in a network setting delivers decisions or whether rule-making by a European Union agency is needed.

Societal impacts of AI integration in the EU electricity market: The Dutch case

The European Union (EU) aims for a just energy transition and sees artificial intelligence (AI) as a key instrument to reach it. This paper analyses the societal impact of AI integration in the Dutch electricity market, as part of the EU market. We found that the integration of AI by different actors could increase the electricity market's sustainability, reliability, and affordability, as the increase in accuracy and speed offers more flexibility and allows for further integration of (variable) renewable energy. The effects on the equity and equality and power balances in the electricity market are, however, uncertain. AI may unburden participants from certain tasks and allow for more active participants, but the increased complexity excludes participants with less resources and might harm the equality of opportunities in the electricity market. Moreover, the necessary digital infrastructure challenges the (cyber)security, privacy, the controllability of the technology, and autonomy of market actors. The EU and Dutch government could anticipate the above effects by supporting new market participants (e.g., energy communities and cooperatives) with an open access data base of AI programs, and by creating institutional clarity for system operators when it comes to their additional tasks, giving these actors time to prepare.

Electricity interconnection with intermittent renewables

Electricity interconnection has been recognized as a way to mitigate carbon emissions by dispatching more efficient electricity production and accommodating the growing integration of renewables. I analyze the impact of electricity interconnection in the presence of intermittent renewables, such as wind and solar power, on the equilibrium energy mix and carbon emissions under a Pigouvian carbon price using a two-country model. I find that interconnection decreases investments in renewable capacity and exacerbates carbon emissions if the carbon price is low. Conversely, interconnection increases renewable capacity and reduces carbon emissions for a high carbon price. Moreover, I identify the insurance benefit of increased interconnection and how it depends on the correlation of renewables in the two countries. I calibrate the model using data from the European Union electricity market and simulate expanding interconnection between Germany–Poland and France–Spain. The simulation shows that achieving the EU2030 interconnection target increases total carbon emissions at a carbon price of 100€/tCO2.

The 2021–2022 European Natural Gas Disaster: Was Reagan Right and Thatcher Wrong?

Europe's energy supply is in crisis this winter. Owing to the evident Russian manipulation of its natural gas exports to the European Union (EU) in advance of its invasion of Ukraine, prices have spiked wildly—24 times the prevailing EU natural gas price in the summer of 2020 and up to 10 times contemporaneous US natural gas prices in early 2022. Because natural gas prices often‐enough drive the EU's electricity market model prices, the resulting electricity prices at the time of writing throughout the EU were three to six times higher than their 2019 level. The result is a disaster for EU energy consumers in 2022. Russia's potential to hold hostage critical winter natural gas supplies to Europe's millions of natural gas consumers was not unforeseen. Lacking the means to protect against such energy hostage‐taking should call the EU's natural gas regulations into question. It is uncertain whether the EU can avoid such situations next winter and beyond without a fundamental political reexamination of how its regulatory methods led to the current crisis.

Barriers for Large Integration of PV and Onshore Wind Energy in the Distribution Network on the Selected European Union Electricity Markets

The European Union (EU) has adopted ambitious and wide-ranging binding targets for the reduction of greenhouse gas emissions, energy systems’ transformation, and becoming climate neutral. The transformation of the energy sector towards more sustainable electricity production increases the importance of distributed generation from renewable sources, such as solar photovoltaics (PV) and wind energy. Large integration of PV and onshore wind energy in the EU distribution network is key to success in the energy transition. Despite significant progress in the field of renewable energies’ regulations, in particular, due to the implementation of the RES Directive, several barriers remain, and still, the development of photovoltaics and wind energy are being slowed by various types of market, regulatory barriers, as well as technological and social obstacles. The aim of this article is to investigate the main barriers to the development of distributed generation from renewable sources, such as solar photovoltaics and wind energy, in order to increase their share in the EU electricity market. This paper is focused on the most common regulatory, technological, administrative, financial, social, and environmental barriers, which slow down the large-scale deployment of PV and wind energy into the distribution networks in 5 EU countries: Austria, Greece, France, Poland and Spain and also in Norway.

Direktni dalekovod kao instrument energetske tranzicije

The direct electricity line is a part of the structure of the electricity market which is regulated by the European Union electricity market legislations. Through the process of the transposition of the legislation under the auspices of the Energy Community and the process of Stabilization and Association with the European Union, the notion of the term of the direct electricity line has been introduced into the Republic of Serbia legislation governing energy sector. The paper will analyse the provisions of the European Union legislations and of the Republic of Serbia legislations on direct electricity line. The effects of regulating the direct electricity line in the Republic of Serbia and the possibility of building a direct electricity line in the context of the transmission and distribution electricity systems will also be analysed. The effects of the Republic of Serbia legislations on the direct electricity line on the relations on the electricity market are going to be analysed. Also, the role of the direct electricity line within distributed electricity generation and energy transition are studied. At the end, it will be proposed what should be taken into account in order to develop the electricity market while using the potential of the direct transmission line in the existing legal framework.

The role of capacity in the EU internal electricity market in the context of the General Court's judgment of 15 November 2018 in case T-793/14 Tempus Energy

Since the judgment in Case 6/64 Costa v ENEL electricity (electrical energy) has been considered as ‘good’ subject to the principle of free movement of goods of the European Union (EU). Although the EU electricity market has undergone fundamental regulatory and technological changes, this qualification still determines the assessment of regulatory solutions. The changes that have taken place have made it possible for resource adequacy to be ensured not only by generators but also by “demand side management”. It changes the market from a single-product market where electricity is the exclusive commodity (‘good’) traded to a two-commodity market where capacity securing resource adequacy is the second product. It raises the question if the capacity is good or service and how it affects qualification of electricity as a good and a model for developing EU regulation based on this assumption. In Case T-793/14 Tempus Energy the General Court challenged the British capacity market which also affected the Polish one, showing the need for delimitation of this concept. The aim of this article is to try to give answers to these questions. The article aims to propose such a delimitation and the consequences that result from for the EU electricity market.

Conditions and directions of the changes in the European Union electricity market network codes after 2020

Conditions and directions of the changes in the European Union electricity market network codes after 2020

Smartening up while keeping safe? Advances in smart metering and data protection under EU law

Integrating increasing shares of renewable electricity generation within the European Union electricity market requires that the electricity system is capable of withstanding intermittency. One of the principal means of achieving this is by activating the demand side in such a way as to enable a more flexible balance between demand and supply. In practice, initiatives and technological solutions to activate the demand side are well exemplified by smart meters, which collect and communicate information on electricity consumption. The existing legal framework and the 2016 legislative proposals for the electricity sector recognise that significant opportunities exist to utilise consumer data collected via smart metering and that these are of fundamental importance in creating more flexibility in the electricity market. However, the extensive utilisation of this data also raises questions concerning data privacy and data protection. This article examines the interface between data protection and energy law in the EU. The focus of the legal analysis is on the General Data Protection Regulation (GDPR) and the proposed rules contained in the Winter Package, which are systematically analysed to determine the conditions under which smart metering data can be utilised to further the objectives of EU energy law. The underlying argument of the article is that there is an apparent conflict between the objectives embedded in EU data protection law and those embedded in EU energy law. EU energy law addresses smart metering and the resulting data as means of achieving a more sustainable electricity system that benefits the final consumer. Conversely, EU data protection rules focus on the protection of a fundamental right and perceive the collection and processing of data as a risk to the very same consumer that is considered to benefit from smart metering data under EU energy law. This article demonstrates how this apparent conflict can be reconciled through interpretation of the relevant rules of EU law.

Interaction between CO2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation

ABSTRACTWe study the interactions between a CO2 emissions trading system (ETS) and renewable energy subsidies under uncertainty over electricity demand and energy costs. We develop an analytical model and a numerical model applied to the European Union electricity market in which renewable energy subsidies are justified only by CO2 abatement. We confirm that in this context, when uncertainty is small, renewable energy subsidies are not welfare-improving, but we show that when uncertainty is large enough, these subsidies increase expected welfare because they provide CO2 abatement even in the case of over-allocation, i.e. when the cap is higher than the emissions which would have occurred without the ETS. The source of uncertainty is important when comparing the various types of renewable energy subsidies. Under uncertainty over electricity demand, renewable energy costs or gas prices, a feed-in tariff brings higher expected welfare than a feed-in premium because it provides a higher subsidy when it is actually needed i.e. when the electricity price is low. Under uncertainty over coal prices, the opposite result holds true.Key policy insightsDue to the possibility of over-allocation in an ETS, subsidies to renewable energies can increase expected welfare, even when climate change mitigation is the only benefit from renewables taken into account.In most cases studied, a feed-in tariff brings a higher expected welfare than a feed-in premium.The European Commission guidelines on State aid for energy, which incentivize member States to replace feed-in tariffs by feed-in premiums, should be reconsidered based on these results.

European energy market liberalization: experiences and challenges

The European electricity market liberalization process started more than 20 years ago, one of its main purposes being to organize the provision of electricity and gas more efficiently by introducing competitive forces where possible and regulation where needed. Despite the fact that most Member States of the European Union (EU) have liberalized their electricity market, a European internal market for electricity—one of the ultimate goals of EU energy policy—has not been realized yet. For this to be realised a number of remaining obstacles need to be removed. This paper gives a brief overview of the EU electricity market liberalization process and surveys the main remaining issues and challenges. At the retail market level, additional efforts are required to increase retail competition and to remove regulated retail prices. Also, more effort is required to physically integrate existing regional electricity markets, by removing the existing barriers between regions and countries. Building new interconnection capacity and improving the allocation procedures for cross-border capacities can help achieving this. Furthermore, the EU should increase efforts to further harmonize and integrate electricity markets and electricity market policies and to encourage the demand-side of the market to participate more intensively through demand response.

The Effect of Increased Transmission and Storage in an Interconnected Europe: An Application to France and Ireland

A longstanding goal of the European Union (EU) is to promote efficient trading between price zones via electricity interconnection to achieve a single electricity market between the EU countries. This paper uses a power system model (PLEXOS-EU) to simulate one vision of the 2030 EU electricity market based on European Commission studies to determine the effects of a new interconnector between France and the Single Electricity Market of Ireland and Northern Ireland (SEM). We use the same tool to understand the effects of investment in storage, and the effects of the interaction between storage and additional interconnection. Our results show that both investments in interconnection and storage reduce wholesale electricity prices in France and Ireland as well as reduce net revenues of thermal generators in most scenarios in both countries. However, France is only marginally affected by the new interconnector. Renewable generators see a modest increase in net revenues. The project has the potential for a positive impact on welfare in Ireland if costs are shared between countries and remain below 45 million €/year for the scenarios examined. The owners of the new interconnector between France and SEM see increased net revenues in the scenarios without storage. When storage is included in the system, the new interconnector becomes less profitable.

Competition and Innovation in Retail Electricity Markets: Evidence from Italy

AbstractItaly's 2015 Annual Competition Law, if finally approved, provides for phasing out retail electricity price regulation, as well as the implementation of full retail liberalisation, from 1 July 2018. This is a significant reform, not just because it is consistent with the broader market design for electricity. Indeed, retail liberalisation is a qualifying element of the full integration of the European Union's electricity market. The full opening of retail markets provides a great opportunity for innovation, both on the demand side and on the supply side. This article investigates the theoretical background, and presents some empirical evidence, on the competition–innovation nexus in retail electricity markets.

The significance of interconnector counter-trading in a security constrained electricity market

Throughout the European Union there is an increasing amount of wind generation being dispatched-down due to the binding of power system operating constraints from high levels of wind generation. This paper examines the impact a system non-synchronous penetration limit has on the dispatch-down of wind and quantifies the significance of interconnector counter-trading to the priority dispatching of wind power. A fully coupled economic dispatch and security constrained unit commitment model of the Single Electricity Market of the Republic of Ireland and Northern Ireland and the British Electricity Trading and Transmission Arrangement was used in this study. The key finding was interconnector counter-trading reduces the impact the system non-synchronous penetration limit has on the dispatch-down of wind. The capability to counter-trade on the interconnectors and an increase in system non-synchronous penetration limit from 50% to 55% reduces the dispatch-down of wind by 311GWh and decreases total electricity payments to the consumer by €1.72/MWh. In terms of the European Union electricity market integration, the results show the importance of developing individual electricity markets that allow system operators to counter-trade on interconnectors to ensure the priority dispatch of the increasing levels of wind generation.

The electricity prices in the European Union. The role of renewable energies and regulatory electric market reforms

The European Union electricity market has been gradually liberalized since 1990s. Theoretically, competitive markets should lead to efficiency gains in the economy thus reducing electricity prices. However, there is a controversial debate about the real effects of the electricity liberalization on electricity prices. Moreover, the increased generation of electricity from renewable energies RES-E (Electricity from Renewable Energy Sources) is also integrated in wholesale market reducing wholesale prices, but the final effect over household prices is not clear.In order to contribute to this debate, this paper provides an empirical investigation into the electricity prices determinants. In fact we develop econometric panel models to explore the relationship between the household electricity prices and variables related to the renewable energy sources and the competition in generation electricity market. More specifically we use a panel data set provided by Eurostat and covering 27 European Union countries during the period 1998–2009.Our results suggest that electricity prices increase with the deployment of RES-E and with the expansion of greenhouse gas emissions produced by energy industries- as a European Union CO2 emission trading scheme exists.Results also reveal that country's characteristics can affect household electricity prices.

Liberalization of the EU Electricity Market: Enough to Power Real Progress? Analysis of Ownership Unbundling and the Project for Liberalization of the European Union Electricity Market

The recent initiative of the European Commission regarding the unbundling of the vertically integrated electricity sector throughout Europe, together with the controversy and resistance surrounding it, make the issue of ownership unbundling of particular interest. This article discusses the prior attempts to liberalize electricity markets in California and the United Kingdom and the effects of ownership unbundling on consumer welfare, environmental protection, and energy security. Drawing from both the failure of liberalization in California and the relative success in the United Kingdom, this article concludes that, although necessary, ownership unbundling of vertically integrated electricity markets is not sufficient to foster competitive markets. Regulatory oversight, such as present in the United Kingdom and proposed in the third energy package, is also necessary. Ownership unbundling may also facilitate positive outcomes in the areas of consumer welfare, development of renewable energy, and energy security. The article further examines the current proposal put forth by the European Commission in its third energy package. We conclude that the Independent Systems Operator (ISO) compromise, providing for two functionally different regimes, undermines the objectives of a unifi ed European electricity market and the benefits it would provide.