ACER’s Position Paper towards greater consistency of cost benefit analysis methodologies, published today, identifies topics where consistency is needed across the Cost Benefit Analysis methodologies (CBA methodologies) currently under development by the European Commission and the European electricity and gas grid operators.

Greater consistency of CBA methodologies will enable a more efficient energy system across Europe by ensuring similar terms of assessment of projects in a technology neutral way.

Why did ACER issue this Position Paper?

The updated TEN-E Regulation (Regulation (EU) 2022/869) introduced the task of the development of separate CBA methodologies for the various energy infrastructure categories and by different entities:  

• The EU network of transmission system operators for electricity (ENTSO-E) for electricity transmission projects (including offshore grids);
• The EU network of transmission system operators for gas (ENTSOG)  for hydrogen projects; and
• The European Commission (EC) for projects of energy storage, electricity smart grids, gas smart grids, electrolysers and CO2 networks and facilities.

ACER must provide opinions on the ENTSO-E and ENTSOG CBA methodologies and on the draft lists of PCIs prepared by the EC. The Regulation tasks ACER with promoting consistency in the CBA methodologies developed by the EC with the CBA methodologies elaborated by ENTSO-E and ENTSOG.

To this end, ACER’s Position Paper sets out the topics where consistency should be promoted among all CBA methodologies.

Where is consistency of CBA methodologies needed?

1. Common input data set and assumptions;
2. Selection and use of scenarios and ways to deal with uncertainty;
3. Length of assessment period, residual value of projects, and social discount rate;
4. Definition of reference case networks;
5. Treatment of interdependency with other projects;
6. Project implementation status;
7. Clustering rules;
8. Criteria to assess the plausibility of projects’ commissioning dates;
9. Implementation Guidelines;
10. Definition and handling of capital and operational expenditures;
11. Consideration of the impact of the future extreme weather events on infrastructure resilience;
12. Approach to calculate social and environmental impacts of projects;
13. Methodology to calculate the benefit-to-cost ratio and Net Present Value of projects;
14. Sensitivities;
15. Modelling interlinkages of CBA methodologies;
16. Presentation of CBA results.

Next steps

The ACER Position Paper could serve as a reference document, e.g. during the cooperation with the EC and the ENTSOs during the development phase of their CBA methodologies, as well as when drafting the ACER opinions on the ENTSOs’ CBA methodologies, or when the EC Advisory Board for Climate Change forms their views on the methodologies.

Access the ACER Position Paper.

In response to the energy crisis, every Member State introduced emergency measures to support their citizens and economy, and to mitigate security of energy supply risks.

Today, ACER publishes an inventory of 400+ measures adopted by Member States to cope with the energy crisis. ACER publishes its inventory in the form of an interactive dashboard, providing a high-level analysis of the measures. In a second step, ACER will proceed with an assessment of the measures, focusing on lessons learned and publishing a fuller report in July 2023.

How is ACER’s inventory of energy measures relevant?

ACER’s detailed EU-wide picture of the energy emergency measures adopted across Europe is timely:

• As energy and fiscal policy makers consider next steps now to cope with persistent short term energy challenges;
• With Member States starting to re-evaluate their energy emergency support measures in the context of falling energy prices; and
• Given recent calls (by certain EU bodies) for fiscal policy (in the current high inflation environment) to be targeted, tailored and temporary.

Lessons from measures taken over the past year and a half could help Member States direct any future energy emergency support measures, when and where deemed appropriate, to those who need it most.

What is ACER’s inventory of emergency measures about?

• The inventory collects over 400 measures implemented by Member States from July 2021 until February 2023.
• It relies on information collected by the European Commission, directly from Member States, as well as on publicly available information. National regulators validated and complemented the information.
• ACER clusters the measures related to gas and electricity into categories according to criteria, such as the primary purpose of the measure or the specific group of (targeted) consumers.

What are ACER’s high-level findings to date?

• Every Member State has adopted energy emergency support measures.
• 1/3 of the measures aim at what we have labelled broader security of supply objectives, while 2/3 aim to tackle affordability for end-consumers.
• Almost 1/2 of the measures take the form of direct support to final consumers.
• 1/2 of the measures targeting broader security of supply objectives aim at increasing energy efficiency and renewable generation uptake, thereby also contributing to the Green Deal and Fit-for-55 policy goals.
• Some measures aiming at replacing the use of gas for heating or for producing electricity could, however, hamper the decarbonisation goals; hence, their use should be limited to areas where alternatives to safeguarding security of supply are not readily available.
• 40% of the measures aiming at tackling energy affordability target households (sometimes inter alia with other consumer groups) but less than 1/4 of them target vulnerable consumers.
• 60% of the measures aiming at providing direct support to consumers come in the form of income support (e.g. one-off cash payments), while the rest come in the form of discounts in the energy bills (price support).

What’s next?

ACER plans to publish a fuller analysis of emergency measures in July 2023 to further assist policy makers.

As this ACER inventory might not be complete, ACER welcomes feedback on its inventory (by 16 April 2023), to be sent to 2023_emergency_measures(at)acer.europa.eu.

Access the Emergency Measures inventory.

Some regions of Europe’s electricity single day-ahead coupling (SDAC) rely on so-called “second auctions” in case of extremely high or low prices. Those auctions, only triggered by extreme prices, allow market participants to adapt their bids prior to a second run of the SDAC auction.

Recently, Transmission System Operators (TSOs) and Nominated Electricity Market Operators (NEMOs) have introduced second auctions in the bidding zones of the Baltic region.

Hence, ACER would like to better understand how EU market participants consider the current functioning and potential evolutions of second auctions. ACER therefore invites EU market participants to fill in a survey by Thursday, 30 March 2023.

Enter the survey.

Mandated by law, the European Resource Adequacy Assessment (ERAA) is ENTSO-E’s annual assessment of the risks to EU security of electricity supply for up to 10 years ahead. ENTSO-E is the European association of Transmission System Operators (TSOs) for electricity.

The ERAA should provide an objective basis for identifying electricity adequacy concerns and assess the need for any additional national measures ensuring security of electricity supply such as the introduction of temporary capacity remuneration mechanisms.

In the ACER Decision published today, ACER decided to neither approve nor amend ENTSO-E’s ERAA 2022.

ERAA 2022 was not approved by ACER

On ERAA 2022, ACER finds several positives:

• ACER acknowledges ENTSO-E’s substantial efforts to improve ERAA 2022 in the context of an unprecedented energy crisis.
• ACER points to improvements on some methodological aspects, such as the investment model and demand-side response, and input assumptions.
• ACER recognises ENTSO-E’s enhanced stakeholder engagement and transparency.

However, ACER also finds room for improvement:

• ERAA 2022 has certain simplifications or deviations from the methodological framework that compromise the robustness of the assessment.
• ERAA 2022 underestimates the revenues that capacity resources could make in the energy market, and the volume of cross-zonal capacities.
• ERAA 2022 should be aligned with the European Union’s Fit-for-55 policy objectives.

Hence, ACER considers that ERAA 2022 does not provide a fully objective basis for identifying the risks to European security of electricity supply. In particular, the underestimation of revenues in the energy market does not adequately capture the opportunities for existing power plants to continue running to meet system needs (instead of retiring) or the incentives to attract new resources in the power system. Similarly, the quantity of cross border electricity trade is underestimated in the ERAA 2022 report. For example, Member States are making electricity supply available to neighbours particularly for security of supply reasons (one example being France becoming a net importer in 2022 per French nuclear production being particularly low). Such underestimations may lead to incorrect policy decisions with possibly negative implications for the integration of the electricity market and/or result in higher costs to consumers.

All in all, against this background ACER has decided it is not in a position to approve ERAA 2022.

ERAA 2022 was not amended by ACER

ACER considered amending ERAA 2022 and concluded that it would not be feasible within the required 3-month decision-making timeframe. An amended ERAA 2022 would be of limited value given that ERAA 2022’s scenarios are becoming increasingly outdated in the current, fast-evolving context.

ACER guidance for ERAA 2023

ACER’s decision provides recommendations intended as guidance for ENTSO-E to ensure a successful implementation of the next edition of ERAA. These concern primarily the use of reliable and transparent input data (in particular scenario assumptions reflecting the EU’s Fit-for-55 objectives) and the effective implementation of the methodological framework (in particular the robust consideration of market revenues and cross-zonal capacities).

The ERAA assessment is the cornerstone of the EU`s long-term adequacy framework, foreseen in the (2019) Clean Energy Package of EU legislation to provide (from 2021) an objective basis to identify electricity adequacy concerns. A robust pan-European security of supply assessment is a much-needed input for Member States, and even more so in the context of the ongoing war in Ukraine and the energy crisis. ACER and the NRAs are committed to continue working together with ENTSO-E and the TSO community to close the remaining implementation gaps for a robust ERAA 2023.

Access the ACER Decision and its Annex.

The annual ACER Market Monitoring Report (MMR) presents the main results of monitoring the European internal electricity markets and recommends further actions to foster their integration.

In 2023, ACER will publish a series of topical overviews of the energy market situation, covering the year 2022. The Wholesale Electricity Market Monitoring 2022 – Key Developments published today is the first of these publications.  

What were the main wholesale electricity trends in 2022?

• The energy crisis combined with a mild winter led to a decrease in electricity consumption, especially during the last quarter of 2022. Demand reduction resulted in lower power generation.
• Although electricity production from renewables remained almost constant, emissions increased due to the rise in coal and gas power generation, and low nuclear production.
• Installed capacity of renewables reached a new record in 2022, while coal-installed capacity decreased. However, the use of coal-fired power plants significantly increased since 2020. See the ACER’s interactive dashboard for the evolution of generation from renewable energy sources compared to fossil fuels (by selecting the years 2020 and 2022).
• A sharp increase in day-ahead prices. The post pandemic economic recovery and Russia's invasion of Ukraine dramatically affected gas prices, which led to an increase in electricity prices across the EU.
• Forward markets also reached high price levels in 2022, especially for products for delivery in autumn and winter months.
• Negative day-ahead electricity prices reached pre-2019 levels. This seems to be correlated with demand reduction, as 50% of the negative prices were observed during the last quarter of 2022 and 20% in December alone.

ACER shall adopt a recommendation for identifying good practices for the treatment of investment requests for projects of common interest (PCIs), as tasked by the (2022) Regulation on guidelines for trans-European energy infrastructure.

In light of revised Trans-European Networks for Energy (TEN-E) provisions, and building on the experience gained with latest cross-border cost allocation (CBCA) investment requests, ACER is updating its (2015) CBCA Recommendation.

As part of this process, ACER invites stakeholders to submit their views on the existing CBCA Recommendation, including:

• Scope of ACER CBCA Recommendation;
• Role of scenarios and of cost-benefit analysis in the cross-border cost allocation;
• The allocation and compensation mechanism; and
• Cross-border cost allocation for offshore projects.

The public consultation will run from 23 February until 31 March 2023.

What are the next steps? 

ACER will evaluate the received feedback and take it into consideration when drafting the document.

The updated CBCA Recommendation shall be adopted by 24 June 2023.

Access the public consultation.

The national regulatory authorities (NRAs) of the Nordic Capacity Calculation Region requested from ACER an extension of six months to agree on the Nordic Transmission System Operators’ (TSOs’) proposed amendment to the market-based cross-zonal capacity allocation methodology.

The Nordic Capacity Calculation Region comprises the following 3 countries: Denmark, Finland and Sweden.

What is the market-based allocation process?

The market-based allocation process compares the market value of cross-zonal capacity for the electricity balancing capacity market with the forecasted market value for the day-ahead electricity market. It then allocates the capacity to the market that generates the most welfare by using the cross-zonal capacity, which:

• allows the integration of balancing capacity markets;
• creates welfare;
• lowers the costs for the procurement of balancing capacity;
• lowers the costs for tariff payers; and
• ensures security of supply.

What are the next steps?

ACER intends to decide promptly on this request from the Nordic NRAs.

Access the Public Notice.

The European Commission held a public consultation on the reform of the EU’s electricity market design from 23 January 2023 to 13 February 2023.

ACER and the Council of European Energy Regulators (CEER) in their joint response welcome the European Commission’s attention to long-term markets as the key enabler for investment stability and affordability for consumers.

The ACER-CEER response to the Commission’s consultation comprises their replies to the questions asked by the Commission in its consultation as well as additions to the replies in the Annex (also submitted to the Commission as part of our consultation response). In the Annex, ACER and CEER delve deeper into elements that are subject to consultation:

1. contracts for differences; and
2. obligations on suppliers to offer fixed-price contracts to household consumers.

In addition, the Annex highlights several important aspects of the electricity market design framework that were not addressed by the Commission in its consultation, yet in our opinion, have a significant impact on electricity market functioning:

3. The adequacy of minimum cross-zonal electricity capacity requirements;
4. The importance of the integrated intraday and balancing market;
5. Continuous growth of implementation delays in key integration projects;
6. The adjustment mechanism for decrease of maximum clearing and bidding prices; and
7. Legal framework for offshore wind.

Read the ACER-CEER Response and Annex.

The transmission system operators (TSOs) submitted to ACER a proposal for the harmonised methodology for cross-zonal capacity allocation for the exchange of balancing capacity or sharing of reserves.

The allocation of cross-zonal capacity allows the integration of balancing capacity markets, creates welfare, lowers the costs for the procurement of balancing capacity, hence lowering costs for tariff payers, while ensuring security of supply.

The processes covered by the methodology (i.e. co-optimisation and market-based process) compare the market value of cross-zonal capacity for the balancing capacity market and for the day-ahead electricity market, and allocates the capacity to whichever of these markets generates the most welfare by using the cross-zonal capacity.

The methodology will provide harmonised rules and processes and will therefore replace the existing methodologies for co-optimisation and regional market-based processes.

How does ACER contribute?

ACER will assess the methodology proposed by the TSOs and revise it where necessary.

What are the next steps?

ACER has six months (until 16 June 2023) to decide on the TSOs’ proposal.

To collect the views of stakeholders, ACER’s public consultation on the TSOs’ proposal will be launched end of March for four weeks (provisionally foreseen from 30 March to 27 April).

An ACER workshop will take place on 19 April 2023.

ACER’s policy paper on the further development of the EU electricity forward market:

• Identifies problems of this market segment, among which market fragmentation and lack of integration are the main ones; and
• Recommends solutions (e.g. regional virtual trading hubs to pool liquidity). Such regional hubs need to be complemented by accessible transmission rights to cover the remaining risks of the market participants.

This policy paper serves as ACER’s key recommendations on how to change the Forward Capacity Allocation Regulation.

Background

In the electricity forward market, market participants can trade electricity up to multiple years ahead of its delivery allowing them to protect or hedge themselves against future price fluctuations. Currently, with the exception of the Nordic region, each zone has its own market, bridged by transmission rights issued by the transmission system operators (TSOs). This leads to a fragmented and unequal distribution of the liquidity amongst the different national markets. Unlike the day-ahead and intraday markets, the EU forward market does not work as a single integrated EU market.

While this problem has been partially addressed in the short term markets through the allocation of cross zonal capacities, ACER identified scope to vastly improve long term forward markets.

What are the proposed changes?

ACER proposes a set of changes to improve the functioning of the EU electricity forward market:

1. Creation of virtual trading hubs combined with the issuance of transmission rights between bidding zones and those hubs;
2. Improved allocation of the transmission rights (more frequent, over longer period of time, in revised quantities) by the TSOs;
3. Transmission rights issued in the form of financial obligations; and
4. Optionally, the possibility to assign market making tasks.

What are the expected benefits of the changes?

• Regional hubs will attract and pool the liquidity of many zones, thereby significantly increasing the forward market liquidity.
• Hedging products at such hubs will cover the majority of price risks faced by market participants, whereas the remaining risk would be covered by transmission rights issued by the TSOs.
• Other proposed changes aim to make these transmission rights more accessible, liquid, as well as to better match the hedging needs of the market participants.

What are the next steps?

The recommended policy options are ACER’s proposal for changes to the Regulation on Forward Capacity Allocation. To continue the revision process of this Regulation, the European Commission could request ACER to make a recommendation that would list the proposed amendments. Following the issuance of such recommendation, the European Commission could initiate the comitology phase.

To present its policy paper, ACER organises a workshop on 13 March 2023.

Access the ACER’s policy paper on the further development of the EU electricity forward market.