Bidding Zone Review
Bidding Zone Review
Reporting on existing bidding zones and their review
What are the bidding zones and why the need to review them?
A bidding zone is the largest geographical area in which bids and offers from market participants can be matched without the need to attribute cross-zonal capacity. Currently, bidding zones in Europe are mostly defined by national borders.
The Electricity Regulation prescribes that the configuration of bidding zones in the EU should aim at maximising economic efficiency and cross-zonal trading opportunities, while ensuring security of supply. To achieve this, a review of the existing bidding zones needs to be carried out, to identify structural congestions and include an analysis of the different bidding zone configurations. Better defined bidding zone configurations can bring several benefits, including:
increased opportunities for cross-zonal trade;
more efficient network investments; and
cost-efficient integration of new technologies.
How is a bidding zone review launched?
Involved parties: Transmission System Operators (TSOs), National Regulatory Authorities (NRAs), ACER, Member States (MSs), European Commission (EC)
Current status: A pan-European bidding zone review process is currently ongoing.
The CACM Regulation specifies the parties entitled to trigger a bidding zone review as well as the conditions under which it may be launched. One of the conditions is that ACER may request TSOs to launch a review of the existing bidding zone configuration in case inefficiencies in the current arrangement are detected. The presence of any inefficiencies is to be identified in at least one of the following reports, which are drafted every three years:
ENTSO-E’s bidding zone technical report, which details the structural and major physical congestions in Europe, along with their location and frequency.
ACER’s market report, evaluating the impact of the current bidding zone configuration on market efficiency.
If ENTSO-E’s technical report concludes that structural congestions exist in the EU, the relevant Member State (in cooperation with the national TSOs) must decide, within six months, to establish either national or multinational action plans or to review and amend its bidding zone configuration.
Alternatively, the review of bidding zones can be triggered by:
A proposal from all European TSOs, which needs to detail the methodology and the assumptions that are to be used in the bidding zone review process, as well as the alternative bidding zone configurations.
A report, approved by the competent regulatory authority, drafted by one or more TSOs in their control areas.
Bidding Zone Review
How has the review of bidding zones worked in practice?
The first bidding zone review
A first bidding zone review was launched in 2018. The process concluded by maintaining the status quo, given the lack of evidence that modifying the bidding zone configuration would be beneficial.
The ongoing pan-EU bidding zone review
On 5 October 2019, all European TSOs submitted a bidding zone proposal to regulatory authorities for approval. This proposal lacked alternative bidding zone configurations for a large part of Europe. By 7 April 2020, TSOs submitted an updated version of the proposal to their respective regulatory authorities, which then referred it to ACER for decision.
ACER issued its first decision on 24 November 2020, adopting the methodology and the assumptions to be used in the bidding zone review process. At the same time, ACER requested TSOs to submit the results of the Locational Marginal Pricing (LMP) simulations to be able to decide on the alternative bidding zone configurations.
On 8 August 2022, ACER published a second decision on the alternative bidding zone configurations to be considered in Continental Europe (Germany, France, Italy and the Netherlands) and in the Nordic area (Sweden).
This decision could not cover the Baltic region, as the LMP results were still missing. As these results have been provided, ACER published a third decision on the alternative bidding zone configurations for the Baltic region on 22 December 2023. In its decision, ACER concluded that no alternative bidding zone configurations need to be investigated for the Baltics.
What are the next steps?
After the adoption of ACER’s decisions on the alternative configurations, TSOs have one year to carry out the bidding zone review and provide a recommendation on whether to keep or amend the bidding zone configuration.
Member States have six months to decide on the TSOs’ recommendation. If Member States fail to reach a unanimous decision, the European Commission (after consulting with ACER) has six months to decide.
Information on the status of the study being carried out by TSOs may be found on ENTSO-E’s website.