11.1.2023

ACER approves the new automatic maximum price limit adjustment mechanism for the European electricity spot markets

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ACER approves the new automatic maximum price limit adjustment mechanism for the European electricity spot markets

What is it about?

Europe’s spot electricity markets have an automatic maximum price limit adjustment mechanism in case of extraordinary high prices. ACER has approved changes in the methodologies for automatically increasing the maximum price limit in case of price spikes. The timely adjustment of those price limits is needed to ensure security of supply this winter through optimal short-term dispatch of generation, efficient use of interconnections and to encourage demand response. The amended methodologies will lead to a more gradual increase of the day ahead and intraday market price limits than with the previous rules.

What are the methodologies about?

With expected high prices on the electricity markets ahead, ACER urged the Nominated Electricity Market Operators (NEMOs) to submit proposals to amend the Capacity Allocation and Congestion Management methodologies related to:

  • The Harmonised Maximum and Minimum Clearing Price (HMMCP) methodology for Single Day-Ahead Coupling (SDAC); and
  • The Harmonised Maximum and Minimum Clearing Price (HMMCP) methodology for Single Intraday Coupling (SIDC).

These methodologies define Europe’s single day-ahead and intraday electricity markets’ maximum and minimum price limits. Following receipt of the NEMOs’ proposals in September 2022, ACER has reviewed and now approved the amendments to the HMMCP methodologies. ACER considered this review as a high priority and approved the amendments in an expedited manner, issuing the HMMCP SDAC Decision and the HMMCP SIDC Decision two months before the legal deadline.

What are the benefits of the changes?

The methodology amendments update the conditions that will lead to fewer and smaller adjustments of the price limits. This will allow market participants to get used to the new price limits, allowing new generation and demand response to enter.

See examples of the effects of the amendments here.

The combined effect of these amendments will be to more gradually adjust the short-term electricity market price limits, effectively limiting a cascading effect of increases in case of repeated extreme prices resulting from the current methodology, while conserving the benefits of timely adjustments of the price limits on the efficiency of the European spot markets.

Additionally the automatic adjustment mechanism is introduced for intraday markets, triggering price limits adjustments on the intraday auctions, currently planned to be launched in the first months of 2024.

Access the ACER’s HMMCP SDAC Decision and ACER’s HMMCP SIDC Decision.

How else to reduce price spikes in the coming months?

Price spikes can occur more frequently if electricity generation together with cross-border interconnector capacity is not enough to serve demand. Making interconnector capacity available for trade and encouraging demand response is vital to ensure security of supply over the coming winter.

Therefore, and irrespective of the decisions, in the coming months, ACER reiterates its plea for:

  • Transmission System Operators (TSOs) to make sufficient cross-zonal interconnector capacity is available for electricity cross-border trade; and
  • Market participants to bring significant demand response to the market.