ACER finds market efficiency being affected by existing bidding zones configuration

The existing electricity bidding zones configuration in Central Europe is currently affecting the efficient use of the infrastructure, the incentives to invest in both transmission and generation, and the liquidity of forward markets, according to the ACER report on the influence of existing bidding zones on electricity markets published today by the Agency.  The impact is particularly relevant in the central part of Europe (Austria, Benelux, Czech Republic, Denmark, France, Germany, Hungary, Italy, Poland, Slovakia, Slovenia and Switzerland), where the completion of the Electricity Target Model (in particular in the Eastern region) is being hampered, partly by disagreements about what an adequate bidding zones configuration should be.   The report is based on the Agency’s assessment and stakeholders’ feedback received during the public consultation on the influence of existing bidding zones on electricity markets launched in July 2013. It analyses the main effects of bidding zone configuration on the electricity markets of the central part of Europe.   ACER main findings   The report finds that the existing bidding zone configuration in central Europe is currently affecting:  
  1. The efficient dispatch of generation and social welfare, which are both effected by preventive congestion management (cross-zonal capacity calculation and allocation) and curative congestion management (remedial actions);
  2.  The distribution of social welfare due to the potential discrimination of market participants located at different geographical points in the network;
  3.  The incentives to invest in both transmission and generation; and
  4.  The liquidity, possibly in day-ahead but in particular in forward markets, where larger bidding zones provide more hedging opportunities than small bidding zones creating non-level playing field.
  ACER recommendations   The report provides a set of recommendations to ENTSO-E who will carry out a full review process by comparing alternative bidding zones configurations in the above mentioned bidding zones of Central Europe.   According to the ACER report, the review of bidding zones to be performed by ENTSO-E should include, as a minimum, an assessment of the effects of different bidding zone configuration scenarios on the above mentioned market-related aspects. Other elements such as market power are currently perceived as less relevant factors triggering the decision of a bidding zone review in the CEE and the CWE regions, Denmark, Switzerland and Italy.   The Agency also acknowledges several remarks provided by stakeholders in the Public Consultation undertaken in the context of the report. First, stability of the bidding zones configuration is very important for market participants, who recommend that reviews of bidding zones configuration should not take place too often. Second, stakeholders request the utmost transparency when ENTSO-E and the Agency perform, respectively, the technical and market report within the assessment of bidding zones configuration.