Compensation for grid operators covering cross-border power losses reached new peak in 2023
Compensation for grid operators covering cross-border power losses reached new peak in 2023
What is it about?
ACER publishes today its annual report on the implementation of the Inter-Transmission System Operator Compensation (ITC) mechanism for 2023.
What is the ITC mechanism?
The ITC mechanism, coordinated by the European Network of Transmission System Operators for Electricity (ENTSO-E), compensates transmission system operators (TSOs) for the costs of hosting cross-border power flows, including power losses and infrastructure investments. This compensation is financed through the ITC Fund, also managed by ENTSO-E. European TSOs contribute and receive money from the ITC Fund depending on how much electricity they import and export across national borders, as well as on the volume of transits they carry through their networks.
The ITC mechanism is part of Europe's electricity infrastructure cost-sharing framework, which also includes cross-border cost allocation and congestion income distribution. In 2023, 35 parties participated in the mechanism, covering most of Europe.
ACER is responsible for overseeing the yearly implementation of the ITC mechanism and reporting its findings to the European Commission.
What are the report's key findings?
In 2023, the ITC fund reached a record high of nearly €1.24 billion, marking the fifth consecutive year of record values, with a 105% increase compared to 2022.
The cost of power losses varied significantly, ranging from €56 to €400 per MWh, due to different procurement strategies and hedging instruments. These differences raised concerns about fairness for consumers.
The average cost of losses rose by 165% (reaching €202 per MWh), with one third of ITC parties experiencing three- to six-fold increases in their losses, because of unprecedented heights and volatility of electricity wholesale prices in 2021, 2022 and 2023.
Denmark, Austria, Switzerland, Poland, Slovakia and Czechia received over 75% of the total net compensation, while Italy and Norway paid more than half of the total net contributions.
Perimeter countries (non-participating countries connected to the ITC parties’ networks), including Belarus, Morocco, Russia, Turkey, Ukraine and Moldova, contributed €16.7 million to the fund.
Errors in Austria's electricity load data caused incorrect compensations for 2022 and 2023, leading to voluntary corrective payments by 20 ITC parties.
ENTSO-E improved its audit process by incorporating ACER data, enhancing transparency and raising data quality standards for both EU and non-EU ITC parties.
What are the next steps?
ACER reiterates its recommendations for further improving the ITC mechanism, including:
incorporating more granular information on the measured volume of losses;
implementing ex-post reconciliation of loss costs; and
using forward markets to determine the value of losses when their valuation and coverage are market-based.
Finally, ACER acknowledges that the current ITC mechanism, particularly its infrastructure fund, together with cross-border cost allocation and congestion income distribution does not fairly distribute the costs and benefits of cross-border electricity trade in Europe. ACER sees the need to review existing mechanisms to share costs and benefits of electricity network infrastructure arising from cross-border trade.