EU Energy Market
Wholesale electricity and gas markets — EU oversight rules
Regulation (EU) No 1227/2011 — wholesale energy market integrity and transparency
It establishes a framework for monitoring wholesale energy markets*. It aims to prohibit abuses such as insider trading* and market manipulation.
Key Points
The regulation strengthens the role of the Agency for the Cooperation of Energy Regulators (ACER). ACER’s tasks include the following.
— Monitoring trading activities in the wholesale energy market. This is done by establishing a European register of market participants on the basis of information provided by national authorities.
— Sending an annual activity report to the European Commission. This may include:
— recommendations on how to better implement market rules to improve transparency and integrity;
— an evaluation of whether minimum requirements for organised markets could increase transparency.
Market manipulation
By creating ACER, the regulation seeks to prevent instances of market manipulation such as the following.
— Placing false orders.
— Spreading false information.
— Giving false information to those who provide price assessments or market reports, thus misleading market participants who act on the basis of such information.
— Claiming a different available amount of electricity generation capacity*, transmission capacity* and natural gas to that which actually exists. This has the potential to affect electricity and gas price levels.
Participants
Market participants have to:
— register with a national regulatory authority (NRA);
— provide ACER and the NRA with information so both bodies can monitor trading activities;
— publicly disclose inside information* in a timely manner, including that related to the capacity and utilisation of facilities, production, storage, consumption and transmission of electricity, natural gas or liquefied natural gas (LNG).
Penalties
EU countries must enforce penalties in the event of non-compliance with this regulation. These have to be proportionate and reflect:
— the seriousness of the infringement;
— the damage caused to consumers;
— the potential trading gains from acting on inside information* and market manipulation.
KEY TERMS
* Wholesale energy markets: these are markets where energy is traded between energy retailers (such as electricity companies), investment banks and large energy users (for example, steel plants).
* Insider trading: when an individual attempts to benefit from trade in a certain product based on information that is not yet public (inside information). Without this information, other traders are at a disadvantage.
* Market manipulation: deliberately interfering with the fair operation of a market. This can involve creating false or misleading signals regarding the supply or demand of a certain product, thus affecting its price.
* Electricity generation capacity: the capacity to produce electrical energy.
* Transmission capacity: the capacity of fixed infrastructure, such as power lines, to transport electricity.
* Inside information: information related to a product which has not been made public. If it were to be made public, this could affect the price of the product in question.
Background & Application
Agency for the Cooperation of Energy Regulators
From 28 December 2011.
ACT
Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (OJ L 326, 8.12.2011, pp. 1-16)
Electricity in the EU — Inter-Transmission System Operator Compensation (ITC)
Regulation (EU) No 838/2010 — guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging
It aims to provide a mechanism and guidelines for:
compensating electricity transmission system operators (TSOs)* for the cost of hosting cross-border electricity flows on their networks;
how this compensation is calculated.
Key Points
TSOs receive compensation for hosting cross-border flows of electricity on their networks, including for corresponding losses through an Inter-Transmission Compensation (ITC) fund established and administered by the European Network of Transmission System Operators for Electricity (ENTSOE), which was set up under Article 5 of Regulation (EC) No 714/2009. The ITC framework is overseen by the Agency for the Co-operation of Energy Regulators (ACER), set up by Regulation (EC) No 713/2009.
Contribution to the fund
TSOs contribute proportionately to the ITC fund based on electricity flows onto and from their national transmission system.
Participation
Regulatory authorities ensure that TSOs participate in the ITC mechanism and that no additional charges for hosting cross-border flows of electricity are included in charges applied by transmission system operators for access to networks.
TSOs from non-EU countries who apply EU law in the field of electricity or have entered into multi-party agreements are entitled to participate in the ITC mechanism.
Use fee
Each participant in the ITC mechanism charges a transmission system ‘use fee’ on electricity imports and exports of electricity between the national transmission system and the transmission system of a non-EU country, unless it is has agreed to apply EU law in the field of electricity, or where there is no multi-party agreement.
The ‘use fee’ for each year is set by ENTSO-E at the estimated contribution per megawatt hour TSOs from a participating country would make to the ITC Fund based on projected cross-border electricity flows for the relevant year.
Charges
The annual average transmission charges paid by producers is calculated as:
the annual total transmission tariff charges paid by producers divided by the total measured energy injected annually by producers to the transmission system of an EU country.
These charges exclude:
infrastructure charges;
charges paid by producers related to ancillary services;
specific system loss charges paid by producers.
The allowable annual average transmission charges paid by producers is as follows:
Denmark, Sweden and Finland: 0 to 1.2 €/MWh;
Ireland, Great Britain and Northern Ireland: 0 to 2.5 €/MWh;
Romania: 0 to 2.0 €/MWh;
other participating countries: 0 to 0.5 €/MWh.
ENTSO-E monitors how appropriate these allowable charge ranges are, taking account of their impact on transmission capacity financing for EU countries.
Application & Background
It has applied since 3 March 2011.
BACKGROUND
See also:
Inter-TSO compensation mechanism (Agency for the Cooperation of Energy Regulators).
Key Terms
Transmission system operator (TSO): a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity.
MAIN DOCUMENT
Commission Regulation (EU) No 838/2010 of 23 September 2010 on laying down guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging (OJ L 250, 24.9.2010, pp. 5-11)
RELATED DOCUMENTS
Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, pp. 1-14)
Amendments to Regulation (EC) No 713/2009 have been incorporated in the original text. This consolidated version is for documentary purposes only.
Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ L 211, 14.8.2009, pp. 15-35)
Internal market in electricity
Directive 2009/72/EC – rules for the EU’s electricity market
It seeks to introduce common rules for the generation, transmission, distribution and supply of electricity.
It also lays down universal service obligations and consumer rights, and clarifies competition requirements.
Rules for the organisation of the sector
The rules for the organisation of the sector are aimed at developing a competitive, secure and environmentally sustainable market in electricity.
EU countries may impose on undertakings operating in the electricity sector public service obligations which cover issues of security and security of supply, regularity and quality of service, price, environmental protection and energy efficiency.
EU countries have to ensure that all customers have the right to choose their electricity supplier and to change supplier easily, with the operator’s assistance, within 3 weeks. They also have to ensure that customers receive relevant consumption data.
Electricity suppliers are obliged to inform final customers about:
the contribution of each energy source;
the environmental impact caused;
their rights in the event of a dispute.
EU countries must put in place an independent mechanism (energy ombudsman or consumer body) to manage complaints or disputes efficiently.
EU countries are also obliged to ensure the monitoring of security of supply. They have to define technical safety criteria to ensure the integration of their national markets at one or more regional levels. In addition, the national regulatory authorities are to cooperate with the Agency for the Cooperation of Energy Regulators to guarantee the compatibility of regulatory frameworks between regions.
Generation
EU countries must define criteria for the construction of generating capacity in their territory taking account of aspects such as:
the security and safety of electricity networks;
the protection of health and public safety;
the contribution made towards the Commission’s ‘20-20-20’ objectives.
Transmission system operation
From 3 March 2012, EU countries had to unbundle transmission systems and transmission system operators.
An undertaking must first be certified before being officially designated as a transmission system operator. A list of transmission system operators designated by EU countries has to be published in the Official Journal of the European Union.
Transmission system operators are mainly responsible for:
ensuring the long-term ability of the system to meet demands for electricity;
ensuring adequate means to meet service obligations;
contributing to security of supply;
managing electricity flows on the system;
providing to the operator of any other system information related to the operation, development and interoperability of the interconnected system;
ensuring non-discrimination between system users;
providing system users with the information they need to access the system;
collecting congestion rents and payments under the inter-transmission system operator compensation mechanism.
Distribution network operation
EU countries must designate distribution system operators or require undertakings that own or are responsible for distribution systems to do so.
Distribution system operators are mainly responsible for:
ensuring long-term capacity of the system in terms of the distribution of electricity, operation, maintenance, development and environmental protection;
ensuring transparency with respect to system users;
providing system users with information;
covering energy losses and maintaining reserve electricity capacity.
EU countries have the option of putting in place a closed distribution system to distribute electricity within a geographically confined industrial, commercial or shared services site.
Unbundling and transparency of accounts
EU countries and the competent authorities have right of access to the accounts of electricity undertakings but shall preserve the confidentiality of certain information.
Electricity undertakings have to keep separate accounts for their transmission and distribution activities.
Organisation of access to the system
EU countries must organise a system of third party access to transmission and distribution systems. The tariffs based on that system shall be published.
EU countries must also lay down criteria for the granting of authorisations to construct direct lines in their territory, on an objective and non-discriminatory basis.
National regulatory authorities
EU countries must designate a regulatory authority at national level. It shall be independent and exercise its powers impartially. It is mainly responsible for:
fixing transmission or distribution tariffs;
cooperating in regard to cross-border issues;
monitoring investment plans of the transmission system operators;
ensuring access to customer consumption data.
Retail markets
Contractual arrangements, commitment to customers, data exchange and settlement rules, data ownership and metering responsibility must be defined.
Non-household customers may contract simultaneously with several suppliers.
Derogatory measures
An EU country may take the necessary safeguard measures in the event of a sudden crisis in the market or where the safety of persons is threatened. Derogations may also be obtained in the event of operating problems in isolated systems.
Directive 2009/72/EC repealed Directive 2003/54/EC with effect from 3 March 2011.
Smart metering – progress to date
In 2012, the European Commission adopted Recommendation 2012/148/EU. This set out detailed recommendations regarding:
data protection and security,
the methodology for the economic assessment of the long-term costs and benefits for the roll-out of smart metering systems, as well as
common minimum functional requirements for smart metering systems for electricity.
In accordance with Directive 2009/72/EC, EU countries reported to the Commission in 2012 on the results of their cost-benefit analyses regarding the roll-out of smart metering systems. The results of this benchmarking exercise were published in a Commission report in 2014.
Application & Background
It applies from 3 September 2009. EU countries had to incorporate it into national law by 3 March 2011.
For more information, see Market legislation on the European Commission’s website
ACT
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, pp. 55–93)
RELATED ACTS
Commission Recommendation 2012/148/EU of 9 March 2012 on preparations for the roll-out of smart metering systems (OJ L 73, 13.3.2012, pp. 9-22)
Report from the Commission: Benchmarking smart metering deployment in the EU-27 with a focus on electricity (COM(2014) 356 final of 17.6.2014)
Guideline on electricity transmission system operation
Regulation (EU) 2017/1485 — guideline on electricity transmission system operation
It defines a set of minimum requirements for EU-wide transmission system operation, cross-border cooperation between transmission system operators (TSOs)*, using the relevant characteristics of the connected distribution system operators (DSOs)* and significant grid users (SGUs)*.
These guidelines are necessary for the purpose of safeguarding operational security, power supply frequency and the efficiency of the interconnected system and resources.
Key Points
As part of the EU’s Third Legislative Package in the field of energy, Regulation (EC) No 714/2009 sets out the rules governing access to the network for cross-border exchanges in electricity with a view to ensuring the proper functioning of the EU’s internal market in electricity. It creates the European Network of Transmission System Operators for electricity (ENTSOE) which, together with the Agency for the Cooperation of Energy Regulators, develops the European network codes and guidelines — i.e. the rules for the operation of the electricity and gas sectors, which are then adopted by the European Commission. These rules seek to ensure that Europe’s energy transmission systems meet the goals of security of supply, increased competitiveness and affordable energy.
In introducing a guideline on electricity transmission system operation, Commission Regulation (EU) 2017/1485 is a highly technical regulation and has five sections. This summary focuses on some of the content of the first section which lays down general aspects. It then provides an outline of the content of the technical sections.
GENERAL ASPECTS
Subject matter
The regulation lays down detailed guidelines on:
requirements and principles concerning operational security;
rules and responsibilities for the coordination and data exchange between TSOs, between TSOs and DSOs, and between TSOs or DSOs and SGUs, in operational planning and in close to real-time operation;
rules for training and certification of system operator employees;
rules on operational security analysis, including regional operational security coordination and appointment of regional security coordinators (RSCs);
requirements on outage coordination;
requirements for scheduling between the control areas for which the TSOs are responsible; and
rules aiming at the establishment of an EU-wide framework for load-frequency control and reserves.
Scope
The regulation applies to all transmission systems, distribution systems and interconnections in the EU and regional security coordinators except those located in islands of EU countries of which the systems are not operated synchronously (i.e. interconnected) with Continental Europe (‘CE’), Great Britain (‘GB’), Nordic, Ireland and Northern Ireland (‘IE/NI’) or Baltic synchronous area.
Definitions
The regulation contains 159 — mostly technical — definitions.
TECHNICAL SECTIONS
The areas covered by the technical sections of the regulation concern:
Operational security:
operational security requirements,
data exchange,
compliance,
training.
.
Operational planning:
data for operational security analysis in operational planning,
operational security analysis (including rules concerning the organisation of regional operational security coordination via the appointment of RSCs),
outage coordination,
adequacy,
ancillary services (a service necessary for the operation of a transmission or distribution system),
scheduling,
ENTSOE operational planning data environment.
Load-frequency control and reserves:
operational agreements,
frequency quality,
load-frequency control structure,
operation of load-frequency control,
frequency containment reserves,
frequency restoration reserves,
replacement reserves,
exchange and sharing of reserves,
time control process,
cooperation with DSOs,
transparency of information.
The final section of the regulation is mainly concerned with application dates.
Application & Background
The general rules introduced by the regulation apply from 14 September 2017. However, Articles 41 to 53 (on data exchange between TSOs, between TSOs and DSOs with the TSO’s control area, between TSOs, DSOs and distribution-connected power generating modules, and between TSOs and transmission-connected demand facilities) apply from 14 March 2019 and Article 54(4) (compliance tests and simulations carried out by SGUs) from 18 August 2019.
For more information, see:
Electricity network codes and guidelines (European Commission).
KEY TERMS
transmission system operator (TSO): an organisation which is responsible for the transport of energy at national or regional level using fixed infrastructure.
distribution system operator (DSO): an organisation responsible for providing and operating low, medium and high voltage networks for regional distribution of electricity as well as for supply of lower-level distribution systems and directly connected customers.
significant grid user (SGU): the existing and new power generating facility and demand facility deemed by the TSO as significant because of their impact on the transmission system in terms of the security of supply, including provision of ancillary services.
MAIN DOCUMENT
Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation (OJ L 220, 25.8.2017, pp. 1-120)
RELATED DOCUMENTS
Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ L 211, 14.8.2009, pp. 15-35)
Successive amendments to Regulation (EC) No 714/2009 have been incorporated into the original document. This consolidated version is of documentary value only.
Information exchange mechanism in the field of energy
Decision (EU) 2017/684 — sharing information on energy-related intergovernmental agreements and non-binding instruments between EU countries and non-EU countries
It sets up a system for sharing information between EU countries and the European Commission about energy agreements signed between one or several EU countries, on the one side, and non-EU countries or international organisations, on the other side.
The aim is to ensure that intergovernmental agreements signed by EU countries with non-EU countries or international organisations are consistent with EU law. This should ensure proper functioning of the internal market, enhance security of supply in the EU, and lead to better transparency and coordination in energy matters between EU countries and with the Commission.
It repeals Decision No 994/2012/EU.
Key Points
The decision mainly covers legally binding agreements between an EU country and a non-EU country (or international organisation) concerning the purchase, trade, sale, transit, storage or supply of energy in or to an EU country or involving any energy infrastructure within the EU.
When starting such negotiations, EU countries must inform the Commission as early as possible before they begin and keep the Commission regularly informed on progress through a dedicated web-based application.
Before finalising an intergovernmental agreement or amendment, the EU country concerned must take ‘utmost account’ of the Commission’s opinion on the compatibility of the agreement with EU law.
Following ratification of any energy agreement, the EU country must notify the Commission, including the reasons for any departure from the Commission’s legal opinion.
EU countries may optionally notify non-binding instruments to the Commission. These are arrangements which are not legally binding, typically memoranda of understanding, joint declarations, or joint codes of conduct, which set out prices, for example, or the development of infrastructure.
Oil and gas
Where discussions are about gas and oil, any draft agreement should be notified to the Commission for a prior (ex-ante) assessment. The Commission must inform the EU country concerned within 5 weeks of any doubts it has about compatibility of the agreement with EU law, in particular with internal energy market rules and competition law. The Commission will follow up its doubts with a full opinion within 12 weeks of the original notification.
Electricity
EU countries can make their own assessment of the legal compatibility of electricity agreements with EU law at the draft agreement stage.
Where the EU country has not been able to come to a firm conclusion on this compatibility, it must notify the draft agreement to the Commission and the same procedure as in the case of oil and gas ex-ante assessment will be followed.
Time periods
The time periods for the assessment of any of the above-mentioned agreements (oil and gas, electricity) may be extended with the approval of the EU country, or shortened with the agreement of the Commission to ensure that negotiations are not unduly delayed.
Existing agreements
By 3 August 2017, EU countries must have notified the Commission of all existing intergovernmental energy agreements including the notified agreements related to electricity. Where the Commission has initial doubts about the legal compatibility with EU laws of these agreements, EU countries will be informed accordingly by the Commission within 9 months of notification.
Information sharing
Where an EU country has not indicated that certain information is confidential, the Commission will make it available in secure electronic form to all other EU countries. Where the information is confidential, the EU country will provide a summary, including at least the agreement’s subject matter, aim, scope, duration, parties involved and information on the main elements.
Requests for confidentiality do not restrict the access of the Commission itself to confidential information.
This sharing aims to encourage coordination among EU countries to:
review developments and achieve consistency in EU external energy relations;
identify common problems and appropriate action to address them, proposing guidance and solutions;
support the development of multilateral intergovernmental agreements involving groups of EU countries or the EU as a whole.
Guidance
By 3 May 2018, the Commission, consulting with EU countries, will develop model clauses and guidance to improve the compliance of future intergovernmental energy agreements with EU law.
Application & Background
It has applied since 2 May 2017.
BACKGROUND
For more information, see:
Intergovernmental agreements (European Commission).
MAIN DOCUMENT
Decision (EU) 2017/684 of the European Parliament and of the Council of 5 April 2017 on establishing an information exchange mechanism with regard to intergovernmental agreements and non-binding instruments between Member States and third countries in the field of energy, and repealing Decision No 994/2012/EU (OJ L 99, 12.4.2017, pp. 1-9)