Forward transmission rights underpin the single electricity market

Date

04 Mar 2014

Sections

Energy
Euro & Finance

Press release

The European Federation of Energy Traders (EFET)1 welcomes the continued
implementation by European TSOs, power exchanges and regulators of day-ahead coupling
of national and regional wholesale electricity markets (DAMC), notably the extension of the
price coupling of regions (PRC) to Iberia, Switzerland, Italy and CEE. EFET also supports
the introduction of a single order book (SOB) platform to facilitate the execution of
continuous intra-day power trading across borders of bidding zones within the single market.

Yet there is a danger, as the involved parties work on such coupling projects, of forgetting
the axiomatic importance to the wholesale traded markets of forward transmission rights
issued by TSOs. Auctions of these rights have underpinned the development of cross border
liquidity in the continental wholesale power market since the early years of liberalisation at
the start of the millennium. Bidders for rights are enabled to take a view on the transmission
basis risks they need to hedge and to time and pitch their bids (or their secondary market
purchases) accordingly. The availability of these hedging instruments correspondingly
promotes competition in electricity supply across national and control area boundaries at the
wholesale level.

On 18 December 2013, the European Agency for the Cooperation of Energy Regulators
(ACER) published its opinion on the draft Forward Capacity Allocation (FCA) network code
submitted to it by ENTSO-E on 1 October. In its opinion, the Agency requested amendments
to the code as a condition for recommending its adoption to the European Commission. The
amendments requested by ACER are, in the view of EFET, the bare minimum required to
make the new code fit for purpose. That is to say, without such amendments, the standards
will not be met for certainty, objectivity, non-discrimination and firmness, required to allow
the market in forward transmission capacity to survive and prosper.

The most important principles justifying the amendments requested by ACER are, in the
view of EFET:

• Day-ahead market spread remuneration at the option of transmission right holders, to
allow for conversion of physical rights to financial before the day-ahead exchange
gate closure in those areas already subject to market coupling; accompanied by
harmonised remuneration rules effective across all relevant bidding zones borders.

• Annulment of issued rights or physical curtailment of transmission capacity only in
objectively verified emergency situations and proven cases of force majeure.

• Full financial firmness in the event of curtailment, except in proven cases of force
majeure, with any compensation caps allowed only as an exception to be approved
by national regulators; in any case absolute periodic caps should not be permitted,
while caps based on congestion income of TSOs should take account of their total
annual revenue received from transmission capacity allocation across all timeframes
(not only forward) at the relevant bidding zone border.

• Rigorous and objective assessment of whether alternatives to the issuance by TSOs
of forward transmission rights at a particular border between bidding zones provide
sufficient cross border hedging opportunities to market participants, in cases where a
TSO or regulator proposes to sanction the exemption of a TSO from such issuance.
EFET calls upon ENTSO-E to take full account of the above-stated principles, and of the
requests for amendments made by ACER, as it completes work on a revised version of the
FCA network code. EFET also calls upon the European Commission to insist on due respect
for the principles, when it considers whether to take a draft code into a comitology approval
process.

For further information, please contact:

Irina Nikolova, EFET Policy and Communication Associate
E-mail: I.Nikolova@efet.org, Tel: +32 (0) 2 737 11 02+32 (0) 2 737 11 02

1 The European Federation of Energy Traders (EFET) promotes and facilitates European energy
trading in open, transparent, sustainable and liquid wholesale markets, unhindered by national
borders or other undue obstacles. We currently represent more than 100 energy trading companies,
active in over 27 European countries. For more information, visit our website at www.efet.org.

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