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Tom Sargent
Director of Western European power and emissions trading
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Insight - Uniting Europe's power markets
Tom Sargent, director of Western European power and emissions trading for E.ON Energy Trading, recently presented the company’s vision for integrating European power markets at the Nord Pool Market Forum 2009 in Spitsbergen, Norway. His presentation is available in the box to the right of this article.
On April 22, 2009, the EU Parliament voted to approve the Third Internal Energy Market Legislative Package, a set of laws designed to further liberalize Europe’s internal energy market. Fundamentally, the EU believes more liberalized energy markets are the best way to ensure fair prices and secure long-term supplies for European consumers. The package will become law when it is expected to be given final approval by the European Council in May.
On April 22, 2009, the EU Parliament voted to approve the Third Internal Energy Market Legislative Package, a set of laws designed to further liberalize Europe’s internal energy market. Fundamentally, the EU believes more liberalized energy markets are the best way to ensure fair prices and secure long-term supplies for European consumers. The package will become law when it is expected to be given final approval by the European Council in May.
The map shows the different initiatives lead by power exchanges and TSO’s to integrate markets. It is essential to actively involve trading companies in these projects.
As part of its vision for a more effective energy landscape in Europe – one that will help to ensure secure supplies, fair prices and a cleaner environment - the EU wants to see the eventual development of a single pan-European electricity market. Though there is no one-size-fits-all solution to reach this goal, E.ON Energy Trading is supportive of the EU’s market integration agenda and there are a number of initiatives that we believe will help to bring Europe’s wholesale electricity markets closer together.
Transparency builds trust
In the current climate, with the financial crisis leading to calls for increased government intervention, it’s more important than ever that electricity markets are efficient, liquid and transparent. That’s important because efficient, liquid and transparent markets deliver fair prices, which are beneficial to consumers and vital in building trust with stakeholders, whether they’re regulators, politicians or the market participants themselves. That’s why E.ON Energy Trading actively supports initiatives that lead to the Europe-wide standardization of rules for publishing market relevant data.
Market Coupling - bringing markets closer together
By creating a more unified internal electricity market, Brussels also hopes to create greater electricity price harmony across the European Union. One of the most effective ways to increase the integration of markets across national borders is through a process called Market Coupling.
Market Coupling is a way of coupling national electricity markets by bringing together all offers at the involved power exchanges using available cross-border transmission capacity between those markets. In this process, power exchanges make electricity transmission capacities available to all market participants via auction. Market Coupling already exists in the Nordic region and between the French, Belgian and Dutch markets, but there are a number of projects underway:
• Nordic/DE - 2nd Q 2009
• FR/BE/NL/DE - 1st Q 2010
• NO/NL - end 2009
Further projects have also been announced:
• FR/ES/PT
• CZ/SK
• IT/SLO
• UK/NL
The initiatives are generally led by transmission system operators (TSOs) and the power exchanges themselves, and supported by energy trading companies such as E.ON Energy Trading.
Market Coupling is a way of coupling national electricity markets by bringing together all offers at the involved power exchanges using available cross-border transmission capacity between those markets. In this process, power exchanges make electricity transmission capacities available to all market participants via auction. Market Coupling already exists in the Nordic region and between the French, Belgian and Dutch markets, but there are a number of projects underway:
• Nordic/DE - 2nd Q 2009
• FR/BE/NL/DE - 1st Q 2010
• NO/NL - end 2009
Further projects have also been announced:
• FR/ES/PT
• CZ/SK
• IT/SLO
• UK/NL
The initiatives are generally led by transmission system operators (TSOs) and the power exchanges themselves, and supported by energy trading companies such as E.ON Energy Trading.
Overcoming challenges to market integration
But Market Coupling isn’t without its challenges. The integration of day-ahead power markets through Coupling is complex and requires technical and political alignment. Removing price differences between markets also requires continued enhancements to the rules for transmitting electricity from one region to another, not to mention significant infrastructure investment.
Because of these difficulties, one of the possible options is to implement a more gradual, regional approach via Dome Coupling. In Dome Coupling, some regional price differences are tolerated in the short and medium term, while a central engine is created to determine the most efficient flows of electricity between the coupled market regions.
Because of these difficulties, one of the possible options is to implement a more gradual, regional approach via Dome Coupling. In Dome Coupling, some regional price differences are tolerated in the short and medium term, while a central engine is created to determine the most efficient flows of electricity between the coupled market regions.
Impact of global markets
In Europe we will continue to see greater efficiency and further harmonization of prices, but we must remember that our markets do not operate in isolation. As we have seen over the past few years, European markets are strongly influenced by global commodities and this will not change.