Risk preparedness in an integrated European electricity market

Report

An integrated European electricity market will benefit consumers through lower prices, more cost-effective integration of renewable resources, and improved system reliability. A central question often asked in the context of the IEM is: can Poland rely on resources from neighbouring countries in a crisis situation? Is it safe to integrate market when national transmission system operators (TSOs) are responsible for managing energy systems in Europe.

Forum Energii, in cooperation with Regulatory Assistance Project, decided to analyze solutions proposed in the Risk Preparedness Regulation. The regulation takes on an important dimension of market integration: cross-border cooperation around regional crisis situations. – says Edith Bayer, author of the report “Risk Preparedness in the Winter Package “ - Importantly, the regulation provides a framework for strengthened coordination to help anticipate and avoid a regional crisis. Short-term regional resource adequacy assessments are a critical component of this framework, and an important complement to longer-term regional assessments proposed under the Electricity Market Regulation.

Key findings of the report

  1. An integrated European electricity market will benefit consumers through lower prices, more cost-effective integration of renewable resources, and improved system reliability. The proposed Risk Preparedness Regulation aims to strengthen a critical element of the Internal Energy Market (IEM) by providing a framework for regional coordination in preventing, preparing for, and managing crisis situations.
  2. A central question often asked in the context of the IEM is: can Poland rely on resources from neighbouring countries in a crisis situation? Poland and Europe have, over the years, experienced occasional widespread electricity crises that could have been prevented or mitigated through improved cooperation and shared rules. A key element of the Risk Preparedness Regulation is the requirement to prepare national risk preparedness plans, which must include regional measures.
  3. Defining and managing risk requires coordination not just in real time, but also in investment time scales. An important element of long-term coordination is the establishment of clear and comparable reliability standards across Member States followed by a resource adequacy assessment  to determine whether the required level of reliability is being met. Provisions in the Electricity Regulation take important steps in this direction through introduction of standard reliability indicators and the proposed European Union Resource Adequacy Assessment.
  4. Despite the progress made around risk preparedness, some notable barriers to regional cooperation remain:
  • The Regulation builds on existing governance structures to carry out the tasks around risk preparedness. The lack of a stronger regional governance structure means that coordination around crisis situations will continue to depend on decisions at the Member State level, making optimisation of resources around Europe difficult.
  • Limited available capacity on existing cross-border networks continues to be a constraint on market integration and on the ability to rely on resources from neighbouring systems in the event of a regional crisis. Important steps to improve this include market coupling and implementation of the Guidelines on conditions for access to the network for cross-border exchanges in electricity, under which interconnector capacity offered to the market should be maximised and should not be reduced by “moving internal congestion to the borders”—subject to grid security not being compromised.

Risk preparedness is an important part of the broader debate around the effect that interconnected markets and coordinated system operations will have on the Polish power system and on broader public policies. Often discussions around the IEM focus on issues relating to the effect that lower-cost imports will have on Polish generators (on the one hand) and on consumer prices and economic development (on the other). Until recently, risk preparedness was flagged as a concern with no clear resolution. The Commission’s proposal on risk preparedness provides a path forward to strengthen certainty over the ability to rely on neighbouring resources in a widespread crisis.

 

Title of analysis: "Risk Preparedness in an Integrated European Electricity Market"
Author of the analysis: Edith Bayer
Substantive supervision: dr Joanna Maćkowiak Pandera, Forum Energii

 

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