In its European Green Deal Communication published late last year, the European Commission reaffirms its vision of achieving net climate neutrality in Europe by 2050. For the transport sector, which accounts for a quarter of the EU’s total greenhouse gas emissions, a combination of measures will be needed to place the sector on a firm path to sustainable and smart mobility. Along these lines, the Commission has proposed to make 2021 the European Year of Rail, to support the delivery of the objectives of its European Green Deal in the transport area. The role of multimodal transport, in particular, is highlighted as key to increasing the efficiency of the transport system. The overarching goal is to drive a significant modal shift from less environmentally sound transport modes, such as road in particular, but also aviation, towards the greenest modes of transport, namely rail and inland waterways, without compromising the connectivity of goods and persons, which is at the heart of the single market. This in turn will require measures to manage better, and to increase the capacity of railways and inland waterways, which the Commission has pledged to propose by 2021. The COVID-19 pandemic has hit companies in the transport sector particularly hard. There is a broad consensus that the EU and national regulations should seize the opportunities afforded by the recovery plans to exit the crisis to promote the twin green and digital transformations.

The 19^th Florence Rail Forum, co-organised by the Transport Area of the Florence School of Regulation together with the European Commission’s DG COMP and DG MOVE, will examine the role of State aid in meeting the challenges of the Green Deal, with two dedicated sessions focusing on rail freight transport as well as rail passenger transport.

Evaluations are currently underway of the relevant State aid guidelines including those pertaining to railways. The Commission considers that any revision will have to reflect the policy objectives of the European Green Deal, support a cost-effective transition to climate neutrality by mid-century, and ensure a level-playing field in the internal market. Investments will indeed be paramount to boosting intermodal freight transport, in particular in transhipment terminals but also more generally in rail infrastructure (to ensure interoperable/sufficient capacity), and, possibly, in rolling stock or technology (e.g. automation for train composition).

The 19^th Florence Rail Forum will seek to discuss the situations that justify State aid in order to support investment (in rolling stock or intermodal terminals) as well as operations (start-up aid or longer term operating aid), and moreover, the conditions under which State aid should be declared compatible to make intermodal freight transport attractive. The possibility and conditions to set up public service obligations for (structurally non-viable) rail freight routes is also a key topic for discussion on the way to ensure sufficient capillarity and to address the issue of the unprofitable last mile service.

When it comes to rail passenger transport, the forum will seek to address the key questions surrounding the demonstration of the necessity of public service contracts by public authorities, i.e. how to determine the existence of a ‘genuine public service need’ in order for a public service contract to be awarded.

Please kindly note that this event is by invitation only.

SPEAKERS PRESENTATIONS:

Introduction to the Forum

Juan Montero – FSR Transport, EUI Presentation

Maurizio Castelletti – DG MOVE, European Commission Presentation

Session A: Rail Freight Transport Session I. State aid and investment.

Silvia De Rocchi – Captrain Italia Srl  Presentation

Christoph Lerche – Deutsche Bahn AG Presentation

Paul Hegge – Lineas Presentation

Koen Cuypers – Port of Antwerpen Presentation

Session B: Rail Freight Transport Session II. Operating aid.

Ralf-Charley Schultze –  International Union for Road-Rail Combined Transport (UIRR) Presentation

Hinne Groot – Ministry for Infrastructure and the Water Management (Netherlands) Presentation

Irmtraut Tonndorf – HUPAC Presentation

Zeno D’Agostino – Port Network Authority of the Eastern Adriatic Sea Presentation

Session C: Rail Passenger Transport Session I. Public service contract and open access rail services.

Cesare Paonessa – Agenzia per la Mobilità Piemontese Presentation

Erich Forster – WESTbahn Management GmbH Presentation

Carl Adam Holmberg – Snälltåget Sweden Presentation

Session D : Rail Passenger Transport Session II. Compensation parameters.

Nick Brooks –  ALLRAIL Presentation

Germano Guglielmi – Ferrovie dello Stato Presentation

Patricia Perennes – Centre-Val de Loire Region Presentation

Kurt Bauer – ÖBB Presentation

The 25^th Annual Conference of the European Association of Environmental and Resource Economists will be held on Tuesday, June 23 – Friday, July 3, 2020, online! Due to the coronavirus outbreak, the city government of Berlin has decided that all physical events at universities have to be cancelled until the end of July. Therefore EAERE together with the PC and LOC decided to hold this year’s conference as a virtual event.

This year’s EAERE conference evolves around Friday, June 26, which incorporates all centrally organized sessions including opening and closing ceremonies, a plenary keynote on the European Green Deal and three invited sessions taking place in a semi-plenary format. In addition, almost 150 Policy, Thematic and Parallel Sessions are decentrally organized by volunteer presenters. The decentral sessions take place between June 23 and July 3 with a concentration between Wednesday, June 24 and Saturday, June 27. In total, about 570 papers will be presented, and an additional 70 papers will be uploaded to a conference database.

Plenary Policy session

Simone Borghesi will be chairing the Plenary Policy on Friday, June 26, at 10:45-12:15.

Simone Borghesi, Director of FSR Climate and Secretary General of the Policy Outreach Committee (POC) of the European Association of Environmental and Resource Economists (EAERE), will chair with Jos Delbeke the Plenary Policy Session at the 25th EAERE annual conference. The session entitled “The European Green Deal: prospects and challenges for the future” will take place on June 26, 2020, 10:45-12:15, immediately after the Opening Ceremony. After the introductory remarks by Simone Borghesi and Jos Delbeke, the session will host the interventions of two guest speakers (Alexander Stubb and Peter Vis) followed by short roundtable interventions from POC members.

See here for the official programme of the conference. All sessions can be attended free of charge.

Interoperability: (what) can we learn from the existing experiences?”

Reaching and maintaining the interoperability of energy services in Europe is a complex challenge. However, previous experiences with interoperability exist in the electricity and the healthcare sector that we could draw inspiration from.

In this online debate, we focus on existing experiences with interoperability: namely, the North American Green Button initiative for utility customer data; the ENTSO-E approach to support data exchange requirements related to European electricity market and system operation; and the long-standing experience with interoperability in the healthcare and eHealth sector. We will hear about the views of European DSOs and discuss the steps they are taking to reach interoperability.

Read the highlights

Watch the recording:

Background

The recast of the Electricity Directive (EU) 2019/944 in the Clean Energy Package entitles the European Commission in Article 24(2) to adopt implementing acts specifying interoperability requirements and non-discriminatory and transparent procedures for access to data. According to Article 23(1) of the same directive, “data” is understood to include metering and consumption data as well as data required for customer switching, demand response and other services. Ultimately, this shall serve to facilitate the full interoperability of energy services within the Union (Art. 24(1)).

At the latest European Electricity Regulatory Forum (“Florence Forum”) in June 2019, the European Commission presented interoperability as one of three legislative priorities based on the empowerments in the Clean Energy Package

In our FSR Policy Brief on the topic, we argue that the acts should be ambitious in addressing the multiple dimensions of interoperability for electricity and gas customer data, we refer to relevant experiences with interoperability, and we identify governance as a key issue to achieve interoperability of energy services.

About the online debate

The debate will depart from the question: (what) can we learn from these existing experiences to facilitate the interoperability of energy services in Europe? Together with our expert panelists, we will explore the relevant use cases per initiative, look at the methods, standards and tools that are used and assess whether these can be (partially) applied to the challenge that lies ahead of us.

Panelists:

• Luís Vale Cunha (EDPD)
• tbc (ENTSO-E)
• Jeremy J. Roberts (Green Button Alliance)
• Stefan Sauermann (University of Applied Sciences Technikum Vienna – Medical Engineering and eHealth)
• Valerie Reif (FSR) – also delivers the academic introduction

Moderator: Leonardo Meeus (FSR)

Give your input to the discussion!

Comment on the background paper. You can leave comments addressing specific paragraphs. For example, you believe some points need to be highlighted more, a point is not raised, or you have an opinion you want to voice. You can also make a general comment and point to other aspects of interoperability that you think should be addressed in this or future work on the topic.

• Your feedback and the inputs from the online debate will be the basis for our future work on the topic of interoperability. Your contribution will be acknowledged in the publications to come.

Learn more:

Interoperability of energy services in Europe – what’s behind it?

#Interoperability of energy services in Europe – what’s behind it? In this #researchbite we talk about the articles 23 and 24 of the recast of the Electricity Directive (EU) 2019/944 & the next steps of the European interoperability agenda in #energy 👇https://t.co/HYZ3tADKOJ pic.twitter.com/S4ktjf1fB3

— FSR Energy & Climate (@FSR_Energy) June 15, 2020

Dig in deeper

Interested in knowing more about our distinguished speakers, their projects and initiatives, or the topic of interoperability more generally? Check this out:

• North American Green Button – the standardized way to get your energy usage information
• Schittekatte, T., Reif, V., & Meeus, L. (2020). The EU electricity network codes. FSR Technical report. June 2020 (coming soon)
• “A new deal for energy consumers: consumer data management”, FSR Topic of the Month November 2019 by Valerie Reif

We acknowledge the financial support from the European Union’s Horizon 2020 project INTERRFACE (grant agreement No 824330).

FSR online talk on Power Flow Simulator

Transmission system operators (TSOs) play a fundamental role in the electricity sector. They are in charge of the secure and continuous functioning of the system which requires a constant balance between supply and demand of electricity, the solution of possible congestions on specific lines and the management of contingencies like the failure of a power plant or network branch. TSOs are also in charge of planning and, frequently, implementing the expansion of the system to deal with the evolution in the needs of network users, both on the generation and the consumption side.

All of this requires an understanding of sophisticated technical issues that are frequently ignored or barely understood by the public and some policymakers.

In this online talk, Nicolò Rossetto (FSR) will interview Timm Krägenow (Tennet) to discuss some of the most critical issues that electricity transmission system operators must take into account every day.

Watch the recording:

The talk, dedicated mostly to a non-technical audience, will benefit from the Power Flow Simulator available on the ENTSO-E website and will devote particular attention to three topics:

• Balancing electricity demand and supply and managing congestions
• Impact of renewables deployment and market integration on system operation
• Grid planning and expansion in a decarbonised and decentralised electricity system

A Q&A session with the audience will conclude the talk.

FSR-CSEI online roundtable

This online roundtable is a joint initiative of the Florence School of Regulation (FSR) and the Copenhagen School of Energy Infrastructure (CSEI), with support of the European Commission – Directorate-General for Energy. The European Commission is currently organising a series of stakeholder webinars on the revision of Regulation (EU) No 347/2013 (TEN-E Regulation).

In this online roundtable, we will assess the experience with the implementation of the TEN-E Regulation and how it can be revised to be aligned with the new objective. The focus will be on the role of the Cost-Benefit Analysis (CBA) methodology, the Cross-Border Cost Allocation (CBCA) process, and Connecting Europe Facility for Energy (CEF-E) funding.

Moderator: Alberto Pototschnig (FSR)

Setting the scene: Joachim Balke (DG ENER)

Introduction FSR policy brief: Tim Schittekatte (FSR)

Panelists:

• Tooraj Jamasb (CSEI)
• Nils-Henrik von der Fehr (Oslo University)
• Elena Fumagalli (Utrecht University)
• Aad Correljé (TU Delft)

Watch the debate:

Background

Regulation (EU) No 347/2013 on guidelines for trans-European energy infrastructure (TEN-E Regulation) aims at fostering the development of cross-border energy infrastructure in Europe.  It was proposed by the European Commission in a context of lagging investment in energy infrastructure – in particular investment in large cross-border projects at transmission level – over the timeline of the EU 2020 energy and climate objectives.

The European Green Deal calls for a revision of the TEN-E Regulation.  The context has changed and the objective now is to support the decarbonisation of the energy, transport, industrial and buildings sectors, and the deployment of innovative technologies and infrastructure, while keeping the energy transition socially fair.

Download the background paper 

Give your input to the discussion!

Comment on the background paper. You can leave comments addressing specific paragraphs. For example, you believe some points need to be highlighted more, a point is not raised, or you have an opinion you want to voice. You can also make a general comment and point to other aspects of the TEN-E regulation that you think should be addressed in this or future work on the topic.

This event is in collaboration with the Copenhagen School of Energy Infrastructure

Municipal Waste Regulation in Europe: paving the road to address upcoming challenges

Kick-off  workshop to launch the new waste activity of the FSR

Watch the event:

Download the preparation paper:

Municipal Waste Regulation in Europe: paving the road for upcoming challenges

With an annual turnover of €184 billion and close to 1 million employees in Europe, municipal waste is a fast growing and key sector for the transition towards a circular economy. Nevertheless, with at least €31 billion investments required over the next 15 years to reach full compliance with EU municipal waste targets full compliance with EU municipal waste targets, the sector is facing huge challenges exacerbated by long-lasting structural issues, such as a fragmented, small-sized and mostly local market, unlikely to sustainably generate enough financial resources to fund investment needs. In this context, economic regulation of municipal waste services will have a crucial role to play to oversee municipal waste tariffs and quality while strengthening the economic sustainability of waste services, promoting EU legislation compliance and protecting consumers’ rights.

Taking stock of this new and challenging context, the Florence School of Regulation is enlarging the scope of its activities to include Municipal Waste Management and Circular Economy in its portfolio.

To contribute and ensure a high-level and independent debate and research on economically and socially sound regulation, it intends to gather a variety of stakeholders including regulators, operators, local authorities, the European Commission, academics and researchers, EU financial Institutions, etc.; to focus on key topics related to municipal waste regulation, including but not limited to:

• tariff setting and cost recovery,
• implementation of polluter-pays-principle and extended producer responsibility,
• economic instruments efficiency and effective incentives,
• governance gaps and challenges,
• service quality monitoring and evaluation.

Programme

EU Sustainable Energy Week

From 22 to 26 June 2020, the EU Sustainable Energy Week will bring together energy stakeholders and enthusiasts online to discuss the way forward for green recovery and growth.

Renewable gases, hydrogen, and power-to-gas

The Florence School of Regulation is pleased to host one of the sessions from the title: “Understanding renewable gases, hydrogen and power-to-gas: empowering consumers to make informed choices”. You are all invited to join us and debate! The webinar will be introduced by the FSR Director, Jean-Michel Glachant. Ilaria Conti, Head of FSR Gas, will set the scene introducing the topic of taxonomy for the so-called “green gases”.

Watch the recording

Background

Decarbonising the EU’s energy system and ramping up our renewable energy use are critical to reach our climate objectives. The route to decarbonisation can take many forms, though biogas, biomethane and clean hydrogen are likely to feature in most of the pathways. The smart integration of renewables, energy efficiency and all possible sustainable solutions across sectors will help to achieve a cost-efficient decarbonisation and ensure/improve the reliability and flexibility of the energy systems.

European consumers have a powerful role to play in driving this transformation forward and are becoming increasingly careful about what and how they consume, also showing a strong support for energy choices that are less carbon intensive. Consumer engagement can make a real difference in this process, but this requires more transparent information about carbon and environmental footprints of products and services available on the market. Fully understanding the costs and potential of the different (emerging) technologies will be essential to make informed choices about more sustainable alternatives and ultimately benefit from the clean energy transition.

The Programme

Overall the session will discuss sector coupling and sector integration technologies, including the production of hydrogen, and explore possible solutions for the decarbonisation of the gas sector. Apart from addressing possible regulatory and market barriers to develop this, it will explain what the renewable gas, the green gas etc. mean to a wider public. It will also address how to improve the Guarantees of Origin (GOs) system across the Union so that the consumer-driven part of the energy transition can push forward.

Participants can expect an interactive panel discussion with a diverse set of speakers and panelists from various parts of Europe and with different backgrounds.

More from #EUSEW2020

Prof. Leonardo Meeus (FSR) will contribute to the panel discussion on ‘’Smart sector integration of gas and electricity infrastructure – opportunities and challenges in the context of the eu green deal’, focusing on the role that gas and electricity infrastructure will play as part of the upcoming Energy System Integration strategy, whilst also highlighting the societal cost savings and environmental and climate benefit of a hybrid energy system that uses electricity and gas.

In collaboration with

For more #EUSEW2020 updates, visit the EUSEW website.

With over 70% of EU citizens currently living in urban areas, achieving sustainability of cities has become one of the defining challenges of our times. While urban areas can enable access to important social and economic opportunities, they have also brought about new challenges related to traffic congestion, air- and noise-pollution, and inefficient transport systems. This makes cities and local authorities central actors in leading the shift to smarter and more sustainable mobility.

As a cornerstone of its urban mobility policy, the European Commission has strongly encouraged European towns and cities of all sizes to embrace the concept of Sustainable Urban Mobility Plans (SUMPs). By improving accessibility to, through and within urban areas and promoting the shift towards more sustainable modes of transport, SUMPs hold the potential to improve the overall quality of life for residents by addressing issues of congestion, air- and noise-pollution, climate change, road accidents, unsightly on-street parking and the integration of new mobility services. SUMPs consider the whole functional urban area, and foresee cooperation across different policy areas, across different levels of government, and with local residents and other principal stakeholders.

Despite the recognition of the wide range of benefits linked to this strategic urban mobility planning approach, the implementation of SUMPs has been voluntary and remains limited to a small proportion of European cities. This can be attributed to the lack of financial, technical and political support as well as quality control for SUMPs from national and regional levels in the Member States where devolution gives regions more competences. Furthermore, where plans have been developed these have often failed to fulfil minimum quality standards due to a lack of uniform understanding of the SUMP concept.

A number of measures have been used by Member States to improve enforcement, such as for instance preconditioning the provision of operational subsidies or grants on an approved SUMP and trained mobility department. In order to overcome existing barriers and accelerate the uptake of high-quality SUMPs Europe-wide, the European Commission is now exploring the idea of developing a common EU-framework for sustainable urban mobility indicators (SUMI). A common, methodically sound and practically feasible indicator set could enable public authorities to determine the current status of the city with regard to sustainable urban mobility, including the identification of deficiency areas where additional action may be required, to track progress towards set policy goals, to identify scope for improvement, and to better understand the overall impact of urban mobility policies. It would also enable cities to benchmark against other cities and compare against national and international data sets. The 19 indicators tested and modified to the EU context within the SUMI project were originally developed bythe World Business Council for Sustainable Development with a promise to enable “cities to perform a standardised evaluation of their mobility system and measure the improvements resulting from the implementation of new mobility practices or policies”.

As implied above, however, the definition and selection of indicators, is a complex exercise. Indicators must be widely applicable across Europe irrespective of city size and local characteristics in order to enable cities to benchmarkagainst other cities and to compare to national or international data sets.What is more, SUMI need to be future-proof and adaptable to new urban mobility approaches (e.g., electric scooters, Mobility as a Service (MaaS) and shared transport) and evolving travel habits. Another key question relates to data collection methodologies and data standardisation which will need to be ensured in order to allow comparability.

In view of this, the 7^thFlorence Intermodal Forum, co-organised by the Transport Area of the Florence School of Regulation and the European Commission’s DG MOVE, will bring together policy makers from national-, regional- and local-levels, together with public transport operators and manufacturers for a timely discussion on the rationale behind- and challenges towards a common European framework for SUMI. More specifically, the forum will explore the definition and appropriate indicator parameters; data collection techniques and data standardisation, as well as more generally the question of enhancing enforcement of SUMPs. Last but not least, the forum will draw on lessons learnt from the Covid-19 pandemic in relation to urban mobility in as far as SUMI are concerned.

Please kindly note that this event is by invitation only.

SPEAKERS PRESENTATIONS:

Session A: What are the areas needing improvement and how can we ensure a proper link between the SUMP process and the European Green Deal/Climate Law?

Siegfried Rupprecht – Rupprecht Consult Presentation

Marijke de Roeck – Antwerp Presentation

Session B: How should data gathering be approached in cities of different sizes?

Dirk Engels – Transport & Mobility Leuven Presentation

Violeta Mihalache – Urban Survey Timisoara Presentation

Session C: Implementation and the way forward: funding and the EU urban mobility scoreboard

Ivo Cre – Polis Presentation

Enrico Grassi – European Court of Auditors Presentation

The Airspace Architecture Study (AAS), published in March 2019, set out a proposal for a future Single European Airspace System (SEAS) underpinned by optimised airspace organisation, progressively higher levels of automation and the establishment of common ATM data services, enabling seamless cross border air traffic service provision. The vision outlined in the AAS report (pictured in the figure below and proposed to be implemented by 2035) requires operational, technological, organisational and regulatory changes to the existing SES architecture.

Whilst the AAS focused on the operational and technical dimensions of the proposed future ATM architecture, a number of questions remain open in terms of regulatory aspects and service delivery arrangements (‘framework dimensions’).

The framework dimension, including the regulatory framework and the service delivery models, constitute the enablers without which the proposed future vision cannot be realised. Hence, the Commission has taken further action to explore and address the related aspects critical for the future SEAS, by launching a study in October 2019 on the legal, economic and regulatory aspects of ATM data services provision and capacity on demand as part of the future European air space architecture.

In March 2020 the first virtual expert workshop was organised together by the Florence School of Regulation Transport Area and DG MOVE. This workshop gave an overview of the first findings and results of the study, as well as generated valuable discussions regarding the most important aspects of ATM data services.

The second workshop would seek to explore the following topics:

-Service delivery models for ATM data services

-Interoperability and interfaces

-Certification and oversight of ATM data services

-Insurance and liability

-Impacts of ATM data services

Please note that this event is an online workshop and by invitation only.

In conversation with Ditte Juul Jørgensen

Director-General, Directorate-General for Energy

With the Coronavirus pandemic the EU is facing an unprecedented crisis in its history. GDP of the EU contracted by a record 3,5% in the first quarter of the year, many jobs are lost, the health systems are under severe strain, restarting economic activities difficult under new conditions. EU needs a huge stimulus package to kick start its economy. It will be not the first package to help recovery, but by far the biggest and most ambitious. Ursula von der Leyen, the President of the European Commission compared it with the Marshall Plan. There are calls from the European Parliament and part of the Member States that the proposed recovery and the reconstruction package should support the European Green Deal strategy to embrace low carbon future. How to achieve this goal, what avenues to choose, what mechanisms to use is far from simple, but it also is a unique opportunity to accelerate energy transition.

FSR online event moderated by Andris Piebalgs

In the discussion with Ms. Juul Jørgensen we will focus on the place of the energy sector in the Recovery Plan, the chosen priorities and the best possible engagement with the stakeholders.

In this online debate, we will consider the role of state aid to nuclear energy in both France and Germany together with Guillaume Dezobry (Fidal) and Max Klasse (Blomstein) with Leigh Hancher (FSR) as moderator.

Watch the debate

Contrary to this course of action, Germany has made the decision to close the country’s remaining nuclear power plants by 2022, in the name of climate action. Germany now generates over 35% of its yearly electricity consumption from wind and solar sources. However, Germany’s electricity storage capacity amounts to less than 2% of total electricity output. The intermittent nature of these sources means that back-up capacity is necessary. In order to achieve stable baseline power and fill the gaps from fluctuating wind and solar generation, Germany currently relies on coal and natural gas power plants, its remaining nuclear plants and by importing electricity from other European nations. These imports largely come from France and Sweden.

Both courses of action can be deemed imperfect, and both have required state aid. In this session, we will examine how both France and Germany have approached the issue of nuclear energy and state support.

France

In particular, in the case of France, we will address:

• The financing of existing nuclear in France

• • Is there a need for state aid?
  • What is the justification?

• Contracts for difference

• • The purpose
  • The design
  • Operating V investment aid

• Nuclear power and services of general economic interest

• • An assessment of the conditions
  • The role of Public Service Obligations

Germany

With respect to Germany, we will consider:

• The nuclear phase-out of Germany
• Financing of dismantling obligation V interim/ final storage of nuclear waste
• The repatriation of nuclear waste liabilities: compatibility criteria including the need for state intervention, appropriateness, and incentive effect
• The practical state aid implications of the design of nuclear waste liabilities beyond Germany

We will then briefly consider the issue of aid to nuclear energy more generally in the EU, including the recent non-binding opinion of AG Gerard Hogan from the ECJ on state aid to the nuclear power plant in the UK, Hinkley Point C, following Austria’s appeal against it’s compatibility. For more on this, you can check out our new podcast on the issue with Leigh Hancher, available here. Do you agree with Hogan’s opinion? More generally, do you think that nuclear energy is a good way, or the most feasible way, to reach a low carbon future? Do you think that state aid should be provided to this sector? Is state aid to nuclear energy compatible with the wider interests of EU Member States? Do you think the coronavirus crisis have an impact on the future role of nuclear energy in the EU?

We would love to hear your thoughts and hope that you will join us for a lively discussion.

FSR Regulatory Policy Workshop Series 2019-2020

The Online Workshop will aim to reflect and review the available evidence on the relationship between bidding-zone configurations and market liquidity. It will then consider to what extent larger bidding zones, when not supported by the capacity of the underlying network, can promote competition to the benefit of energy consumers.

To explore these issues, the Workshop will be structured in two sessions:

• Session I (14.00 – 15.30 CET) will explore the available evidence on the relationship between the size of bidding zones and market liquidity, trying to draw conclusions on how liquidity should be considered in the context of a bidding zone review.
• Session II (16.00 – 17.30 CET) will focus on the extent to which larger bidding zones might be able to promote competition in the electricity market to the benefit of energy consumers, irrespective of the capability of the underlying network.

This workshop is exclusively open to national regulators, representatives from public bodies and associate & major donors of the FSR Energy area. Special registration requests must be submitted to the coordinator of the workshop Mara Radulescu.

The Highlights from the workshop are available here.

Background

The integration of the internal electricity market has delivered and is still delivering significant benefits to European electricity consumers, in terms of greater choices and better prices. Unfortunately, these benefits risk being overshadowed by the increasing level and costs of remedial actions. These actions are required to maintain system security in the face of flows which, while creating congestion, cannot be adequately controlled – i.e. limited – through congestion management mechanisms, as they are scheduled within the same bidding zone, or across other bidding-zone borders in an uncoordinated way.

According to ACER’s estimates, already in 2017 the cost of remedial actions exceeded 2 billion euro across the EU, with Germany accounting for approximately half of the total. Underlying these remedial action costs, there is clearly an inefficient use of the network, or, more precisely, a use of the network that favours intra-zonal trading at the expense of cross-zonal trading, with the distinction between these two types of trading being based on a bidding-zone configuration which reflects more the legacy of electricity systems before liberalisation than any optimality criteria applied to the new reality of energy flows.

It is important to emphasise that the bidding-zone configuration does not affect the physical ability of the network to transmit electricity from generators to loads. However, the configuration of bidding zones determines how the underlying physical limitations of the network can be imposed on market participants trading across large areas or regions, and this affects the efficiency with which the network is used, as well as the behaviour of market participants.

Beyond the rising costs of remedial actions, the large volumes of unscheduled flows are another indicator of the difficulties of controlling flows on the European electricity system in an efficient way by using congestion management on current zonal borders.

A proper bidding-zone configuration is therefore essential for the security and efficiency of the EU electricity system and markets. This is recognised in the recast of the Electricity Regulation, where it is specified that “[t]he configuration of bidding zones in the Union shall be designed in such a way as to maximise economic efficiency and to maximise cross-zonal trading opportunities […], while maintaining security of supply”.

As required by the same Regulation, a bidding zone review was launched in October 2019. Such a review process rests, beyond the set of alternative bidding zone configurations to be analysed in the review process, on the criteria to assess the relative merits of the alternative configurations, on the basis of which the final decision can be taken.

In this regard, article 33(1) of the CACM Regulation lists a minimum set of thirteen criteria, grouped into three categories: network security, market efficiency, and stability and robustness of bidding zones. The challenge is however that some, if not most of these criteria are difficult to quantify, let alone monetise, and, in any case, the legislative provision does not establish any ranking among those criteria, nor a structured approach on how to appreciate their importance.

In the end, as it was the case in the previous review, it is likely that the comparison of the performance of alternative bidding-zone configurations will boil down to the perceived trade-off between the efficiency of the market outcome and operational security, on the one hand, and market liquidity, on the other hand. As a first approximation, any configuration characterised by smaller bidding zones should improve operational security as it makes more flows subject to congestion management procedures and, therefore, managing congestion easier. By delivering a market outcome which is more likely to be feasible, such configurations will also reduce the need for economically inefficient remedial actions, thus improving the overall efficiency of the market. At the same time, smaller bidding zones are often claimed to reduce market liquidity.

With respect to liquidity, a well-functioning market, promoting competition and efficiency, is based on two mutually-reinforcing effects: i) the liquidity of the spot market so that market participants can trust the price formation mechanism and therefore the robustness of the electricity spot price as the underlying reference for the forward/futures market; and ii) the liquidity of the forward/futures market to allow effective hedging of the spot price risk. If one of these components is missing, the other one also suffers.

A low level of liquidity might lead to higher transaction costs, higher risks and hedging costs, which may translate into higher barriers to entry into the market. Therefore, liquidity, while not an objective in its own, is of utmost importance for the market to deliver its benefits.

That said, the evidence from Europe and the US seems at least to question the belief held by some stakeholders and commentators that a bidding-zone split and, in general, smaller bidding zones reduce market liquidity. In fact, liquidity seems to be determined more by the design of the market and the structure of the sector. And while liquidity can promote competition, the latter may impact liquidity more than the dimension of bidding zones.

What in fact seems to be more relevant for the well-functioning of the electricity market is the structure (concentration) of the sector with respect to the structure (congestions) of the network. As already indicated, different bidding-zone configurations do not change the physical ability of the network to transmit electricity from generators to loads. Larger bidding zones might appear to support greater competition in the market by allowing a larger group of market participants to compete among themselves. But, if the larger bidding zone does not reflect the actual capabilities of the network, local market power will inevitably emerge, at least as real-time approaches.

Deadline for registration: 11 June 2020