FSR Regulatory Policy Workshop Series 2017 – 2018: Market Abuse and Abuse of Market Power in Wholesale Energy Markets

The EU Regulation No 1227/2011 on wholesale energy market integrity and transparency (REMIT) has introduced specific obligations and prohibitions to promote the integrity and transparency of trading in wholesale energy products. Specifically, it prohibits market abuse in the forms of market manipulation, attempted market manipulation and insider trading. It also envisages a sector-specific monitoring framework to detect and deter these types of abusive behaviour.

Article 2(2) of REMIT distinguishes four different categories of market manipulation: (i) false/misleading transactions, (ii) price positioning, (iii) transactions involving fictitious devices/deception and (iv) dissemination of false and misleading information.

The Workshop will aim at comparing and contrasting the notion of market manipulation, particularly in the form of price positioning; as well as the notion of abuse of dominant position, mainly in the form of artificial limitations in the production of an energy product. The event will try to identify and assess any overlaps between the two concepts and conclude on how to approach those specific cases in the best way.

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This workshop is exclusively open to national regulators, representatives from public bodies and associate & major donors of the FSR Energy area.

Further background information:

Price positioning is defined as securing – or attempting to secure – by a person, or persons acting in collaboration, the price of one or several wholesale energy products at an artificial level – unless the person who entered into the transaction or issued the order to trade establishes that their reasons for doing so are legitimate and that the transaction (or order) to trade conforms to accepted market practices on the wholesale energy market concerned. Transactions involving fictitious devices or deception are those aimed to give false or misleading signals regarding the supply of, demand for, or price of wholesale energy products.

Examples of price positioning practices include those amounting to “abusive squeeze” (also known as “market cornering”), where a party (or parties) with a significant influence over the supply of, or demand for, or delivery mechanisms for a wholesale energy product and/or the underlying product of a derivative contract, exploit a decisive position in order to materially distort the price at which others have to deliver, take delivery or defer delivery of the instrument/product to satisfy their obligations. The European Agency for the Cooperation of Energy Regulators (ACER) notices that the proper interaction of supply and demand can – and often does – lead to market tightness, but that this is not market manipulation in itself. Similarly, having a significant influence does not constitute market manipulation by itself.

Another example of market manipulation in the form of “price positioning” are the “actions undertaken by persons that artificially cause prices to be at a level not justified by market forces of supply and demand, including actual availability of production, storage or transportation capacity, and demand (‘physical withholding’)”. For the actions of a person to have an influence on the market price, such a person should have a “significant influence/decisive position”.

The “significant influence” over the supply of wholesale energy products and the “decisive position” in their markets resemble the notion of “dominant position” referred to in Article 102 of the Treaty on the Functioning of the European Union, prohibiting the abuse of market power.

The notion of abuse of a dominant position in these forms is therefore closely related to the notion of market abuse in the form of market manipulation through price positioning practices. These two notions do not necessarily overlap, and it is clear that market manipulation (under REMIT) takes also forms that do not necessarily involve an abuse of dominant position. Another interesting question is whether all forms of abuse of a dominant position involving an artificial limitation of energy production (e.g. through capacity withholding) also represent market abusive behaviour under REMIT.

Interactive webinar with Leonardo Meeus

This webinar on the EU Clean Energy Package gives you a teaser of the new online training course that will start in January 2018:

• Electricity markets: “ensuring the internal market level playing field”
• Electricity Grids: “adapting to the decentralization of the power system”
• New deal: “empowering customers and citizens”

Learn more about the new online course

During this 1-hour interactive webinar, you will get a taste of the content of the training, and also experience the kind of online interaction we will have during the online course.

The webinar will finish with a Q&A via the chat-box to clarify any question you might have regarding this upcoming training opportunity.

The training is part of a partnership of Florence School of Regulation with InnoEnergy and Vlerick Business School to help organisations manage the energy transition supported by the EU Clean Energy Package

The Florence School of Regulation is partnering with ENTSO-E for its Annual Conference.

Power grids are the key enablers of the energy transition, of the interaction between geographies, between sectors and between the physical and growing digital dimension.

The digital layer developing on top of the physical power networks enables more variable renewables and new flexibility solutions with market-based service platforms. Microgrids are developing and having them network-based and linked to the wider system will allow maximisation of social welfare. E-Mobility is moving transport and power networks closer together. Smart houses and energy efficiency will see buildings play a new role in power systems. The customer and the market are to be at the heart of this fundamental change.

ENTSO-E’s Annual Conference – one of the key events on Brussels’ energy scene – will address connections between geographies and sectors, between small and big. ENTSO-E will explain its own strategic vision and will invite prestigious speakers from the different parties involved to challenge and voice their own through a series of interviews, fish-bowls, e-voting and ping-pong sessions.

Be part of the debate. Join us to find out how the dots of the energy transition, from local, regional, national, European and digital, are connected.

Register and read more information

The FSR is honoured to host this high-level workshop co-organised by European Commission Directorate-General for Energy and the Ministry of Economy, Trade and Industry of Japan.

Experts from Europe and Japan will focus on flexibility in Liquefied Natural Gas (LNG) sale and purchase agreements, including in the context of newer business models for trade in the global LNG market. They will also discuss ‘best practices’ with trading contracts and their flexibility arrangements and to build up confidence (also in legal terms) for their use. The workshop could lead to a number of recommendations to enhance the use of these contracts.

Background

International LNG markets are set for major change, with substantial new liquefaction capacity coming on stream in the period to 2020.  

Both Europe and Japan have published in 2016 a strategy for liquefied natural gas. For the EU, the current developments in the global LNG market offer an opportunity to let LNG play its full role in diversifying gas supplies to all EU member states and in enhancing the competitiveness in the internal gas market. For Japan, the world’s largest LNG importer, secure LNG supplies are strategically important.

In July 2017, the EU and Japan signed a Memorandum of Cooperation on promoting and establishing a liquid, flexible and transparent global Liquefied Natural Gas (LNG).  

The Florence workshop opens the series of 4 workshops taking place in various European and Japanese locations between 2017 and 2018.

FSR Energy Seminar Series with Professor R. Baldick (University of Texas at Austin)

Coincident peak pricing is used in several electricity markets to recover the embedded cost of infrastructure, such as transmission. Measured consumption at the time of the peak is used to set charges for a subsequent period. If transmission costs are truly sunk, then such a recovery is unlikely to be efficient. However, in the context of growing peak demand, additional system capacity must be built. We discuss the incentive properties of coincident peak pricing when investments are not considered to be sunk.

Presenter: Prof. Ross Baldick (University of Texas at Austin)

The Seminar is organised by the Research Team of the Florence School of Regulation – Energy and open to all EUI members.

FSR Energy Seminar Series with Professor R. Baldick (University of Texas at Austin)

Description: In this seminar we discuss the growth of wind in Texas and the challenges to electricity system operation under high levels of wind. Texas has, by far, the highest wind penetration of the three interconnections in the United States and the highest penetration of any balancing area, so that it represents a microcosm of high wind challenges. To understand some of the challenges, we describe a statistical modeling of wind power production. We utilize a so-called generalized dynamic factor model and investigate the characteristic Kolmogorov spectrum of wind power. This modeling allows to understand the manner in which wind power and wind power variability evolve with the increase in installed capacity. We observe that aggregation of large amounts of wind capacity across large areas of the United States will mitigate short-term variability, but generally will not completely ameliorate intermittency over longer time scales. We then describe the implications for the electricity system and for organized wholesale markets, including negative wholesale prices and commitment of thermal resources to meet net load.

Presenter: Prof. Ross Baldick (University of Texas at Austin)

The Seminar is organised by the Research Team of the Florence School of Regulation – Energy and open to all EUI members.

FSR Energy Seminar Series with Professor R. Baldick (University of Texas at Austin)

The electricity sector across the world is changing at a rapid pace. A growing number of consumers are now transitioning into “prosumers” with the ability to produce and store electricity. This transformation has brought to the fore significant challenges for the distribution networks regarding planning, investments and distribution tariff design. In this presentation, we discuss the future challenges for the electricity distribution networks and possible avenues for effectively managing these issues.

Presenter: Pradyumna Bhagwat (FSR Energy)

Invited discussant: Prof. Ross Baldick (University of Texas at Austin)

The Seminar is organised by the Research Team of the Florence School of Regulation – Energy and open to all EUI members.

Seam issues in electricity market integration:

the US vs the EU perspective

Since the early 1990s, the electricity industry has been restructured both in the US and the EU. Vertically integrated companies were unbundled and markets at the local or national level integrated on a wider geographical scale. However, different solutions have been developed on the two sides of the Atlantic Ocean for coordinating the operation of the newly interconnected systems and electricity markets.

This online debate will compare the advantages and disadvantages of the alternative arrangements adopted in the US and the EU for the integration of electricity systems and markets. The possibility to learn from the experience acquired overseas will be discussed.

Moderator:

• Jean-Michel Glachant (Director at Florence School of Regulation)

Panel:

• Ross Baldick (Professor in Electrical and Computer Engineering at the University of Texas at Austin)
• Daniel Dobbeni (former CEO of the Belgian TSO Elia and former President of ENTSO-E)

An open Q&A session will follow.

Interested in this topic? Read the last FSR Topic of the Month with R. Baldick.

© Image from obersever.com @gettyimages

FSR Regulatory & Policy Workshop

The pace of change in European energy markets has increased tremendously in recent months. Not only the Paris Agreement stimulus, but also the ever increasing competitiveness of power from renewable energy sources and the desire for further electrification have changed the challenges faced by the entire energy industry. The rapid shift from fossil fuels to intermittent renewable energy sources is only one of the challenges for the capabilities of existing networks. Buzzwords such as flexibility, smart grids, digitalisation, zero emission, grid expansion, storage, blockchain, full electrification, Dunkelflaute, Power-to-X, sector coupling and “Clean Energy for all” are everywhere, however, so far the discussion seems to have neglected Europe’s rich experience in co-operation within the energy sector and the established institutional and regulatory framework.

This workshop brings together representatives from the electricity and gas sectors, together with regulatory bodies to address the challenges ahead for the electricity and gas networks and to assess, whether an interaction between the two sectors and their (currently) separated networks is needed for the future European energy system, as well as whether existing regulatory gaps hamper such a development.

WELCOME WALTER BOLTZ

Welcome Walter Boltz

Walter Boltz | The future role of gas

SESSION I: FUTURE PROOF NETWORKS  |  Challenges for future energy networks

Christoph Riechmann | Frontier Economics

Bernhard Painz | CEER / E-Control

Benjamin Duevel | Eurogas / BDEW

Is there a need for an interaction between electricity and gas networks in the future?

Christian Friebe | Thüga

Niko Bosnjak | ONTRAS Gastransport

Olivier Lebois | GRTgaz

SESSION II: CHALLENGES OR OPPORTUNITIES? | Does the EU regulatory framework allow for efficient interaction between electricity and gas networks?

Zsuzsanna Szeles | European Commission

Christophe Poillion | GRTgaz

Angus Paxton | Pöyry

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Speakers

• Christoph Riechmann | Frontier Economics
• Bernhard Painz | E-Control / CEER
• Jan Ingwersen | ENTSOG
• Benjamin Düvel | BDEW / Eurogas
• Christian Friebe | Thüga
• Niko Bosnjak | ONTRAS Gastransport
• Olivier Lebois | GRTgaz
• Aad Correljé | Clingendael International Energy Programme / TU Delft
• Zsuzsanna Szeles | European Commission
• Christophe Poillion | GRTgaz
• Angus Paxton | Pöyry

FSR Energy Seminar Series with Professor R. Baldick (University of Texas at Austin)

In US markets, there are multiple ancillary services, including frequency regulation and two or more types of contingency reserve. Frequency regulation is used to maintain supply-demand balance within each real-time market dispatch interval, which is either 15 or 5 minutes in duration, depending on the region. As a general principle, other things being equal, an increase in short-term load variability requires a larger quantity of frequency regulation to maintain the electrical frequency in the system within the standard limits. Due to the deployment of renewable energy sources like wind, the net load variation in the system increases. That is, as wind capacity increases, we would also expect that more frequency regulation would be procured in order to ensure system stability. The Electric Reliability Council of Texas (ERCOT) has experienced huge growth in wind over the last 20 years; however, the amount of frequency regulation ancillary service procured has decreased. We investigate why this has occurred, identifying a number of changes in the market design. The work highlights that electricity market designs can evolve to make better use of available resources.

Presenter: Prof. Ross Baldick (University of Texas at Austin)

The Seminar is organised by the Research Team of the Florence School of Regulation – Energy and open to all EUI members.

Decentralization, prosumers and the role of online platforms

The Conference on the Regulation of Infrastructures is the annual event that brings together all the Areas of the Florence School of Regulation. This 7th edition aims at taking stock of the major challenges infrastructure regulation is currently facing in the context of sharing economy and platforms.

Continue reading “7th Conference on the Regulation of Infrastructures: New Network Structures”

FSR Energy Seminar Series with Professor R. Baldick (University of Texas at Austin)

In this presentation, professor Baldick compares and contrasts US and European Union (EU) electricity markets, particularly focusing on issues that are relevant to the long-term integration of renewables. He will start with a high level view of US electricity markets, primarily looking at the characteristics of US Independent System Operator (ISO) and Regional Transmission Organization (RTO) markets. He will review the growth of such markets and the manner in which their growth has widened the geographical scale of real-time coordination. He will argue that this pattern of growth has important positive implications for the integration of large-scale renewables, even though there are still important “seams” between the existing ISOs/RTOs. He will then turn to a high level view of EU electricity markets, highlighting that recent developments in seams management in the EU have focused mostly on day-ahead coordination. While important for trade, day-ahead coordination does not provide the benefits of real-time coordination in the context of renewable integration. A discussion of the implications and the prospects for real-time seams management in the EU will conclude the seminar.

Presenter: Prof. Ross Baldick (University of Texas at Austin)

The Seminar is organised by the Research Team of the Florence School of Regulation – Energy and open to all EUI members.