The integration of the European electricity markets at a turning point: from the regional model to the Third Legislative Package

In this paper we discuss the EU policy on electricity markets integration by reviewing the experience
of the Electricity Regional Initiatives. The regional approach to market integration delivered important
results in areas such as coordination among national transmission system operators, implementation of
market-based mechanisms for cross-border transmission capacity allocation and transparency.
Furthermore, the inclusive governance process lead by ERGEG gave voice to all relevant
stakeholders. However, there are indications that the regional model reached its limit when faced with
the objective of coordinating day-ahead and real-time markets. The unanimity approach at the regional
level made the intra-regional decision-making process extremely slow. Further, inter-regional
integration issues have not been solved yet and attempts to tackle them by prioritising projects in some
Regions weakened the pluralistic attributes of the regional model.
The Third Legislative Energy Package has the potential to overcome some of these shortcomings by
empowering pan-European institutions (ENTSO and ACER) and by involving Member States in the
decision making process. Some weaknesses of the second-package, though, persist in the new
framework. First, there are no provisions ensuring that ENTSO will have appropriate incentives to act
in the interest of European consumers. Second, the Third Package perpetuates the separation between
within-country congestion management – which remains a national issue – and cross-border
congestion management – to be dealt with at the EU level. This two-tier approach is inconsistent with
the highly meshed nature of the European network and is likely to result in inefficient market design.
Further, the implementation of coordinated cross-border and national congestion management
mechanisms requires considering geographically differentiated prices within countries, a politically
unattractive result for most Member States.