Cross-border capacity and market integration are essential for electricity wholesale market resilience

ACER released a report on the progress of EU electricity wholesale market integration, as part of the 2023 Market Monitoring Report series (eventid=22413). The report focuses on the functioning of the EU’s internal electricity market in 2022, particularly examining forward and balancing markets. It emphasizes the importance of cross-border capacity and market integration for the resilience of electricity wholesale markets. Key findings include the role of interconnected electricity markets in providing resilience during the energy crisis and the synchronization of the Ukrainian power system with Continental Europe.
The report identifies challenges in market integration, especially in long-term markets, and emphasizes the need to improve liquidity in European forward markets. Scarce forward hedges led to increased liquidity in spot markets, but collateral requirements and high bank guarantees caused some market participants to shift to spot or bilateral trading. The limited engagement of TSOs and data availability issues are hindering the success of balancing platforms. Congestion income and remedial costs increased, posing challenges to overall price stability.
ACER recommends improving cross-border electricity trade, advancing forward electricity markets, reinforcing TSO engagement in balancing markets, managing re-dispatching expenses, and promoting the deployment of renewable energy sources. The report suggests exploring Long-Term Transmission Rights for hedging and considering slower balancing reserves to manage price fluctuations effectively.