Europe is progressing towards an integrated, interconnected pan-European electricity market. However, writes Philip Baker of the Regulatory Assistance Project (RAP), the governance and regulatory arrangements that the EU has established to support this process are inadequate to the task. They are more focused on preserving the sovereignty of national TSO and regulators than addressing the wider interests of the market. According to Baker, the EU needs to create genuine regional markets with regional regulators and system operators similar to the Regional Transmission Organizations in North America. Eventually, this should lead to the creation of an EU regulator and EU system operator.
Electricity market integration is progressing across Europe towards the goal of a truly pan-European electricity market, albeit more slowly than originally envisaged. At the same time, Europe’s generation portfolio is rapidly changing, with the introduction of renewable, often intermittent, generation capacity that will replace aging and inflexible fossil-fired plant as Europe advances toward its decarbonisation targets.
Power flows are governed by the laws of physics rather than national boundaries, while power markets will reveal deeper cost savings when resources can be shared across broader market areas
Market integration and decarbonisation will, however, bring many challenges, not least in operating Europe’s interconnected transmission grid. Not only will the grid need to be reinforced and interconnection between Member States increased, it will also need to achieve much higher levels of utilisation if the benefits of market integration are to be fully realised. In addition, increasing amounts of intermittent renewable generation such as wind and solar will cause transmission flows to become more volatile and more difficult to predict.
Ensuring security and safe operation in the face of these challenges will require significant changes to the way Europe’s interconnected electricity grid is managed. In particular, national transmission system operators (TSOs) will need to cooperate more closely in coordinating outages, carrying out security assessments, calculating available grid capacity, and preparing regional operating plans to be implemented in real time. In fact, this process is already underway with the development of Network Codes that aim to harmonise market and grid operation activities across Europe, and with the creation of regional security coordination service providers (RSCSPs) that provide a regional short-term planning capability. Building on experience with Coreso, the first RSCSP, these facilities will eventually cover all of Europe and provide services to Europe’s 42 TSOs.
Once fully established, the RSCSPs will collect real-time data on the status of all of Europe’s national transmission networks and the power flows between them. Collectively, they will provide a unique real-time oversight of the state of Europe’s interconnected transmission grid that no individual TSO could possibly have. However, despite this potential, the RSCSPs will have no executive powers and their activities will be restricted to providing planning services to individual TSOs, who can choose to accept or reject those services and who will retain full control of and accountability for the short-term planning and real-time operation of their individual networks.
Europe may have something to learn from the arrangements that have developed on the other side of the Atlantic
Given the challenges that market integration and decarbonisation will impose in operating Europe’s interconnected electricity grid, this situation represents something of a lost opportunity and does not seem tenable in the longer term. As market integration and decarbonisation progress, the efficient and safe operation of the interconnected grid will demand that decisions are taken on a regional, and ultimately pan-European, basis.
Power flows are governed by the laws of physics rather than national boundaries, while power markets will reveal deeper cost savings when resources can be shared across broader market areas. Plus, operating a highly interconnected electricity grid at higher utilization rates and, at times, much closer to its operational limits will require a much greater degree of centralised planning and real-time operation. The currently envisaged RSCSP arrangements, providing only for advisory “coordination” in planning timeframes is an inadequate response to these challenges.
US and Canada
Insights into how the operation of Europe’s interconnected transmission grid may be better organised to face the challenges that lie ahead may be gained by looking at the Regional Transmission Organizations (RTOs) established in North America. Direct comparisons between Europe and North America should be made with some caution given differences in the political, regulatory, and governance environment—the European Union is a collection of sovereign Member States rather than a federal entity, has no overarching electricity regulator, and has a very different electricity market model.
However, RTOs were designed to address many of the challenges that Europe is currently facing, including improving market efficiency, planning and coordinating investments in linked transmission assets among multiple utility owners, and providing real-time control of those assets on a regional basis. Since 1999, ten RTOs have been created in the US and Canada, with seven of them serving about 2/3rds of the US customer load. Europe may therefore have something to learn from the arrangements that have developed on the other side of the Atlantic.
A European regulator would be required to oversee these regionalised activities and to regulate what would ultimately become a European System Operator
Over time, Europe’s RSCSPs could grow to look more like RTOs. Rather than just providing short-term planning advice to national TSOs on a “take it or leave it” basis, the RSCSPs could take on decision-making responsibilities for all “market-critical” assets (i.e. those assets that significantly impact market operation) in these timescales, providing regionally coordinated plans to be implemented by individual TSOs in real time. As market integration progresses, and the focus moves from implementation to realising the very substantial economic and welfare benefits of efficient market operation, the RSCSPs could begin to exploit their unique access to regional real-time data. Using these data, they could provide real-time operational oversight of the interconnected grid, much as the RTOs do in the United States.
Ownership of all transmission assets would remain with individual TSOs, as would the control and management of “non market-critical” transmission assets, i.e. those that do not significantly impact the operation of the integrated electricity market. Looking further into the future and the development of a truly European integrated electricity market, the activities of the various RSCSPs could be combined to provide the European-level oversight necessary for the safe and efficient operation of the European interconnected grid.
For all this to happen, fundamental changes to Europe’s governance and regulatory arrangements would be required. Current arrangements seem more focussed on preserving the sovereignty of national TSOs and regulators, rather than addressing the interests of European electricity consumers or the functional needs of an integrated European electricity market supported by an interconnected electricity grid. Member States and national TSOs would need to surrender some of their responsibility for short-term planning and real time operation to the new RSCSPs in order for activities in these timescales to be “regionalised.”
The logic of moving away from the current disaggregated arrangements where Europe’s interconnected transmission grid is operated by 42 independent TSOs, and developing a regional and ultimately European-level capability, seems irrefutable
Similarly, a European regulator would be required to oversee these regionalised activities and to regulate what would ultimately become a European System Operator. There is currently no clear locus of responsibility for regulation of cross-border market activity. National Regulatory Authorities would therefore need to cooperate via binding regional mechanisms or EU legislation would need to assign responsibility for regulating cross-border activities to the new European regulatory entity.
These fundamental changes would not need to happen overnight but could occur gradually to keep pace with the evolving needs of increased market integration and decarbonisation. Implementation would progress as the need developed and as confidence in the new arrangements became established. However, the logic of moving away from the current disaggregated arrangements where Europe’s interconnected transmission grid is operated by 42 independent TSOs, and developing a regional and ultimately European-level capability to support the secure and efficient operation of a fully integrated and decarbonised electricity market, seems irrefutable and the benefits to consumers seem irresistible.
The Regulatory Assistance Project (RAP) is a globally operating independent and nonpartisan team of experts. Philip Baker (firstname.lastname@example.org) is an energy consultant working with RAP and other clients on power system technical and commercial issues, integrating renewable energy sources, and European electricity market integration.