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.
Coordinating outages
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.
Fundamental changes
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.
Editor’s Note
The Regulatory Assistance Project (RAP) is a globally operating independent and nonpartisan team of experts. Philip Baker (pbaker@raponline.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.
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Frans Rusting says
Thank you for this article. I would like to draw your attention to an article published in October 2015 which describes the solution of the EU PowerNet team to unite the market while at the same time accepting the requirement of sovereingty as a fact of life.
Our plan is derived from a proven solution to solve very comparable problems that had to be solved in the past in the world of telecoms via satellite.
In short we propose a treaty organisation which enables the creation of a cooperative company, jointly owned and governed by the TSO’s and controlled by the governments.
The plan proposes to begin by establishing regional supergrids, which are to be connected ar a later stage by a higher level network.
The article I referred to can be found here:
https://energypost.eu/exclusive-overlay-network-telecom-experts-present-revolutionary-plan-integrate-eu-power-market/
Frans Rusting
EU PowerNet
Bas Gresnigt says
“Europe may … learn from … the other side of the Atlantic”
EU should not follow USA, as their model contributed to the unreliable electricity supply in USA compared to EU countries Germany, Denmark, etc. (USA SAIDI figures 8 times worse).
Not strange considering the patchy situation in USA with it’s many RTO’s and rather backwards electricity markets (even monopole utilities that also run the grid in a number of states).
“RSCSPs could begin to exploit their unique access to regional real-time data”
RSCPs should not monopolize that data, but share it with TSO’s as much as possible.
Performance increases much better via cooperation than via command & control.
Philip Baker says
Not suggesting that RSCPs monopolise that data, but rather that it is used to provide an effective real time operational oversight. Operating an integrated European electricity market efficiently will require the supporting interconnected transmission system to be pushed hard. As an ex-power system operator, I would be really worried about attempting to do that on the basis of some 42 TSOs just “cooperating” and with no centralised real time supervision.
Frans Rusting says
Philip,
You are right. The EU PowerNet proposal is to realise first ‘regional rings’ (regional supergrids) that later will be connected, leading to a real European Supergrid.
The whole structure is to be owned by an independent cooperative company, jointly owned and governed by the TSO’s and jointly controlled by the governments. This has nothing to do with ‘just cooperating’!
In fact, this supergrid provides direct interconnectors, not just between neighbors but between all TSO networks.
Management of the EU PowerNet infrastructure is realised through the EU PowerNet Network Control Centre. This centralised structure guarantees that all operational and financial procedures are standardised.
Frans Rusting
Bas Gresnigt says
If you want to increase the negative sentiment towards the EU, undermining the EU, this is a good method.
Doesn’t meet the (immediate) needs of the population which is confronted with those lines. So local politicians will feed the negative sentiment as they will blame the EU.
Didn’t see a tangible benefit. While those benefits of the extra north-south lines in Germany are clear and easy to explain to a population which supports the Energiewende (90%), those lines are still delayed due to NIMBY.
Imagine the negative EU sentiments those new power lines, motivated by vague benefits as optimization & EU integration, will create.
From cost/benefit point of view it’s also more cost effective to solve (predicted) bottlenecks which are between neighboring countries so easy to handle. For those no EU commanding authority needed.
The benefits of those, such as the new interconnection between NL and Germany, are also easy to explain to population.
Frans Rusting says
Please read the EU PowerNet proposal more carefully. This proposal does not transfer any (regulatory or otherwise) power to any EU institution, because we accept that countries are not willing to do that.
That is why the proposal says that a treaty between countries:
– tells TSO’s to create a cooperative company which will own its own transmission infrastructure
– says that this company will be jointly owned and governed by TSO’s
– the governments wiil jointly control the company
– countries/ TSO’s will remain free to decide on every aspect related to the provisioning of electricity.
In fact, the EU PowerNet network would ‘just’ provide direct interconnectors between all TSO-networks, also, if these are not ‘neighbors’. Which is important, because it solves the problem of ‘transit’ in case, e.g., electricity produced in France is bought by a user in The Netherlands. There is interconnection capacity between France and Belgium, and also between Belgium and The Netherlands, but how about the capacity of the Belgian network? And who has to pay how much for the usage of this, hopefully available, capacity?
Same for transport from Poland to
The Netherlands. But probably the financial and operational procedures will be different.
This kind of problems would not be there if the EU PowerNet network would be realised. Capacity would be available, and financial and operational provedures would be standardised.
However, ad said earlier: countries/TSO’s remain sovereign. If they wish to use other means than the EU PowerNet infrastructure, they are free to do so. Also, they remain free to decide on the energy mix they believe is best for their country.
Bas Gresnigt says
Frans,
Your ‘EU Power net’ implies that the new ‘super’ TSO is even not controlled by the weak EU parliament. National parliaments have little capability as their government has only marginal influence…
It’s an issue as it’s activities affect life of citizens. Installing a transit power line by a not democratic controlled foreign entity is rightfully nearly impossible in NL, etc.
Anyway, the transit issue concerns mainly low interconnection capacities between countries. Which situation is gradually improving on bi-lateral base. Though that is already difficult.
E.g: Spain wanted to increase the interconnection with France but France refused. Supposedly afraid that Spain’s cheap wind power disrupts the profitability of their base load NPP’s.
Don’t see your point with “who has to pay how much for usage of transit capacity?” Those costs are paid by the traders. Our TSO (Tenant) has cost price+ rates for transport. Or may auction transport capacity. A super TSO won’t have lower costs.
Countries will not remain free to decide on the provisioning of electricity when your super TSO operates, as e.g. the interconnection example above shows.
I think that your sketched proposal installs an elephant to kill a fly.
For NW-continental Europe, big chance that the costs surpass the benefits greatly.
Especially the lower flexibility may result in higher costs & less reliable electricity supply.
Bas Gresnigt says
“Operating an integrated European electricity market efficiently … worried about …basis of some 42 TSOs just “cooperating” and with no centralised real time supervision.”
TSO’s are already supervised by national organizations, so they are not so independent. Interconnections are organized, based on needs, etc.
We talk about another supervising layer with a lot of extra high payed staff about which it’s dubious whether it will add extra value.
The situation in USA is more patchy. Less reliable electricity supply. Why are you pushing USA as an example??
It should be the other way around.
philip baker says
Bas
Not suggesting that US RTOs are perfect, I’ve worked in that environment and I know that they are not. However, if you equate US states with Member States (I know they are not the same), then I do think that the RTO example is relevant to how Europe could operate its interconnected transmission system more effectively going forward.
I also think that, when you look at trading between US RTOs, they could learn a lot from Europe!
Taking a step back though, if you look at how the control of transmission systems has evolved over time, it has moved from local to area to national and is now going trans-national. I think we are on a journey!
Bas Gresnigt says
Agree that we are on a journey.
So let’s first see whether the German authority/regulator finds it useful to integrate the 4 TSO’s within Germany into one. They operate the most reliable large (80mln people) network in the EU and USA. They know their business!
As USA shows, there is little benefit but many snags in creating another layer. The 10 RTO’s in USA didn’t succeed to make electricity in US reliable. They show that we should not follow that example. Apparently Federal authorities also have their thoughts as they hardly set further integration steps.
A new layer will create a lot of new rules in its effort to show that they rightfully exist and to ensure its existence. Hence make the system less flexible, while costing a lot of money and goodwill…
And flexibility is very important for reliable electricity supply.
So big chance the reliability of our (NL) electricity supply will degrade, which then of course won’t be caused by the new layer as that layer has created enough rules to ensure that the lower level organizations are wrong (sorry that it’s somewhat skeptical).
We should follow the golden team rules more: Real open cooperation on equal footing. That can bring us more reliable electricity supply against lower TSO costs.
I don’t want to go downwards towards an e.g. four times more reliable supply than in USA. So I think the RTO example is not relevant for us in countries with reliable electricity supply such as Germany, Denmark, NL, etc.
Bas Gresnigt says
@Philip,
Creating another EU decision layer, staffed with high paid people, is an expansion of the old EU policy. Making the situation less flexible, etc.
EU is already experienced and accused of being undemocratic, reigned by uncontrolled high paid technocrats, making our society inflexible.
A situation which contributes to the negative sentiment in the population as shown in the referendums around 2005 (about the constitution) and recently in NL about the EU treaty with Ukraine. They all delivered a negative result for the EU.
In the end the negative public sentiment undermines EU’s existence. So EU should not continue on the same road, disregarding public opinion.
If any TSO has an idea that some interconnections can be improved, it can discuss it with the other concerned TSO’s and the national authorities.
They can ask a research-group (e.g. from university, etc) advice and give the group all grid data to study. Changing inter-connections are long term billion euro projects, so time & money available for better preparation.
So the only thing what is needed is a regular consultation platform, with some advising scientists, between TSO’s & national authorities of the different countries.
Btw.
It’s unclear to me what the 10 RTO’s have accomplished in USA. They still have unreliable electricity supply.
It may be wise for the EU to find out how German authorities did reach such high public support for the Energiewende, while the Energiewende costs the public money.
Mike Parr says
This statement is incorrect: “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”.
The CEO of 50HZ in north Germany is on record of saying that his company has zero problems with 40% wind on his network, ditto the TSO running the Danish network. Both have well developed sophisticated and constantly improving systems for predicting power output from renewables. These predictions are close to 99% reliable 1 hour ahead. The experience in the UK (Nat’ Grid) with RES is similar.
“more difficult to predict” – not so – given the systems installed and expected future developments the reverse is the case: it will become easier and predictions will become more accurate.
I agree that TSOs could/should collaborate more, but support Mr Gresnigt’s position – we don’t need more bureaucratic layers either in the EC or in orgs such as ENTSOe or what is laughingly called the euro regulators (ERGEG) such desires point towards empire building. Use what is already there – use it more cleverly is the way forward
Patrick Laureys says
I don’t think there is any reason to assume that an RTO set-up would be better in terms of reliability (measured in energy not supplied, total loss of power and restoration time). And unless there is a really strong case to be made for dividing ownership of the transmission assets and operating them in such a fundamentally important, regulated business like the electricity TSO sector, then don’t do it.
Hans Hyde says
I would agree with Bas’ sentiments to NOT follow the US models or use them as guidance. Right now we have ISOs & RTOs to supposedly manage transmission and try to make heads & tails of the 2000+ “utilities” we have in the States, not to mention inclusion of the Canadian provinces with their legacy “Crown” utilities often dominated by a single generating scheme (nuclear or hydro). As a result of the ISO/RTOs & deregulation, we have utilities that had to divest from their generation assets, and now have little control or choice as to what generation they can invest in. Plus you have “energy retailers” brought in, which makes nothing work any better or prices more competitive. Then add in the increasing millions of micro DG systems… the so-called “prosumers”, and we have a mess of epic proportions going on here.
One such example, nuclear dominated Ontario (OISO), having shuttered its last coal plant recently, is paying high FITs for wind and solar developments. It doesn’t have enough electric demand to use all the low carbon electricity internally, so it exports it to New York (NYISO) at wholesale while Ontario ratepayers pay the much higher FITs. NYISO, has 5 major utilities, 2 you would know from Europe, National Grid & Ibedrola (NYSEG/RG&E), that can’t own generation in state. NG will be NG like in Europe, more monopolistic and dragging its feet towards REs, while Ibedrola can’t build REs here, although it has a substantial wind fleet elsewhere in the country, but can’t have it in NY. NY has 6 nuclear reactors; two at Indian Point NYC & the governor wants closed because of NIMBY; upstate the merchant owners want to close for financial reasons, but the governor doesn’t want to close because of jobs & they are not NIMBY to NYC. Just announced recently, a $1.5B 260mile 1000MW HVDC line from upstate renewables we don’t have, and we’re going run it in a canal bed because we don’t want to see it. There is no HVDC lines anywhere in the region, not to mention 1GW is not that much for a 25GW ISO system, nor that offshore wind is NIMBY.
Sorry, this list goes on and on about why not to follow the US.
If anything, you might look to ERCOT. It quite possibly is the German Grid 2.0 with market based operation. It will be very interesting to see how it will function with micro DG, but they have stalled that so far with the intention of bringing online multiple GW of solar parks to catch up with the wind farms (about 17 GW) & intermittent capable transmission they just finished.
PS the north-south issues Germany is facing with getting the transmission lines into evacuate North Sea wind, magnify that many times over when it comes to the US west-east issues bridging Great Plains wind power with midwest & more specifically Eastern Coast load centers. There are 3 HVDC lines currently being blocked along the same grounds used to stop Keystone XL pipeline, with the irony being, it is those proponents of KXL doing the blocking. Similar with a 1 GW wind farm in Wyoming getting transmission access to the California interconnect between LA & Las Vegas.
Heck, I’m hoping Germany can sort this out going outward throughout the EU… as we are in strong need of some guidance on how to do it here! 😀
Bas Gresnigt says
@Hans,
Germany will. First small parts are already installed.
They made compromises which imply e.g. that stretches of the lines will be underground, etc.
So those North-South lines will be ready when really needed, which is in the 2018-2030 time frame.
Patrick Laureys says
The discussion here is not about unbundling the old vertically integrated utilities. That has already been done. It’s about the transmission system operators (TSOs) who are at the center of supply and demand and have the obligation as regulated monopolies to ensure a balanced, stable, reliable and efficient grid. The question is whether these should become pure asset owners, while the operation of the grid would go to a supranational, regional level. My opinion is that splitting asset ownership and operation is not the best option for society. And European TSOs are already cooperating and coordinating at the regional and European level, albeit on a voluntary basis.
As for Germany: it is already addressing the bottleneck between north and south by building new corridors.