New report: Impact of EU Network Code Implementation on Market Efficiency
The EU's network codes were designed to harmonize market rules across the common market. However, these codes allow for some regional variations in implementation. A recent study by the INC research project investigates how these differences, particularly in flow-based coupling and the 70 % rule, might affect market efficiency.
The fresh report reveals that regional variations in the implementation of European regulations do not always lead to significant differences. In some cases, these variations can even improve efficiency by acknowledging regional system differences. However, in other cases, they reflect local regulatory preferences which might not always benefit the market.
Download the report here: Variations in the Implementation of Flow-Based Market Coupling and their Implications for Efficiency
Flow-Based Market Coupling, which integrates the physical limits of the transmission system into the market, shows significant variation among Transmission System Operators (TSOs). In some regions, these differences do not impact efficiency and may even enhance it by better addressing local system management challenges. Conversely, expanding cross-zonal trade capacity without accurately reflecting the transmission network's limits can negatively impact efficiency.
The analysis focuses on Nordic and CORE region markets, examining how cross-border transmission constraints are represented through Flow-Based Market Coupling. Despite the CACM Guideline providing a general framework, regional differences exist in detailed methodologies.
The study delves into how network constraints are identified and how TSOs predict trade distribution across a bidding zone's generation and load units. While European regulations standardize information format and capacity calculation methodologies, TSOs have the flexibility to develop these parameters, often leading to similar operational practices that do not harm efficiency.
The Flow-Based Market Coupling process aims to ensure cross-border trade limits accurately reflect transmission system constraints. However, the CORE region's capacity calculation methodologies show notable constraints relaxation to comply with the 70% rule and to match pre-sold transmission rights. These practices might distort the physical capacity representation of the transmission system, potentially reducing market efficiency.
Other implementation differences affecting market outcomes include National Regulatory Authorities' assessment of compliance with the 70% rule and the treatment of DC cables within Flow-Based Market Coupling.
The 'Implementing Network Codes' project, led by the Fridtjof Nansen Institute in Norway, explores EU electricity market regulation from political, legal, and economic perspectives in collaboration with various power market stakeholders. This project includes contributions from research institutions like the Florence School of Regulation and the Scandinavian Institute of Maritime Law, among others, and is funded by the Research Council of Norway and several industry partners.
For more details, visit the INC project page.
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