Can differences in EU network code implementation affect the market?

Network codes were intended to harmonise market rules within the common market. However, the codes do allow for some differences in implementation. As part of the INC research project, we have examined how differences in the implementation of flow-based coupling and the assessment of the 70% rule could impact market efficiency.

From the specific examples examined in this report, we conclude that providing scope for regional variation does not always result in substantive differences in the implementation of European regulation. Where differences do arise, some may enhance efficiency by recognising differences between regional systems. In other cases, these differences appear to reflect differences in local regulatory preferences.

Elements of Flow-Based Market Coupling—the process used to reflect the physical limits of the transmission system in the market—vary significantly among TSOs. For some of the areas examined, the observed differences in national practice are unlikely to significantly influence efficiency. They may even support greater efficiency where these differences allow TSOs to better reflect the system management constraints faced in their networks. In other areas, notably where cross-zonal trade capacity is expanded in a way that is unlikely to result in a more accurate representation of the transmission network’s limitations, the impacts on efficiency are potentially more significant and are likely to be negative.

These conclusions are drawn from an analysis of current and planned practice in a selection of Nordic and CORE region markets. Specifically, we have examined how cross-border transmission network constraints are represented in the European electricity market through Flow-Based Market Coupling. Although the overarching approach to Flow-Based Market Coupling is defined by the Capacity Allocation and Congestion Management (CACM) Guideline, the detailed methodologies are established regionally.

The work looks at how network constraints (CNECs) are initially identified and how TSOs make assumptions about the expected distribution of trades across a bidding zone’s many generation and load units. Although the format of this information is standardised in European regulation and the supporting capacity calculation methodologies, TSOs are effectively free to decide how to develop these parameters. Our impression is that, for the TSOs examined, there is a sufficiently clear and common purpose that differences in their approaches do not harm efficiency. In some cases, we instead observe a sort of convergent evolution towards similar operational practices.

The Flow-Based Market Coupling process attempts to ensure that the limits placed on cross-border trade accurately reflect the physical constraints of the transmission system. The capacity calculation methodologies we examined include various ways in which these constraints are relaxed. The most notable of these are found within the methodology for the CORE capacity calculation region. Here, available capacity is expanded to ensure compliance with the so-called 70% rule, which imposes a lower limit on the amount of cross-zonal capacity that should be offered to the market. Available market capacity is also expanded to ensure that it is at least as large as the capacity sold in advance of the market in the form of transmission rights. Both of these practices are likely to distort the representation of the physical capacity of the transmission system and could potentially reduce market efficiency as a result.

Other differences in implementation that could affect market outcomes, and which are discussed in the report, include the assessment by National Regulatory Authorities of compliance against the 70% rule, and the way that DC cables are treated within the Flow-Based Market Coupling process.

The ‘Implementing Network Codes’ research project examines EU electricity market regulation from political, legal and economic perspectives in collaboration with power market actors. It is led by the Fridtjof Nansen Institute in Norway. The participating research institutions are the Florence School of Regulation, the Scandinavian Institute of Maritime Law (University of Oslo), Osnabruck University, the University of Göttingen, Thema Consulting Group and DNV. INC is funded by the Research Council of Norway as a collaborative research project (2020-2024; grant agreement no. 308855), with co-funding from Energy Norway, Statkraft, Statnett, the Norwegian Ministry for Petroleum and Energy, Elvia, Hafslund E-CO Vannkraft, Skagerak Kraft and Nord Pool.


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