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POLICY REGIONS WILL BENEFIT EUROPE’S INTERNAL ELECTRICITY MARKET AND ITS CONSUMERS

By Entsoe
Reliable Sustainable Connected


In February 2015 the European Commission adopted a ‘Framework Strategy for a Resilient Energy Union’ creating new momentum to bring about the transition to a low-carbon,secure and competitive economy.One important element of this strategy are regions: It considers a range of energy policy instruments that can be employed beyond the national,at a regional level. Important examples where regional coordination is important to avoid market distortions include subsidies for renewable,  security of electricity supply (i.e. capacity mechanisms), interconnection targets,system adequacy assessments and mutual support during simultaneous scarcities. Regions are thus a steppingstone for the construction of the Internal Electricity Market, where national energy mix decisions and regional coordination on the above topics complement the well-advanced Europe-wide day-ahead and hydroelectricity markets.

fdfdBy 2030 almost 50% of Europe’ s electricity will be generated from renewable energy sources. The continued rise of variable electricity generation needs to be well managed so that it does not challenge secure system operation and cost efficiency.We need to bear in mind that Europe’s power system is interconnected beyond national borders. On one hand, this allows us to create the world’s largest common electricity market to the benefit of all consumers. On the other hand, interconnection also implies that changes in one country have an impact on its neighbours.This is why we need to seek increasingly regional rather than national solutions:While Europe’s electricity markets grow pan-European, national energy policies can have distortive or obstructive effects when they are uncoordinated or conflicting.

Regionalisation in the electricity sector is not about creating new clear-cut borders,but about easing the relationship between the European and national levels. There is no EU-wide mandate or consensus to fix how exactly national energy mix and security of supply decisions combine with the Europe-wide market. However the potential for consensus and the need for it to avoid nasty market distortions is bigger at regional level. Regional actions allow to move faster, to test and spread innovative solutions and to reach specific conclusions. Policy regions need to be flexible, manageable in size and number and ensure the involvement of strongly interconnected non-EU members.Policy regions should thus be defined in a voluntary process in order to address issues such as energy mix, planning of interconnectors, market development,integration of RES into the market,supporting risk preparedness, adequacy issues and cooperation between capacity mechanisms, without questioning Member State decision-making power.On many of these aspects, ENTSOE’s work can support Member States’ decision-making. We have been continuously improving our system adequacy methodology. Member States should use our Mid-term Adequacy Forecasts as a basis for regional measures to ensure security of supply,e. g., market design adaptations with due consideration of their national specificities. By the same token, we are convinced that Europe needs a more coordinated approach for renewables support schemes. This would improve the economic efficiency of the energy transition in Europe through an optimised development of renewables based on Member States’ differentiated natural resources. Such an approach suggests the gradual harmonisation of the type and the level of RES support at least at the regional level to achieve the2030 targets more cost-effectively.This sounds ambitious, but important first steps in this direction are already underway: Germany and Denmark, for instance, just agree on a pilot to open up their renewables support schemes to one another.

Although Germany’s and Denmark’s agreement is an historic first, the concept of policy regions is not new.The Penta-Lateral Energy Forum,the Nordics or Baltic Energy Market Interconnection Plan for instance,have had successes in devising regional energy policy coordination.Wherever possible, such existing regional cooperation structures based on historical and market cooperation aspects should be used to form energy policy regions. The European Commission’s Energy Union Strategy is the right framework to develop policy regions further, and its forthcoming legislative proposals for the electricity market design and the Energy Union governance are important opportunities to anchor the principles of policy regions in law.

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