EEX and EPEX SPOT call on EU Council and EU Parliament to focus on key challenges of the Electricity Market Design reform
Leipzig/Paris, 25 October 2023. The EU trialogue on the reform of the European Electricity Market Design has begun. EEX and EPEX SPOT are sharing their assessment on critical aspects of the proposed texts. Both exchanges and are urging EU Council and EU Parliament to focus on the key challenges within the initial proposal and tabled amendments. Six key topics arise.
1/ Virtual Trading Hubs
Regional Virtual Trading Hubs may fragment liquidity, create significant costs and risks for TSOs, market participants, and European consumers. They also hamper the overall functioning of European forward markets. The EMD should rather aim to address the underlying reasons for limited market liquidity and foster existing market-based hedging solutions. In line with the Parliament position, we call for a proper impact assessment before any decision is taken on the creation of regional virtual trading hubs. The impact assessment should look at the long-term transmission right framework more generally and should be based on a consultation of a wide spectre of market actors including market participants and exchanges.
2/ Contracts for difference
Direct price support schemes in the form of two-way contracts for difference (CfD) risk cannibalising the existing market-based hedging solutions and thus crowding out the electricity forward market. Moreover, it promotes a mentality to “produce and forget”. We therefore call on the EU Council and EU Parliament to focus on the design principles for two-way contracts for difference which should include provisions to prevent any distortive effect on the electricity forward market and excessive costs for European consumers.
3/ Single Legal Entity for the Market Coupling Operation
The implementation of a pan-European Single Legal Entity for the Market Coupling Operation would put market resilience at strong risk, generate unnecessary costs and be counterproductive. It would be clearly a first step towards a de-facto centralisation of the European Market Coupling operations and goes against the principles of proportionality and subsidiarity enshrined in the European Union’s key texts. It would hinder innovation and therefore put at risk Europe’s role in building the energy transition. We call the EU Council to follow the position of the EU Parliament and delete any reference to the Single Legal Entity.
4/ Ban of local products and markets outside of pan-European trading schemes
According to the EU Council General Approach and the ITRE Final Report, any products outside the European Single Day-Ahead and Intraday Coupling would be banned. This ban would also apply to purely local markets such as pre-auction Day-Ahead markets or flexibility markets. Should such a proposal become EU legislation, any chance of innovation would be killed by law. We call for deleting the unclear and arbitrary definitions of covered products and markets and moving the discussion to the forthcoming CACM revision.
5/ Unit vs. Portfolio bidding
The additional transparency unit bidding is supposed to provide would come at a huge and disproportional cost of highly increased complexity. Unit bidding will result in higher bureaucratic, financial, and organizational efforts with potential negative impact for energy wholesale markets. We therefore call on EU Parliament to follow the position of the EU Council and not impose unit bidding.
6/ Peak shaving products
Peak shaving products would scatter the already existing flexibility market without any added value, as the price signal of the established short-term electricity wholesale markets already fulfils the function to react on high prices and shift demand. We support the proposal of an impact assessment to identify the negative consequences of peak shaving products and consider them a measure to be only included in future emergency packages.
About EPEX SPOT
The European Power Exchange EPEX SPOT SE and its affiliates operate physical short-term electricity markets in Central Western Europe, the United Kingdom, Switzerland, the Nordics and in Poland. Furthermore, EPEX SPOT newly offers local flexibility markets solution and Guarantees of Origin auctions, to foster the integration of renewable energy sources and to enhance the engagement of consumers and producers in the power market. As part of EEX Group, a group of companies serving international commodity markets, EPEX SPOT is committed to the creation of a pan-European power market. Over 300 members trade electricity on EPEX SPOT. 49% of its equity is held by HGRT, a holding of transmission system operators. For more information, please visit www.epexspot.com.