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Short-term markets in Central Western Europe are characterised by a rather inefficient patchwork of flexibility enabling and disabling design elements.
Some key design elements of intraday and balancing markets as well as imbalance settlement rules distort wholesale power price signals, increasing the cost of providing flexibility. This highlights the need to adjust key market design elements and requires continuous political momentum to coordinate efforts regionally.
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Current market designs are biased against demand side response and renewables.
Restrictive requirements for market participation, mainly relating to demand response and renewables, constrain the flexibility potential. In the balancing markets, small minimum bid sizes and short contracting periods would be required. A regulatory framework enabling independent aggregation should be implemented for fully tapping the flexibility potential.
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Balancing market rules show large differences across the region, leading to inefficient pricing in preceding day-ahead and intraday markets.
A joint balancing market design in the PLEF region with short product duration, late gate closure and marginal pricing would enable efficient cross-border competition for flexibility services. Getting the pricing right in balancing mechanisms is important as it support sefficient pricing in preceding day-ahead and intraday markets – where most of the flexibility is traded.
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Cross-border intraday trading needs reform to improve efficiency and enhance liquidity.
Intraday markets are critical for integrating wind and solar, as they allow for trades responding to updated generation forecasts. Today, explicit cross-border capacity allocation as well as misalignments in gate closure times across the region and differing product durations result in inefficient intraday energy and interconnector capacity allocation. Thus, harmonised rules and improved implicit cross-border allocation methods are needed, e.g. improved continuous trading or intraday auctions.
Refining short-term electricity markets to enhance flexibility
Stocktaking as well as options for reform in the Pentalateral Energy Forum region
Preface
Throughout Europe, animated power market design discussions are going on. Although there are a lot of different approaches to market design, one consensus is emerging: It is a no-regret option to make the short-term energy markets more flexible. The reason lies in the fact that European power systems are increasingly shaped by wind and solar power, leading to more fluctuating production patterns. Thus, refinements of the design of short-term markets that contribute to system flexibility are essential.
By improving the design of short-term markets (day-ahead, intraday and balancing markets and imbalance settlement rules) – which is where the demand for flexibility is met –we can improve price formation to provide flexibility efficiently.
The Pentalateral Energy Forum (PLEF), consisting of Austria, Belgium, France, Germany, Luxembourg, the Netherlands and Switzerland, a region with a strong track record of regional cooperation and advanced power market integration, is currently working on options to make their power markets more flexible. Our study aims to contribute to the ongoing debate by identifying key market design elements that efficiently enable flexibility and further market integration.
Key findings
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Refined Short-Term Electricity Markets to Enhance Flexibility
Stocktaking as well as Options for Reform in the Pentalateral Energy Forum Region
