Power exchanges, market coupling and the CACM-Regulation

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Power exchanges - electricity - spot market - market coupling - capacity allocation - congestion management - CACM
On 24/3/17 R. Feltkamp and G. Hendrikx participated to the conference “NEW GOVERNANCE AND REGULATION IN THE ENERGY SECTOR” organised by the CREG / Centre Perelman de Philosophie du droit.

They presented their paper on “Power Exchanges and CACM: a new role in a better regulatory environment?”.

Their paper reflects their findings regarding the impact of the Capacity Allocation and Capacity Management Regulation 2015/1222 on power exchanges (PXs) active in the electricity sector. CACM introduces a new framework for capacity allocation and capacity management through market coupling.

Market coupling consists of coupling the order books of different PXs with a view to trading on one PX, via the mechanism of supply and demand, the surplus of electricity offered for trade on other PXs , thereby optimizing the use of interconnector capacity across the entire coupled area (see for more details: Régine Feltkamp and Cécile Musialski, “Electricity markets and the functioning of spot power exchanges. A Belgian perspective”,
TBM 2010, 20-2).

To the extent such market coupling implies cross-border trades, mechanisms have been put in place through different voluntary contractual co-operations to assure that cross-border capacity at the interconnectors is traded via the PXs at the same time as the electricity between different European PXs and TSOs.

For the day-ahead market it implies “the implicit auctioning of cross-border physical transmission rights via the hourly auctions for electric energy organized by power exchanges one day ahead of delivery.”

In this context of market coupling, CACM sets forth a whole set of mandatory rules that apply to the “single day-ahead coupling” and the “single intraday coupling” concerning trades where market players take physical positions .

In their contribution Régine and Gerrit assess:
- the content of CACM against CACM's objectives,
- the impact of CACM on the exercise of power exchanges activities,
- the new rules CACM introduces regarding certain elements of the governance of single day-ahead and intraday market coupling (terms, conditions or methodologies, cooperation, costs).

Their general conclusion is that CACM has, as a mandatory EU-wide framework, certain advantages, but:
  • for certain elements the necessity of the provided rules is questionable in light of the objectives, especially as regards the prior designation scheme for power exchanges,
  • the governance approach is complex and the implementation of the new framework gives rise to substantial costs,
  • the framework is not complete,
  • the framework gives rise to several legal uncertainties, in particular in respect of the cooperation obligations, decision making and cost sharing and cost recovery.

The presentation can be consulted on the website of the CREG.

A working paper version of their written contribution for the conference is also
available. We welcome any questions or comments you may have.

Questions or comments? Contact
Régine Feltkamp or Gerrit Hendrikx.