Who are the NEMOs for day ahead and intraday market coupling?

Electricity - CACM - Capacity Allocation – Congestion Management – Market coupling - NEMO

On July 25, 2015 the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (hereinafter “CACM”) was published in the Official Journal of the European Union. As a general matter, CACM entered into force on August 14, 2015, but different provisions require further implementation actions before they can actually enter into force. Since CACM is a regulation, it applies directly in the member states, without any transposition in national law being required.

CACM provides a new legal framework containing minimum harmonized rules regarding single day-ahead and intraday coupling.

The aim of CACM is to provide for an efficient and modern capacity allocation and congestion management system in light of the overall goal to achieve the fully functioning and interconnected internal energy market that is crucial for maintaining security of energy supply, increasing competitiveness and ensuring universal access for consumers to energy at an affordable price. To attain these objectives, the regulation sets out certain terms and conditions or methodologies (e.g. matching algorithms, capacity calculation regions, a common grid model methodology) which have to be developed and agreed upon by market players and approved by regulatory authorities within the respective deadlines imposed. Compared to the legal framework applicable before, CACM is not only more elaborated and detailed, but it also governs different aspects of the relations between the parties involved in day-ahead or intraday market coupling (in particular the cooperation between transmission system operators and power exchanges) and of the activities of these parties in the context of market coupling. As a result, existing voluntary contractual co-operations in the context of market coupling will have to be revised in light of CACM’s provisions.

A “new” player: the “NEMOs”

One of the important novelties of CACM is that it introduces a new player in the context of capacity allocation and congestion management : the NEMOs. A NEMO is defined by art. 2.23 CACM as “an entity designated by the competent authority to perform tasks related to single day-ahead or single intraday coupling”.

The tasks of a NEMO are described in art. 7 CACM. NEMOs are to act as market operators in national or regional markets to perform, in cooperation with Transmission System Operators, single day-ahead and intraday coupling. The tasks of NEMOs thus seem, at first sight, to be linked exclusively to market coupling activities.

Art. 7 CACM further indicates that these tasks shall include receiving orders from market participants, having overall responsibility for matching and allocating orders in accordance with the single day-ahead and intraday coupling results, publishing prices and settling and clearing the contracts resulting from the trades according to relevant participant agreements and regulations. Article 7 CACM also contains an extensive list of the different tasks for which a NEMO is in particular responsible. This list refers amongst others to the implementation of the newly introduced“MCO functions”, which encompass the following obligations:
  1. developing and maintaining the algorithms, systems and procedures for single day-ahead and intraday coupling in accordance with Articles 36 and 51 of CACM;
  2. processing input data on cross-zonal capacity and allocation constraints provided by coordinated capacity calculators in accordance with Articles 46 and 58 of CACM;
  3. operating the price coupling and continuous trading matching algorithms in accordance with Articles 48 and 60 of CACM;
  4. validating and sending single day-ahead and intraday coupling results to the NEMOs in accordance with Articles 48 and 60 of CACM.

The above mentioned tasks were, prior to CACM, performed by different European market operators (also called power exchanges) in the context of voluntary co-operations (e.g. CWE market coupling, PCR market coupling). As a result of CACM, the entities performing these tasks now are identified with a specific title. But there is more. The tasks and responsibilities of the NEMOs are now determined in a legally binding text. In addition, as can be deducted from the definition of the term “NEMO”, the activities “related to single day-ahead or single intraday coupling” require, by deviation from the general principle (as applicable in Belgium) of freedom of business, a specific designation by the “designating authority”, which is, unless provided otherwise by the Member State, the national regulatory authority.

Designation process in general

The designation process and the criteria for designation are described in articles 4 and 6 of CACM.

Each Member State electrically connected to a bidding zone in another Member State had to ensure that one or more NEMOs were designated within four months after the entry into force of CACM, i.e. by 14 December 2015, to perform the single day- ahead and/or intraday coupling.

Both domestic and non-domestic market operators may apply to be designated as a NEMO. A designation as NEMO is granted for an initial term of four years.

The designation by the designating authorities is subject to the fulfilment of the designation requirements set out in article 6 CACM (e.g. adequate financial resources, information technology and technical infrastructure and having an adequate level of business separation from other market participants) and to the principle of non-discrimination by the designating authorities between domestic and non-domestic applicants.

Specific rule for existing monopolies

In principle different NEMOs can be designated for one Member State. A specific rule exists however for NEMOs designation in case of a national legal monopoly for trading services. Such a national legal monopoly is deemed to exist where national law expressly provides that no more than one entity within a Member State or Member State bidding zone can carry out day-ahead and intraday trading services.

If at the time of the entry into force of CACM a national legal monopoly for day-ahead and intraday trading services already exists in a Member State or Member State's bidding zone, which excludes the designation of more than one NEMO, the Member State concerned must notify the Commission within two months after the entry into force of this regulation and may refuse the designation of more than one NEMO per bidding zone.

If there are several applicants to be designated as the only NEMO, the Member State concerned shall designate the applicant which best meets the criteria listed in Article 6. If a Member State refuses the designation of more than one NEMO per bidding zone, the competent national authority must fix or approve the NEMO fees for trading in the day-ahead and intraday markets, sufficiently in advance of their entry into force, or specify the methodologies used to calculate them.

European passport

An important novelty of CACM is that the designation implies the granting of a so-called “European passport”. A NEMO designated in one Member State has the right to offer day-ahead and intraday trading services with delivery in another Member State. If a NEMO wants to be active in another Member State, it can do so without the need for designation as a NEMO in that Member State, but subject to a notification to the designating authority of that Member State two months before commencing operation. The trading rules of that Member State will in such case apply.

The European passport is not absolute. A Member State may still refuse the trading services by a NEMO designated in another Member State if:
  1. a national legal monopoly for day-ahead and intraday trading services exists in the Member State or bidding zone of the Member State where delivery takes place ; or
  2. the Member State where delivery takes place can establish that there are technical obstacles to delivery into that Member State of electricity purchased on day-ahead and intraday markets using NEMOs designated in another Member State linked to the need to ensure the objectives of CACM are met while maintaining operational security; or
  3. the trading rules in the Member State of delivery are not compatible with the delivery into that Member State of electricity purchased on the basis of day-ahead and intraday trading services provided by a NEMO designated in another Member State; or
  4. the NEMO is a national legal monopoly in accordance with Article 5 of CACM in the Member State where it is designated.

Supervision

A NEMO must, on a continuous basis, comply with the designation criteria set forth in art. 6 CACM. The designating authorities are responsible for ensuring compliance with CACM.

In this respect, although the home Member State remains competent for the designation and its revocation, a NEMO active in another member state based on the received designation, will not be subject to supervision in its home Member State in respect of CACM compliance in general (cfr. the so called “home country control”as applied in the financial sector). Indeed, Art. 4.5 CACM provides that the designating authorities shall ensure compliance with CACM by all NEMOs performing single day-ahead and/or intra-day coupling within their Member State, regardless of where the NEMOs were designated. The authorities in charge of NEMO designation, monitoring and enforcement must exchange all information necessary for an efficient supervision of NEMO activities.

If the designating authority of a Member State finds that a NEMO, active but not designated in its country, fails to maintain compliance with the criteria in art. 6 CACM with respect to its activities in this country, it is that designating authority that must notify the NEMO of its non-compliance. If the NEMO does not restore compliance within three months of being notified, the designating authority can suspend the right to offer intraday and day-ahead trading services in this Member State until such time as the NEMO restores compliance. The designating authority must also inform the designating authority of the Member State in which the NEMO is designated, ACER and the Commission.

List of designated NEMOs

As mentioned, each Member State had to ensure that by 14 December 2015 at least one NEMO was designated in each bidding zone on its territory. ACER is entrusted with the task of maintaining on its website a list of designated NEMOs, containing information on their status and on where they operate.

As can be concluded from ACER’s list, the majority of Member States have in the meantime designated at least one NEMO.

The list shows that the following companies have (at this stage) thus been granted the NEMO status:

  • Nord Pool Spot AS (NEMO for Austria, Denmark, Estonia, Finland, Germany, Latvia, Lithuania, the Netherlands, Sweden and the United Kingdom);
  • EPEX SPOT SE, (NEMO for Austria, France, Germany, Luxembourg);
  • APX (NEMO for the Netherlands and the United Kingdom);
  • EXAA (NEMO for Austria), Eirgrid (NEMO for Ireleand); and
  • SONI Ltd (NEMO for the United Kingdom).

The following companies have been granted a “NEMO monopoly”:
  • OTE a.s. (NEMO for the Czech Republic);
  • LAGIE SA (NEMO for Greece);
  • HUPX Zrt. (NEMO for Hungary);
  • GME Spa (NEMO for Italy);
  • OMIE S.A. (NEMO for Portugal and Spain);
  • OPCOM S.A. (NEMO for Romania)
  • OKTA a.s. (NEMO for Slovakia)

According to the ACER overview, Belgium, Bulgaria and Slovenia are late with the designation process. In Belgium the designation is expected by January 2016. Both Nord Pool Spot AS and EPEX Spot SE have applied to be designated as a NEMO in Belgium. The designation in Bulgaria and Slovenia was expected by the end of December 2015.

Régine Feltkamp & Gerrit Hendrikx