Use Market Instruments for the Prevention and Management of Scarcity Situations

Market design plays an increasing role for secure system operations as markets and system operations become more interdependent; with potentially shorter gate closure times in the future, they would move even closer together, while still preserving the time needed to operate the system securely.

TSOs play a crucial role in developing adequacy methodologies and delivering adequacy assessments that increase transparency and allow the market to contribute to security of supply. Cross-border synergies can only be enabled via the close cooperation of TSOs and market participants within a well-defined framework.

Prices reflecting scarcities in terms of time and location are key to enabling the future market design to deliver power system adequacy, efficiency and resilience 1. Market participants should be given stronger incentives to contribute to system adequacy through rewards when they help address scarcity concerns. With dynamic prices and improved hedging products, market mechanisms can be expected to address scarcity situations better and better: demand becomes more flexible, and customers will be able to choose among different contract types.

Recommendations

  1. ACER and NRAs should put full financial balance responsibility on all market participants to expose market parties to system adequacy price signals. To mitigate the risks for market participants and improve investment price signals, new risk hedging products have to be developed through an appropriate regulatory framework if they are not developed by the market.

  2. ENTSO-E, ACER, TSOs, and NRAs should cooperate to ensure that in moments of scarcity, TSOs can obtain emergency assistance from neighbouring systems to avoid disconnection of customers.

  3. TSOs, by implementing relevant coordination of cross-border capacity calculation and allocation processes, should ensure that coordination of cross-border capacity calculation and allocation processes also gives the correct outcomes in scarcity situations. NRAs should cooperate to provide the right preconditions and framework for this.

  4. TSOs, Member States, and NRAs should coordinate cross-border trade (FB MC) to ensure the management of unscheduled flows in the context of Multilateral Remedial Actions.

The calculation of limits to cross-border measures and the management of simultaneous scarcity situations remain particularly challenging. The degree to which cross-border support is available to manage scarcity situations is dependent on the relative levels of scarcity on both sides of the border as well as on the availability of cross-border capacity (in terms of volume and certainty). Properly functioning market mechanisms should ensure that cross-border trade

is correctly coordinated (minimising unscheduled flows) and the power flows to the adequacy-short market from other non-affected zones. However, such cross-border adequacy measures should not result in interconnector capacity being removed from the market because this would interfere with normal market functioning. That is why coordinated capacity calculation and allocation processes will be applicable also for scarcity situations.

  1. For further details, refer to the ENTSO-E Vision paper “Markets and Innovation deliver the Energy Union”.