Wholesale energy products under the REMIT Regulation
- Category: REMIT
REMIT Regulation applies to trading in wholesale energy products, defined as the following contracts and derivatives:
— contracts for the supply of electricity or natural gas where delivery is in the EU,
— derivatives relating to electricity or natural gas produced, traded or delivered in the EU,
— contracts and derivatives relating to the transportation of electricity or natural gas in the EU.
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17 April 2024 REMIT 2 published in the EU Official Journal - definition of wholesale energy products amended to include SIDC, SDAC and storage
In the REMIT Q+A 27th edition updated on 31 March 2022 the ACER explained the qualification of contracts concluded by the RES (Renewable Energy Sources) aggregator vs. RES producers and the entity responsible for Feed-in-Premium (FIP) remuneration. ACER also clarified that contracts related to the guarantees of origin are assimilable to contracts related to green certificates, are not considered to be related to wholesale energy products (as they do not fulfil the requirements set out in Article 2(4) of REMIT) and are thus not reportable under REMIT (the same applies to contracts related to emission allowances). |
Contracts for the supply and distribution of electricity or natural gas to final customers with a consumption capacity greater than 600 GWh per year also fall within the scope of REMIT.
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Definition of "wholesale energy products" - before REMIT 2 (Article 2(4) of REMIT)
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ACER Agency in its Guidance on the application of Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency considers contracts for the supply or transportation of electricity and gas traded intraday, within- day, day-ahead, two-days-ahead, week-end, long-term or any other time period generally accepted in the market as contracts for the supply or transportation of electricity or natural gas.
Derivatives are understood as financial instruments as set out in points (4) to (10) of Section C of Annex I to Directive 2004/39/EC as implemented in Articles 38 and 39 of Regulation (EC) No 1287/2006.
REMIT 2
On 17 April 2024 Regulation (EU) 2024/1106 of the European Parliament and of the Council of 11 April 2024 amending Regulations (EU) No 1227/2011 and (EU) 2019/942 as regards improving the Union’s protection against market manipulation on the wholesale energy market (so-called: REMIT 2) has been published in the EU Official Journal.
It amended the definition of wholesale energy products to include the single day-ahead coupling (SDAC) and single intraday coupling (SIDC) that may result in delivery in the European Union.
Moreover, contracts (derivatives including) relating to the storage of electricity or natural gas in the European Union have also been covered.
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Regulation (EU) 2024/1106 of the European Parliament and of the Council of 11 April 2024 amending Regulations (EU) No 1227/2011 and (EU) 2019/942 as regards improving the Union’s protection against market manipulation on the wholesale energy market (REMIT 2)
Recital 19 (19) Commission Regulation (EU) 2015/1222 (12) provides for the possibility for third-country participation in the Unionsingle day-ahead and intraday coupling in the electricity sector. Since market-coupling operators use a specific algorithm to match bids and offers in an optimal manner, this may result in orders to trade being placed in a third country participating in the Union single day-ahead and intraday coupling but resulting in a contract for the supply of electricity with delivery in the Union. The placing of such orders to trade in third countries participating in the Union single day-ahead and intraday coupling that may result in delivery in the Union should be covered by the definition of wholesale energy products pursuant to this Regulation.
Article 1(3)(c) Regulation (EU) No 1227/2011 is amended as follows: (c) point (4) is amended as follows: (i) points (a) and (b) are replaced by the following: ‘(a) contracts for the supply of electricity or natural gas, including LNG, where delivery is in the Union, or contracts for the supply of electricity which may result in delivery in the Union as a result of single day-ahead and intraday coupling; (b) derivatives relating to electricity or natural gas produced, traded or delivered in the Union, or derivatives relating to electricity which may result in delivery in the Union as a result of single day-ahead and intraday coupling;’; (ii) the following points are added: ‘(e) contracts relating to the storage of electricity or natural gas in the Union; (f) derivatives relating to the storage of electricity or natural gas in the Union;’ |
Contracts for the use of final customers
Contracts for the supply and distribution of electricity or natural gas for the use of final customers are not wholesale energy products save for the contracts for the supply and distribution of electricity or natural gas to final customers with a consumption capacity equal to or greater than the threshold of 600 GWh per year.
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Definition of "consumption capacity" - before REMIT 2
(Article 2(5) of REMIT) 'Consumption capacity' means the consumption of a final customer of either electricity or natural gas at full use of that customer's production capacity. It comprises all consumption by that customer as a single economic entity, in so far as consumption takes place on markets with interrelated wholesale prices. For the purposes of this definition, consumption at individual plants under the control of a single economic entity that have a consumption capacity of less than 600 GWh per year shall not be taken into account in so far as those plants do not exert a joint influence on wholesale energy market prices due to their being located in different relevant geographical markets. |
For the purposes of the definition of "consumption capacity", consumption at individual plants under the control of a single economic entity that have a consumption capacity of less than 600 GWh per year are not taken into account in so far as those plants do not exert a joint influence on wholesale energy market prices due to their being located in different relevant geographical markets.
More detailed remarks on the scope and interpretation of the REMIT requirements with respect to contracts for the supply and distribution of electricity or natural gas for the use of final customers with a consumption capacity equal to or greater than the threshold of 600 GWh per year are available at REMIT reporting.
Biogas
In line with Article 1(2) of Directive 2009/73/EC, the rules established for natural gas, including LNG, also apply in a non-discriminatory way to biogas and gas from biomass or other types of gas in so far as such gases can technically and safely be injected into, and transported through, the natural gas system. Therefore, if biogas can technically and safely be injected into, and transported through, the natural gas system, it will:
(i) meet all criteria to be treated as natural gas, and
(ii) REMIT will apply for the biogas supply/transportation contracts (ACER's Questions and Answers on REMIT, Question III.3.23).
Storage contracts
Storage contracts initially were not considered wholesale energy products under REMIT (see Q&As on REMIT, Question III.3.30 as in the box).
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ACER' Q&As on REMIT Should gas storage nominations be reported as trades?
No, storage contracts are not considered wholesale energy products under REMIT (please see the definition of wholesale energy products under Article 2(4) of REMIT). Storage system operators are required to report nomination data as defined in Article 9(7) of Commission Implementing Regulation (EU) No 1348/2014 as fundamental data. In addition, the market participants or storage system operators (on their behalf) are required to report gas storage data as specified in Article 9(9) of Commission Implementing Regulation (EU) No 1348/2014. |
However, the situation has changed when the Regulation (EU) 2024/1106 of the European Parliament and of the Council of 11 April 2024 amending Regulations (EU) No 1227/2011 and (EU) 2019/942 as regards improving the Union’s protection against market manipulation on the wholesale energy market (so-called: REMIT 2) has been published in the EU Official Journal on 17 April 2024.
The said Regulation amended the definition of wholesale energy products to include contracts (derivatives including) relating to the storage of electricity or natural gas in the European Union.
Contracts for green certificates and emission allowances
Conversely, the ACER considers contracts for green certificates and emission allowances not to be wholesale energy products as they do not fulfil the requirements set out in Article 2(4) of REMIT.
Intra-group transactions
As the definition of wholesale energy products applies to contracts and derivatives "irrespective of how and where they are traded", the ACER Agency considers that intra-group transactions, i.e. over- the-counter (OTC) contracts entered into with another counterparty which is part of the same group, are considered to be wholesale energy products under REMIT.
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Guarantees of origin
In the REMIT Q+A 27th edition updated on 31 March 2022 the ACER explained that contracts related to the guarantees of origin are assimilable to contracts related to green certificates.
ACER also referred to the 6th edition of the ACER Guidance on the application of REMIT and clarified that ACER’s understanding is that such contracts are not considered to be related to wholesale energy products, as they do not fulfil the requirements set out in Article 2(4) of REMIT and are thus not reportable under REMIT (the same applies to contracts related to emission allowances).
Demand response services (DSR)
ACER considers that the contract for the provision of demand response services (DSR) qualifies as a wholesale energy product pursuant to Article (2)(4)(a) of REMIT (Q&As on REMIT, Question II.4.52).
Questions and Answers on REMIT Question II.4.52. [last update 16 December 2022]
Do the services provided by a Flexibility Service Provider (FSP) fall under the reporting obligation of Article 8 of REMIT? More specifically, if a customer has a contract with its electricity supplier to provide demand response services (e.g. an interruptible client not related to balancing services (e.g. on day-ahead basis), does this contract have to be reported under Article 8 of REMIT? If it is the case, could you provide the legal basis?
The Agency considers that the contract for the provision of demand response services qualifies as a wholesale energy product pursuant to Article (2)(4)(a of REMIT and it has to be reported. Pursuant to Article 3(1)(a)(ji) of Commission Implementing Regulation (EU) No 1348/2014, contracts involving a customer providing demand response services to a supplier and/or an aggregator should be reported on a continuous basis.
Pursuant to Article 4(1)(d) and Articles 2(9) and 2(11) of Commission Implementing Regulation (EU) No 1348/2014, contracts involving a customer providing demand response services to a TSO (i.e. balancing services) are reportable upon reasoned request of the Agency and on an ad-hoc basis. If a supplier or aggregator sells demand response volume they contracted from customers to the TSO, this contract between supplier or aggregator and TSO should be reported upon reasoned request of the Agency on an ad hoc basis.
Physical Transmission Rights (PTRs) and Financial Transmission Rights - (FTRs)
ACER classifies FTRs and PTRs as wholesale energy products. In the document: Frequently Asked Questions (FAQs) on REMIT transaction reporting, Answer to the Question 4.1.6 (published on 30 April 2021) the Agency said as follows:
“According to Q&A II.3.8., the Agency's understanding of Article 2(4) of REMIT and of Article 3(1) of the REMIT Implementing Regulation is that FTRs and PTRs are wholesale energy products that are listed as reportable contracts according to Article 3(1) of the REMIT Implementing Regulation. This is why the Agency has to consider FTRs and PTRs as wholesale energy products that will be reported to the Agency pursuant to Article 8(1) of REMIT, as long as ESMA does not specify in its guidance documents that these wholesale energy products are identified as financial instruments according to MiFID II that have to be reported under MiFIR and/or EMIR. The reporting obligation concerning any similar product should follow the same logic.
As long as the relevant products are not reportable under MiFIR or EMIR, the reporting obligation under REMIT applies even if the financial authorities were to define the relevant products as financial instruments in MiFID II. As long as these products are not reported under MiFIR or EMIR, the reporting under REMIT does not constitute a case of double reporting under Article 8(3) of REMIT.”
RES aggregator
In the REMIT Q+A 27th edition updated on 31 March 2022 the ACER explained the qualification of contracts concluded by the RES (Renewable Energy Sources) aggregator vs. RES producers and the entity responsible for Feed-in-Premium (FIP) remuneration.
The Question III.3.49 was as follows:
Based on the national strategy for supporting renewable resources (RES), there are institutional entities that act as RES aggregator or as responsible entity for the remuneration of RES producers via incentives (e.g. Feed-in-Premium - FIP). The RES aggregator might coincide with the entity for remuneration. In this regard, RES Producers sign a contract with responsible entity for the FIP remuneration, as well as a contract with the aggregator that is in charge of buying the energy from the RES producers and sell it on the organized market place. The remuneration under FIP contract is usually calculated ex post on a monthly basis and it is based on the difference between the fixed tariff and the average electricity market price in the respective month. RES producers receive payments from their participation in the wholesale energy market through the RES Aggregator and, in addition, they receive monthly payments from the responsible entity for the FIP remuneration under the framework of a FIP contract. In this framework, which of the above mentioned contracts are reportable under REMIT?
The ACER’s answer reads:
Article 2 of REMIT defines market participant as “any person, including transmission system operators, who enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets”. “Since there is no specific exception in the above-mentioned definition for “institutional” market participants, this means that as long as a company (e.g. the RES Aggregator) is active in the wholesale energy market, despite solely implementing the national regulation, it is considered a market participant under REMIT and is subject to obligations set out in Article 8 and Article 9 of REMIT. As stated in Article 4 of Commission Implementing Regulation (EU) No 1348/2014, all contracts concluded between the RES producers and the RES aggregator are reportable only upon the Agency’s request for a single production unit with a capacity equal to or less than 10 MW or by production units with a combined capacity equal to or less than 10 MW, unless the contract is concluded on an organised market place.
On the other hand, the contract in place between the RES producer and the responsible entity for the FIP remuneration does not refer to a wholesale energy product under REMIT, but rather to the recognition of an incentive. As a result, such a contract is not reportable”.
Significance of physically settled wholesale energy products traded on an OTF in the context of financial market
The definition of Section C 6 of Annex I under MiFID I has been changed significantly under MiFID II by classifying options, futures, swaps and other derivative contracts relating to commodities that can be physically settled and are traded on an OTF as financial instruments, in addition to those instruments that trade on MTFs and regulated markets.
However, Section C 6 of Annex I excludes wholesale energy products within the scope of REMIT that are traded on an OTF and that must be physically settled. Therefore, these excluded wholesale energy products do not qualify as financial instruments and are consequently outside the scope of MiFID, EMIR and the CRD IV package.
Wholesale energy products are exempted from the scope of the Market Abuse Regulation (MAR), except for the prohibitions of market manipulation and insider trading in electricity and gas derivatives where REMIT declares MAR as applicable.