Bidding zone - a cornerstone of market-based electricity trading
Bidding zone is the largest geographical area within which market participants are able to exchange energy without capacity allocation (Article 2(3) of the Regulation 543/2013 of 14 June 2013 on submission and publication of data in electricity markets and Article 2(65) of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (Electricity Market Regulation)).
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22 December 2023
ACER to decide on the alternative electricity bidding zone configurations for the Baltic region
9 August 2022 In its Decision, ACER proposes alternative bidding zone configurations for five Member States; |
Within bidding zone electricity market wholesale prices are uniform (ENTSO-E Annual Report 2015, p. 17). Market participants who wish to buy or sell electricity in another bidding zone have to take into account grid constraints. The key point is that in the single European Union electricity market electricity offerings within the bidding zone are possible without having to acquire transmission capacity to conclude electricity trades. In other words, the conception of the “copper plate” applies within bidding zones only.
It is often underlined that bidding zones reflecting supply and demand distribution are prerequisite for reaching the full potential of capacity allocation methods, the flow based method including. Article 13(2) of the European Commission Proposal of 30 November 2016 for a Regulation of the European Parliament and of the Council on the internal market for electricity (being the part of the Winter Energy Package) envisioned the draft rule that each bidding zone should be equal to an imbalance price area. Article 6(6) of the recast Electricity Market Regulation finally established that "each imbalance price area shall be equal to a bidding zone, except in the case of a central dispatching model where an imbalance price area may constitute a part of a bidding zone".
Zonal vs. nodal congestion management design
The legal approach to bidding zones in the EU Internal Electricity Market reflects the political decision of a zonal rather than a nodal market model (where wholesale electricity prices are determined by physical node on the network).
ACER's Consultation document: “The influence of existing bidding zones on electricity markets” (PC_2013_E_04, 31 July 2013, p. 5) describes in short the aforementioned different congestion management designs. ACER firstly reminds that the zonal design defines limited geographical areas (zones), within which trading between generators and loads is unlimited. However, to cope with operational security constraints of the network, trading between these areas is limited by transmission capacity based on capacity calculation and allocation process. An extreme implementation of this approach would result in one large bidding zone (copper plate) without capacity allocation and where all operational constraints are tackled via remedial actions. The nodal design, in turn, considers all trades between generators and loads as equal in terms of using the infrastructure. While in nodal design the bid price and quantity of each generator and load is weighed against its influence on the physical network, in zonal design only the import or export of electricity in each bidding zone is weighed against its influence on the physical network.
Among the electricity wholesale markets implementing nodal pricing are Argentina, Chile, Mexico, New Zealand, Peru, Russia, Singapore, and several regions in the United States (U.S.). Independent System Operators (ISOs) clear the electricity market while considering the thermal and dynamic limits of all transmission network elements (Fighting the wrong battle? A critical assessment of arguments against nodal electricity prices in the European debate, An MIT Energy Initiative Working Paper, February 2022, Anselm Eicke, Tim Schittekatte, p. 2).
In the zonal design, congestion management methods consist of preventive and of curative methods.
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See also:
Capacity Calculation Regions (CCRs)
Regulation 543/2013 of 14 June 2013 on submission and publication of data in electricity markets, Article 2(3) |
Preventive methods define ex-ante limitations to trade by calculating the cross zonal capacities and allocating them efficiently to market players so that they can decide on how to dispatch generators and loads.
Curative methods aim at modifying this initial dispatch when operational security is endangered with methods such as redispatching or countertrading. These can also be classified as non-costly (e.g. topology switching, positioning the phase shifting transformers – PSTs) or costly (e.g. redispatching and countertrading). The costs of undertaking costly remedial actions are often socialised on all consumers of a bidding zone through transmission tariffs.
In general, the larger the zone, the larger the proportion of congestions managed by redispatching; however, this also depends on the strength of the network within the zone. In other words, the aggregation of nodes into zones may have a side effect on the quantity of remedial actions the Transmission System Operator (TSO) needs to apply in order to ensure operational security.
The European target model for the electricity market foresees a zonal approach implying the implementation of a mainly preventive way to tackle congestions between properly defined bidding zones by calculating and allocating cross-zonal capacities. Remaining (mainly inside zones) congestions are to be managed by curative measures such as redispatching or countertrade.
Bidding zones' delineation and significance
According to the EU legal framework bidding zones should be defined in a manner to ensure efficient congestion management and overall market efficiency.
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Therefore national borders are not a key driver for the delineation of bidding zones in the EU Internal Electricity Market, although some are defined in this way (for example France, the Netherlands, Poland, etc.). Examples of bidding zones, which are larger than national borders, are Austria, Germany and Luxembourg and the Single Electricity Market for the island of Ireland (note, however, that according to the Opinion of the Agency for the Cooperation of Energy Regulators No 9/2015 of 23 September 2015, and the Decision of the Agency for the Cooperation of Energy Regulators No 06/2016 of 17 November 2016 on the electricity transmission system operators’ proposal for the determination of capacity calculation regions, the implementation of a capacity allocation procedure on the DE-AT border is required). Some countries like Italy, Denmark, Norway or Sweden apply several bidding zones within their territory.
The ACER in its Final Assessment of the EU Wholesale Electricity Market Design published in April 2022 refers to an example of Norway and Sweden, which comprise five and four bidding zones, respectively. These bidding zones are an approximation of the underlying congestions in the grid and illustrate the relevance of accurate locational price signals. As different bidding zones may have different wholesale prices, reflecting the local supply and demand, prices observed in the South of Norway and Sweden in December 2021 were around three times higher than the prices of the bidding zones in the Northern bidding zones. These price differentials incentivise generators to be located in the South and large consumers to be located in the North, something that is taken into account when considering the need for network investments. The ACER argues in the above document of April 2022 that ignoring these incentives would aggravate the existing grid congestions, consequently, the perceived needs to invest in network infrastructure would increase, investments may be inefficiently located, and such increased (and partly avoidable) costs would ultimately be borne by consumers.
Article 16(1) of the recast Electricity Market Regulation stipulates that bidding zone borders must be based on long-term, structural congestions in the transmission network and that bidding zones must not contain such congestions. According to the said Regulation, the configuration of bidding zones in the European Union must be designed in such a way as to maximise economic efficiency and cross-border trading opportunities while maintaining security of supply. The EU regulations envision bidding zones can be modified by splitting, merging or adjusting the bidding zone borders. An important element of the legal framework is that bidding zones must be identical for all market timeframes.
The bidding zone definition cross-refers to the 'capacity allocation' which means the attribution of cross zonal capacity, where the latter, in turn, denotes the capability of the interconnected system to accommodate energy transfer between bidding zones. ACER Recommendation No 2/2016 of 14 November 2016 on the common capacity calculation and redispatching and countertrading cost sharing methodologies underlines congestion problems are addressed with capacity allocation (p. 5). This implies that geographical areas within which market participants are able to exchange energy without capacity allocation, i.e. bidding zones, should be configured in such a way that:
- congestion appears only on the borders between bidding zones and there is no congestion inside bidding zone,
- internal exchanges inside bidding zones do not create loop flows through other bidding zones (creating congestion in those bidding zones and reducing the capacity between zones).
Cross zonal capacity can be expressed either as a coordinated net transmission capacity value or flow based parameters, and takes into account operational security constraints - see definitions, in particular, in:
- Commission Regulation 543/2013 of 14 June 2013 on submission and publication of data in electricity markets.
The CACM Regulation requires that the price coupling algorithm must simultaneously produce for each bidding zone and for each market time unit at least:
(a) a single clearing price in EUR/MWh (Article 39(2)(a) of the CACM Regulation),
(b) a single net position (Article 39(2)(b) of the CACM Regulation).
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Recital 11 of the Regulation establishing a Guideline on Capacity Allocation and Congestion Management - CACM Regulation (Regulation on market coupling)
Bidding zones reflecting supply and demand distribution are a cornerstone of market-based electricity trading and are a prerequisite for reaching the full potential of capacity allocation methods including the flow based method. Bidding zones therefore should be defined in a manner to ensure efficient congestion management and overall market efficiency. Bidding zones can be subsequently modified by splitting, merging or adjusting the zone borders. The bidding zones should be identical for all market time-frames. The review process of bidding zone configurations provided for in this Regulation will play an important role in the identification of structural bottlenecks and will allow for more efficient bidding zone delineation. |
Bidding zones are also inherently linked with Physical Transmission Rights which are defined as a rights whose holder is entitled to physically transfer a certain volume of electricity in a certain period of time between two bidding zones in a specific direction. Bidding zones will be consistent across different market timeframes and will be relatively stable across time, while reflecting changing network conditions.
It is noteworthy, the bidding zones' configuration (detailed provisions thereon stipulated in Articles 32 - 34 of the CACM Regulation) may have impacts on investments in generation and consumption. In case the review process leads to a bidding zones' new configuration, some generators may be called to participate to the capacity allocation and congestion management process with previously unforeseen costs and risks. Each generation and load unit must belong to only one bidding zone for each market time unit. The bidding zones' determination is a complex and prolonged process. First practical examples of the bidding zones' reconfiguration show it is also a controversial one.
On 15 May 2017, national regulatory authorities of Germany and Austria informed about their bilateral agreement on common framework for congestion management at the border between Austria and Germany (as a follow up to the earlier ACER's Decision) - to be introduced as from 1 October 2018. According to the said agreement:
- the (previously unlimited) trade capacities on the German-Austrian electricity market should amount to at least 4.9 GW and be offered to market participants as long-term capacity,
- the day-ahead capacity allocation at the Austrian-German border was to be integrated in the existing Central Western European flow-based capacity calculation and allocation process.
EFET Press release 110/17 of 12 May 2017 "The implementation of the German-Austrian bidding zone split should be transparent and not before 1 January 2019" argued that enacting a split in the middle of the year "would effectively nullify calendar (yearly) contracts that have already been exchanged for 2018, and force market participants to re-arrange their hedging strategies for 2018 at short notice". Further implications of the said bidding zone reconfiguration, in particular with respect to electricity trading in the forward and intra-day perspectives, were set out in the EFET statement of 11 May 2017 on the implementation of the BNetzA decision requesting TSOs to allocate cross-border transmission capacity at the German-Austrian border. Also the V4 Transmission system operators (ČEPS, MAVIR, PSE, SEPS) and Transelectrica expressed their concern about the said reconfiguration of the Austrian-German bidding zone (Press release of the V4 Transmission system operators (ČEPS, MAVIR, PSE, SEPS) and Transelectrica are deeply concerned by nontransparent developments around the implementation of congestion management at the Austrian-German border). ČEPS, MAVIR, PSE, SEPS and Transelectrica said in the above document: "we are confronted with at least 4.9 GW of guaranteed long-term capacity between Germany and Austria, without any technical justification and explanation of its impact on the capacities on other Core CCR bidding zone borders and secure system operation including the need for remedial actions and congestion income distribution". The German(DE)/Luxembourg(LU)-Austrian(AT) bidding zone was split into the DE/LU and the AT zones and a congestion management scheme was implemented on the border as of 1 October 2018.
Bidding zones' configuration
The CACM Regulation provides a framework that allows bidding zone configuration to adapt to the evolution of physical congestion (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016, p. 18). However, this requires the consensus of the TSOs, the EU Member States and National Regulatory Authorities (NRAs) on methods and proposals to amend the bidding zone configuration. Provisions on bidding zones' configuration are stipulated in Articles 32 and 33 of the CACM Regulation.
European Commission's Final Report of 30 November 2016 of the Sector Inquiry on Capacity Mechanisms ({SWD(2016) 385 final}, COM(2016) 752 final) found that inefficiently defined bidding zones create distortions both within a country and across borders, and concluded that an appropriate definition of bidding zones is likely to be the most efficient way to avoid the need for costly re-dispatching.
Commission Staff Working Document, Accompanying the document Report from the Commission, Interim Report of the Sector Inquiry on Capacity Mechanisms ({C(2016) 2107 final}, 13.4.2016 SWD(2016) 119 final) argues the bidding zones defined based on transmission constraints can allow zonal electricity prices to provide more accurate signals for the efficient location of generation capacity and electricity demand.
Given the price formed in each zone reflects the overall demand/supply balance in the zone, ideally, for electricity prices to appropriately signal local scarcity, the market area or bidding zone needs to reflect the technical limits of the transmission system. Therefore, the price in a very large zone may not indicate with sufficient precision where additional generation capacity is most needed and transmission constraints may cause inefficient plants to run instead of more efficient ones. On such occasions TSOs are forced to revert to re-dispatching measures in order to ensure system balance and minimize loop flows, leading to significant costs for consumers and possible market distortions.
Another area where bidding zones' configuration is particularly important are European resource adequacy assessments. According to Article 23(1) of the recast Electricy Market Regulation, these estimations identify resource adequacy concerns by assessing the overall adequacy of the electricity system to supply current and projected demands for electricity at European Union level, at the level of the Member States, and at the level of individual bidding zones, where relevant. Pursuant to Article 14(1) of the Electricity Market Regulation, "Bidding zone borders shall be based on long-term, structural congestions in the transmission network. Bidding zones shall not contain such structural congestions unless they have no impact on neighbouring bidding zones or, as a temporary exemption, their impact on neighbouring bidding zones is mitigated through the use of remedial actions and those structural congestions do not lead to reductions of cross-zonal trading capacity in accordance with the requirements of Article 16. The configuration of bidding zones in the Union shall be designed in such a way as to maximise economic efficiency and to maximise cross-zonal trading opportunities in accordance with Article 16, while maintaining security of supply". In addition, Article 33 of the CACM Regulation includes a list of minimum criteria that the bidding zone review shall consider.
While the bidding zone review study has to consider all the criteria listed in the CACM Regulation, the following three elements are explicitly mentioned in the Electricity Market Regulation as objectives to be pursued when delineating bidding zones. Moreover, these three elements can be quantified and, as such, more efficiently compared. These elements are:
- minimisation of structural congestions within bidding zones;
- maximisation of economic efficiency;
- maximisation of cross-zonal trading opportunities.
A fourth element mentioned in the Electricity Market Regulation is security of supply.
Electricity Market Regulation in Article 16(8) prescribes that TSOs are required to make available for cross-zonal trade a minimum binding level of capacity (70%). ACER Public consultation document of 6 July 2021 on the high-level approach for the identification of alternative bidding zone configurations to be considered for the bidding zone review (PC_2021_E_07) observes that the minimum 70% target introduced in Article 16(8) of the Electricity Market Regulation is a binding requirement to be satisfied as of 1 January 2026, which could lead to a bidding zone change if not met, pursuant to Article 15(5) of the Electricity Regulation. Such minimum target is easier to meet when the flows that do not result from capacity allocation, i.e. loop flows and internal flows, consume a relatively small share of the capacity of network elements. In this context, a flow decomposition analysis is an adequate tool to identify whether alternative bidding zone configurations are able to limit the amount of flows that do not result from capacity allocation and to achieve the legally required targets. The process proposed to identify alternative bidding zone configurations is an iterative one. Recital 5 of the CACM Regulation in the wording proposed by ACER Recommendation of 20 December 2021 on reasoned amendments to the Capacity Allocation and Congestion Management Regulation indicates that the bidding zones "should be regularly reviewed in order to ensure efficient functioning of the internal market and optimising the use of transmission infrastructure".
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Modification of the bidding zone configuration - impacts on REMIT reporting
A modification of the bidding zone configuration impacts also REMIT reporting issues of outstanding contracts (standard and non-standard). Details in this regard have been explained in an answer to the Question 2.4.12 of the 13th edition of the ACER FAQs on REMIT transaction reporting of 31 March 2022.
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Results of the first edition of the bidding zone review process - March 2018
In its letter dated 21 December 2016 ACER initiated the first edition of the bidding zone review process, specifying Central Europe (Austria, Belgium, the Czech Republic, Denmark, France, Germany, Hungary, Italy (North), Luxembourg, the Netherlands, Poland, Slovakia and Slovenia) as the relevant region. The process began with the publication by the ENTSO-E of the document “First Edition of the Bidding Zone Review, Draft Version for Public Consultation”, lasted 15 months and ended on 21 March 2018. In the said Final Report of March 2018 ENTSO-E concluded that:
“[...] the evaluation presented in this First Edition of the Bidding Zone Review does not provide sufficient evidence for a modification of or for maintaining of the current bidding zone configuration. Hence, the participating TSOs recommend that, given the lack of clear evidence, the current bidding zone delimitation be maintained.
This recommendation should in no way be interpreted as an endorsement of or an objection against the pending split of the German/Luxembourgian and Austrian bidding zones, where TSOs respect all relevant regulatory decisions, e. g. the decision of the Agency for the Cooperation of Energy Regulators no 06/2016 of 17 November 2016 on the electricity transmission system operators’ proposal for the determination of capacity calculation regions and the requests of the regulatory authorities of Germany and Austria” (p. 13).
The results of the first bidding zone review were criticised by some stakeholders. In particular, EFET in its response of 9 March 2018 said:
“While we understand the political difficultly that a recommendation to delineate bidding zones borders without regard for Member States borders may face at a regulatory and political level, we believe it is not the role of ENTSO-E to care for such concerns. Rather, ENTSO-E is expected to deliver a technical analysis with hopefully a strong recommendation for a bidding zones delineation expected to maximise welfare at European level. Hence, we were very disappointed to see ENTSO-E abandon the model-based scenarios partly for concerns related to the reliability of the modelling, but also partly for judging the results as politically unrealistic. Concerning the expert-based scenarios, we expressed our disappointment from the start of the project on the imbalance between the splitting and the merging scenarios [...].”
In the above document EFET also expressed complaints as to the organisation and the transparency of the whole process.
The ACER in its Monitoring report of 30 January 2019 on the implementation of the CACM Regulation and the FCA Regulation assessed the whole process as follows: (p. 5): “[f]or various reasons, the first bidding zone review failed to deliver its objectives according to the CACM Regulation. The legal framework governing this process does not ensure finding and implementing an optimal bidding zone configuration. The Agency recommends several improvements, both in terms of governance and methodology, before this exercise is repeated”.
Bidding zones for purposes of forward capacity allocation
It is noteworthy, the bidding zones determined pursuant to CACM Regulation apply also to long term capacity calculation and forward capacity allocation timeframes (see Article 27(1) of the Network Code on Forward Capacity Allocation - FCA Regulation). Where bidding zone border(s) no longer exist, holders of Long Term Transmission Rights on those bidding zone border(s) will be entitled to reimbursement based on the initial price paid for the Long Term Transmission Rights.
The forward capacity allocation will enable long term cross zonal trade and provide market participants with long term cross zonal hedging opportunities against congestion costs and day ahead congestion pricing, compatible with bidding zone delimitation.
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Recast Electricity Market Regulation, Article 9
Forward markets 1. In accordance with Regulation (EU) 2016/1719, transmission system operators shall issue long-term transmission rights or have equivalent measures in place to allow for market participants, including owners of power-generating facilities using renewable energy sources, to hedge price risks across bidding zone borders, unless an assessment of the forward market on the bidding zone borders performed by the competent regulatory authorities shows that there are sufficient hedging opportunities in the concerned bidding zones. 2. Long-term transmission rights shall be allocated in a transparent, market based and non-discriminatory manner through a single allocation platform. 3. Subject to compliance with Union competition law, market operators shall be free to develop forward hedging products, including long-term forward hedging products, to provide market participants, including owners of power- generating facilities using renewable energy sources, with appropriate possibilities for hedging financial risks against price fluctuations. Member States shall not require that such hedging activity be limited to trades within a Member State or bidding zone. |
Electricity exchanges inside and between bidding zones
ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014 (of November 2015) analysed complexities involved with the electricity exchanges inside and between bidding zones (p. 161, 162).
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Commission Staff Working Document, Accompanying the document Report from the Commission, Interim Report of the Sector Inquiry on Capacity Mechanisms {C(2016) 2107 final}, 13.4.2016 SWD(2016) 119 final, p. 133
Bidding zones in the European Union are being 'coupled', in line with the target model. Market coupling aims to ensure the interconnectors that link bidding zones are used most efficiently to send power between markets to where demand is greatest. Most of Europe is now coupled day ahead with implicit allocation of cross-border transmission capacity. This means that prices and interconnector flows are jointly determined in a single step, for each hour of the following day. This is established through the matching of bids and offers across the power exchange/s operating in Europe. Roughly characterised, the prices for each hour in neighbouring markets are then compared, and the capacity of interconnectors is used to allow power offered in the lower priced zone to be matched with bids in the higher priced zone until either the prices in the two zones converge, or all available interconnection capacity is exhausted. The CACM Regulation, which came into force in mid-August 2015, obliges each Member State to develop market coupling rules for day-ahead markets as well as intraday markets... This price-matching process creates flow schedules for the interconnectors in real time. |
The said Report firstly refers to the fact that in Europe wholesale electricity markets are structured in bidding zones featuring equal prices within each of them. Within each bidding zone, any consumer is allowed to contract electricity with any generator without limitations, hence disregarding any possible physical limitation of the transmission network to transport the exchanged energy. However, this simplifcation, which aims at facilitating trade within limited geographical areas is often made at the expense of electricity trading between bidding zones. Because TSOs cannot limit exchanges within bidding zones, the only way for them to ensure operational security is to limit exchanges between them. For the latter, TSOs indeed apply capacity calculation and allocation, by which they ex-ante limit the amount of available cross-zonal capacity to ensure that physical ows on the network inside and between zones remain within the operational security limits. In capacity calculation, TSOs forecast the ows caused by exchanges inside zones. The remaining available capacity of the network elements are then offered to the market for cross-zonal trade. Therefore, exchanges inside zones cause ows on network elements that are prioritised over ows from cross-zonal exchanges. This prioritisation and discrimination is inherent in the zonal market design. However, Regulation (EC) No 714/2009, and in particular the CACM Regulation, require that capacity calculation and allocation should not result in undue discrimination between internal and cross-zonal exchanges. This is also underlined by the so-called Winter Energy Package of December 2016 (see box).
The question of undue discrimination essentially translates into how the capacity of the network elements (either internal or interconnectors) are allocated to internal and cross-zonal exchanges. Two typical examples of discrimination between internal and cross-zonal exchanges are particularly considered:
a) When cross-zonal capacity is limited by the capacity of interconnectors and the capacity of those interconnectors is reduced not only for the application of N-1 criteria and a reasonable level of reliability margin, but also to accommodate ows resulting from internal exchanges (i.e. loop ows, loop flows) and ows resulting from non-coordinated capacity allocation on other borders (i.e. Unscheduled Allocated Flows (UAFs)); and
b) When cross-zonal capacity is limited by the capacity of internal network elements and when the capacity of those internal network elements is disproportionally allocated for internal exchanges and very little capacity is allocated to cross-zonal exchanges. According to Point 1.7 of the Annex I to Regulation (EC) No 714/2009 such a situation may be tolerated only as a temporary solution.
ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Markets in 2015, September 2016 also refers to the aforementioned reasoning (p. 21). In the said Report of September 2016 ACER argues that, in general, physical cross-zonal capacity can be limited during the capacity calculation process, beyond what is needed for the application of N-1 criterion and a reasonable level of reliability margin, for the following three reasons:
- to accommodate planned grid maintenance works during a certain period;
- to accommodate flows resulting from internal exchanges (i.e. loop flows) and flows resulting from non-coordinated capacity allocation on other borders (i.e. Unscheduled Allocated Flows (UAFs)); and
- to relieve congestion inside a bidding zone (control area).
Inevitably, the bidding zones’ delineation along with the cross-zonal capacity modelling will remain among the hottest topics of the EU electricity market discussions.
Bidding zones vs. LFC blocks vs. LFC areas
Interactions between the bidding zones, load-frequency control blocks (LFC blocks) and load-frequency control areas (LFC areas) are the following (Explanatory Document to All TSOs’ proposal for the implementation framework for a European platform for the imbalance netting process in accordance with Article 22 of Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, 18 June 2018, p. 9):
- a bidding zone can consist of one LFC block which consists of one LFC area (e.g. France);
- a bidding zone can consist of one LFC block with more than one LFC areas (Germany after the bidding zone split);
- a bidding zone can consist of more than one LFC block and each of the LFC block can have more than one LFC areas (bidding zone of Germany and Austria before the bidding zone split);
- an LFC block can consist of one LFC area which includes more than one bidding zone (Italy, current NORDIC configuration);
- an LFC block consists of more than one LFC area where each LFC area equals one bidding zone (future NORDIC system).
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Regulation establishing a Guideline on Capacity Allocation and Congestion Management - CACM (Regulation on market coupling)
Chapter 2 Bidding zone configuration
Article 32 Reviewing existing bidding zone configurations 1. A review of an existing bidding zone configuration may be launched by: (a) the Agency, in accordance with Article 34(7); (b) several regulatory authorities, pursuant to a recommendation from the Agency in accordance with Article 34; (c) TSOs of a capacity calculation region, together with all concerned TSOs whose control areas, including interconnectors, are within the geographic area in which the bidding zone configuration shall be assessed in accordance with paragraph 2(a); (d) one single regulatory authority or TSO with the approval of its competent regulatory authority, for the bidding zones inside the TSO's control area, if the bidding zone configuration has negligible impact on neighbouring TSOs' control areas, including interconnectors, and the review of bidding zone configuration is necessary to improve efficiency, or to maintain operational security; (e) Member States in a capacity calculation region. 2. If a review is launched in accordance with paragraph 1(a),(b), (c) or (e), the entity launching the review shall specify: (a) the geographic area in which bidding zone configuration shall be assessed and the neighbouring geographic areas for which impacts shall be taken into account; (b) the participating TSOs; (c) the participating regulatory authorities. 3. If a review is launched in accordance with paragraph 1(d), the following conditions shall apply: (a) the geographic area in which bidding zone configuration is assessed shall be limited to the control area of the relevant TSO, including interconnectors; (b) the TSO of the relevant control area shall be the only TSO participating in the review; (c) the competent regulatory authority shall be the only regulatory authority participating in the review; (d) the relevant TSO and regulatory authority, respectively, shall give the neighbouring TSOs and regulatory authorities mutually agreed prior notice of the launch of the review, giving reasons; and 4. The review process shall consist of two steps. (a) In the first step, the TSOs participating in a review of bidding zone configuration shall develop the methodology and assumptions that will be used in the review process and propose alternative bidding zone configurations for the assessment. The proposal on methodology and assumptions and alternative bidding zone configuration shall be submitted to the participating regulatory authorities, which shall be able to require coordinated amendments within three months. (b) In the second step, the TSOs participating in a review of bidding zone configuration shall: (i) assess and compare the current bidding zone configuration and each alternative bidding zone configuration using the criteria specified in Article 33; (ii) hold a consultation in accordance with Article 12 and a workshop regarding the alternative bidding zone configuration proposals compared to the existing bidding zone configuration, including timescales for implementation, unless the bidding zone configuration has negligible impact on neighbouring TSOs' control areas; (iii) submit a joint proposal to maintain or amend the bidding zone configuration to the participating Member States and the participating regulatory authorities within 15 months of the decision to launch a review. (c) On receiving the joint proposal to maintain or to amend the bidding zone configuration in accordance with point (iii) above, the participating Member States or, where provided by Member States, the regulatory authorities shall within six months reach an agreement on the proposal to maintain or amend the bidding zone configuration. 5. NEMOs or market participants shall, if requested by TSOs, provide the TSOs participating in a review of a bidding zone with information to enable them to assess bidding zone configurations. This information shall be shared only between the participating TSOs for the sole purpose of assessing bidding zone configurations. 6.The initiative for the review of the bidding zones configuration and its results shall be published by ENTSO for Electricity, or if the review was launched in accordance with paragraph 1(d), by the participating TSO.
Article 33 Criteria for reviewing bidding zone configurations 1.If a review of bidding zone configuration is carried out in accordance with Article 32, at least the following criteria shall be considered: (a) in respect of network security: (i) the ability of bidding zone configurations to ensure operational security and security of supply; (ii) the degree of uncertainty in cross–zonal capacity calculation. (b) in respect of overall market efficiency: (i) any increase or decrease in economic efficiency arising from the change; (ii) market efficiency, including, at least the cost of guaranteeing firmness of capacity, market liquidity, market concentration and market power, the facilitation of effective competition, price signals for building infrastructure, the accuracy and robustness of price signals; (iii) transaction and transition costs, including the cost of amending existing contractual obligations incurred by market participants, NEMOs and TSOs; (iv) the cost of building new infrastructure which may relieve existing congestion; (v) the need to ensure that the market outcome is feasible without the need for extensive application of economically inefficient remedial actions; (vi) any adverse effects of internal transactions on other bidding zones to ensure compliance with point 1.7 of Annex I to Regulation (EC) No 714/2009; (vii) the impact on the operation and efficiency of the balancing mechanisms and imbalance settlement processes. (c) in respect of the stability and robustness of bidding zones: (i) the need for bidding zones to be sufficiently stable and robust over time; (ii) the need for bidding zones to be consistent for all capacity calculation time-frames; (iii) the need for each generation and load unit to belong to only one bidding zone for each market time unit; (iv) the location and frequency of congestion, if structural congestion influences the delimitation of bidding zones, taking into account any future investment which may relieve existing congestion. 2. A bidding zone review in accordance with Article 32 shall include scenarios which take into account a range of likely infrastructure developments throughout the period of 10 years starting from the year following the year in which the decision to launch the review was taken.
Article 34 Regular reporting on current bidding zone configuration by ENTSO for Electricity and the Agency 1.The Agency shall assess the efficiency of current bidding zone configuration every three years. It shall: (a) request ENTSO for Electricity to draft a technical report on current bidding zone configuration; and (b) draft a market report evaluating the impact of current bidding zone configuration on market efficiency. 2.The technical report referred to in paragraph 1 second subparagraph point (a) shall include at least: (a) a list of structural congestion and other major physical congestion, including locations and frequency; (b) an analysis of the expected evolution or removal of physical congestion resulting from investment in networks or from significant changes in generation or in consumption patterns; (c) an analysis of the share of power flows that do not result from the capacity allocation mechanism, for each capacity calculation region, where appropriate; 3. Each TSO shall provide data and analysis to allow the technical report on current bidding zone configuration to be produced in a timely manner. 4.ENTSO for Electricity shall deliver to the Agency the technical report on current bidding zone configuration no later than nine months after the request by the Agency. 5. The technical report on current bidding zone configuration shall cover the last three full calendar years preceding the request by the Agency. 6. Without prejudice to the confidentiality obligations provided for in Article 13, ENTSO for Electricity shall make the technical report available to the public. 7. If the technical or market report reveals inefficiencies in the current bidding zone configuration, the Agency may request TSOs to launch a review of an existing bidding zone configuration in accordance with Article 32(1). |
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Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity, Article 7(2)(g), Article 14, Recitals 19, 30 - 31
Article 7(2)(g) Day-ahead and intraday markets shall [...] make no distinction between trades made within a bidding zone and across bidding zones.
Article 14 1. Member States shall take all appropriate measures to address congestions. Bidding zone borders shall be based on long-term, structural congestions in the transmission network. Bidding zones shall not contain such structural congestions unless they have no impact on neighbouring bidding zones, or, as a temporary exemption, their impact on neighbouring bidding zones is mitigated through the use of remedial actions and those structural congestions do not lead to reductions of cross-zonal trading capacity in accordance with the requirements of Article 16. The configuration of bidding zones in the Union shall be designed in such a way as to maximise economic efficiency and to maximise cross-zonal trading opportunities in accordance with Article 16, while maintaining security of supply. 2. Every three years, the ENTSO for Electricity shall report on structural congestions and other major physical congestions between and within bidding zones, including the location and frequency of such congestions, in accordance with the capacity allocation and congestion management guideline adopted on the basis of Article 18(5) of Regulation (EC) No 714/2009. That report shall contain an assessment of whether the cross-zonal trade capacity reached the linear trajectory pursuant to Article 15 or the minimum capacity pursuant to Article 16 of this Regulation. 8. For those Member States that have opted to amend the bidding zone configuration pursuant to paragraph 7, the relevant Member States shall reach a unanimous decision within six months of the notification referred to in paragraph 7. Other Member States may submit comments to the relevant Member States, who should take account of those comments when reaching their decision. The decision shall be reasoned and shall be notified to the Commission and ACER. In the event that the relevant Member States fail to reach a unanimous decision within those six months, they shall immediately notify the Commission thereof. As a measure of last resort, the Commission after consulting ACER shall adopt a decision whether to amend or maintain the bidding zone configuration in and between those Member States by six months after receipt of such a notification.
Recital 19 Bidding zones reflecting supply and demand distribution are a cornerstone of market-based electricity trading and are a prerequisite for reaching the full potential of capacity allocation methods including the flow-based approach. Bidding zones therefore should be defined in a manner to ensure market liquidity, efficient congestion management and overall market efficiency. When a review of an existing bidding zone configuration is launched by a single regulatory authority or transmission system operator with the approval of its competent regulatory authority, for the bidding zones inside the transmission system operator's control area, if the bidding zone configuration has negligible impact on neighbouring transmission system operators' control areas, including interconnectors, and the review of bidding zone configuration is necessary to improve efficiency, to maximise cross-border trading opportunities or to maintain operational security, the transmission system operator in the relevant control area and the competent regulatory authority should be, respectively, the only transmission system operator and the only regulatory authority participating in the review. The relevant transmission system operator and the competent regulatory authority should give the neighbouring transmission system operators prior notice of the review and the results of the review should be published. It should be possible to launch a regional bidding zone review following the technical report on congestion in line with Article 14 of this Regulation or in accordance with existing procedures laid down in Regulation (EU) 2015/1222.
Recital 30 To efficiently steer necessary investments, prices also need to provide signals where electricity is most needed. In a zonal electricity system, correct locational signals require a coherent, objective and reliable determination of bidding zones via a transparent process. In order to ensure efficient operation and planning of the Union electricity network and to provide effective price signals for new generation capacity, demand response and transmission infrastructure, bidding zones should reflect structural congestion. In particular, cross-zonal capacity should not be reduced in order to resolve internal congestion.
Recital 31 To reflect the divergent principles of optimising bidding zones without jeopardising liquid markets and grid investments two options should be provided for in order to address congestion. Member States should be able to choose between a reconfiguration of their bidding zone or measures such as grid reinforcement and grid optimisation. The starting point for such a decision should be the identification of long-term structural congestions by the transmission system operator or operators of a Member State, by a report by the European Network of Transmission System Operators for Electricity (the ‘ENTSO for Electricity’) on congestion or by a bidding zone review. Member States should first try to find a common solution on how to best address congestion. In the course of doing so Member States might adopt multinational or national action plans to address congestion. For Member States which adopt an action plan to address congestion, a phase-in period in the form of a linear trajectory for the opening of interconnectors should apply. At the end of the implementation of such an action plan, Member States should have a possibility to choose whether to opt for a reconfiguration of the bidding zone(s) or whether to opt for addressing remaining congestion through remedial actions for which they bear the costs. In the latter case their bidding zone should not be reconfigured against the will of that Member State, provided that the minimum capacity is reached. The minimum level of capacity that should be used in coordinated capacity calculation should be a percentage of the capacity of a critical network element, as defined following the selection process under Regulation (EU) 2015/1222, after, or, in the case of a flow-based approach, while, respecting the operational security limits in contingency situations. A Commission decision on the configuration of a bidding zone should be possible as a measure of last resort and should only amend the configuration of a bidding zone in those Member States which have opted to split the bidding zone or which have not reached the minimum level of the capacity. |
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EFET commentary on the Clean Energy Package for All Europeans, 20 April 2017, p. 6,7
We acknowledge that the current delineation of bidding zones is rather a heritage from the past, with bidding zone borders often following Member States borders, and that a regular review of bidding zones is a relevant exercise. However, we have also repeatedly insisted that changes to bidding zones should only be carried out following careful consideration of not only of network congestion, but also of long- term economic efficiency. Any proposal to re-delineate bidding zones following a review should be carefully handled, take into account the likely evolution of market fundamentals (changing fuel mix, prices etc.), and allow for planned future generation, demand response and storage investments and future grid reinforcement. Also, the stability of bidding zones over time is of particular importance to ensure the relevance of price signals and the existence of true hedging opportunities on the forward market. We are therefore concerned about the new Article 13 of the draft recast Regulation that seeks to simplify and bring about a quicker implementation of bidding zone reviews. Article 13.6 of the draft recast Regulation takes the final decision on the delineation of bidding zones away from Member States and makes it a decision of the European Commission. It is not clear why it is deemed necessary to reform this process already as even the first bidding zone review initiated according to the CACM GL has not yet been finalised. The risk of repeated bidding zone changes in the short or medium term (even without these changes actually taking place) undermines the functioning of the forward power market and impairs the scope for that market to give locational generation investment signals. Ultimately the frustration, due to the unforeseen imposition of basis changes, of forward hedges entered into on a cross-border basis will be to the detriment of consumers of electricity. Furthermore, decisions about investment in, refurbishment of and divestment of generation, demand response and storage assets, become more difficult in an environment where bidding zone boundaries might change at short notice. We believe that the existing process in Article 32.4(c) of the CACM GL is an adequate instrument to ensure that Member States effectively performs their duties as guarantors of security of supply according to Article 194 of the Treaty on the Functioning of the EU. It also ensures that Member States play a role in balancing the interests of system security, market efficiency and consumer protection when changes to bidding zones delineation are being discussed. Therefore, we suggest the removal of Articles 13.6 to 13.8 of the draft recast Regulation. |