Executive Summary
Introduction
This is the third annual Market Monitoring Report (MMR) by the Agency for the Cooperation of Energy Regulators (‘the Agency’) and the Council of European Energy Regulators (CEER), covering the developments in EU electricity and gas markets in 2013. Expanding on the analysis performed last year, this report again focuses on retail markets and consumer issues, on the main developments in gas and electricity wholesale market integration and on network access issues. It also provides an analysis of the remaining barriers to further market integration.
The report is divided into four chapters: (i) the electricity and gas retail market; (ii) the electricity wholesale market; (iii) the gas wholesale market; and (iv) consumer protection and empowerment. Both wholesale chapters report on network access issues.
Retail electricity and gas markets
In order to assess the state of play in retail markets in 2013, the Agency and CEER expanded the analysis and the breadth and depth of the data collected for this purpose, compared to 2011 and 2012. The report focuses on the evolution of retail prices by component and on other relevant factors, including market concentration, wholesale retail mark-ups, entry and exit activity, and consumer switching behaviour.
Despite continued low economic growth in 2013, energy retail prices rose for both households and industrial consumers in the majority of EU Member States (MSs), although the increase was lower compared to 2012, in particular for gas. From 2012 to 2013, European post-tax electricity prices increased on average by 4.4% (+4.6% in 2012) for households and by 2.0% (+5.2% in 2012) for industrial consumers. Post-tax gas prices for household consumers rose by 2.7% (+10% in 2012) and decreased for industrial consumers by 1.2% (+11% in 2012).
In most countries, household energy prices are greatly influenced by non-contestable charges (i.e. taxation and network charges), which usually make up more than half of the total energy bill. Large disparities in pre-tax electricity and gas prices for both households and industrial consumers persist across Europe, reflecting the heterogeneity of national energy policies. For example, Danish and Swedish household consumers pay on average more than three times the price of Romanian and Bulgarian households for their electricity and gas.
Since 2008, and particularly over the last few years, these non-contestable charges have significantly increased in many countries, especially as a result of costs related to support schemes for renewable energy sources (RES). At the same time, electricity wholesale prices have decreased, mainly under the pressure of subsidised RES. For some countries, such as Austria, Germany, Ireland and Slovenia, the 2013 increase in RES charges was almost completely offset by a decrease in the energy component due to falling electricity wholesale prices. As a consequence of this mechanism, retail price competition is weakened by the decreasing contestability of end-user prices.
The energy component of the post-tax price, i.e. the contestable part, depends to a great extent on the level of competition in the market. The monitoring results show that the moderately concentrated electricity retail markets of Denmark, Finland, Germany, Great Britain, Italy, Norway, the Netherlands and Norway perform relatively well, judged on the basis of key competition performance indicators (e.g. choice of suppliers and offers; switching rates; entry-exit activity; consumers’ experiences; mark-up etc.). The same is true for the British, Czech, Dutch, German, Slovenian and Spanish gas retail markets, although in gas retail markets are often more concentrated than in electricity. Retail competition performance indicators show no or weak signs of competition in MSs with highly concentrated markets at the national level: in electricity in Bulgaria, Cyprus, Hungary, Latvia, Lithuania, Malta and Romania; in gas in Bulgaria, Croatia, Hungary, Latvia, Luxembourg and Poland.
The majority of electricity and gas household consumers do not participate actively in the market by exercising choice among available suppliers, as well as among different price and product offerings. As a result of this non-participation, the proportion of electricity and gas household consumers supplied by another supplier than the incumbent is still very low in the majority but a few countries: Great Britain, Belgium and Portugal (both markets), Norway and the Czech Republic in electricity and Germany, Spain and Ireland in gas markets.
The monitoring results for 2013 confirm the 2012 findings regarding the positive correlation in gas between saving potentials from switching and switching rates across Europe. In electricity, no clear pattern has been detected. Non-quantifiable aspects of consumer behaviour might act as a barrier to retail entry in some MSs, such as consumer loyalty, inertia and risk aversion.
Electricity and gas consumers in liberalised (i.e. non-price regulated) countries can choose from among several offers provided by different suppliers on the market. According to a data sample based on offers in the capital cities, the electricity and gas markets of Germany, Great Britain, Denmark and the Netherlands are the relative best performers in relation to the number of offers and suppliers providing diversified products for electricity and gas consumers, such as the type of energy pricing, green offers, additional free services and/or dual fuel offers.
Consumers in countries with more choice and higher switching rates also tend to be more satisfied, which is shown in the results of a consumer survey undertaken in 2013 for DG SANCO Scoreboard. For instance, consumers in Belgium, Germany, Finland, Luxembourg, Slovenia and Slovakia have the most positive experience of the electricity and gas markets in their respective countries (i.e. they are the best scoring countries in the following four elements: ‘expectations’, ‘choice’, ‘comparability’ and ‘ease of switching’). Bulgaria, Croatia, Hungary, and Romania are at the bottom of the ranking. The high difference between the scores on different elements is a clear indication that the performance in these markets is highly country-dependent and thus open to improvement at a national level.
Despite the general proliferation of different products (e.g. many suppliers are offering green, fixed, dual-fuel etc.), which appeal to consumers, it is also evident that suppliers in some countries are innovating very little, if at all (e.g. electricity and gas suppliers in Bulgaria, Greece, Latvia and Romania; electricity suppliers in Cyprus and Malta; and gas suppliers in Croatia, Finland and Poland). This is arguably linked to the dominance of the incumbent electricity or gas suppliers who, in the absence of competitive pressure, do not have strong incentives to differentiate their products.
To improve consumer switching behaviour and awareness, national regulatory authorities (NRAs) should be actively involved in ensuring the prerequisites for switching, such as transparent and reliable online price comparison tools and transparent energy invoices. Furthermore, NRAs should proactively advocate the establishment of switching procedures and make consumers aware of switching options.
Consumer choice and consumer engagement in general can be facilitated by having reliable web comparison tools in place (allowing comprehensive and easy ways to compare suppliers), adopting standardised fact sheets for each retail offer, publishing easily comparable unit prices in terms of standing charges and variable rates for standard consumption profiles, and promoting systems/platforms fostering collective switching. These measures do not interfere with the ability of suppliers to set prices.
In a dedicated study commissioned by the Agency, retail suppliers were interviewed about the barriers to entry into retail energy markets at the EU level. The key perceived barriers are the lack of harmonisation of MSs regulatory frameworks, the persistence of retail price regulation, high uncertainty concerning future regulatory developments and low liquidity of wholesale markets, particularly in less developed markets. The interviewees also identified low margins and tough competition as an issue in specific, more developed markets.
Although regulated end-user prices for households still exist in 12 out of 29 countries in electricity and in 15 out of 26 countries in gas, the trend towards their removal continued during 2013. Two (Estonia and Greece) MSs removed price regulation for electricity in 2013. In Italy, electricity and gas standard offer prices for households are set based on wholesale prices and standard margins. The Agency notes that plans are in place for the further removal of price regulation in a number of other MSs during 2014.
In a number of MSs, public authorities set energy retail prices with greater attention to political considerations than to underlying supply costs. In some MSs, regulated prices are set below cost levels, which hampers the development of a competitive retail market. In other MSs, the public authority (usually the NRA) sets end-user prices with reference to wholesale prices (for instance, Italy and Portugal).
Regulated prices should be set at levels which avoid stifling the development of a competitive retail market. They must be consistent with the provisions of the 3rd Package, and should be removed where a sufficient level of retail competition is achieved.
As indicated in last year’s MMR, in order to promote market entry further, MSs should follow best practice by: (i) allowing free opting in and out of regulated prices; (ii) setting the regulated price at least equal to or above cost; and by (iii) updating the regulated price to reflect the sourcing cost as much and as frequently as possible. In this way, they could facilitate the development of retail competition.
Consumer protection and empowerment
While the MMR 2012 assessed the level of compliance with provisions for consumer rights in the 3rd Package, the MMR 2013 closely explores the underlying mechanisms of how EU law has been transposed into national legislation and how final household consumers are protected in practice. A series of indicators measure how consumers currently benefit from protection under the respective provisions from the 3rd Package in each country. In several cases, they indicate examples of best practice, where MSs have gone beyond the legal requirements.
EU provisions concerning supplier of last resort (SoLR) and restrictions to disconnections from the grid have been widely implemented in national legislation. While SoLR mechanisms have been established in almost all countries, there are considerable differences in their functions across MSs. The most prevalent application of SoLR is for the provision of supply in cases where a customer’s original supplier fails (e.g. bankruptcy or license revocation). However, roughly half of countries also foresee a SoLR to support economically weaker consumers (e.g. those that no energy supplier is willing to contract with), as well as inactive consumers, although this is labelled as default supply in some countries.
As for disconnections resulting from non-payment, the percentage of customers disconnected in 2013 was generally low (ranging from estimates of less than 1%, with one notable exception at 6.7%, Portugal). For the MSs examined, no systematic difference was detected between electricity and gas disconnection rates. However, despite a monitoring duty in the 3rd Package for disconnection rates, roughly half of NRAs (14 MSs) were able to provide information on 2013 disconnection rates.
Prior to effecting the disconnection, in most MSs a legal minimum period applies to the disconnection process. This period varies considerably across MSs, ranging from ten to 200 days. However, considerably less information is available on the actual duration of the disconnection processes, as energy service providers exercise some liberty in deciding whether or not to disconnect their customers in the first place. Here, NRAs have less information about the practicalities of disconnections, which may also vary within countries because of different company policies. Nevertheless, the available figures indicate that the actual duration of a typical disconnection process due to non-payment may be considerably longer than legally required (e.g. in Great Britain, the legislation specifies 28 days for the disconnection process; however, in practice it takes 80 days).
Regarding the protection of vulnerable consumers and the application of adequate safeguards, the majority of MSs have defined the concept of vulnerable customers. However, MSs take different approaches to protecting these groups of consumers, in some cases through social or other protection mechanisms rather than an explicit concept of vulnerable energy customers. Therefore, the report takes a closer look at specific protection mechanisms in order to grasp the kind of support available to these consumers. The most frequent measures taken to protect vulnerable consumers are restrictions on disconnection due to non-payment. This mechanism is in place in 16 out of 23 MSs (electricity) and 11 out of 21 MSs (gas).
Other common means to support vulnerable consumers are special energy prices (also known as social tariffs) and earmarked social benefits to cover energy costs. Support mechanisms such as a certain amount of free energy or exemptions from specific cost components of energy are rare. While national suppliers may offer some types of repayment plan (i.e. deferred payment), a consumer’s right to deferred payment is not widespread across MSs. It is important to note that the definition of vulnerability can differ between MSs, resulting in different percentages of vulnerable customers across Europe. While some MSs (Ireland, Lithuania, Portugal and Slovenia) report shares below 2%, others (Greece, Malta and Romania) indicate over 10% of household consumers as vulnerable. However, comparisons between countries are limited due to the vast differences in the definition of the concept of vulnerable customers, national differences in the social security system, varying benefits in the energy sector and/or state of national economies at the time.
Consumer protection also extends to the availability of adequate and accurate information regarding prices. In 17 MSs, there are legal requirements regarding advance notification of price changes. Meanwhile, in almost all countries, there are legal requirements to provide consumers with information about changes to other components of the energy costs (e.g. network tariffs, taxes, etc.). The specific advance notice period required varies between 15 and 90 days for different MSs. In 13 out of 17 MSs with the legal requirement, one month is required.
Regarding non-price related information, consumers’ bills contain supplier details, payment modalities and consumption data in almost all countries. In most countries, information on the right to dispute settlement and contact details for the Distribution System Operator (DSO) are available on the bill. It is less common to find the best practice, which is information on how to switch suppliers and the duration of the contract. Consumers also have a right to independent information via a single point of contact, which MSs are required to establish. Almost all of the respondent countries indicate that they have such a service in place; this may be shared by several authorities (e.g. NRA, ombudsman and government).
The possibility for consumers to exercise their right to switch supplier can place competitive pressure on suppliers to deliver the best services at the best prices. In most MSs, supplier switching is performed, as required by law, within three weeks. While some MSs have yet to implement this provision in law and/or practice, four are working towards a faster process: electricity supplier switching should be performed in one working day in France, five in Ireland and Portugal, and ten in Denmark. EU legislation also requires the settlement (final) bill following a switch to be provided within six weeks. In most countries, this provision has been implemented and is applied in practice, although six MSs (Bulgaria, the Czech Republic, France, Hungary, Lithuania and Slovakia) have a shorter period.
Smart meters can facilitate supplier switching and enable more frequent information on consumption and billing; their roll-out is being undertaken progressively in many MSs. In Finland, Italy and Sweden, the roll-out for electricity smart meters has been completed, while Denmark, Slovenia and Spain have a significant share of smart meters already installed. For the moment, in the gas sector, Denmark, Great Britain, Italy and the Netherlands have begun a roll-out for a small share of consumers. In MSs where smart meters are not in place, most consumers receive information on their actual consumption on an annual basis.
All regulators collect data on complaints, as the number and reasons for reported complaints can help detect market dysfunctions and assess the degree of consumer satisfaction. A minority of NRAs provided data on the number of household consumer complaints received by suppliers and/or the DSOs. This suggests that the requirement of the 3rd Package regarding the monitoring of complaints by NRAs are implemented differently across MSs. Reported figures fall in a range between one and six per 1,000 inhabitants in countries where data is available. However, exceptions raise some questions regarding the comprehensiveness and/or the robustness of this reporting, as well as the definitions and methodology applied in collecting the data. All NRAs reported that there is an alternative dispute resolution (ADR) scheme in their country. However, only a few were able to report figures for the number of ADR cases, which shows that there is scope to improve systematic reporting on this issue.
Some countries still have no statutory complaint handling standards, while the legally allowed processing time for suppliers/DSOs to deal with complaints is between one and two months for both electricity and gas. However, in some countries the processing time is shorter, such as nine to 15 days, or longer, such as up to four months. The time required for the ADR body to settle a dispute varies from country to country between one and six months.
Overall, the monitoring results presented in the consumer protection and empowerment chapter show that many of the national legal provisions (de jure) are applied in practice (de facto) on a similar basis (with a practical approach outperforming the legal requirement in some cases).
Some MSs perform better than the requirements of some provisions for consumer rights in the 3rd Package. For instance, four MSs perform better as regards the maximum duration of a supplier switch.
However, there remains significant room for improvement in: i) the monitoring of the number and the practicalities of disconnection due to non-payment; ii) the systematic collecting of data on consumer complaints (e.g. ADR); iii) the implementation of statutory standards for handling complaints (such as a shorter response time); iv) the information provided in bills about supplier switching options; and v) the frequency of informing consumers on their actual consumption.
Wholesale electricity market integration and network access
In 2013, market coupling continued to be an important driver of wholesale electricity price convergence. For instance, the Czech, Slovakian and Hungarian prices significantly converged following the extension of market coupling from the Czech Republic and Slovakia to Hungary in September 2012.
There remains significant scope for further wholesale electricity price convergence across the EU. In 2013, the Central-West Europe (CWE) region recorded the most significant decrease in price convergence (down by 32% compared with 2012). For example, RES penetration and cheap coal in the international markets drove German prices down more than elsewhere in the region, due to the relatively high proportion of RES and coal-fired generation in Germany. This is explained by other important factors i.e. market fundamentals (e.g. increasing penetration of RES in Germany and cheap coal on international markets) driving German prices down more than elsewhere in the region.
The market coupling of Great Britain with the CWE, Nordic and the Baltic regions through the North-West European (NWE) Price Coupling initiative, launched on 4 February 2014, is expected to improve price convergence across all these regions in the coming years.
In 2013, the efficient use of interconnectors continued to increase, due to market coupling, reaching a level of efficiency of 77% in the day-ahead timeframe. The areas for greatest further potential improvement in efficiency are on the Swiss borders, on the border between Great Britain and Ireland, and within the Central-East Europe (CEE) region, due to the lack of market coupling, among other factors.
The combined analysis of available intraday cross-border capacity and intraday price differentials shows that the available capacity in the intraday timeframe was frequently underutilised in 2013 (more than 40% of the times, the capacity remained unused in the economic direction). The analysis of existing intraday congestion management methods in Europe shows that the implementation of the intraday Target Model will contribute to both improving efficiency in the use of intraday cross-border capacity and to accommodating the increasing amount of RES. Moreover, in 2013, the exchange of balancing services across EU borders was still incipient. The analysis shows that substantial benefits (in the order of several hundred million euros per year) could be achieved from the exchange of balancing services, which confirms the idea that Europe should urgently pursue the further harmonisation and integration of balancing markets.
In Europe, two forward market designs have emerged in order to provide market participants with hedging opportunities against short-term (e.g. day-ahead) price uncertainties. The first design, which was implemented in the Nordic and Baltic countries and on the internal borders of Italy, relies mainly on the market and on a variety of contracts linked to a hub price, which represents some sort of average day-ahead price within this group of zones (multi-zone hub). The second design, which is implemented in nearly all MSs in continental Europe, gives an additional and specific role to TSOs which are responsible for calculating long-term capacities and auctioning Transmission Rights (TRs). This design includes a set of hedging contracts for each bidding zone which are linked to the day-ahead clearing price of this bidding zone (single-zone hub). Systematic differences have been observed between the marginal price of Physical TRs (PTRs) and day-ahead price spreads. For instance, between 2011 and 2013, negative risk premiums (i.e. the differential between the price of transmission rights and realised delivery date spot prices) exceeded one euro per MWh on two-thirds of the assessed borders. These differences may be due to several reasons (including the level of competition in the different auctions, the likelihood of periods of curtailments and firmness regimes, the amount of capacity offered by TSOs and the design of secondary capacity markets).
Unscheduled flows (UFs), which consist of loop flows (LFs) and unscheduled transit flows (UTFs), remain a challenge for the further integration of the internal energy market (IEM). Such flows are particularly pronounced in the CEE, CWE and Central-South (CSE) regions. Their persistence reduces tradable cross-border capacity and the associated social welfare. Welfare losses due to unscheduled flows show an increasing trend since 2011 and reached nearly half a billion euros in 2013. Moreover, the high volatility and limited predictability of LFs and UTFs are a challenge for the operation of the network.
The impact of UTFs can be mitigated with further coordination between Transmission System Operators (TSOs) in capacity calculation and allocation (implementation of flow-based methods), while the impact of LFs can be mitigated by improving the bidding-zone configuration and also investments in transmission infrastructure in the mid- and long-term, respectively.
Therefore, appropriate monitoring of LFs and associated externalities, along with the implementation of adequate remedial actions, is urgently needed. There is insufficient transparency with regard to the level of LFs and UTFs and with regard to the number and costs of remedial actions applied by TSOs to remedy the negative effects of these flows.
The recently adopted ‘Transparency Regulation’ should help improve the situation, especially with respect to the costs incurred and the actions undertaken by TSOs. It is important that the relevant parties make available all the information listed in the above-mentioned Regulation through the Transparency Platform of the European Network of Transmission System Operators for Electricity (ENTSO-E), which will become operational by February 2015.
The increasing penetration of intermittent RES poses a challenge to TSOs in terms of balancing supply and demand. This is because the output generated by such energy sources is difficult to predict and is unrelated to conventional electricity demand patterns.
In view of the increasing share of RES-based generation, TSOs will have to draw on additional (flexible) resources to be able to balance systems instantly in an efficient way. The most economically efficient way to pursue the deployment of sufficiently flexible resources in the system is to create a well-functioning energy market that attracts existing resources through efficient pricing. If the value of flexibility is adequately reflected in market prices, it will send appropriate market signals to stimulate the right power stations to remain active in the market, and to stimulate the right amount of investment in both new generation (if needed) and networks.
Therefore, the full implementation of the ETM for cross-border trade, in particular in the intraday and balancing timeframes, remains a priority in order to ensure that prices reflect the costs of flexibility. Moreover, flexibility in wholesale electricity markets (including RES balancing) requires efficient and well-integrated gas markets, which depends on, inter alia, balancing regimes, flexibility tools (such as storage and line-pack), nomination and re-nomination lead times, the bundling of capacity products at border points, transparent and consistent cross-border transportation tariffs and well-functioning secondary capacity markets and platforms.
Demand-side participation in energy markets can also contribute to more flexibility in the system. A study commissioned by the Agency assessed the state of play and the potential benefits of demand-side flexibility (DSF). It distinguishes between implicit DSF, i.e. flexibility that is implicitly valued, e.g. when consumers choose to change their consumption in response to time-based price signals, and explicit DSF, i.e. flexibility that is explicitly rewarded in the market, e.g. when customers are requested to change their demand in response to a system operator signal. In electricity, the study estimates the potential benefits of implicit DSF to be 0.4 billion euros per year for the EU. The financial benefits of explicit DSF are more uncertain and are expected to range from euro 3 billion per year to 5 billion euros per year for the EU in 2030. In gas, the potential for implicit DSF is more limited than in electricity, while explicit DSF may be useful for increasing system reliability in demand or supply emergencies and reducing the cost of managing network congestion.
Currently, implicit DSF (in the form of time-based retail prices) is available to 92% of electricity consumers. Implicit DSF is less common for gas (only available to residential consumers in 10% of MSs). The availability of explicit DSF is lower than in the case of implicit DSF. In electricity, a significant number of MSs stated that they are currently developing plans for demand-side participation in the wholesale or balancing markets (e.g. participation in the balancing markets is possible or planned to be introduced in 55%, respectively 40%, of MSs), although not always on an equal basis with generation. In gas, the most common forms of explicit DSF are reductions and interruptions called directly by the DSO or TSO, which are available in 50% of the MSs.
Overall, the presented inefficiencies illustrate the urgent need to finalise the implementation of the Electricity Target Model (ETM). In particular, there remains significant scope for improvement in: i) the use of existing cross-border capacity in the different timeframes (i.e. long-term (LT), day-ahead (DA), intraday (ID) and balancing market (BM)); ii) Transmission System Operators (TSOs) coordination on capacity calculations and allocation; iii) configuration of bidding zones; and iv) facilitating demand-side participation.
Gas market integration and network access
EU-26 natural gas consumption totalled roughly 5,000 TWh in 2013, a decrease of 1.2% compared to 2012. A significant proportion of this reduction was observed in gas demand from electricity producers, mainly as a consequence of the rise of coal as the fuel of choice and the increasing penetration of RES for electricity production.
During 2013, the supply of Russian gas to the EU increased significantly. The main driver of this development was the increased willingness of Gazprom to renegotiate the pricing of its supplies, which is arguably due to excess production capacity and increased competition, such as the development of organised EU markets, the expansion of interconnection infrastructure and the potential threat from LNG and unconventional gas production. Other drivers, although less important, include the need to replenish EU gas storage stocks after the low stock levels reached at the end of the 2012/2013 winter and the significant rise in German gas demand, as Germany is the MS with highest gas consumption in the EU, with Russian gas being the key source. Russian exports were also supported by a disruption of Norwegian flows during the summer and by a decline in LNG imports.
Several Central and Eastern European countries are striving to diversify their gas sources in order to reduce their dependence on Russian gas, and have been looking to Western Europe’s spot markets as alternative sources. Larger counter-flows from Germany and Austria to the Czech Republic, Poland and Slovakia were observed. These commercial counter-flows are expected to increase in the future, given the profitable price spreads and the on-going procedures, driven concerns over security of supply, to enable or enlarge bi-directional capacity. Flows from Poland and Hungary to the Ukraine were also registered, as in 2013 the Ukraine was faced with high-priced Russian gas and was seeking alternative supplies from Central European hubs.
Cross-border capacity contracting is becoming more short-term oriented due to developments in the commodity market enabled by new rules on capacity allocation and congestion management, where these are implemented, especially in those MSs featuring more liquid hubs. However, substantial differences still exist between contractual and actual utilisation values in a significant number of European IPs. Although peak capacity utilisation values more closely follow contractual ones, the challenge is to ensure that all unused capacities, whether or not strategically acquired, can be easily returned to the market so that other shippers can use them if short-term trading opportunities arise.
Several hubs are developing robust price references against which supply contracts can be indexed or on which hedging strategies can be based. Hub supply sourcing is also increasing in several Central European countries. Shippers in these MSs are increasingly relying on recently established hubs, as well as on the more liquid adjacent ones, for supply and arbitrage activities. This is having a positive effect on competition in the region, despite overall price responsiveness being subdued by the persistence of long-term contracts. In order to further increase arbitrage possibilities, as well as from a security of supply perspective, there is a need to focus on more reverse-flow capacity possibilities.
The monitoring results show that progress continues to be made towards wholesale gas market integration. Price convergence between MSs – an important measure of the extent of market integration - has increased, principally as a result of increased price competition, leading to more long-term contract renegotiations. Although prices at the main NWE hubs remained relatively stable compared to 2012 following the development of new trading hubs and the delivery of new interconnection capacity, downward pressure on import gas prices was partially exerted in some markets as a result of increased competition.
Higher price convergence has reduced the overall EU-26 gross welfare losses - measured as the price deviation of each EU MS versus the baseline reference price of the Title Transfer Facility (TTF) in the Netherlands – in comparison to 2012. Nevertheless, significant theoretical welfare gains could still be achieved through the optimisation of physically unused cross-border capacities. The analysis indicates that potential gains between 0.5 and 2 billion euros could be obtained by optimising the use of physical capacity in those cross-border IPs connecting price zones with significant wholesale price differences.
The winter-summer gas price spread, a major driver of gas storage utilisation, shows, with the exception of the 2012/13 winter, a decreasing trend over recent years. If the general trend in favour of lower winter-summer spreads continues, it is likely that gas storage utilisation rates will remain relatively low. However, if higher winter-summer spreads develop, as in the winter of 2012/13, it is likely that storage utilisation will respond, as happened in that period. The uncertainty around long-term winter-summer spreads could reduce the incentive to invest in new or existing gas storage facilities. Given the long investment lead times for delivering new gas storage capacity, investors may not be able to anticipate an unexpected increase in gas storage demand. Therefore, the monitoring of aggregate EU gas storage capacity trends for security of supply reasons is appropriate.
Despite significant advances, barriers to full market integration remain, including: lack of liquidity in many wholesale markets (ten MSs rely on a single country of origin for more than 75% of their supply); lack of transparency in wholesale price formation; the lack of adequate gas transportation infrastructure and the presence of long-term commitments for gas supply. These barriers and their implications were identified in the 2012 MMR, and they remained in 2013, albeit more or less pronounced in different regions.
The Gas Target Model(s) and the proposed provisions in the various FGs/NCs focus on improving internal market integration and functionality. Some of the measures recommended, and in some cases already implemented, include the definition of appropriate market features; the offering of cross-border bundled capacity from/to virtual trading points supported by trading platforms; the setting of harmonised entry-exit tariff structures; the establishment of coordinated capacity allocation and congestion management mechanisms; the introduction of market-based balancing instruments and the potential merging of market zones to enlarge liquidity.
The bundled allocation of IPs capacity, the synchronised implementation of CMP mechanisms, the implementation of balancing provisions and the implementation of interoperability arrangements are advancing in the majority of MSs.
Consistent with its mandate to promote cross-border trade and EU market integration, the Agency is working on implementing the key principles of the Gas Target Model (GTM) through its Framework Guidelines and the resulting binding Network Codes on Capacity Allocation Mechanisms, Balancing, Harmonised Gas Transmission Tariff Structures, and Interoperability. The Comitology Guidelines on Congestion Management Procedures (CMP) are now in force. These provisions, along with the full transposition of the 3rd Package, must ensure that European consumers benefit from an integrated internal gas market.
Conclusions
This report presents the main developments in the EU energy sector in 2013. It identifies those areas where additional measures (and monitoring) are needed in order to ensure that EU electricity and gas consumers benefit from fully integrated markets. The report demonstrates the welfare losses from imperfectly integrated and fragmented energy markets – in the order of several billion euros per annum – in both the electricity and gas sectors. The report also shows the large disparities in MSs’ national energy policies. This may reduce the contribution of the Network Codes to the market integration and harmonisation process and the trust of stakeholders in EU energy markets.
Particular areas for further action remain:
1. Transposition
Full transposition and implementation by all MSs of the 3rd Package is essential. The European Commission should continue to monitor this closely.
2. Consumer rights
Regulators must continue to promote the implementation of consumer provisions in the 3rdPackage, benefiting from CEER’s recommendations and advice, along with the Agency’s continuous monitoring activities.
3. Market rules and practical implementation
The EU-wide network codes and Commission guidelines envisaged in the 3rd Package and their rapid and preferably early implementation are imperative for fostering the market integration process. The Agency will continue to work with the ENTSOs, the European Commission, NRAs and market players to deliver a full set of binding market and network rules applicable across the EU, and to accelerate their implementation. Wholesale energy markets will be monitored to detect manipulation and abusive practices, which should be sanctioned.
At the same time the EU Infrastructure Package is encouraging the development of adequate cross-border transmission infrastructure to facilitate wider market integration, and REMIT provisions are intended to promote transparency in wholesale markets price formation and to detect and deter abusive behaviour.
Some measures require concerted action by several actors for the benefit of European consumers. The Agency and CEER will continue to support and promote the development of competitive, sustainable and secure electricity and gas markets in the public interest. Both the Agency and CEER remain committed to continuing an open dialogue with all parties and to working with European institutions and MSs in order to deliver and apply the rules necessary to achieve Europe’s energy goals in an efficient way.
