1. Regions – the future for the European Internal Electricity Market?
CERRE Executive Seminar, Brussels, 23 February 2017
Professor Nils-Henrik von der Fehr
Joint Academic Director, CERRE
University of Oslo

2. The European Electricity Network

3. Paradoxes and Dilemmas
National models – but electricity does not respect borders
Limited interconnection – but gains from trade are considerable
National responsibility for security of supply – but incidents affect all
Voluntary process – but costs and benefits are not equally shared
Push for regionalisation – but members may differ considerably
Self-sufficiency in capacity – but energy cannot be contained

4. Content of the Report Introduction
The Current Internal Energy Market Paradigm
What Has Happened ‘Regionally’?
Gains from Cooperation and Integration
Criteria for Defining Regions
Responsibilities, Functions and Instruments
A More Mandatory Regional Future?
Governance
Conclusion

5. Status: A Series of National Models, but...
Gradual integration of (wholesale spot) markets
Multi Regional Coupling of day-ahead markets covering 85 per cent of Europe
on-going process on intraday markets
Regional coordination of infrastructure or system development
Ten Year Network Development Plan (TYNDP)
Projects of Common Interest (PCI)
Regional cooperation on system operation
operational/security coordination centres/service providers,
Network Codes: Capacity Calculation Regions
European governance institutions
ACER, CEER, ENTSOE

6. Gains from Cooperation and Integration
Generation efficiency
technologies with complementary characteristics
location of generation capacity
Security of supply
pooling resources with idiosyncratic variations in input/output
access to balancing resources and reserves
Competitive pressure and liquidity
market expansion
Few studies that attempt to quantify (overall) gains
Newbery, Strbac and Viehoff (2016): EUR 2.4 billion per year from market coupling

7. Criteria for Defining Regions
Technical
synchronisation: but market integration and coordination across non-sync. areas
interconnection: will undermine the rational for integration
Economic
economies of scale and scope: may be exhausted before complete integration
externalities: arguments both for centralised and local control
Governance
responsibilities and liabilities: political sovereignty
regulation: requires comparable regions
institutions: ‘similarities’

8. Responsibilities, Functions and Instruments
‘Deepness’ of regionalisation
integration of responsibilities, functions and instruments: merger of TSOs
coordination of functions and instruments: regional coordination bodies
cooperation on instruments: voluntary agreements between TSOs
Regional structure(s)
single: ‘clean’, but not well tailored to responsibilities, functions and instruments
multiple: tailored, but difficult to oversee and govern
Process of regionalisation
‘big bang’, directly to final design, one-time realisation of transaction costs
gradual, towards final design, continual realisation of transaction costs
‘organic’, voluntary, without defined pace or final design, small transaction costs
Measurement of performance: how to asses if a region performs well?

9. A More Mandatory Regional Future?
Markets
day ahead: almost done, through (slow) voluntary process
intraday: exposes voluntary nature of development
Capacity Allocation and Congestion Management (CACM) Code
Infrastructure planning and investment
TYNDP and PCIs
not lack of cooperation or coordination, but regulatory obstacles
System operation
less cooperation than in markets and infrastructure
national competence, TSOs responsible for incidents, liable for compensation
no strong track record for the ISO model
more indirect approach may deliver more results

10. A Regional Structure Emerging?
Capacity Calculation Regions
ENTSOE proposed 11
ACER settled on 10
Could develop into six with new interconnections
North West, South West, Baltic, South East, Italy N, Italy-Greece
Multi-Regional Coupling covers three first of these
a driver for further integration?
Instability of regional groupings may be concern for market players

11. Governance Regulatory governance structure Regional regulators
cooperation between NRAs: more regulators than regions (cf. Nordic & Irish exp.)
regional regulators: requires correspondence with industry regional structure
single, European-level regulator: compatible with any regional structure
Regional regulators
requires transfer of power from Member States
not compatible with multi-layered regional industry structure
The Winter Package
Regional Operation Centres (ROCs), taking over responsibilities from TSOs
overseen by regional groupings of NRAs under ACER umbrella

12. Conclusion No ‘one size fits all’ solution to the regions issue
Solutions may differ between infrastructure, market and system operation
Regional structure should not threaten Market Coupling of Regions
Market integration may be a driver for integration in other areas
Regional security coordination service providers may define the future
Fate of Winter Package governance proposal critically dependent upon willingness of Member States to give up competence