The weekend read: Probes confront EU renewable energy market barriers

The European Commission (EC) announced in late March that it had opened a formal investigation into EPEX Spot to assess whether the Paris-registered power exchange had been taking advantage of its dominant position on intraday markets in at least six EU member states: Germany, France, the Netherlands, Austria, Belgium, and Luxembourg.

On intraday markets, sellers and buyers of electricity can trade power up to five minutes or even seconds before the electricity is injected into the grid. Hourly, half-hourly, and quarter-hourly contracts are also available. The intraday markets play an essential role in balancing the network and for using renewable technologies such as solar and wind efficiently. This is because output from solar PV and wind can be forecast most accurately just prior to production.

Competition concerns

Market observers told pv magazine that the “competitor” that may have been “hindered,” as referred to in the commission’s press release, is Nord Pool Spot. The Oslo-registered power exchange offers intraday services in many of the same markets as EPEX Spot. EPEX Spot has allegedly been restricting access to its order book for Nord Pool Spot customers, hence making it difficult to match bids and offers across markets. A shared order book between the two exchanges could have resolved this issue, market observers say.

“A shared orderbook means all traders have the same opportunities to trade as they can see all the bids and offers. Let’s hope the antitrust investigation will improve the current situation,” said Axel Baudson, an independent energy consultant and Member of the Board at European Commodities.

“The alternative would be for the European Commission to update the CACM [Capacity Allocation and Congestion Management] network code, but this would take a long time to implement.”

Antitrust outcomes

If the commission’s investigation finds proof of alleged abuse of dominant market position by EPEX Spot, the company could be in breach of EU antitrust rules under Article 102 of the Treaty of the Functioning of the EU. It said barriers on intraday markets could slow down the energy transition by preventing cost-effective integration of renewable technologies into the electricity mix.

“Without properly functioning intraday markets, you cannot integrate solar and wind. It increases balancing costs and makes it more expensive for new renewables which compete without subsidies. Proper market design is key for traders, key for TSOs,” said Baudson.

EPEX Spot is the largest power exchange in several countries on the European continent, while Nord Pool Spot is the dominant exchange in the Nordic Countries. In April alone, around 10.6 TWh of electricity was traded on EPEX Spot’s intraday markets, a new monthly record. By comparison, the day-ahead market saw around 40.3 TWh traded the same month.

The intraday market on Nord Pool Spot is much smaller; around 2.7 TWh of intraday electricity was traded in April compared with 74.1 TWh on the day-ahead market. Nevertheless, EPEX Spot said in a statement it is “fully committed to cooperate in good faith with the authorities” and to continue a “constructive dialogue” with the commission. “As long as the investigation is ongoing, EPEX SPOT is not in a position to comment beyond the information published by the European Commission,” the statement added.

Spotlight on EPEX

It is not the first time regulators have challenged EPEX over its practices on intraday markets. In December 2018, UK energy regulator Ofgem opened an investigation to examine whether EPEX Spot SE, its subsidiary in Great Britain, was abusing a dominant position by restricting access for Nord Pool to certain cross-border intraday auctions between GB and Ireland. The investigation was closed in June 2019 after Ofgem accepted the commitments offered by EPEX.

There are other examples of investigations that have been settled quickly. In March 2018, the commission opened a formal investigation to assess whether TenneT infringed EU antitrust rules by limiting southward capacity on the electricity interconnector between Western Denmark and Germany.

The commission had concerns that TenneT discriminated against non-German electricity producers by limiting the export of relatively cheap electricity from the Nordic countries, mostly produced by wind and hydro. However, the investigation was settled just a few months later, after TenneT put forward commitments to increase available capacity on the interconnector.

Market participants will hope the EPEX Spot investigation will be settled swiftly, but this is not a given. If EPEX Spot contests the arguments put forward by the commission, the case could drag on for several years, according to legal experts.

Market barriers

Nevertheless, there are other ongoing EU antitrust cases which also illustrate that barriers persist in Europe’s power markets. In March, the EC launched an antitrust probe into suspected anticompetitive behavior by Greek state-owned power producer Public Power Corp. (PPC). Brussels suspects “abusive behavior” by PPC in wholesale and retail markets, which may have slowed down investment in solar and wind power in Greece.

The commission said it had concerns PPC may have adopted “predatory bidding strategies” in wholesale markets hindering the ability of its rivals to compete. pv magazine understands that PPC is being investigated for allegedly placing bids below generation costs in a move to force competitors out of the market. In a statement, PPC said the investigation related to “past activities” on the power market and that it was “fully committed” to cooperate closely with the commission to “clarify all open issues.”

Greek reforms

Greece is phasing out all existing coal plants by 2023 – around 4 GW in total – and has grand plans for wind and solar. Its goal is to increase solar PV capacity to 7.7 GW by 2030, up from 3 GW now. But PPC’s dominant position may be a concern for new entrants. PPC owns 11.4 GW or 55% of the installed power generation capacity in Greece, including coal, hydro, gas, oil and some renewables. The company supplied around 41% of Greek power consumption in 2020.

PPC’s market share in retail, though, dropped from around 76% in 2019 to 69% in 2020, according to the company’s annual report. PPC is betting on more renewables and energy storage as it closes lignite plants. It has secured 2 GW of solar PV licenses and has filed applications for an additional 600 MW of capacity, including floating PV. Nevertheless, recent market reforms in Greece should support investor confidence.

Greece began real-time trading on the day-ahead, intraday, and balancing markets on Nov. 1 – the last EU member state to do so. It also introduced market coupling with Italy in December last year and with Bulgaria in May 2021. Market coupling should make it more difficult for incumbents to hoard capacity on interconnectors, the commission noted in a recent market report. Market reforms coupled with more generation from renewables also contributed to a 29% drop in wholesale electricity prices year on year in 2020, according to the same report.

Belgian market

The EU Commission also has concerns that Belgium’s planned capacity market may discriminate against solar and wind. Brussels opened an in-depth investigation in September last year which is still pending. Capacity markets – or Capacity Remuneration Mechanisms (CRMs) – are support schemes whereby power generators can bid for capacity contracts in auctions which will provide them with a fixed revenue stream in return for making future supply commitments. This is to avoid plants being mothballed and incentivize investment in new generation assets. Belgium plans to phase out its nuclear power plants by 2025, which amount to 6 GW or almost half of the country’s power capacity.

Wind and solar can participate in the Belgian capacity auctions. However, there appear to be limits on the duration of their contracts. For example, gas-fired plants can bid for subsidy contracts with a duration of up to 15 years whereas renewable generators can ostensibly only bid for 1-year contracts, according to draft rules.

Brussels might approve the scheme with modifications, but the first T-4 auction – for electricity delivery in 2025 – could go ahead in October of this year without solar and wind participating. The next auction is the T-1 auction in 2024, also for 2025 delivery.

“Although the CRM is seemingly technology-neutral, renewables are not expected to participate in the T-4 auction this autumn, but they might do so at the T-1 auction in 2024,” David Haverbeke, a Brussels-based Partner at Fieldfisher law firm, told pv magazine.