Power for all, and all for one single European market
The energy transition towards a low-carbon economy implies some necessary adjustments for the European power system. Fundamentally, electricity must always be available to meet the demand at any given point in time, otherwise the system could break down. The increase in use of intermittent renewable energies for power generation thus brings some concerns. Therefore, to ensure the ability to match the growing power demand while encouraging low-carbon technologies, liquid[1] short-term power markets are needed.
On June 12-13 the European intraday power market celebrated its 1-year go-live anniversary. The European Cross-Border Intraday market also called Single Intraday Coupling (respectively shortened to XBID and SIDC) brings together 14 European countries in one single continuous power trading platform. Since the launching on June 12, 2018, after years of development and testing, and the first delivery on the 13th, over 16 million trades have taken place between Austria, Belgium, Denmark, Estonia, Finland, France, Germany, Latvia, Lithuania, Norway, the Netherlands, Portugal, Spain and Sweden.
A power market offers a platform for participants to buy and sell power in determined areas through bids. Traditionally, most trades are performed on day-ahead markets: bids are placed in the morning for the next day, which means that participants must estimate the power generation 12 to 36 hours prior to effective delivery. However, even though energy forecasts are growing in accuracy, unforeseen events and unexpected changes in consumption may still jostle the predictions. Certainly, thermal, nuclear or hydraulic plants usually offer great reliability in power production, yet they are also exposed to undue breakdowns or might be temporarily unavailable. Renewable energies, for their part, depend on intermittent resources such as sunlight and wind that bring more uncertainty to forecasts. Power being difficult to store, such imbalances must be efficiently adjusted through real-time intraday markets.
However, national or regional intraday markets often lack liquidity, which creates additional financial risks. Whether producers feel like they have too few choices or are reluctant to face high transaction costs, common intraday markets are little participated in. Hence, the main idea behind the creation of the XBID is to increase the liquidity of the power market – the larger the market, the bigger the possibility to match demand with enough injections or take-offs. It significantly improves exchanges, as participants now have access not only to their national liquidities but also to that of other participating countries. Having larger possibilities to be balanced before the hour of delivery contributes to reduce the costs of reserves. Ultimately, this should lead to a more efficient utilization of the generation resources across Europe. With more choices available, prices become more competitive as well, with direct benefit for the end consumer.
XBID adherents include transmission system operators (TSOs) from the member countries and Nominated Electricity Market Operators (NEMOs) – the initial partners being EPEX, GME, Nord Pool and OMIE. The exchange platform relies on a common IT system, a shared order book, a capacity management module and a shipping module. A participant can exchange energy with any member country within the IT system’s reach, provided there is available cross-border transmission capacity. On a side note, this could bring difficulties to some countries which need others’ interconnections to access the rest of the market. For example, the price of electricity being cheaper in France, Spanish experts voiced concerns that interconnection lines could be too saturated for Spain capacities to come through to the broader market, or that Spanish participants would not be able to see operations beyond French borders. To the extreme, this could result in Spain being isolated from the rest of the European single intraday coupling.
The core point remains that the XBID project helps ensuring balance and greater efficiency of power systems, therefore reducing the need for capacity and associated costs. As such, it eases the integration of renewables into the energy production and is an active tool for the transition towards a low-carbon economy. Moreover, last year’s steady growth in intraday trading trough the SIDC points to a willingness of participants to contribute further. To this aim, the XBID project intends to reach a totally integrated power market on one single international platform across Europe. Thus, a second wave of entries will take place by Q4 2019, with seven new joiners from central and eastern European countries: Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania and Slovenia. Stakeholders are already discussing the modalities for a third wave of expansion.
Claire Hugo, Energy-Climate Analyst
Sources: Beyond Ratings, International Association for Energy Economics, Epexspot, Nord Pool, Magnus Commodities
[1] Liquidity is here the measure of the ability to buy or sell electricity without causing a major change in its price and without incurring significant transaction costs. An important feature of a liquid market is the presence at all times of many buyers and sellers willing to transact.