SecurityofEUelectricitysupplyOctober2023ACERSECURITYOFEUELECTRICITYSUPPLYLegalnoticeThispublicationoftheEuropeanUnionAgencyfortheCooperationofEnergyRegulatorsisprotectedbycopyright.TheEuropeanUnionAgencyfortheCooperationofEnergyRegulatorsacceptsnoresponsibilityorliabilityforanyconsequencesarisingfromtheuseofthedatacontainedinthisdocument.©EuropeanUnionAgencyfortheCooperationofEnergyRegulators,2023Reproductionisauthorisedprovidedthesourceisacknowledged.2ACERSECURITYOFEUELECTRICITYSUPPLYSecurityofEUelectricitysupplyOctober2023Findusat:ACEREpress@acer.europa.euTrgrepublike31000LjubljanaSloveniawww.acer.europa.eu3ACERSECURITYOFEUELECTRICITYSUPPLYContents1.Introduction............................................................................................................................................182.Lessonslearnedduringtheenergycrisis...............................................................................................202.1.Overviewofsecurityofsupplyrelatedemergencymeasures...............................................................202.2.LessonsLearntfromwinter2022/2023...................................................................................................212.2.1.Expectedandrealisedrisks...........................................................................................................222.2.2.Mainpreventivemeasures..............................................................................................................232.2.3.Conclusions......................................................................................................................................242.3.Casestudies:Theroleofdemandresponseduringthewinter.............................................................262.3.1.TheFrenchcasestudy...................................................................................................................262.3.1.1.Implicitdemandresponse................................................................................................262.3.1.2.Explicitdemandresponse................................................................................................262.3.2.TheFinnishcasestudy...................................................................................................................263.Implementationoftheadequacyframework.........................................................................................283.1.Adequacymetrics.......................................................................................................................................283.2.Resourceadequacyassessments.............................................................................................................293.2.1.Europeanresourceadequacyassessment...................................................................................293.2.2.Nationalresourceadequacyassessments...................................................................................293.3.Seasonalandshort-termadequacyassessments..................................................................................313.3.1.Europeanseasonaladequacyassessments.................................................................................313.3.2.Shorttermadequacyassessments...............................................................................................324.Securityofsupplymeasures..................................................................................................................334.1.Capacitymechanisms................................................................................................................................334.1.1.Statusofcapacitymechanisms.....................................................................................................334.1.2.Costsofcapacitymechanisms......................................................................................................364.1.3.Technologiesremuneratedbycapacitymechanisms..................................................................384.2.Othermeasures..........................................................................................................................................414.2.1.Interruptibilityschemes..................................................................................................................414.2.2.Networkcongestionmeasures........................................................................................................425.Focaltopic:Designfeaturesofcapacitymechanisms...........................................................................455.1.Introduction.................................................................................................................................................455.2.Cross-borderparticipation........................................................................................................................455.2.1.Directforeignparticipationincapacitymechanisms...................................................................455.2.2.Maximumentrycapacity................................................................................................................475.2.3.Obligationsandremunerationofforeignresources....................................................................515.2.4.CaseStudy:AuctionconstructandforeigncapacityremunerationinthePolishcapacitymechanism...................................................................................................................................................535.2.5.Futuredevelopments......................................................................................................................555.3.Penaltiesincapacitymechanisms............................................................................................................555.3.1.Introduction......................................................................................................................................555.3.2.Non-deliverypenalties....................................................................................................................565.3.2.1.Casestudy:Non-deliverypenaltiesintheIrishcapacitymechanism........................595.3.3.Non-performancepenalties...........................................................................................................615.3.3.1.Deliveryperiodandsystemstress..................................................................................615.3.3.2.Penaltiesforunavailabilityduringsystemstress...........................................................625.3.3.3.Othersafeguardstoensureperformance......................................................................654ACERSECURITYOFEUELECTRICITYSUPPLYAnnexI:Additionalfiguresandtables............................................................................................................66AnnexII:InputfromNRAsonlessonslearntfrom2022/2023winter...........................................................79A-II.1.xAustria...................................................................................................................................................79A-II.2.xBelgium.................................................................................................................................................79A-II.3.xCzechRepublic.....................................................................................................................................81A-II.4.xDenmark...............................................................................................................................................82A-II.5.xFinland..................................................................................................................................................83A-II.6.xFrance...................................................................................................................................................85A-II.7.xGermany...............................................................................................................................................88A-II.8.xGreece..................................................................................................................................................88A-II.9.xHungary................................................................................................................................................89A-II.10.xIreland...................................................................................................................................................90A-II.11.xItaly.........................................................................................................................................................91A-II.12.xLatvia....................................................................................................................................................94A-II.13.xPoland...................................................................................................................................................96A-II.14.xPortugal................................................................................................................................................97A-II.15.xSpain.....................................................................................................................................................99A-II.16.xSweden................................................................................................................................................101A-II.17.xTheNetherlands.................................................................................................................................101AnnexIII:Casestudies:Theroleofdemandresponseinwinter2022/2023inFinlandandFrance.........108A-III.1.xFinnishcasestudy..............................................................................................................................108A-III.2.xFrenchcasestudy.............................................................................................................................1105ACERSECURITYOFEUELECTRICITYSUPPLYListofFiguresFigure1:Countriesthatimplementedmeasurestargetingsecurityofsupply(left,percategoryofmeasures)andbreakdownoftheentiresetofmeasures(right)........................................................21Figure2:AdequacyconcerninMemberStatesinanyofthenexttenyearsindicatedbythenationalresourceadequacyassessmentperformedin2021or2022..............................................................30Figure3:StatusofcapacitymechanismsintheEU—2022...............................................................................34Figure4:IncurredandprojectedcoststofinancecapacitymechanismsintheEU-27(left)andperMemberState(centreandright)—2020–2024(millioneuros).........................................................36Figure5:Costsofcapacitymechanismsovertotalcapacityprocured—2020–2024(thousandeuros/MW)................................................................................................................................................37Figure6:Costsincurredorprojectedtofinancecapacitymechanismsperunitdemand(2020–2024),andexpressedasapercentageoftheannualaverageday-aheadpriceintherespectiveMemberStates—2022(eurosperMWhofdemandand%,respectively).......................................38Figure7:TotalcapacityremuneratedinEUcapacitymechanisms,pertypeoftechnology—2019–2023(GW)................................................................................................................................................39Figure8:Long-termcontractedcapacityandrelevantcostsbytypeoftechnologyintheEU-27—2027–2035(GWandmillioneuros,respectively).................................................................................40Figure9:ContractedcapacityofdemandresponseandstorageintheFrench,Italian,Irish,andPolishmarket-widecapacitymechanisms(GW)..................................................................................41Figure10:TotalcostofnetworkreservesinAustriaandGermany–2018-2022(millioneuros)......................43Figure11:Contractedcapacityandannualcostsofout-of-marketmeasuresinGermany—2022(MWandmillioneuros).....................................................................................................................................44Figure12:MaximumentrycapacityandcapacityactuallycontractedabroadinthemostrecentauctionofthecapacitymechanismsofBelgium,France,Italy,andPoland......................................50Figure13:DeliveryperiodsacrosscapacitymechanismsintheEU-2022........................................................61Figure14:TotalcapacitycontractedasnetworkreservesinAustria(from2021onward)andGermany—2018–2022(MW).................................................................................................................................70Figure15:Realisedandforecastcostsofinterruptibilityschemes—2019–2023(millioneuros).....................70Figure16:DetailedbreakdownofthecapacityremuneratedinEUcapacitymechanisms,pertypeoftechnology—2019–2023(GW).............................................................................................................71Figure17:WeeklyaggregationofelectricitygenerationinAustria-2020-2023...............................................79Figure18:YearlytotalconsumptionandgridloadonthetransmissionnetworkinBelgium–2015–2022(TWh)...............................................................................................................................................80Figure19:EvolutionofelectricityloadinBelgiumandneighbouringcountries–2015–2022(%,loadin2015takenasthereference)..................................................................................................................80Figure20:ExpectedandactualelectricityconsumptioninDenmark-September2022-March2023(GWh)........................................................................................................................................................82Figure21:ExpectedandactualgasconsumptioninDenmark-September2022-March2023(GWh)........................................................................................................................................................83Figure22:DistributionofelectricityconsumptionoverweekdaysinDenmark-September2022..........................................................................................................................................................83Figure23:HourlyelectricityloadinFinland-2019-2023(MW)...........................................................................84Figure24:Evolutionofday-aheadandbaseloadforwardpricesinFrance-2021-2023(euros/MWh).........................................................................................................................................................86Figure25:EvolutionofcapacitypricesintheFrenchcapacitymechanismauctions-2020-2022(euros/MW)...............................................................................................................................................86Figure26:Comparisonofweather-correctedpowerconsumptioninFranceinwinter2022/2023overhistoricalaverage.....................................................................................................................................87Figure27:AvailabilityofFrenchnucleargenerationinwinter2022/2023(GW).................................................88Figure28:MonthlyandaveragetemperaturesfortheperiodNovember2022toMarch2023comparedwithfiveyearaverageinHungary(°C)...............................................................................89Figure29:ElectricityconsumptionreductioninHungaryfortheperiodNovember2022toMarch2023(GWh)........................................................................................................................................................90Figure30:RecordpeakdemandinIrelandduringacoldsnapinDecember2022.............................................91Figure31:MonthlyvolumesofgasdemandreductioninItaly-August2022-March2023(mcm)........................................................................................................................................................936ACERSECURITYOFEUELECTRICITYSUPPLYFigure32:GasstorageleveldevelopmentinItaly—April2022–March2023(bcm).........................................93Figure33:Figure34:ElectricityconsumptionbyhouseholdsinLatvia-2021-2022(MWh)s.............................................95Figure35:NaturalgasconsumptionandaverageairtemperatureinLatvia-January2021-March2023(GWhand°C).................................................................................................................................96Figure36:Figure37:GasstoredintheInčukalnsundergroundstoragefacilityinLatvia-January2020-MarchFigure38:2023(GWh)..............................................................................................................................................96Figure39:Figure40:PowerdemandandavailablepowerinPoland-November2022-March2023(MW)....................97Figure41:Securityofsupplyforecastforwinter2022/2023inPortugal............................................................98Figure42:FillinglevelofwaterdamsinPortugal-2022-2023(%).....................................................................98Figure43:Figure44:HydroproductibilityindexinPortugal-2022-2023............................................................................99Figure45:PredictedunavailabilityofpowergenerationinSpain-September2022-August2023(MW)..........................................................................................................................................................99Figure46:ProbabilisticcalculationofsupplymargininSpain-September2022-February2023Figure47:(MW)........................................................................................................................................................100Figure48:ElectricitydemandinSpain—2019–2023(GWh)..............................................................................100Figure49:Day-aheadcurvesofasinglehourinFinlandinwinter2022/2023(euros/MWh).........................108Meteredelectricityconsumption(blue),),expectedconsumptiongiventheexperiencedtemperature-basedonpreviousyears’consumptiondata(red)andtemperature(black,inversescale)(MWand°C)..................................................................................................................109Meteredelectricityconsumption(blue),expectedconsumptiongiventherealisedtemperature-basedonpreviousyears’consumptiondata(red)andelectricityprice(black)(MWandeuros/MWh)............................................................................................................................109ImplicitdemandresponsedeclaredfortheFrenchcapacitymechanism-2017-2023(MW).........................................................................................................................................................110ExplicitdemandresponsecertifiedfortheFrenchcapacitymechanism-2017-2023(MW).........................................................................................................................................................111MonthlyvolumesofdemandresponserealisedonNEBEF,between2018andFebruary2023(MWh).............................................................................................................................................112MonthlymaximumcapacityactivatedonNEBEF,between2018andFebruary2023(MW).........................................................................................................................................................1127ACERSECURITYOFEUELECTRICITYSUPPLYListofTablesTable1:ImplementationstatusindicationofACER`sadequacyrelatedmethodologies...............................15Table2:Currentstatusofdirectforeignparticipation,eligibilityofforeignbiddingzones,andTSO-TSOagreementsinthecapacitymechanismsofBelgium,France,Italy,andPoland......................47Table3:ApproachesfortheestimationofmaximumentrycapacityinBelgium,France,Italy,andPoland-2022.........................................................................................................................................49Table4:ObligationsandremunerationofforeignresourcesinBelgium,France,ItalyandPoland-2022...53Table5:Keycharacteristicsofnon-deliverypenaltiesacrossmarket-widecapacitymarketsinBelgium,France,Italy,IrelandandPoland–2022................................................................................58Table6:Non-deliverypenaltiesintheIrishcapacitymechanismfortwodeliveryyears...............................60Table7:Keycharacteristicsofnon-performancepenaltiesacrossstrategicreservesinFinland,GermanyandSweden-2022.................................................................................................................63Table8:Keycharacteristicsofnon-performancepenaltiesacrossmarket-widecapacitymechanismsinBelgium,France,Ireland,ItalyandPoland-2022.....................................................64Table9:OthermeasuresensuringperformanceacrosscapacityintheEU.....................................................65Table10:AdequacymetricsperMemberState‒statusasofJune2023.......................................................66Table11:Competencesforandstatusofthenationalresourceadequacyassessments-2022...................67Table12:Highlevelmethodologicalcharacteristicsofthenationalresourceadequacyassessments-2022........................................................................................................................................................69Table13:CharacteristicsofexistingcapacitymechanismsintheEU–2022...................................................72Table14:SummarytableofinterruptibilityschemesintheEU-2022..............................................................74Table15:CharacteristicsofthenetworkreserveschemesinAustriaandGermany–2022..............................75Table16:StatusofTSO-TSOagreementsfordirectforeignparticipationincapacitymechanisms...............75Table17:CalculatedMECs(oranalogues)andforeignorcross-bordercapacityprocuredinthecapacitymechanismsofBelgium,France,ItalyandPoland(delivery2019–2027)(MW)................76Table18:Remunerationofforeignandcross-bordercapacityinthecapacitymechanismsofFrance,ItalyandPoland(2019–2027)(euros/MW)............................................................................................78Table19:SummaryofthelessonslearntbyMemberStates..........................................................................1028ACERSECURITYOFEUELECTRICITYSUPPLYExecutiveSummary1Intheaftermathoflastyear’senergycrisis,andinviewofanotherchallengingwinter,ACERpublishesitsseconddedicatedannualreportinthefieldofsecurityofelectricitysupplyinEurope,focusingprimarilyondevelopmentsduring2022.Theaimofthereportisthreefold.Firstly,itseekstodrawlessonsfromMemberStates’measurestotackletheenergycrisisduringthewinter2022/2023.Itdoesso,focusingonsecurityofsupply,whileacknowledgingthatthesemeasuresalsoaimedatpreservingotherkeyobjectivessuchaffordability1.Secondly,itmonitorstheprogressoftheimplementationoftheEuropeanregulatoryframeworkonadequacyatnationallevel.Thirdly,thereportlooksintocurrentlyimplementedmeasurestoenhancesecurityofsupply,suchascapacitymechanisms,interruptibilityschemesandothermechanisms.Itzoomsontwoimportantelementsforthedesignofcapacitymechanisms:cross-borderparticipationandthepenaltyregimes.ThecommonEuropeanframeworkandtheintegratedenergymarketshelteredMemberStatesfromtherisksoftheenergycrisis2In2022,theEuropeanUnionfacedanunprecedentedenergycrisiscausedprimarilybythesteepreductionofRussiangassupplies.Simultaneously,theavailabilityofnuclearpower,particularlyinFrance,andhydroresourceswerewellbelowhistoricallevelsputtingfurtherpressureontheEuropeanpowersystem.Inthefaceofthisexceptional,doublesupplyshock,EuropeanMemberStatesresortedtoemergencymeasurestomitigatetheconsequencesofhighenergypricesforEuropeancitizensandbusinessesandreducetherisksofsupplydisruptions.Withrespecttothelatter,theresponseincludedvariousmeasuresonboththedemandandsupplyside,fromenergysavingscampaignstowardscitizenstobringingretiredcapacitiesbacktothemarket,whilealsorunningveryexpensivegasgeneration.Ultimately,Europeancitizensdidnotfaceanysupplyinterruptionsforavarietyofreasons.3Lookingbackonhowtheenergycrisisevolved,akeyconclusionisthattheintegratedandhighlyinterconnectedEuropeanenergymarketwasparamounttoensuresecurityofenergysupply.Russiangassupplieswerequicklyreplacedthankstotheincreasedutilisation,adaptationandsharingofgasinfrastructureacrosstheUnion.Similarly,intheelectricitysectorinterconnectivitywaskeyinovercomingthechallengesstemmingfromuncertaingassuppliesandtheincreasedunavailabilityofnuclearandhydropowerelectricitygenerationinseveralMemberStates.4Inaddition,thecommonEuropeanframeworkthatsetsupthecooperationamonginstitutionsandstakeholderstoensuresecurityofsupplyacrosstheEU,wasacrucialenablingfactorfordealingwiththecrisisinaneffectivemanner.Overall,thecrisisconfirmedthatmulti-levelcoordinationandsolidEUenergymarketsintegrationareessentialforasecureelectricitysupply.5Toincreasethesecurityofsupplylevel,ACERencouragesMemberStatestoaccelerateandstrengthentheintegrationoftheEuropeanelectricitymarket.ACERalsohighlightstheneedtofurtherreinforcetheinter-institutionalandcross-bordercooperationintheareaofsecurityofsupply,e.g.,byenhancingpreparednessatregionallevelandbydesigningandactivatingemergencymeasuresinacoordinatedmanner,wherepossible.Learningfromtherecentenergycrisis:targeted,morebalancedandcoordinatedmeasuresshouldalreadybethoughtofforfuturesimilarsituations.6TheintroductionofemergencymeasuresbyMemberStatestocushiontheimpactofhighenergypricesonconsumersandtoensuresecurityofsupplywasessential.7Anyemergencynecessarilycallsfortrade-offsandcompromises.Nevertheless,someapproachesoutperformothers.Forexample,measuresintendedtoensureaffordabilitycandistortmarketsignals,andhindertheincentiveofconsumerstoreduceorshifttheirconsumption.Targetingsuchmeasurestothemostvulnerableconsumercategoriesmightreducethisadverseeffect.1Broaderaspectsoftheenergycrisissuchasthoserelatedtoretailmarketsandconsumerprotection,efficiencyanddemandresponse,energytransitionandinvestmentsignalsareanalysedinACER’sassessmentofemergencymeasuresinelectricitymarkets.9ACERSECURITYOFEUELECTRICITYSUPPLYBycontrast,someno-regretmeasures,suchasincentivisingenergyefficiencymeasuresandconservation,riskpreparednessandtheuptakeofrenewableenergysources,aremoreconsistentwithlong-termpolicytargetsandshouldbeprioritised2.8Basedontheexperiencefromthecrisis,awell-balancedandcoordinatedsetofemergencymeasuresshouldbeformulatedsufficientlyinadvancetobebetterpreparedforfuturerisks.Nationalauthoritiesshouldprioritisepoliciesandmeasuresthatsimultaneouslycontributetothevariouspolicyobjectives.ThelevelofimplementationoftheadequacyframeworkvariesacrosstheEUandsomeMemberStatesarelaggingbehind.9Settingareliabilitystandardisanecessarystepforanyrobustdecision-makingregardingadequacy.ItenablesaMemberStatetodecidewhethermeasuresareneededtoensurethatresourceadequacyrisksremainwithinacceptablelevels.Forthisreason,settingthereliabilitystandardismandatoryforMemberStatesimplementingorintendingtoimplementacapacitymechanism.Sofar,onlyeightMemberStateshavereportedlycalculatedthereliabilitystandardaccordingtotheframework.TwoMemberStatesthatalreadyhavecapacitymechanismsinplace,i.e.,IrelandandPoland,havenotyetsetareliabilitystandardbasedonthepan-Europeanmethodology3.10Robustandconsistentadequacyassessments,performedbothatnationalandEuropeanlevel,arefundamentaltoevaluatesecurityofsupplyrisksandact,ifnecessary.YettheimplementationofthecommonEuropeanresourceadequacyassessment(ERAA)methodologyvariessignificantlyacrossMemberStates.SomeMemberStatesundergohigh-qualityandcomprehensiveadequacyassessments,whilesomeothersapplyoversimplifiedapproachesthatdivergesubstantiallyfromtheEU-wideERAAmethodology.Suchunevenimplementationatnationallevelriskstotriggerundesirablespillovereffects.Forexample,overestimationofthemissingcapacitycouldleadtounduesupportofdomesticresources,leavingresourcesinotherMemberstatesinanunfairdisadvantage.Ontheotherhand,underestimationcouldresultin“freeriding”onotherMemberStatesthatcorrectlycalibratedtheirownadequacyneeds.11MemberStatesshouldfullyimplementtheadequacyframeworkasprescribedintheElectricityRegulation.Inparticular,MemberStatesrelyingonnationalresourceadequacyassessments4asthebasistosetupacapacitymechanismshouldensurethatsuchassessmentsabidebytheElectricityRegulationandarebasedontheEU-widemethodology.Moreover,MemberStatesshouldfollowtheEU-widemethodologiestoestimatethereliabilitymetrics;inparticular,IrelandandPoland,currentlyapplyingcapacitymechanisms5,shouldappropriatelysetthereliabilitystandard,byfollowingtherelevantEU-widemethodology,assoonaspossible.European-wideadequacyassessmentsareakeytoolfordecision-makerstoassesssecurityofelectricitysupplyrisks.MoreeffortstobringtheERAAuptostandardareneeded.12ENTSO-Epreparesannuallytwotypesofassessments:theERAAcoveringthenexttenyears,andseparateEuropeanseasonaloutlooksdedicatedtotheupcomingwinterandsummerperiods.TheseassessmentsconsiderthewholeEuropeanmarketinanintegratedmanner.GiventhedepthofinterconnectivitywithintheEU,theseassessmentsareessentialtocapturetheinterdependenciesbetweenMemberStatesandthebenefitsofsharingresourcesbetweenthem.ACER’smonitoringofthecross-zonalcapacitiesmadeavailabletothemarketdemonstratesthereisstillsignificantscopetoincreasetheseacrosstheEU.Increasingcross-zonalcapacitieswouldhavematerialbenefitsforsecurityofsupplyacrosstheMemberStates.13Inparticular,theERAAaimsatprovidinganobjectivebasisforidentifyingelectricityadequacyconcernsinthemediumandlong-termandassesstheneedforanyadditionalnationalmeasurestosecuresupplies,suchastemporarycapacitymechanisms.Therefore,arobustERAAisparticularlyimportant.2FormoreonthistopicseealsoACER’sassessmentontheemergencymeasuresinelectricitymarkets.3I.e.theMethodologyforcalculatingthereliabilitystandard,asapprovedbyACER.Toassesstheprogresswiththeimplementationofthismethodology,ACERhasrecentlycommissionedastudy;thestudywillidentifygoodpracticesandproviderecommendationstosupportrobustandunbiasedsettingofreliabilitystandards.4Currently,intheabsenceofanapprovedERAA,thisistheonlyoptionavailableforMemberStates.5Atthetimeoffinalisingthisreport,bothcountrieswereintheprocessofsettingthereliabilitystandard.10ACERSECURITYOFEUELECTRICITYSUPPLYForthesecondyearinarow,ACERdecidednottoapprovetheERAA,i.e.,ERAA20226.WhileENTSO-EmadeseveralimprovementsfollowingACER’srecommendations7,ACERstillidentifiedconsiderablegapsregardingtheconsistencyandrobustnessoftheassessment.14Basedontheimplementationexperienceofthepasttwoyears,ACERandENTSO-EcontinuestoworkcloselytogethertoachievearobustEuropeanadequacyassessmentin2023.ThefocusthisyearistoensurethattheassessmentproperlyconsiderstheMemberStates’nationalenergyandclimateplans(NECP)andthatimplementationchoicesarefollowedthroughconsistentlyinthedifferentmodulesoftheERAAmodel.Theaimisthattheassessmentdeliversrobustresultswithoutfurtherincreasingitscomplexity.15Concerningtheseasonaloutlooks,ACERacknowledgestheimprovementsintroducedbyENTSO-Ebyexpandingthescopeoftheanalysisandtakingamoreagileapproachwhenconductingtheassessment,inresponsetotheuncertaintiesposedbyRussia’sinvasionofUkraine8.Tofurtherimprovetheassessment,ENTSO-Eshouldensurethatthecontributionofinterconnectioncapacitytosecurityofsupplyisproperlyassessed.16ACERfindsthattheenhancedcooperationamongEuropeanstakeholderscontributedtoincreasethequalityandrelevanceoflastyear’sseasonaloutlooks.Forexample,theregularexchangeofinformationamongMemberStatesattheElectricityCoordinationGrouphelpedtoshapemeaningfulscenariosfordecision-making.ACERfindsthatanincreasedlevelofengagementandexchangeofinformationamongMemberStatescouldfurtherimprovecoordinationwhendesigningsecurityofsupplymeasures.Similarly,giventheinteractionbetweenelectricityandgassecurityofsupply,theclosecoordinationbetweenENTSO-EandtheEuropeanNetworkofTransmissionSystemOperatorsforGas(ENTSOG)hasbecomeessentialtotheprocess.Thetwoorganisationsshouldseekwaystoenhancethesynergiesoftheirsecurityofsupplywork-streams.17ENTSO-EshouldimprovetheERAAbyaddressingtheimplementationgapsidentifiedbyACER.ENTSO-Eshouldalsoimprovetheseasonaloutlooksbyaccountingforcross-zonalcapacitiesinaconsistentmanneracrosstheEUandbyapplyingflow-basedmodelling,whererelevant.Thecostsofcapacitymechanismskeeprisingandmostoftheunderlyingcapacitycontractsarestillallocatedtofossil-fuelpowerplants.18Tocopewithadequacyconcerns,MemberStatesmayimplementcapacitymechanisms.Suchmechanisms,mainlymarket-widecapacitymechanismsandstrategicreserves,continuedtooperateineightMemberStates.ThecostofexistingcapacitymechanismsintheEUhasdoubledsince2020reaching5.2billioneurosin2022.Itisforecasttoincreasebyanother40%year-on-yearin2023to7.4billioneuros.In2022,thecostofstrategicreserveswasseveralordersofmagnitudelowerthanthatofmarket-widecapacitymechanisms,onaverage.19Thelargestshareofcapacityprovidersreceivingsupportfromcapacitymechanismscontinuedtobefossil-fuelpowerplants.Inparticular,long-termcapacitycontractssupportmainlycoal-andnaturalgas-fuelledgenerationcapacity,attimes,for15yearsormoreinthefuture.20ACERreiteratesthatMemberStatesshouldanalysetheimpactsoflong-termcapacitycontracts,includingwhethertheyrisklocking-independenceonhigh-carbontechnologies,potentiallyhinderingthetransitiontoalow-carboneconomy.21Moreover,astheenergytransitioncontinuestodrivethedeploymentofvariablerenewables,theneedforflexibleresourcesisexpectedtoheavilyincreasethisdecade9.Currently,climatefriendlyflexibilityresources-likestorageanddemandresponse-receivesignificantlylower,tomarginal,supportinexistingcapacitymechanismsthatrathertendtoremuneratelegacyfossilresources.However,thelatterarebecominglessandlesscompatiblewiththelong-termEU’sclimategoals.6SeeACERDecision04/2023onERAA2022.7SeeACERDecision02/2022onERAA2021.8SeeACEROpinion01/2023.9Seeforexample,theJointResearchCentre’sreportontheflexibilityrequirementsandtheroleofstorageinfutureEuropeanpowersystems.11ACERSECURITYOFEUELECTRICITYSUPPLY22Furthermore,interconnectorsarekeytoshareflexibleresourcesacrossbordersandthereforetocoverarelevantshareoftheneedsforflexibilityatnationallevel;itisthusappropriatetoassesstheneedsforflexibilityandexploresynergiesatEuropeanlevel.Non-domesticresourcesfromotherMemberStatesarestillunabletocompeteonequalfootingwithdomesticcapacityprovidersincapacitymechanisms.23Inthesamespirit,interconnectorsallowtoaddressresourceadequacyinamoreregionalasopposedtoastrictlynationalmanner.Theintegratedelectricitymarket,whereneedsandthemeanstoservethemareapproachedinabroadergeographicalcontext,canbringsubstantialbenefitstoEurope.Asdemonstratedduringlastyear’senergycrisis,theintegratedmarketwasessentialtostrengthensecurityofsupplyacrossMemberStatesandmitigaterisksinacost-efficientway.24ToensurealevelplayingfieldbetweenresourcesbasedindifferentMemberStates,theElectricityRegulationintroducedcommonrulestoenableandgovernthedirectparticipationofforeigncapacityproviderslocatedinotherEUMemberStatesinnationalcapacitymechanisms.MemberStateshaduntilDecember2022toimplementthisharmonisedframeworkwithintheircapacitymechanisms.25Upuntiltheendof2022,theimplementationoftheserulesvariedsubstantiallyacrossMemberStates’capacitymechanismsandisgenerallyfarfrombeingfinalised.ExceptforthePolishcapacitymechanism,implementationoftheframeworkfordirectcross-borderparticipationiseitherpending(Belgium,FranceandIreland)orsimplified(Italy)intherestofthemarket-widecapacitymechanisms.Furthermore,thereisscopetoimproveparticularaspectsoftheimplementationsofar.Forexample,inItaly,themethodtoestimatethecontributionofresourcesfromotherMemberStatestothenationalsecurityofsupply,divergesmateriallyfromtheprescribedEuropeanmethodology10.TheimplementationoftheframeworkinPolandraisessomeconcernsabouttheestablishmentofalevelplayingfieldbetweendomesticandnon-domesticresources.26Theresponsiblenationalauthoritiesshouldimplementdirectcross-borderparticipationinlinewiththeEU-widetechnicalspecificationsassoonaspossible.TheyshouldensurethatdomesticcapacityproviderscompeteonanequalfootingincapacitymechanismswithprovidersfromotherMemberStatesandthatthedetailedrules,forexampleonobligationsandremuneration,donotdisadvantageoneovertheother.ACERalsorecommendsthatrelevantnationalauthoritiesmonitorcloselycross-borderparticipationincapacitymechanisms,particularlyintheearlyyearsofimplementation,toidentifywhethertherulesworkasintendedoranyadjustmentsmightbenecessary.Existingpenaltyregimesincapacitymechanismsdonotalwaysprovideappropriateincentivestoguaranteedeliveryofthecontractedservice.27Thekeygoalofcapacitymechanismsistoensuresecurityofsupplybyrewardingresourcestobeavailablewhenthesystemisstressed.Toachievethis,beneficiariesofcapacitymechanismsfailingtoprovidetheservicetheyhavebeencontractedfor,incurfinancialpenalties.Thisincentivisesbeneficiariestobeavailablewhenneeded,andtofulfiltheirobligations.28CapacitymechanismsintheEUapplyheterogeneouspenaltiestoincentivisecapacityproviderstodeliverontheircommitments.Often,thepenaltiesappliedtocapacityprovidersdonotaccuratelyreflectthecostsincurredbythesystem,andbyextensionconsumers,whenabeneficiaryfailstocomplywithitsobligation.Thisinconsistencyappliesbothtotheobligationofbuildingnewcapacity(non-deliverypenalties)andtotherequirementforcapacityproviderstobeavailableduringsystemstress(non-performancepenalties).RecentdevelopmentsinIreland,wherenewcapacityfailedtobecommissionedontimeandwasultimatelycancelled,provideacaseinpoint.Thisledtothedeteriorationofthesecurityofsupplyoutlookintheshort-andmedium-term,andtheimplementationofemergencyactionsthatcamewithasignificantcosttagforconsumers.Thecostsareexpectedtobeamultipleoftheoriginalcapacitypayments,andofthepenaltiesfacedbythenon-commissionedassets.Notably,existingframeworksalsoincludegoodpractices,forexampleinrelationtomonitoringtheavailabilityofbeneficiariesandcommissioningofnewresources.Thisproactiveapproachbolstersaccountabilityofbeneficiariesandcanenableauthoritiestotaketimelymitigatingactions(e.g.,procurereplacementcapacity),ifneeded.10Asdescribedinthetechnicalspecificationsforcross-borderparticipationincapacitymechanisms.12ACERSECURITYOFEUELECTRICITYSUPPLY29Thenationalauthoritiesresponsibleforthedesignofcapacitymechanismsshouldensurethatthepenaltiesappliedincapacitymechanismsproperlyincentivisecapacityproviderstocommissionthecontractedcapacityinatimelymanner.Failuretodosocanhavesignificantnegativeimplicationsforsecurityofsupplyandthecoststoconsumers,extendingbeyondnationalborders.Nationalauthoritiesshouldalsoensurethatthepenaltiesproperlyincentivisecapacityproviderstobeavailableattimesofsystemstressandcloselyreflectthevalueplacedbyconsumersonanuninterruptedservice.Inotherwords,theyshouldcontributesignificantlytorecoveringthecostsincurredbythesystem.Asitstands,beneficiariesdonotalwaysreceiveadequatelystrongsignalstobeavailablewhenthesystemneedsthem.Tocopewithvarioussecurityofsupplyrisks,MemberStatesareincreasinglyimplementingavarietyofmeasuresthatlieoutsidetheadequacyframework.Suchuncoordinatedmeasuresriskfragmentingtheinternalelectricitymarket.30ACER’smonitoringshowsthatMemberStatesareincreasinglyintroducingdifferentmeasurestoaddresssecurityofsupplyrisks,fromoperationalsecuritytoadequacyandcongestionrelatedrisks.Thesemeasuresoftentargetmultiplepurposesandincludeinterruptibilityschemes,andvarioustypesofreservesandancillaryservices,amongothers.Unlikecapacitymechanisms,however,anddespitesometimesseekingtotargetresourceadequacy,suchmeasuresaccordingtoACER’sunderstandingarenotsubjecttoasimilarscrutinyprocess.ThisisparticularlytrueformeasuresdesignedinsuchawaythattheyarenotdeemedStateaid.Assuch,thismayhampertheidentificationofadverseeffectsonneighbouringMemberStatesandmayunderminetheinternalelectricitymarket.31Bywayofillustration,avarietyofcapacityreservesco-existinGermany.Thesereservesservedifferentpurposesbutcanalsoprovideadequacy-relatedsupport,ifnecessary.AnotherexampleisIrelandthathasrecentlyprocuredemergencygenerationcapacity,ontopofthecapacityprocuredthroughitscapacitymechanism,toaddressresourceadequacyconcerns,alongsideenhancingthesystem’sstabilityandresilience.Also,PortugalandSpainhaveintroducednewdemandresponsemeasuresfortheprovisionofsystemservices,includingforaddressingpotentialadequacyrisks.32Allinall,thereseemstobeagrowingpatchworkofcostlyinterventions,oftenoutsidetheadequacyframework,yetcontributing,orbeingsuitable,tosafeguardadequacy.InACER’sview,thistrendbringsaboutconsiderablerisks.Firstly,itmayintroducetheperceptionofanunevenplayingfield,sincesomemechanismsaresubjecttoclearobligationsandscrutiny,whileothersmaycomewithfewerrequirements.Secondly,itrisksfragmentingtheEuropeaninternalmarketforelectricity,e.g.,ifthesemechanismspreventthemarketfromaccessingcompetitiveresources.Finally,itmayleadtooverprocurement,duetothelackofacoordinatedandtransparentapproach,tothedetrimentofend-consumers’billsandthefunctioningoftheelectricitymarket.33ACERthereforeseestheneedtotakeactiontoaddresstheaforementionedrisks.InACER’sunderstanding,oneofthereasonsthattheseheterogeneousmeasuresproliferateisbecauseMemberStatesperceivetheStateAidprocess(andunderlyingrequirementsfromEuropeanlegislation)forcapacitymechanismsaslengthyandcumbersome.Toaddressthisconcern,afirst,straightforwardmeasurewouldbestreamliningtheprocessfortheapprovalofcapacitymechanismsundertheadequacyframeworkandstateaidrules.Thisactiondoesnotrequirelegislativechanges,andonlycallsforfurtherguidancebytherelevantinstitutions.Forexample,theEuropeanCommissionhasconsultedMemberStatesonthepossibilityofanacceleratedapprovalprocedureforcapacitymechanismsprovidedthatcertainconditionsaremet11.Similarly,ACERhasconsultedMemberStatesonthepossibilityofstreamliningtheEuropeanresourceadequacyassessmentmethodology,whileensuringitsrobustnessismaintained12.ACERbelievesthattheseproposalsareappropriateprovidedtheyaimatfast-trackingtheadministrativeprocesswithoutaffectingthequalityoftheunderlyingassessments.34AsecondmeasurewouldbetheprovisionofguidancetofacilitatethecoherentandcoordinatedintroductionofmeasurestargetingadequacybyMemberStates.Suchguidancewouldaimatprovidingmoreclarityonthetypeofmeasuresthatcouldbeintroducedtoenhanceresourceadequacyandwhichonesshouldnot.Forexample,ACERisoftheviewthatnationalauthorities11SeealsoEuropeanCommission’srelevantpresentationinthe38thEuropeanElectricityRegulatoryForum.12SeealsoACER’srelevantpresentationinthe38thEuropeanElectricityRegulatoryForum.13ACERSECURITYOFEUELECTRICITYSUPPLYshouldnotintroduceadditionalancillaryservices,ifthemainobjectiveofsuchservicesisaddressingresourceadequacyconcerns.Similarly,ancillaryservicesshouldnotbedimensionedbasedonresourceadequacyneeds.Atthesametime,ACERconsidersthatmulti-purposetoolscouldbringbenefitsbyexploringsynergiesandthusloweringthecoststoconsumers(e.g.,byutilisingthesameresourcestomeetdifferentsystemneeds,includingadequacy).ACERseesabenefitinclarifyingwhethersuchmulti-purposetoolsfallunderacertainEUregulatoryframework13.Moreover,ACERreiteratesthattherewouldbebenefitsincoordinatingtheprocurementofancillaryserviceswherepossible(e.g.,forfastresponsefrequencysupport).Suchacoordinationensuresalevelplayingfieldandreducesprocurementcosts.35Finally,anareaforfurtherattentionaremeasureswhichpursueriskpreparednessobjectives(undertheRiskPreparednessRegulation);objectiveswhichareoftenlinkedto,butnotidenticalto,theobjectivespursuedundertheresourceadequacyframework(undertheElectricityRegulation).ACERrecommendsexploringthesynergiesbetweenthetwoframeworks,i.e.,theElectricityRegulationandtheRiskPreparednessRegulation,informedinteraliabyearlylessonsdrawnfromtheenergycrisis.Suchsynergiesmayinturnillustratetheutilityorotherwiseoffurtherguidanceonthetypesofmeasuresthatcouldbeintroducedunderthelatterframework.13E.g.,theadequacylegalframeworkasfarascapacitymechanismsareconcerned.14ACERSECURITYOFEUELECTRICITYSUPPLYTable1:ImplementationstatusindicationofACER`sadequacyrelatedmethodologiesLegalReferenceStatusregardingapplicableAction/RecommendationReferencerequirementACERmethodologyinthereportValueofLostArticle11MemberStatesapplytheMemberStatesshouldfollowtheEU-Load(VOLL)(VOLL)andmethodologygraduallywidemethodologiestoestimatetheChapterCostofNewarticles23andinvariousways.Notreliabilitymetrics;inparticular,Ireland3.1Entry(CONE)and25oftheallMemberStateshaveyetandPolandshouldappropriatelysetElectricitysetareliabilitystandard.thevalueoflostloadandthereliabilityChapterReliabilityRegulation.IrelandandPolandarethestandardassoonaspossible.3.2.1Standard(RS)onlyMemberStateswithArticle23ofacapacitymechanismENTSO-EshouldimprovetheERAAbyChapterEuropeantheElectricitythathavenotareliabilityaddressingtheimplementationgaps3.2.2ResourcestandardinplaceafteridentifiedbyACERlastyearandbyfullyAdequacyRegulationtheadoptionoftheimplementingtheERAAmethodologybyAssessmentmethodology.2024.(ERAA)TherearestillsignificantconcernsregardingtheconsistencyandrobustnessoftheERAA,primarilyregardinginputdatareflectingtheEU’sFit-for-55objectives,andconsiderationofmarketrevenuesandcross-zonalcapacities.NationalArticle24ofImplementationoftheERAAMemberStatesrelyingonnationalresourcetheElectricitymethodologytoassessadequacyassessmentsasabasistosetadequacyadequacyatnationallevel,upacapacitymechanismshouldensureassessmentsRegulationdivergessignificantlyacrossthatsuchassessmentsarebasedontheMemberStates.EU-widemethodology.SeasonalandArticles8andTheoutlooksarebroadlyinENTSO-EshouldimprovetheseasonalChaptershort-term9oftheRisklinewiththemethodology,outlooksbyaccountingforcross-zonal3.3.1adequacyPreparednessalbeitwithsomeremainingcapacitiesinaconsistentmanneracrossRegulationimplementationgaps,theEUandbyapplyingflow-basedassessmentse.g.,lackofflow-basedmodelling.modelling.Cross-borderArticle26ofIntheabsenceofanMemberStatesshouldimplementfully-ChapterparticipationtheElectricityapprovedERAA,Regionalfledgeddirectcross-borderparticipation5.2incapacityCoordinationCentresdonotassoonaspossible,includingthemechanismsRegulationproviderecommendations.methodologiesenvisagedintheMemberStatesusetechnicalspecifications.differentapproacheswhencalculatingthemaximumMemberStatesshouldensurethatentrycapacity.non-domesticanddomesticcapacityproviderscompeteonequalfooting.Relevantnationalauthoritiestomonitorcloselycross-borderparticipationincapacitymechanisms,particularlyintheearlyyearsofimplementation,toidentifywhethertherulesworkasintendedoranyadjustmentsmightbenecessary.MemberStatesshouldensurethatthepenaltiesappliedincapacitymechanismsincentiviseproviderstocommissiontheunderlyingphysicalPenaltiesinArticleNotapplicable(nocommoncapacityinatimelymanner.SuchChaptercapacity22(i)ofthemethodologyexistsforthispenaltiesshouldrelatetotheactual5.3Electricitytopic)costsofreplacingthenon-deliveredmechanismsRegulationcapacity.MemberStatesshouldensurethatpenaltiesincentivisebeneficiariestobeavailablewhenneededandtheyshouldcloselyreflectthevalueplacedbyconsumersonanuninterruptedservice.15ACERSECURITYOFEUELECTRICITYSUPPLYListofacronymsAcronymMeaningACEREuropeanAgencyfortheCooperationofEnergyRegulatorsACMTheNetherlandsAuthorityforConsumersandMarketsARENHAccèsRéguléàl’ElectricitéNucléaireHistorique(RegulatedAccesstoIncumbentNuclearElectricity)BRELLBRPBelarus,Russia,Estonia,Latvia,andLithuaniaCCGTBalancingresponsiblepartyCombinedcyclegasturbineCEEAGCEPGuidelinesonStateaidforclimate,environmentalprotectionandenergyCMCleanenergyforallEuropeanspackageCONECapacitymechanismCORPCostofnewentryDRCostofrenewalandprolongationDSODemandresponseECDistributionSystemOperatorENSEuropeanCommissionEnergynotservedENTSO-EENTSOGEuropeannetworkoftransmissionsystemoperatorsforelectricityEuropeannetworkoftransmissionsystemoperatorsforgasERAAEuropeanresourceadequacyassessmentERSEEnergyServicesRegulatoryAuthority(Portugal)EuropeanUnionEUExpectedunservedenergyEUEEuroEURFloatingStorageRegasificationUnitFSRUGestoredeiServiziEnergetici(Italy)GSEGigawattGWGigawatthoursGWhHertzHzInternalcombustionengineICEInternationalCourtofJusticeICJIncidentclassificationscaleICSIrishSingleEnergyMarketI-SEMLiquefiednaturalgasLNGLossofloadexpectedLOLELossofloadprobabilityLOLPMarketmonitoringreportMMRmillisecondsmsMegawattMWMarketwidecentralbuyerMWCBMarketwidede-centralisedcapacityobligationMW-DCOMegawatthourMWhNEBEFTheBlockExchangeNotificationofDemandResponseinFrance16ACERSECURITYOFEUELECTRICITYSUPPLYAcronymMeaningNRANationalRegulatoryAuthorityNRAANationalresourceadequacyassessmentOCGTOpencyclegasturbineOMOutageminutesPACPay-as-clearPSERCCsPolskieSieciElektroenergetyczne(PolishTSO)RESRegionalcoordinationcentreRSRenewableenergysourceRTEReliabilitystandardSAIFrenchTSOSLRSystemadequacyindexSMESeriesloadedresonantSMSSNAMSmallandmediumsizedenterprisesSRShortmessageserviceSTASTSAAItaliangastransmissioncompanySVKStrategicreservesTAPTERNAShort-termadequacyassessmentTSOShort-termandseasonaladequacyassessmentsUKUNSCRSwedishTSOVOLLTransAdriaticPipelineWACCWtAItalianTSOWtPTransmissionsystemoperatorUnitedKingdomUnitedNationsSecurityCouncilResolutionValueoflostloadWeightedaveragecostofcapitalWillingnesstoacceptWillingnesstopay17ACERSECURITYOFEUELECTRICITYSUPPLY1.Introduction36TheCleanEnergyforAllEuropeansPackage(CleanEnergyPackage,CEP)14enhancedACER’sroleinmonitoringtheelectricitymarket.ThisincludesthetopicofsecurityofelectricitysupplythattheCEPexplicitlymandatesACERtomonitor15.Infulfillingthisrole,ACERpublishesitssecondstand-alonemonitoringreportonthedevelopmentsinthefieldofadequacyandsecurityofelectricitysupplyinEurope16.37Thereportcomesafteranunprecedentenergycrisisthatinflictedradicalchangestothesector.Theenergypriceshockexperiencedlastyear,primarilyduetothesteepreductionofRussiangassuppliestowardsEurope,broughtdetrimentaleffectstotheEuropeancitizensandbusinesses,forcingtheEUMemberStatesandtheEuropeanCommissiontoundertakeaseriesofmitigatingmeasures.38Evidencefromthegasmarketindicatethatthesituationregardinggassupplyhasbeennormalisedthisyear,withpricesgraduallyreturningtoearly2021levelsandgasstoragefacilitiesintheEUalreadyreachingorevenexceedingthe90%fillingtarget17.Theelectricitysectorseemsalsotograduallyreturntonormality.Electricitypricesreturntopre-crisislevels,allowingGovernmentstowithdrawmostoftheemergencymeasuresadoptedtocopewiththeimpactsoftheenergycrisis.39Atthesametime,therearestillsomeuncertaintiesregardingthesecurityoftheelectricitysupplyinthefollowingmonths.Theserelatemostlytothesituationduringthecomingwinterandthewayitwillaffecttheabilitytofulfilthegasstorageobligationsin2024.Apartfromtheweather-relateddemandduringthewinterperiod,thereareincreaseduncertaintiesrelatedtothedevelopmentsregardingthewarinUkraineandanypotentialfurtherreductionofRussiangassupplies18,theglobalgasdemandevolution,andtheavailabilityofelectricitygenerationunits.40Inviewoftheserisks,thisreportaimstodrawconclusionsandlessonslearntfromtheenergycrisis,basedontheexperienceinanumberofMemberStates(Chapter2).Thereportalsoexaminestheimplementationoftheadequacyframework.ThelatterisdescribedinBox1.Thereportfocusesonthedefinitionoftheadequacymetrics19andtheassessmentofadequacyinthemid-,seasonal,andshort-term(Chapter0).Furthermore,thereportprovidesupdatesonthedevelopmentsconcerningthemeasuresusedtocopewithsecurityofsupplyconcerns,suchascapacitymechanisms,interruptibilityschemesandnetworkreserves(Chapter4).Finally,itinvestigatesindetailtwoimportantdesignfeaturesoftheexistingcapacitymechanismsintheEU:thecross-borderparticipationandthepenaltyregimes(Chapter5).14TheCommission’sCleanEnergyforAllEuropeanslegislativeproposalcoveredenergyefficiency,RESgeneration,thedesignoftheelectricitymarket,securityofelectricitysupplyandgovernancerulesfortheEnergyUnion.Relevantmaterialalongwiththeadopteddirectivesandlegislationareavailablehere.15Forexample,seeArticle18ofRegulation(EU)2019/941andArticle15ofRegulation(EU)2019/942.16Inthisreport,EU-27referstothe27MemberStatesafterBrexit,i.e.,aftertheUKlefttheEUon31January2020.AsaconsequenceofBrexit,ACERdidnothaveaccesstoalltheUK-relateddata.Therefore,whileUKremainedanEUmemberin2020,itisexcludedfromthescopeofthisMMRforthecountry-specificfigures.EU-widefiguresstillinclude28MemberStates,unlessspecifiedotherwise.SeveralaspectsofthereportcoverNorwegianandSwissmarkets.Forsimplicity,thescopeoftheanalysisisreferredtoas‘theEU’or‘Europe’.NorwayenforcesmostoftheEUenergylegislation,includinglegislationontheinternalenergymarket,andisincludedinthedatareportedinseveralsectionsofthisreport.Switzerlandhasbeenincludedinsomepartsofthewholesalesectionsonthebasisofavoluntarycommitmentofthenationalregulatoryauthority(NRA).Consequently,theterms‘countries’and‘MemberStates’areusedinterchangeablythroughoutthisreport,dependingonwhethertheparticularsection/graphalsocoversNorwayorSwitzerlandornot.SeveralmapsincludedinthisreportshowKosovo.Inthiscontextthefollowingstatementapplies:“Thisdesignationiswithoutprejudicetopositionsonstatus,andisinlinewithUNSCR1244andtheICJAdvisoryOpinionontheKosovodeclarationofindependence”.17Overall,gasstoragefacilitiesintheEUwere94%fullon21September2023accordingtoinformationfromtheAggregatedGasStorageInventory.18EUimportsofRussiangasdroppedfrom48%inJanuary2021to8%inMarch2023.MoreinformationonthedevelopmentsinthegaswholesalemarketcanbefoundinACER’smostrecentrelevantreport.19AsfurtherdescribedinBox1,theadequacymetricsarethereliabilitystandard,thevalueoflossloadandthecostofnewentry.18ACERSECURITYOFEUELECTRICITYSUPPLYBox1:TheadequacyframeworkTheEuropeanadequacyframeworkisdescribedinChapterVoftheRegulation(EU)2019/943ontheinternalmarketforelectricity(ElectricityRegulation)andChapterIIofRegulation(EU)2019/941onrisk-preparednessintheelectricitysector(RiskPreparednessRegulation).TheElectricityRegulationsprescribesthateachindividualMemberStatesetsitsnecessarylevelofsecurityofelectricitysupplyonthebasisofaproperlydefinedreliabilitystandard.Thecalculationofthereliabilitystandardusesanappropriateestimateofthevalueconsumersplaceonuninterruptedelectricitysupply(thevalueoflostloadorVOLL)andofthecostofcommissioningadditionalresourcestothesystem(thecostofnewentryorCONE).Thecalculationoftheseadequacymetricsisbasedonaharmonisedmethodology.MemberStatesassesswhethertheirmarketcandelivertherequiredlevelofsecurityofelectricitysupplybasedonasingleEuropeanResourceAdequacyAssessment(ERAA).TheERAAisperformedannuallybytheEuropeanNetworkofTransmissionSystemOperatorsforelectricity(ENTSO-E).ACERisresponsibleforapprovingtheinputs,assumptionsandresultsoftheERAAeveryyear.MemberStatesmaycomplementtheERAAwithnationalresourceadequacyassessments.BoththeERAAandthenationalresourceadequacyassessmentsarebasedonthesamemethodology.IncaseMemberStatesidentifyadequacyconcerns,theyfirstneedtoidentifytherootcausesleadingtotheseconcerns,includinganypotentialregulatoryandmarketdistortions.Consequently,MemberStateshavetodevelopappropriatemarketreformstoeliminatetheidentifiedmarketrootcauses.Ifnecessary,theymayfurtherintroducetemporaryandproperlydesignedcapacitymechanismstocopewiththeremainingadequacyconcerns.Theregulatoryframeworkiscomplementedwithasetofmethodologies,approvedbyACER.Theseare:•themethodologyforshort-termandseasonaladequacyassessmentsfocusingonassessingadequacyrisksintheshort-runi.e.fromweekaheadtosixmonthsahead;•themethodologysettingreliabilitystandardforadequacybasedonthecalculationofthevalueoflostloadandthecostofnewentry(VOLL/CONE/RSmethodology);•themethodologyfortheEuropeanresourceadequacyassessment,(ERAAmethodology)settingtheframeworktoassesspotentialresourceadequacygapsacrossEuropeforthenexttencomingyears;and•thetechnicalspecificationsforcross-borderparticipationincapacitymechanisms(TechnicalSpecifications)settingaframeworkallowingforparticipationofcapacityprovidersincapacitymechanismsofotherMemberStates.StateaidapprovalNationalmeasuresthatprovidefinancialsupporttoindividualsectorsormarketentitiesmaybeconsideredStateaid,and,assuch,theymustbeassessedandapprovedbytheEuropeanCommission.On18February2022,theEuropeanCommissionpublishedtherevisedguidelinesonStateaidforclimate,environmentalprotectionandenergy(CEEAG),settingthecriteriaforitsassessment.Securityofsupplymeasuressuchascapacitymechanisms,interruptibilityschemesandmeasurestocopewithlocalcongestionissuesneedtoabidetotheCEEAGrules.TheCEEAGincorporatestherelevantprovisionsoftheElectricityRegulation,suchastheprincipleoflimitingmarketdistortionsinflictedbythemeasures.Inaddition,itrequiresfromMemberStatestodemonstratethenecessityofsecurityofsupplymeasuresbymeansofaproperassessmentandwithreferencetoaproperlydefinedreliabilitystandard.PursuanttotheElectricityRegulationandtheCEEAG,ifMemberStateswanttointroducemeasurestargetingadequacy,suchascapacitymechanisms,theidentificationofrelevantconcernsneedstobeconsistentwiththelatestERAA.MemberStatesmaystilldemonstrateadequacyconcernsand19theneedformeasuresviacomplementarynationalresourceadequacyassessments.ACERSECURITYOFEUELECTRICITYSUPPLY2.Lessonslearnedduringtheenergycrisis41Intheaftermathofthepandemic,aseriesofeventsincreaseduncertainty,challengingtheresilienceoftheEuropeanenergysystem.MostnotablearetheRussianinvasionofUkraineandtheweaponisationofRussianenergysuppliestotheEUthatfollowedit,theseveredroughtsacrossthecontinentandthehigher-than-expectedunavailabilityofnucleargeneration.Enroutetowinter2022/2023,thedrasticshiftinthesocioeconomicandgeopoliticalcircumstanceswasexperienceddifferentlyacrossEurope.Despitetheunfavourableconditions,thetargetedandcoordinatedeffortsbytheMemberStatesandtheEuropeanCommissiontoreduceelectricityandgasconsumption,combinedwiththemildweather,contributedtoarelativelysmoothcourseofthewinterandagenerallackofadequacy-relatedincidents.42Thissectionseekstodrawlessonslearntfromwinter2022/2023.ThefirstpartofthesectionsummarisesthemeasurestakenbyMemberStatestomitigatesecurityofsupplyrisksduringthisperiod.ItbuildsupontheInventoryandAssessmentofsuchmeasurespublishedbyACERinMarchandJuly2023,respectively.Thelatter,dealsinmoredetailwithaspectsoftheenergycrisissuchasthoserelatedtoretailmarketsandconsumerprotection,efficiencyanddemandresponse,energytransitionandinvestmentsignals20.ThesecondpartreliesonadditionalinformationonpracticalexperienceprovidedbyNRAsfromsixteenMemberStates21,whichallowedACERtounderstandtheuniquecircumstanceseachoftheseMemberStatesfacedduringthewinter.Theinformationcollectedfocusesonthemainadequacyrisksforecastandhowtheymaterialised,themosteffectivemeasurestakentomitigatetheseexpectedrisks,andthemainlessonsdrawn.TheeffectivepracticesimplementedbythevariousMemberStatesexemplifiytheresilienceoftheEuropeanpowersystemandservesasusefulknowledgefordecision-makersacrossthecontinent.2.1.Overviewofsecurityofsupplyrelatedemergencymeasures43Thesharpriseofthenaturalgaspricesatthebeginningofthesummerof2021,driftingelectricityandoilpricestoo,promptedMemberStatestoreactbyadoptingaseriesofmeasureswiththeaimofprotectingconsumersandtheeconomy.Thepersistenceoftheemergencystatusandtheprospectsforalastingeconomiccrisis,ledtheEuropeanCommissiontoissueatoolboxforactionsandsupportmeasuresinOctober2021.Thetoolboxindicatedshort-andmedium-terminitiativesthatEUcountriescouldimplementinlinewiththethenprevailingregulatoryframework.44AftertheRussianinvasioninUkraine,whatwasinitiallyaneconomicproblem,turnedintoamajorsecurityofenergysupplycrisisthreateningtheEuropeancitizensandeconomy.InresponsetothesharpreductionofRussiangassupplies,MemberStatesintroducedmeasurestoincreasetheresilienceoftheirenergysystemagainsttheemergingrisks.Asanimmediateresponsetothesenewchallenges,theEuropeanCommissionoutlined(8March2022)andconsequentlydetailed(18May2022)theREPowerEUplanaffirmingtheintentionoftheEUMemberStatestophaseouttheirdependencyonRussianfossilfuelsthroughacomprehensivesetofactions.45Furthermore,additionalchallengesfortheEU’senergysupplyarose.Forexample,theunexpectedlylowavailabilityofnuclearplantsinFrance22andthesevereandprolongeddroughtsacrossbigpartsofthecontinentincreasedtherisksforeseenforthewinter.Inresponse,MemberStatesandtheEuropeanCommissionspeduptheireffortstotacklethetwoimminentproblems,securityofsupplyandhighenergyprices.InthemonthsfollowingtheRussianinvasion,theEuropeanCommissionproducedanumberoflegislativeproposalsaccompaniedbyguidelinesthatsteeredandcoordinatedMemberStates’responsetotheenergyemergency23.AllMemberStatesreactedtothenewchallengesbyextendingandadjustingalreadyadoptedmeasuresordesigningnewsupportschemesinaneffortto20UsefulinsightsontheenergycrisiscanalsobefoundintherecentlypublishedEnergyRetailandConsumerProtectionvolumeofthe2023MarketMonitoringReport.21ThisincludesinformationprovidedbytheNRAsofAustria,theCzechRepublic,Denmark,Finland,France,Germany,Greece,Hungary,Ireland,Italy,Latvia,theNetherlands,Poland,Portugal,SpainandSweden.22InSeptember2022,27GWofnuclearcapacityoutoftheinstalled61GWwereavailable.Whilesomeofthereasonsfortheunavailabilitywereknowninadvanceandlinkedtoplannedmaintenanceandfuelrodreplacement,theunexpectedcorrosionproblemsdetectedonseveralreactorsintheendof2021pushedavailabilitytoanunprecedentedlylowlevel.InSeptember,thedeficitinavailablenuclear20capacitycomparedtoanormalyearwasestimatedat15GW.Seealsofootnote26.23AnoverviewoftheEuropeanCommission’sworkontacklingtheenergycrisiscanbefoundhere.ACERSECURITYOFEUELECTRICITYSUPPLYensuresecurityofsupplyintheshort-termandbeyond,andtosupporttheeconomy,oftenfocusingonthemostaffectedsectorsandvulnerablecitizens.46InMarch2023,ACERpublishedaninventory24ofmeasuresadoptedbyEUMemberStatesthroughoutthisenergycrisis,alongwithahigh-levelanalysisprovidinginsightsaboutthepoliciesadopted.Followingthepublicationoftheinventory,ACERproceededwithanassessmentofthemeasuresinelectricitymarkets,publishingitsfindingsinJuly2023.47Theinventoryrevealsthatnearlyonethirdofthe439recordedmeasuresfocusonsecurityofsupply,therestaimingtoimprovetheaffordabilityofenergyconsumption.Figure1showsthebreakdownofthesemeasuresintospecificcategories,andtheirgeographicalapplication.ThreemeasuresstoodoutinincreasingthereadinessoftheEuropeansysteminlightofanuncertainwinterahead:gasstorageobligations,rulesenablinggassubstitution,andincreasedsolidarity.Regardingthetimehorizonofthemeasures,nearlyhalfofthemeasuresthattargetsecurityofsupplyhavealong-termimpact,despitehavingbeenlabelledasemergencymeasures.Inparticular,measuresthattargetenergyefficiency,reducingfossilfueluse,and/oracceleratingthedeploymentofrenewablescontributetothetransitiontowardclimateneutralityinlinewiththeEuropeanGreenDeal.Conversely,sometemporarymeasures,necessarytocopewiththeuncertaintiesofaprolongedenergycrisis,suchasthetemporaryremovalorreductionofelectricitygenerationemissionlimits,thepostponementofthephase-outofcoalandlignitepowerplantsortheswitchingoffuelfromgastooil,mayhavenegativeenvironmentalandclimateeffects.Ingeneral,severalemergencymeasuresthatwereintroducedinvolvecomplextrade-offsbetweendifferentpolicyobjectives.Itisthereforeimportanttoprioritiseemergencymeasuresthatcontributetothesecurityofsupplybutatthesametimedonotcompromiselong-termpolicygoals.Figure1:Countriesthatimplementedmeasurestargetingsecurityofsupply(left,percategoryofmeasures)andbreakdownoftheentiresetofmeasures(right)CountriesthatintroducedatleastonemeasureineachcategoryEnergysavingsGassubstitutionPrimaryfuelsupplyRiskpreparedness/Source:ACER’sinventoryofemergencymeasures.2.2.LessonsLearntfromwinter2022/202348TheinterruptionofRussiangassupplytotheEUconstitutedacommonthreatforthesecurityofsupplyofallMemberStates,regardlessoftheirindividualdependencyonRussiangas,asspillovereffectswouldhaveimpactsonawiderscale.However,eachMemberStatefacedspecificchallengesdependingontheindividualcharacteristicsandconditionsofitsenergysystem.Todrawlessonsfromtheenergycrisis,takingintoaccountthesespecificities,ACERaskedNRAstoprovidecountry-specificcontextonthewinter2022/2023situation.TheNRAs’contributiondescribestherisksthatwereinitiallyforeseenforthewinter,thelevelofmaterialisationoftheserisks,themainmeasuresthatplayedarole24TheinventorywasupdatedinJuly2023.21ACERSECURITYOFEUELECTRICITYSUPPLYtoincreasepreparednessandmitigatethoserisks,and,lastly,thelessonsthatcanbedrawnfromthisexperience.ThegoodpracticesimplementedinvariousMemberStatescanserveasexamplesoftheresilienceofthepowersystemandproveusefultodecision-makersinthefuture.AnnexIIprovidesatablesummarisingtheinformationforeachMemberStatealongwiththemoredetailedinputfromtherelevantNRAs.2.2.1.Expectedandrealisedrisks49TheincreasedchallengesregardingthesecurityofenergysupplypromptedanuncertainandbleakoutlookformostMemberStatesforwinter2022/2023.HighnaturalgaspricesandsupplyshortageswerethebiggestrisksidentifiedbyMemberStatesdirectlyimpactingttheabilityoftheenergysectorabilitytosafeguardthecontinuoussupplyofelectricity.Around40%ofEurope’sgassuppliescamefromRussiapriortotheinvasionofUkraine.EvenMemberStatesthatwerelessdirectlyaffectedbythenaturalgassupplyinterruptions,suchasDenmark,werealarmedbythepossibilityofproliferationofapotentialsupplydeficitinneighbouringcountriesorthespillovereffectsofpotentialbankruptciesinthesector.50Anumberofotherriskswerealsorecognisedsomeparticularlylinkedtotheimpactsofclimatechange25.Lowprecipitationduringthespringandsummerresultedinseveredroughtacrosslargepartsofthecontinent.CriticallylowhydropoweravailabilitywasreportedlyexperiencedintheCzechRepublic,Denmark,France,Germany,Italy,Portugal,Spain,andSweden,leadingtotheadoptionofprecautiousmeasures.InPortugaltheseverityofthesituationforcedtheGovernmenttoimplementmeasuresthatpreventedtheuseofsomereservoirsforelectricitygeneration.Dried-outriversaffectedthecoolingandoperationofthermalpowerplantse.g.leadingtoreducedoperationofnuclearpowerplantsinFrance),andcauseddifficultiesandcostincreasesinthetransportationofcoal(e.g.,inDenmarkandGermany),makingitnecessarytoreroutesupplychains(forexample,byusingtherailwaywherepossible).Thelowercontributionofhydroandnuclearpowerplantsresultedinnaturalgasunitsoperatingmoreoften,puttingafurtherstrainontheEuropeanenergysupplyatatimewhentheneedtosavegasandrefillgasstoragefacilitieswascritical.51Inadditiontothereducedhydroresources,theunexpectedunavailabilityofthermalelectricitygenerationunitsacrossEuropefurtherexacerbatedthesituation.Theunavailabilityofupto65%oftheFrenchnuclearpowerfleetduetoacombinationoffactors(includingunexpectedcorrosionissues)wasthemostprominentandimpactfuloftheseincidents26.Furthermore,FinlandexperiencedadelayinthecommissioningoftheOlkiluoto3nuclearpowerunitforseveralmonths,atthesametime,importsfromRussiawerecut-off27.InneighbouringSwedenthe1,130MWRinghals4nuclearpowerplantwasalsounavailableduringthewinterperiod.Similarly,Ireland’swinteroutlooksuggestedahighprobabilityofreducedpowergenerationduetotheincreasedrateofforcedoutagesthatcouldhavebeendetrimentalinthecaseofperiodsofhighdemandcoupledwithlowwind.PortugalandSpainalsoexperiencedsevereunavailabilityofthermalpowerplantsjustbeforethebeginningofthewinterperiod28.52WhenassessingsystemadequacyforthecriticalwintermonthsbothontheEuropeanandnationallevels,theaforementionedchallengesresultedinhigher-than-normalexpectedrisks.Theleveloftherisksdependedheavilyontheunderlyingconditions(e.g.,weatherconditions,demandreduction,gasavailability).ENTSO-E’swinteroutlookshowedahigher-than-usualprobabilityofadequacyissuesforseveralcountries,includingFinland,France,andSweden.Nationalassessmentsalsoindicatednumerousrisks.InDenmarkandSweden,themainconcernwaslowNorwegianhydroreserves.InFinland,FranceandSpain,ahighlevelofexpectedthermalplantoutageswasexpectedincombinationwithlowhydroreserves.InGreece,themainriskwasthepossibilityofgassupplydisruptions.The25AccordingtoCopernicusClimateChangeServices’annualEuropeanStateoftheClimate(ESOTC)report,thekeyfindingsshowthatEuropeexperiencedthesecondhottestyearandthehottestsummerin2022,withthemajorityofcountriesexperiencingseveredroughtsduetothelowrainfallandwarmtemperatures.26AccordingtotheanalysisperformedbytheFrenchTSO,theunavailabilitywasaresultofacombinationoffactors,includingplannedmaintenanceworks,postponedmaintenanceworksduetotheCOVID-19pandemic,unexpectedcorrosionissues,aswellasotherreasons.Onaveragein2022,outof61.4GWinstalled,27.3GWwereunavailable(correspondingto44.5%).On28August2022,theunavailabilityreachedahistoricalhigh,with39.7GWofnuclearcapacityunavailable(65%).Thisunavailabilityalsocontributedtothehistoricallyhighday-aheadelectricityprices,whichreacheditspeakinAugust2022(seeACER’sdashboardonEUwholesalemarkettrends).Forreference,in2021,Frenchnuclearpowerplantsgenerated361TWhofelectricity,representingaround13%oftheEU’stotalelectricitygeneration.In2022,Frenchnucleargenerationwasonly279TWh(-23%).27In2021,theelectricityimportcapacityfromRussia(1,400MW)representedroughly10%ofthetypicalpeakloadandcoveredapproximately10%ofelectricityconsumptioninFinland.28InSpain,theunavailablecapacityduringautumn2022reachedupto10GW,almostathirdoftheestimatedpeakloadfortheperiod.22ACERSECURITYOFEUELECTRICITYSUPPLYdependencyongasforelectricitygenerationwasalsoaconcerninItaly,whichwasaffectedbyintensedroughtstoo.DroughtswerealsothemainriskidentifiedinPortugal,whereautumnassessmentsforthewinterforecastupto10weeksinwhichsupplyinterruptionscouldbeexpected.53Fortunately,therisksforeseeninthemonthsleadingtowinter2022/2023didnotresultinanyactualinvoluntarydemanddisconnections,largelyduetothemildcourseofthewinterandtheconsumers’responsetoincreasedelectricityprices,whichresultedinalowerelectricityconsumption29.Forinstance,electricityconsumptioninFranceduringthewinterwasonaverage8-9%30belowthehistoricalaverage,whilelargerreductionswerereportedinsomeotherMemberStates31.Additionally,higherlevelsofprecipitationduringtheautumnandearlywintermonthsenabledtherecoveryofhydropowerstocks.Forexample,thePortuguesedamsfillinglevelrosefromapproximately43%inOctober2022to90%inJanuary2023,andtheabilitytoproduceelectricityroseto53%morethantheaverageyear.Moreover,electricityproductionfromrenewablesourcesreachedhighlevelsinsomeareas,suchastheCzechRepublic,FinlandorGreece,offeringvaluablesupporttotheelectricitysystem.54Evidently,thewinterwasnotwithoutchallengesinallMemberStates.IntheNordics,fulloperationoftheOlkiluoto3nuclearpowerplantwasdelayeduntilafterthewinter,afterRussianelectricityandgasimportstoFinlandhadalreadybeensuspendedearlierintheyear.However,evenduringthecoldestdaysofDecember,Finland’selectricitydemandwaslowerthanusual,asendconsumersactivelyrespondedtohighpricesandawarenesscampaigns.Similarly,inneighbouringSweden,themiddleofDecemberprovedthemostchallengingwithverylowtemperatures,unavailabilityoftheRinghals4nuclearpowerplant,lowhydroreservoirlevelsinneighbouringNorway,andtheaforementionedsituationinFinland.Nevertheless,Swedenovercamethedifficultywithacombinationofdemandresponseduetopublicawarenessandrecord-highelectricityimportsfromitsneighbours.PublicawarenesscampaignswerealsoputinplaceinIreland,wherethewinteradequacyassessmentshowedmajorrisksandthatimportsofelectricityandgascoulddecreasesubstantially.RecordpeakdemandwasneverthelessexperiencedduringacoldsnapinDecember2022,butthegridweatheredthroughwithoutsystemalertsoremergencies.2.2.2.Mainpreventivemeasures55Apartfromthegenerallymildweatherconditionsandtheprevailinghighelectricitypricesthatledtoareductionofelectricityconsumption,MemberStates’effortstomitigatetherisksalsocontributedtothepositivecourseofthewinter.SomeoftheadoptedmeasuresweresimilaracrossMemberStates,whileotherswerespecifictoeachindividualMemberState.56AsalreadyillustratedinSection2.1,allMemberStatesimplementednationwideenergy-savingawarenesscampaignsthatinstigatedafurtherreactionfromthedemandside.Thesecampaignswereoftencomplementedbyenergysavingmeasuresinpublicbuildingsandlighting32.Whilethequantificationoftheimpactofthecampaignsisdifficult,manyNRAsindicatedthatthemeasurewaseffectiveandcontributedtotheobservedreductionofelectricityconsumption.Forexample,inFinlandthevoluntarydemandresponsebyhouseholdsandcommercialend-usersduringthemostcriticalperiodsofthewinterwasplayedakeyroleinpreventinginterruptions.57ThemeasurestakenbyMemberStatestomitigatetheimpactsofhighenergyprices,includedtheprovisionof,sometimesextensiveandmostlynottargeted,financialsupporttoconsumers.Theriskofsuchmeasureswithregardtosecurityofsupply,isthattheyreducetheincentivesfordemandreductionandmightleadtoaviciouscircleofoverconsumption33.Atthesametime,evidencefromsomeMemberStateswithmorematureelectricitymarkets,suggestthatconsumersreactiontopriceswassignificantandeffective.Forinstance,inFinlandsomecompaniesshiftedtheirindustrialprocesses29SeeIEA’spublicationonthedriversofthechangesinelectricitydemandin2022.30ThefigureiscalculatedbytheFrenchTSO“atnormaltemperatures”andhencereferstostructuraldemandreductionattributabletofactorsotherthanweatherconditions.Thetotal(gross)demandreduction,includingtheimpactofmildertemperatures,was11%.31SeealsoinformationinBox2aboutthereductionintotalgrosselectricityconsumptioninMemberStates.32Forinstance,theFinnishGovernmentlaunchedaninformationcampaigninOctober2022,withthepurposeofgettingover95%ofFinnishhouseholdstosaveenergyandreducetheirconsumptionby5%duringpeakhours.TheDanishcampaignincorporatedmandatorypublicmeasuressuchasloweringpublicbuildingtemperaturesto19°C,withexceptionsto,e.g.,hospitalsandretirementhomes.Similarly,theIrishdistributionsystemoperator,ESBNetworks,introducedthe‘BeatthePeak’campaigntoraiseawarenessbyprovidingearlynotificationtoconsumersforupcomingpeakdemandeventsviaSMSandencouragingthemtoreduceelectricityconsumptionperiodsduringthesestressperiods.33SeealsotheconclusionsofACER’sassessmentofemergencymeasuresinelectricitymarkets.23ACERSECURITYOFEUELECTRICITYSUPPLYfromdaytonighttobenefitfromlowerelectricityprices,whileinDenmarktherewasanobservableshiftofconsumptionawayfrompeakhoursandatthesametimeaswitchtowardsdynamiccontracts,possiblytotakeadvantageoftheshort-termpricevolatility34.58Atthesametime,specificmeasureswereimplementedforenablingandenhancingdemandresponse.Forexample,Austriaintroducedapeakshavingscheme,whilePortugalandSpainlaunchedsimilarmeasuresremuneratingdemandresponseforbeingavailabletoprovidebalancingservices35.InIreland,theNRAcollaboratedwiththetransmissionanddistributionsystemoperatorstodesignandimplementenhanceddemandcontrolproceduresforlargeenergyusersthatcouldbedeployedinanemergencysituationifrequired.59SomeMemberStatesputparticularemphasisinincreasingtheirpreparednesstocopewiththepotentialthreats.InanumberofMemberStates,acontinuousmonitoringoftheadequacysituationwasputinplace.Forexample,theFrenchTSOexpandedthescopeofitswinteradequacyassessment,withadeeperanalysisandcomplementeditwithmonthlyupdates,andweeklyreviewsoftheevolutionofFrenchpowerconsumption.Also,preparednesschecks,intensifiedcooperationandexchangeofinformationbetweenrelevantauthoritiesandmarketplayers,aswellasemergencyexercisestotestandenhancereadinessweredeployed.Forexample,Finlandconductedtestrunswithvariablepoweroutputs,whileinIrelandalargemulti-stakeholderemergencytestexercisetookplace.Similarly,theNetherlandsfocusedonthepreparednessofstakeholdersalsobystrengtheningcommunicationchannels,theapplicabilityandappropriatenessofproceduresandthecontinuousmonitoringoftheactualsituation.60Favourableweatherconditionsdidnotonlyresultinlowerconsumptiononthedemandside.Theyalsoenabledrenewableenergygeneration(includingwind,solarbutalsorecoveredhydro-reservoirs)tomakeanimportantcontributiontothesupplyside.Duringtheenergycrisis,therewasanincreaseinself-generationfromrenewablesourcesinsomeMemberStates,oftendrivenbyrelevantsupportschemes.Latvia,forexample,recordedasixfoldincreaseinthenumberofmicrogenerationsites:from2,000in2021to12,000in2022.TheCzechRepublicstartedpromotingdecentralisedrenewablegenerationandenergycommunitiesintheautumnof2022.61Toenhancetheresilienceoftheelectricitysystem,severalgovernmentsresortedtopostponingthephaseoutofnuclearandcoalpower.InGermany,almost8GWofcoalcapacityinreserveswasbroughtbacktothemarketandthelifetimeofanother1.2GWwasextended.Atthesametime,thenuclearphase-outwaspostponedforseveralmonthssothatthenuclearpowerplantscouldsupportthesystemthroughoutwinter.Similarly,inGreecethephaseoutofthelignitepowerplantswaspostponed.Inabidtoenableincreasedoperationofcoalunits,France,Greece,andSpainhaltedorraisedthelevelofemissionlimitations36.62AdditionalmeasureswereimplementedtotackleMemberState-specificrisks,someofwhichwereoftenunderestimatedinthepast.ExamplesofthesemeasuresweretheprioritisationofcoaltransportationbyrailinGermanytocopewithreducedwaterlevelsinmainriversandthedevelopmentofplansforreplenishingsecondaryfuelsuppliestogasgeneratorsinIreland.2.2.3.Conclusions63Fromasecurityofsupplyperspective,thecourseofthewinterwasrelativelysmooth.Thiswasmainlytheresultofthefourfollowingfactors:thefavourableweatherconditions(mainlyintermsoftemperaturesbutalsointermsofelectricitygenerationfromrenewableenergysources),theintegratedandhighlyinterconnectedEuropeanenergymarket,thepreparednessmeasuresputinplacebyMemberStates(eitherindividuallyorcollectively),andtheresponseofmarketparticipantsandconsumerstopricesignalsandawarenesscampaigns.64Lookingbackonhowtheenergycrisisevolved,onemainconclusionisthattheintegratedandhighlyinterconnectedEuropeanenergymarketwascrucialinensuringthecollectivesecurityofenergysupply.Russiangassupplieswerequicklyreplacedthankstotheincreasedutilisationandsharingofinfrastructure34SeeFigure22inAnnexII.35MoredetailsonthePortugueseandSpanishschemesareprovidedinBox5.36Forexample,inFrance,acapisinplacethatlimitstheoperationofcoal-firedpowerplantsemittingmorethan0.55tCO2e/MWh)at700hours/year.FortheperiodbetweenMarch2022toMarch2023,thecapwasraisedto3,000hours/year.24ACERSECURITYOFEUELECTRICITYSUPPLYacrosstheUnion.Whetheritwasthroughadditionalgassupplyviaalternativepipelines,anincreaseofLNGimportsviathenumerousEuropeanterminals,orcommontargetsfordemandreduction,allMemberStatesmanagedtofacethewinterwithfullgasstorages37andnofurtherinterruptionsinthesupplychain.Theextragasthatreachedthecontinentthroughthevariousentrypointswassmoothlydistributedwhereneededthankstotheavailableinfrastructure.65Similarly,theInternalElectricityMarketensuredtheutilisationoftheinterconnectionsinthemostefficientwaytodirectsurplusgenerationwhereitwasmostneeded.AnillustrativeexampleoftheimportanceofinterconnectionsisFrance–traditionallyanexporterofelectricity–wherethehighimportsofelectricityfromneighbourswerekeyintacklingthetightsupplysituation.Germanyacceleratedascheduled32%increaseoftheminimumofferedcapacityforcross-borderelectricitytradeinordertoassisttheEuropeansystemduringthewinter38.ItwasalsotheincreasedsupportfromneighbouringsystemsthatenabledSwedenandFinlandtopreventpowerinterruptionsfromoccurringduringtheencounteredcoldspellsandunexpectedoutageslastDecember39.ACER’srecentlypublishedreportoncrosszonalcapacitieshighlightstheimportanceofmaximisingtheavailabilityofcross-zonalcapacityinensuringsecurityofelectricitysupplyintheEU.Itshowshowrestrictionsofcross-zonalcapacitymayimpactwelfareanddemonstratestheneedtolifttheconstraintsthatpreventthefullutilisationofthenetworkforcross-zonalexchanges.66TheEuropeanframeworkwithitsestablishedmultilevelstructureforcooperationandcoordinationamongthemaininstitutionsandstakeholdersprovidedthenecessarybasisforanincreaseincollectivepreparedness.Exchangeofinformation,frequentcoordinationmeetingsofMemberStaterepresentativesinvolvingNRAsandTSOs,weeklycoordinationmeetingsamongsystemoperatorscomplementedtheenhancedmonitoringthroughEuropean,regional,andnationaladequacyassessments.Thisenhancedcooperationatworkinglevellargelysupportedtheeffortsatthehighestadministrativelevel(i.e.,nationalGovernmentsandtheEuropeanCouncil,ParliamentandCommission)totacklethecrisisinthemosteffectiveway.67Certainmeasures,suchasawarenessandenergysavingcampaigns,werewidelyimplementedacrosstheEU.Atthesametime,individualcircumstancesoftenaskedfortailor-madesolutions.68Someno-regretmeasures,likeinterventionsinthepublicsectortoreduceenergydemandandmeasurestoincreaseenergyefficiencyorincreasetheuptakeofrenewableenergysources,aremoreconsistentwithlong-termenergyandenvironmentalpolicytargetsandanenduringsecurityofsupply.69WhiletheneedofMemberStatestointroducemeasurestoprotectconsumersfromtheexposuretohighenergypriceswaslegitimate,thesemeasures,ifnotproperlydesigned,tendtohindertheincentiveofconsumerstoreduceorshiftconsumption,astheydistortmarketsignals.Awell-balancedapproachishencenecessary,whereprotectionofconsumersdoesnotruncountertosecurityofsupply.70Enhancedmonitoringcoupledwithwell-coordinatedinstitutionsiskeytoensuringahighlevelofreadinessatnationallevel,asreflected,forinstance,inthecaseofIrelandandtheNetherlands.Facilitatingcommunicationandcoordinationamongactorsalongwithpreventivetestingandcheckingoftheeffectivenessoftheproceduresandthereadinessoftheinvolvedactorsincreasesthechancesforbetterdecisionmakingandminimisestheriskoffailuresintheeventthatriskmaterialise.71Goingforward,theeffectsofclimatechangeneedtobethoroughlytakenintoaccountintheoverallpreparednessanalysis.Asextremeweathersuchasprolongeddroughtsandheatwavesbecomemorefrequentandsevere,theirimpactsontheenergysystemneedtobeproperlyconsidered,mainlyinthecontextofthenationalRiskPreparednessPlans40.37Cooperationwasalsocrucialtoreachthemandatorystoragetargetandincreasesecurityofsupplylevels,forinstancethroughcommonlyprocuredfloatingstorageandregasificationunitsasinthecaseofFinlandandLithuania,orsharedstoragespaceasinthecaseofGreecewithBulgariaandItaly.38AspertheannouncementoftheGermanTSOsinthesingleallocationplatform(JAO),“tostrengthentheEuropeancross-borderelectricitytradingintheseexceptionaltimes”,theminimumremainingavailablemarginfortheCoreday-aheadcapacitycalculationincreasedfrom31%to40.8%alreadyfrommidNovember2022,whileinitiallyscheduledfor1January2023.39SeetherelevantcountrydescriptionsinAnnexII.40AccordingtoRegulation2019/941ontheriskpreparednessintheelectricitysector,everyMemberStateneedstodevelopriskpreparednessplansdescribingthemeasurestoprevent,preparefor,andmitigatecrisesintheelectricitysector.Thepublicversionoftheseplanscanbefoundhere.25ACERSECURITYOFEUELECTRICITYSUPPLY2.3.Casestudies:Theroleofdemandresponseduringthewinter72Thissectionprovidesanoverviewofhowdemandresponsecontributedtosecurityofsupplyduringwinter2022/2023inFranceandFinlandbasedoninputfromtherelevantNRAs.ThecasestudiesaredescribedinmoredetailinAnnexIII.2.3.1.TheFrenchcasestudy73Thissectiondescribeshowdemandresponsehelpedto“keepthelightsoninwinter2022/2023”inFrance.Itdistinguishesbetweenimplicitandexplicitdemandresponse.Implicitdemandresponsereferstoconsumers’consumptionreactioninresponsetotheenduserpricesorotherrewards,whileexplicitdemandresponsenormallyreferstothedemandreductionthatparticipatesinthewholesaleelectricitymarketandgetsrewardedforitsservices.2.3.1.1.Implicitdemandresponse74AsignificantelectricitydemandreductionwasobservedinFranceduringwinter2022/2023.Consumptionwasonaverage8%to9%lowerthanthehistoricalaveragebefore2019,excludingtheeffectsofweather41.Theindustrialsectorwasthefrontrunner,withadropofaround10%to12%comparedto2021.Theservicesandresidentialsectorsreachedareductionofaround6%to7%comparedto2021.Itisnotcleartowhatextentthisdecreasewasaresultofthehighelectricitypricesalone,orwhethercollectiveeffortsinresponsetoefficiencyandawarenesscampaignsalsocontributed.Electricitysuppliershavetodeclareimplicitdemandresponseforthepurposeofthecapacitymechanism.Thecorrespondingvolumeofdeclaredimplicitdemandresponseincreasedforyears2022/2023,comparedtopreviousyears,reachingaround700MWin2023,whileitwasconstantlydecliningduringthepreviousperiod,between2017and2022.2.3.1.2.Explicitdemandresponse75InFrance,theavailabilityofexplicitdemandresponsecanberemuneratedviathecapacitymechanism42andthroughtheprocurementofbalancingreserves.Inaddition,activationofdemandresponseisremuneratedviatheelectricitymarketintheday-ahead,intraday43andbalancingtimeframes.Theparticipationofdemandresponsetothecapacitymechanismwascontinuouslyincreasingsince2017,reaching3.1GWin202244.Participationintheday-aheadandintradaywholesalemarkethasincreasedsignificantlyalreadyduringwinter2021/2022drivenbythestrainedstateoftheFrenchenergysystem.Theincreasecontinuedinautumnandearlywinterof2022/2023whereactivatedmonthlyvolumesexceeded40GWh,morethanfourtimesmorecomparedtoyearspriorto2021.AsthesecurityofsupplysituationinFranceimprovedafterJanuary2023,theactivationofdemandresponsereturnedtopre-crisislevels.2.3.2.TheFinnishcasestudy76Typically,inFinlandelectricitydemandpeaksoccurduringthecoldestdaysofwinterandarestronglydependentonthedurationofthecoldestperiods.Thepreliminaryanalysissuggeststhatconsumers’reactionplayedanimportantroleinsecuringsuppliesinFinlandduringthewinter2022/2023.Duringthisperiod,consumptionwassignificantlybelowitstypicallevels,evenduringthecoldestdays.Inparticular,electricitydemandwasapproximately15%or2GWlowerduringthepeakloadhourscomparedtodemandduringthesametemperaturesinpreviousyears.Onamonthlybasis,electricitydemandwasalso5-10%lowerthanthepreviouswinter.Thesetrendscanbeattributedtoseveralfactors,suchasthemilderoverallwinter,consumers’reactiontotheenergy-savingcampaignandshiftofconsumption41Seealsofootnote30.42UndertheFrenchcapacitymechanism,allresourcesincludingdemandresponsereceiveacapacitypaymentfortheiravailabilityinadditiontotherevenuesreceivedonthewholesalemarketwhentheelectricityisproducedorwhenconsumptionisreduced.Demandresponsecapacitiesareprocuredviaspecificauctionsandviaauctionsoflong-termcontractsfornewdemandresponsecapacities.43Thisisenabledviatheso-calledNEBEFmechanism.44ThisfigurereferstocertifiedcapacityandispreliminarysincecertifiedcapacityfordemandresponseisonlyknownthreeyearsafterthedeliveryperiodinMarch.26ACERSECURITYOFEUELECTRICITYSUPPLYpatterns(e.g.,shiftofdemandforheatingtooff-peakhours).77Moreover,asurvey45conductedbytheFinishEnergyAuthoritybeforethewinter2022/2023,showedthatinterestindemandresponseincreasedinFinlandduringthefallof2022.Basedonthesurvey,some60%oftheparticipantswereplanningtoeitherincreaseorinitiatedemandresponseparticipation,indicatinganadditionalpotentialcapacityofnearly400MW.Box2:ReviewofmeasurestoreduceelectricitydemandCouncilRegulation(EU)2022/1854onanemergencyinterventiontoaddresshighenergyprices(theEmergencyRegulation)introducedanindicativetargetaimedatreducingtotalelectricitydemandby10%incomparisontotheaverageconsumptionofthesamemonthsof2017and2018.Moreover,itimposedamandatorytargettoreducedemandinpeakhoursby5%comparedtoinitialdemandforecasts,from1December2022to31March2023.MemberStateshadthefreedomtoselectwhichmeasuresweremostsuitablefortheircircumstances.BelowisanoverviewofthefindingsoftheEuropeanCommission’sreportreviewingtheinterventionsappliedbyMemberStates,withafocusonthosetargetingdemandreduction.ThefindingsofthereportareinlinetheinformationprovidedinACERpublicationsonthetopic.Overall,themajorityofMemberStatesimplementedawarenesscampaignsandotherenergy-savingmeasuressuchassettingtargetstodecreasetheheatingtemperatureinpublicbuildings.NineteenMemberStatesreportedadministeringspecificpoliciestoreduceelectricitydemandatpeakhours.Fiveofthemintroducedcompetitivebiddingschemesforthispurpose.ThreeMemberStateshaveenforceddemandreductionmeasuresonspecificconsumercategories.ThemeasuresthatMemberStatesintroducedtoaddresshighenergypricescontributedtomitigatingtheimpacttoconsumers,albeitwithapublicfinanceburden.Sincesuchmeasuresmayhaveanadverseeffectonsecurityofsupply,byloweringtheincentivestoreducedemand,theEmergencyRegulationrequiresthatanypublicinterventionintheretailmarketshouldpreserveanincentivetoreduceelectricitydemand.AlimitednumberofMemberStatesintroducedspecificprovisionsintheadoptedschemestolimittheadverseeffectondemandresponse.MemberStatesreportedadecreaseintotalelectricityconsumptionrangingbetween0.5%and15%inDecember2022.Atthesametime,allMemberStatesreportedlysucceededinreducingdemandduringpeakhoursbyatleast5%.Initselectricitymarketdesignproposal,theEuropeanCommissionincludeddemandreductionmeasuressuchastheenablingofapeakshavingproductandfurtherpromotedtheuseofdemandresponsetocoverthesystem’sflexibilityneeds.Intherelevantpublicconsultationstakeholderwerelargelyagainsttheintroductionofpermanentdemandreductionrequirementsintimesofacrisis.Inviewoftheseelementsandthefactthatthenewnetworkcodeondemandresponseisunderdevelopment,theEuropeanCommissiondecidedagainsttheprolongationofthetargetsfordemandreduction.45ThesurveyisavailableinFinnishhere.27ACERSECURITYOFEUELECTRICITYSUPPLY3.Implementationoftheadequacyframework78TheEuropeanadequacyframeworkisdescribedintheElectricityRegulationandintheRiskPreparednessRegulation.TheElectricityRegulationssetstherulesforestablishingthecost-efficientlevelofsecurityofelectricitysupplyandforassessingresourceadequacyinthemedium-to-longterm(uptotenyears).ItalsodefinestheactionsaMemberStateshouldfollowwhenitidentifiesadequacyconcerns,includingthepotentialintroductionofproperlydesignedcapacitymechanisms.TheRiskPreparednessRegulationprescribestheassessmentofadequacyrisksintheshort-term,i.e.,fromday-aheaduptosixmonthsahead,andis,inthatrespect,moresuitedtodealwithcrisismanagementsituations.79Theregulatoryframeworkiscomplementedwithasetofmethodologies,approvedbyACER.Thesesettherulesforestablishingthereliabilitystandard,includingthecalculationofthevalueoflostload(VOLL)andthecostofnewentry(CONE)46,forassessingadequacyinvarioustimeframesandfortheparticipationofforeigncapacityprovidersincapacitymechanisms.80ThissectiondiscussestheimplementationoftheadequacyframeworkacrosstheEU.ItfirstpresentstheprogressofMemberStatesincalculatingtheadequacymetrics(section3.1)andthedevelopmentswithregardstotheEuropeanandnationalresourceadequacyassessments(section3.2).Finally,itprovidesanoverviewoftheseasonalandshort-termadequacyassessmentsin2022(section3.3).3.1.Adequacymetrics81Therehasbeenlittleprogresssincelastyear’spublicationofthemonitoringreportonthesecurityofelectricitysupplyin2021(2021SOSmonitoringreport)withregardtothecalculationoftheVOLL,theCONE,andthereliabilitystandardintheMemberStates.Table10inAnnexIpresentsthecurrentstatusoftheadequacymetricsintheMemberStates.82In2022theBelgianauthoritiesupdatedthecalculationsoftheVOLL,theCONEand,consequently,thereliabilitystandard,followingcommitmentssetoutintheEuropeanCommission’sDecisionapprovingthenewcapacitymechanism47.TheVOLLestimateforBelgiumisnow12,832euros/MWh,downfrom17,340euros/MWh.AfurtherupdateofthefixedCONEfordemandresponseto30,000euros/MW/year(from45,000euros/MW/yearpreviously)resultedinthesamereliabilitystandardof3hoursoflossofloadexpectation(LOLE)48.83InIreland,theSingleElectricityMarket(SEM)49CommitteeupdatedtheCONEvaluestobeusedbothforthecalculationofthereliabilitystandardandfortheauctionsofthecapacitymechanism.TheCONEvalueforthepurposeofcalculatingthereliabilitystandardisnow116,000euros/MW/year(from96,420euros/MW/yearpreviously)50.ThecalculationoftheVOLLestimateandthereliabilitystandardisongoing.Similarly,thePolishNRAhaspublishedtheVOLL(17,700euros/MWh)andCONEcalculationsinMarch202351,whilethedecisiononthereliabilitystandardbytheMinistryisstillpending.ThismakesIrelandandPolandtheonlyMemberStatesimplementingacapacitymechanismthathavenotdefinedareliabilitystandardafterthepublicationoftherelevantmethodology,asrequiredbytheElectricityRegulation52.84Asnotedinthe2021SOSmonitoringreport,MemberStatesimplementedtheEU-widemethodologyforthecalculationofthevalueoflostload,thecostofnewentryandthereliabilitystandard((theVOLL/CONE/RSmethodology)inanon-uniformmanner.Ascertainchoices,oracombinationofthem,couldsignificantlyimpacttheoutcomeofthecalculations,ACERhasinitiatedastudytoreviewtheimplementationpracticesoftheMemberStates.Theobjectiveofthatstudyistoidentifythekeyimplementationcomponentsaffectingtheresultsoftheadequacymetricsandproposewaystofacilitate46Together,thereliabilitystandard,VOLLandCONEarereferredtoasadequacymetricsinthisreport.AnexplanationoftherelationshipbetweenthemetricsisillustratedinBox2ofthe2021SOSmonitoringreport.47Seerecital28ofCommissionDecisionC(2021)6431final.48ThedecisiononthenewVOLLcanbefoundhere,onthenewCONEhereandonthereliabilitystandardhere.49SEMisthewholesaleelectricitymarketfortheislandofIreland,i.e.IrelandandNorthernIreland.50BothvaluesrefertothederatedcapacityofopencyclegasturbinesinIreland.51FormoreinformationonVOLLseepublicannouncementshere.DataonCONEcanbefoundhere.52Articles11and25oftheElectricityRegulation.28ACERSECURITYOFEUELECTRICITYSUPPLYtheimplementationoftheVOLL/CONE/RSmethodologyinawaythatreducesbiasesandimprovesthequalityoftheresults.ACERaimstopublishtheresultsofthestudyinthesecondquarterof2024.3.2.Resourceadequacyassessments85TheEuropeanregulatoryframeworkprescribesthatassessmentsofadequacyshouldbeperformedfordifferenttimehorizons.TheElectricityRegulationestablishestheEuropeanresourceadequacyassessment(ERAA)lookingtenyearsaheadandsetstherulesforsimilarnationalassessments.Thepurposeoftheresourceadequacyassessmentsistoidentifypotentialresourceadequacyconcernsandprovideanobjectivebasisforassessingtheneedforadditionalnationalmeasures.ThissectionlooksintotheimplementationoftheEuropeanandnationalresourceadequacyassessmentsin2022(sub-sections3.2.1and3.2.2respectively).3.2.1.Europeanresourceadequacyassessment86AccordingtotheElectricityRegulation,ENTSO-EhastoperformtheERAAannually,followingtheERAAmethodology.ACERisresponsibleforapprovingoramendingtheinputassumptions(includingscenariosandsensitivities)andultimatelytheresultsoftheERAA53.87Forthesecondtimeinarow,ACERdecidednottoapprovetheERAA54.WhileENTSO-Ehasmadeanumberofsignificantimprovements,followingACER’sinitialrecommendationsreflectedintheDecisionforERAA2021,ACERfoundtherewerestillsignificantconcernsregardingtherobustnessandconsistencyoftheassessment.88ACER’sdecisionprovidedfurtherrecommendationsintendedasguidanceforENTSO-Etoensureasuccessfulimplementation.Theseconcernprimarilytheuseofreliableandtransparentinputdata(inparticularscenarioassumptionsreflectingtheEU’sFit-for-55objectives)andtheconsistentandeffectiveimplementationofthemethodologicalframework(inparticulartherobustconsiderationofmarketrevenuesandcross-zonalcapacities).3.2.2.Nationalresourceadequacyassessments89WhileERAAisthemaintoolforassessingmid-tolong-termresourceadequacy,MemberStatesmaycomplementtheERAAbyperformingnationalresourceadequacyassessmentsthatarebasedontheERAAmethodology.AsshowninTable11inAnnexI,twenty-twooutoftwenty-threeMemberStates,forwhichinformationwasavailable,performanationalresourseadequacyassessmentwithvaryingfrequency55.However,notalloftheseassessmentsqualifyasnationalresourceadequacyassessmentsaspertheElectricityRegulation56.90In2022,elevenMemberStatesconcludedtheresourseadequacyassessmentoftheirsystem,whileanothertwoassessmentswerestillongoingatthetimeinformationwasbeingcollectedforthisreport.Insixoutoftheelevencases,theassessmentsindicatedpotentialadequacyconcerns,astheresultedrisksoflossofloadwerehigherthantheestablishedreliabilitystandards57.Figure2showswhetherthemostrecentadequacyassessments(i.e.,conductedeitherin2022orin2021intheabsenceoftheformer)indicatepotentialadequacyconcernsinanyofthenexttenyears.53Article23(7)oftheElectricityRegulation.54ACERDecision4/2023.55Informationcollectedfrom25NRAsshowsthatonlyinAustria,anationalresourceadequacyassessmentisnotperformedregularly.AnenhancednationallegalbasisforanationalassessmentiscurrentlyunderconsiderationbytheAustriangovernment.SomeMemberStatescombinetheseassessmentswiththeten-yearnetworkdevelopmentplansorrelylargelyonERAAresults.56TheElectricityRegulationprescribesthatMemberStatesshallmonitortheresourceadequacybasedonresultsoftheERAA,andmaycomplementtheERAAwithnationalassessmentsthatshallapplythesamemethodologicalrequirements(Articles20(1)and24(1)).MemberStatesmayusethenationalassessmentstojustifyadequacyconcernsthatwouldallowtheconclusionsofcontractsinexistingcapacitymechanismsortheintroductionofanewcapacitymechanism.ACERunderstandsthatitisinthesecasesonlythatnationalassessmentshallapplytheERAAmethodology.Inallothercases,andsincethereisnoobligationforthenationalassessments,thenationalassessmentdoesnothavetocomplywiththerequirementtoapplytheERAAmethodology,althoughthelaterwouldensureahighlevelofaccuracyandrobustness.57AccordingtotheERAAmethodology,anadequacyconcernisidentified–foragiventargetyearandmodelledzone–iftheestimatedlossofloadexpectation(LOLE)bytheresourceadequacyassessmentishigherthanthetargetsetbythereliabilitystandard,calculatedaspertheVOLL/CONE/RSmethodology.29ACERSECURITYOFEUELECTRICITYSUPPLYFigure2:AdequacyconcerninMemberStatesinanyofthenexttenyearsindicatedbythenationalresourceadequacyassessmentperformedin2021or2022Source:ACERbasedoninformationfromNRAsNote:Thefigureshowsinformationstemmingfrommid-/long-termnationaladequacyassessments,eveniftheyarenotperformedforthepurposeslaidoutintheElectricityRegulation(i.e.,complementingtheERAAandjustifyingacapacitymechanism).InformationonBelgium,Hungary,andPolandrefertotheresultsof2021assessments.InCroatia,theGovernmentisentitledtoissueanannualreportonsecurityofsupplyforpreviouscalendaryearwithprojectionfornext10yearsbasedonannualreportsissuedbyTSOandDSOonwhichNRAgivesitsopinion.Cyprusisexemptedfromadequacy-relatedprovisionspursuanttoArticle64(2)oftheElectricityRegulation.EstoniareliesontheERAAforitsadequacyassessment.InHungarytheTSOisobligedbylawtoincludeastudyonthemid-andlong-termadequacyintheannualnetworkdevelopmentplan,approvedbytheNRA.InIrelandtheTSOsarecurrentlyproducingan“All-IslandGenerationCapacityStatement”thatindicatedextensivedeficitofgenerationcapacityinthemid-term,yettheyarealsopreparingforanationalresourceadequacyassessmentfrom2024onward.LatviausesprimarilytheERAAforassessingthenationalresourceadequacy(seeannualstatementfor2021here).Similarly,inLithuaniathebi-annualten-yearnetworkdevelopmentplan(TYNDP)reportincludesanadequacyanalysisbasedontheERAAresultsandanationalresourceadequacyassessmentmaybeperformedonlyifthereisaneedtoanalyseadditionalscenarios.ThereisnoconsensusamongLithuanianauthoritiesonwhethertheadequacyassessmentcanbeconsideredasanationalresourceadequacyassessmentinlinewiththeElectricityRegulation.ThereisalsonoapprovedreliabilitystandardinLithuaniasince1January2022.InLuxemburgtheGovernmentissuesanadequacyandsecurityofsupplyreportthatisnotbasedonprimarycalculationsandsimulationsbutinsteadanalysesinformationfromotherassessments(e.g.the2022reportused,interalia,informationfromtheERAA,thePentalateralresourceadequacyassessmentandthe2021Germanresourceadequacyassessment).InSlovenia,theTSOpublishedanadequacyassessmentintheten-yearnetworkdevelopmentplanreport,usingprimarilyERAAresults,andincludingasimpleassessmentofcapacitydevelopmentfordifferentscenarios,thatresultedinnoconcerns.InSpain,nonationalresourceadequacyassessmenthasbeenpublishedsofar.91AccordingtotheElectricityRegulation58thenationalresourceadequacyassessmentsshallbebasedontheERAAmethodology.ACERcollectedhighlevelinformationonthemainaspectsoftheERAAmethodologyasdescribedintheElectricityRegulation59.Table12summarisesthisinformation.Importantfeatures,liketheprobabilisticcalculationsandtheregionalscopeoftheassessment,seemtobelargelydeployed.Atthesametime,othercharacteristics,suchastheinclusionofaneconomicevaluationofmarketentriesandexitsofresourcesandflow-basedmarketcoupling,arestillnotimplementedinanumberofassessments.Inallseventeenreportedcasestheassessmentsincludealternativescenariosand/orsensitivities.92Themethodologicalrequirementsforthenationalresourceadequacyassessmentsareparticularly58Article24(1)oftheElectricityRegulation.59Article23(5)oftheElectricityRegulation.30ACERSECURITYOFEUELECTRICITYSUPPLYimportantforMemberStatesthathaveinplaceorintendtointroduceacapacitymechanism.Inthiscases,thenationalassessmentsmaycomplementERAAtojustifynewcapacitycontracts60ortheneedofthecapacitymechanisminthefirstplace61.AsdepictedinTable12,sixoutoftheeightMemberStatesimplementingacapacitymechanism62performanationalassessmentregularly,reportedlyincorporatingmostofthemainmethodologicalfeatures63.IrelandandPolandhavenotimplementedanationalresourceadequacyassessmentbasedontheERAAmethodology64.3.3.Seasonalandshort-termadequacyassessments93TheRiskPreparednessRegulationsetstheframeworkfortheshort-termadequacyassessments,usedtodetectpossibleadequacy-relatedproblemsinshortertimeframes,namelyseasonaladequacyassessments(uptosixmonthsahead)andweek-aheadtoatleastday-aheadadequacyassessments.Theseassessmentsusethelatestavailableinformationregardingdemandforelectricityandavailabilityofresources,includingweatherdependentrenewableenergysources.Theyfocusonidentifyingpotentialadequacyconcerns,signallingtheneedforthedevelopmentofmitigationmeasures.94ThesectiondiscussestheEuropeanseasonaladequacyassessmentperformedbyENTSO-E(sub-section3.3.1)andtheshort-term,rollingseven-days-aheadassessmentsperformedbytheregionalcoordinationcentres(RCCs)(sub-section3.3.2).3.3.1.Europeanseasonaladequacyassessments95TheEuropeanseasonaladequacyassessments,orseasonaloutlooks,performedbyENTSO-E,investigatethesecurityofsupplyaheadofeachwinterandsummerperiod.Consideringtheuniquecontextoflastyear,ENTSO-Eshowedflexibilityandreadinesstoaddressimplementationchallengesandanextendedscopeoftheassessments.Moreover,ENTSO-Eengagedinenhancedcross-bordercooperationattheEuropeanlevelandsupportedandensuredcoordinationattheregionallevel,whilealsosupportingtheTSOsthatconductedregularnationalstudies65.96Despitetheadvancementoftheseasonaloutlookstheassessmentsneedalsotobefurtherimprovedtoproperlyconsiderthecontributionofinterconnectioncapacitytosecurityofsupply.Inparticular,theimplementationofflow-basedmodellingstilllagsbehind.97Thesummer2022outlookrevealedlimitedrisksinislands(Crete,Cyprus,Malta)linkedtohigherdemandexpectation,inGreeceunderextremelyadverseconditions(highelectricitydemandcombinedwithlowresourceavailability),aswellasinIrelandandDenmarkduetoplannedoutagesofnetworkandgeneration,butonlyinworst-caseoperationalconditions(highelectricityconsumptioncombinedwithlowrenewablegenerationandnumerousgeneratorsbeingonunplannedoutage).Thesummeroutlooksuggestedthatalltheriskshowevercouldbeaddressedbynon-marketmeasuresoradaptationofmaintenanceplanning.98Thewinter2022/2023outlookidentifiedhigheradequacyriskscomparedtoregularwinterperiods.ApartfromMaltaandCyprus,whererisksoftenappearintheseasonalassessmentsduetotheisolatedcharacteroftheirsystems,theoutlookdetectedhigherthanusualrisksinFinland,FranceandSweden,duetotheforeseenunavailabilityofnuclearpowerplants.Inaddition,theassessmentofacombinationofstressfactorsregardingcoalsupplylimitations,prolongednuclearunavailabilityandfailuretoreducedemandresultedinhighrisks,indicatingtheneedforenhancedmonitoringofthesefactors.Inresponsetotheuncertaintycausedbytheunstablegassupplyduring2022,ENTSO-EevaluatedthedependencyoftheEuropeanelectricitysystemonnaturalgas,reaffirmingitshighlevelinallscenarios.60Article21(6)oftheElectricityRegulation.61Article21(4)oftheElectricityRegulation.62SeeSection4.1.1formoredetailsonthestatusofcapacitymechanisms.63ACERdidnotexamineindepththelevelofcomplianceoftheactualimplementationofthenationalresourceadequacyassessmentswiththeElectricityRegulationortheERAAmethodology.64InIrelandtheTSOspublishedagenerationcapacityassessmentfortheyears2021-2030andtheyarecurrentlyworkingtoimplementanationalresourceadequacyassessmentaccordingtotherequirementsoftheElectricityRegulationby2024.65Alreadysincespring2022,therewereenhancedcoordinationefforts.AttheEuropeanleveltheEuropeanCommissioninitiatedfrequentcoordinationmeetingsoftheElectricityCoordinationGroup,includingjointcoordinationmeetingswiththeGasCoordinationgroup.Enhancedtrilateral(EuropeanCommission,ACER,ENTSO-E)interactionforthedevelopmentofthewinteroutlookscenariosalsotookplace.WeeklyoperationalcoordinationbetweenTSOsandRCCstoenablefastcommunicationandalignmentwerealsoestablished.31ACERSECURITYOFEUELECTRICITYSUPPLY99Theexperiencefromlastyear’srequirementsforanenhancedscopeoftheseasonaladequacyassessmentsprovidesanopportunitytoreflectontheneedtomakesomeofthenewfeaturesapermanentpartoftheprocessandintroducefurtherimprovements.100ACERfindsthatenhancedcoordinationandcooperationbetweenEuropeanstakeholdersinthecontextoflastyear’sseasonaloutlooksprocessprovedtobeextremelyvaluableforincreasingthequalityofassessment,identifyingnewneedsearlyon,settinguptheassumptionsfortheexaminedscenarios,andensuringdataareup-to-date,ofgoodqualityandwidelyacceptedbythemarket.InthisrespecttheElectricityCoordinationGroup’sactiveroleintheprocessiscrucialandshouldbemaintainedandfurtherdeveloped.Similarly,theclosecoordinationbetweenENTSO-EandtheEuropeanNetworkofTransmissionSystemOperatorsforGas(ENTSO-G)hasbecomeanessentialpartoftheprocessandthetwoorganisationsshouldseekwaystoenhancethesynergiesoftheirvarioussecurityofsupplyworkstreams.3.3.2.Shorttermadequacyassessments101In2022,thedaily,seven-days-aheadshort-termadequacyassessmentsperformedbytheRegionalCoordinationCentres(RCCs)incooperationwithENTSO-E,indicatedonlyoneincidentonApril4inFrance.Mitigatingmeasuresincludedtheincreaseofgenerationandofcross-bordercapacity66.Whilenoloadsheddingtookplace,eventually,stressedconditionofthesystemresultedinaday-aheadpriceofover2,700euros/MWhfortwohours67.Thiswasenoughtotriggeranincreaseintheharmonisedmaximumclearingpriceforthesingleday-aheadcoupling(SDAC)from3,000euros/MWhto4,000euros/MWh,affectingalloftheEuropeansingleelectricitymarket68.66TheFrenchNRA,CRE,publishedareportanalysingtheincidentindetail.Thereportcanbefoundhere.67Theaverageday-aheadmarketpriceforthatdayinFrancewas548euros/MWh.68AccordingtoACERDecision04/2017,validatthetimeoftheincident,”..theharmonisedmaximumclearingpriceforSDACshallbeincreasedby1,000EUR/MWhintheeventthattheclearingpriceexceedsavalueof60percentoftheharmonisedmaximumclearingpriceforSDACinatleastonemarkettimeunitinadayinanindividualbiddingzoneorinmultiplebiddingzones”.TheisolatedcharacteroftheincidentledtheNominatedElectricityMarketOperators(NEMOs)toproposeanamendmenttotheDecision.FollowingtheformalproceduralactsACERissuedDecisions01/2023and02/2023amendingtheformerDecisionsontheharmonisedmaximumandminimumclearingpricemethodologyforthesingleday-aheadandintradaycoupling,respectively.32ACERSECURITYOFEUELECTRICITYSUPPLY4.Securityofsupplymeasures102MemberStatesarerequiredtomonitorresourceadequacyfortheirterritorythroughtheERAAandmaycomplementthisassessmentwithanationalone69.Whentheseassessmentsindicateresourceadequacyconcerns70,MemberStatesmustfirstidentifyanypotentialregulatoryormarketdistortions71thatcreateorexacerbatetheseconcerns.Toremedythedistortionsormarketfailures,theMemberStatesmustdevelopareformplanoutliningthescopeandtimelineofmeasures72.Ifadequacyconcernsremain,MemberStatesmayimplementtemporarycapacitymechanisms.Inthiscase,theyneedfirsttoevaluatewhetheracapacitymechanismintheformofastrategicreserveiscapableofaddressingtheidentifiedresourceadequacyconcerns.OnlywherethisisnotthecasecanaMemberStateimplementadifferenttypeofcapacitymechanism73.103ThischapterdiscussesmeasuresthatMemberStatesimplementtotacklestructuralsecurityofsupplyissues.Whileitlargelyfocusesoncapacitymechanisms(section4.1),italsocoversothermeasuresthatmaybeusedtoaddresssecurityofsupplyissues.Thesemeasuresincludeinterruptibilityschemes(section4.2.1),andnetworkreserves(section4.2.2).4.1.Capacitymechanisms104AcapacitymechanismisatemporarymeasureintroducedbyMemberStatestoremuneratecapacityresources(e.g.,generators,demand-responseorstorageunits)forsecurityofsupplyservices.Capacityresourcesreceivepaymentstobeavailabletogenerateelectricitywhenthesystemneedsthem;theserevenuesareontopofanyrevenuesfromthewholesaleelectricitymarket.BasedontheElectricityRegulation,aMemberStatecanintroduceormaintainacapacitymechanismonlyifithasidentifiedaresourceadequacyconcern.Whilecapacitymechanismsarenationalsupportmechanisms,theymustbe,inprinciple,opentocross-borderparticipation.4.1.1.Statusofcapacitymechanisms105ThereareeightEUMemberStateswithactivecapacitymechanisms:Belgium,Finland,France,Germany,Ireland(SEM),Italy,Poland,andSweden.Threeofthem(Finland,Germany,andSweden)havestrategicreservesinplace,whilethefiveotherMemberStatesmaintainmarket-widecapacitymechanisms.SpainandPortugaldonothaveanactivecapacitymechanisminplace,butsomelong-termlegacycontracts(targetedcapacitypayments)stillapply74.Figure3showsthestatusofcapacitymechanismsintheEU.69Seefootnote56.70AsperArticle8oftheERAAmethodology,anadequacyconcernisidentifiedbycomparingtheresultingadequacyindicator(LOLE)oftheassessmentforthereferencecasescenariowiththereliabilitystandarddefinedaccordingtotheVOLL/CONE/RSmethodology.71Amongsuchdistortionsaree.g.thepresenceofpricecapsandaninefficientpricingofbalancingenergy,aswellas,notably,inadequateinterconnectioncapacityandafailuretofullyenabledemandsideelasticity.72Thetimelineforadoptingmeasurestoeliminatemarketdistortionsisdefinedinthepublishednationalimplementationplan.Informationontheimplementationplanscanbefoundhere.73Article21(3)oftheElectricityRegulation.74ThestatusofcapacitymechanismsinSpainandPortugalisfurtherdescribedintheNoteunderFigure3.33ACERSECURITYOFEUELECTRICITYSUPPLYFigure3:StatusofcapacitymechanismsintheEU—2022Source:ACERbasedonNRAdata.Note:InFrance,acomplementaryschemewithcapacityauctionstargetingdemandresponsehasalsobeeninplacesince2018.InPortugal,atargetedcapacitymechanismwasintroducedin2017,andwasrevokedin2018,butsomecapacitypaymentsarestillallocatedtosomehydropowerplantsdueto“legacy”contracts.InSpain,thecapacitymechanismusedtocomprise“investmentincentives”and“availabilitypayments”.TheavailabilitypaymentswereremovedinJune2018,andinvestmentincentivepaymentsapplyonlytogenerationcapacityinstalledbefore2016.106Somedevelopmentsregardingthestatusofnationalcapacitymechanismsoccurredin2022.InFinland,thestrategicreserveschemeexpiredinJuly2022andwasreplacedbyanewone.Thefirstauctionofthenewschemetookplaceinsummer2022andawardednocapacity(nevertheless,thecapacitythatparticipatedattheauctionremainedavailableintheenergymarket).InItaly,deliverystartedinthenewmarket-widecapacitymechanismthatreplacedthepreviousscheme,whichwasactiveuntil2021.Results75ofrecentauctions76intheMemberStates’capacitymechanismsarediscussedinBox3.75Theauctionresultscanbeaccessedonline(seeweblinksforBelgium,Finland,France,Germany,Ireland,Italy,andPoland).76Normallyauctionsofcapacitymechanismstakeplacesomeyearsaheadofthedeliveryyear.IntherestofthereportauctionsarecharacterisedasT-4,T-1etcwithTdenotingthedeliveryyear,i.e.T-4referstoauctionsheldfouryearspriortothedeliveryyear.34ACERSECURITYOFEUELECTRICITYSUPPLYBox3:ResultsofauctionsconcludedinMemberStates’capacitymechanismsin2022InBelgium,thesecondauctionofthenewcapacitymechanism(approvedin2021)tookplaceinOctober2022.Thefouryearsahead(T-4)auctionfordeliveryin2026/27resultedinnoawardedcapacity.Thecapacityrequirementwasfulfilledbythecapacitycontractedforthesameperiodatthepreviousauction,theextendedoperationoftwonuclearreactors,andexistingcapacity,someofwhichconfirmeditsavailabilityduringthedeliveryperiodbutchosenottoparticipateintheT-4auction.Thisexistingcapacitywillbeabletoparticipateintheyear-ahead(T-1)auctionfordeliveryinthesameperiod.InFinland,onlyonebidwassubmittedinthefirstauction(inOctober2022)ofthenewstrategicreserve.Thebidwasdeemedinadmissiblebytheoperatoroftheauctionduetonon-compliancewiththenationallegislation.Thecapacitycorrespondingtothenon-awardedbidcontinuedtoparticipateintheenergymarket.Thelowparticipationintheauctionispartlyexplainedbystricterrequirementsforparticipationofgaspowerplantsinthestrategicreserve,implementedinthecontextoftheshortageofnaturalgas.InFrance,unavailabilityofasubstantialshareofnuclearpowerplantsimpactedtheEUenergylandscapeingeneral.Asnuclearavailabilityisnotexpectedtoreachtheusuallevelsbefore2024,thedecreaseinthevolumeofferedonthecapacitymarketledtoanincreaseinauctionprices.Whilefrom2018to2021pricesinT-1auctionswereintherangeof20,000–30,000euros/MW,pricesincreasedtomorethan40,000euros/MWinallsixT-1auctionsthattookplacein2022.Thelatestoftheseauctions(andthemostimportantintermsofvolume)reachedthepricecapof60,000euros/MW.PricesinT-2auctionsfor2024werelowerandclosetothehistoricallevels,suggestingthatthemarketexpectsgreatercapacityavailabilitygoingforward.Inadditiontotheauctionsfordeliveryinthefuture,auctionsfordeliveryyears2019,2021and2022alsotookplacein2022(theFrenchcapacitymarketenablesparticipantstoadjusttheirpositionsaftercapacitydelivery).InIreland,auctionsfordeliveryin2024/25and2025/26tookplacein2022.TheT-3auctionfordeliveryin2024/25(initiallyplannedfor2021butactuallytakingplaceinJanuary2022)reachedarecordpriceof147,000euros/MW(equaltothepricecap).Therewasanacuteneedtoprocureadditionalcapacityforthedeliveryperiodinquestion,asthebulkofcapacitycontractedintheT-4auctionin2019failedtobecommissionedontime.Thetopicoftheincentivesinthecasesofnon-deliveryornon-performanceinMemberStates’capacitymechanismsisdiscussedinmoredetailinSection5.3ofthisreport.Theauctionfordeliveryin2025/26clearedat46,000euros/MW,backinthehistoricalpricerange.InItaly,theauctioncalendarisnotpre-determined.Instead,auctionstakeplacewhenthenationalauthoritiesdeemthemnecessary.In2022,anauctiontookplacefordeliveryin2024andawarded42GWofcapacity.Theauctionclearedatthepricecap–33,000euros/MWforexistingcapacityand70,000euros/MWfornewcapacity.InPoland,themain(T-5)auctionfordeliveryin2027procured5.4GWofcapacityatapriceofjustunder87,000euros/MW.Thepricelevelwassimilarinthe2021auctionfordeliveryin2026butcontrastsstarklywiththepricesseeninthe2019and2020auctions(55,000and37,000euros/MWrespectively).Additional(T-1)auctionsareorganisedonaquarterlybasis(i.e.,foursuchauctionstookplacein2022fordeliveryinthefourquartersof2023).Pricesvariedbetween41and78thousandeurosperMW,andcapacityprocuredrangedfromaround0.4GWto1.3GW.In2022,noauctiontookplaceinGermanyandSweden.InGermany,capacityinthestrategicreserveisprocuredfortwoyears–thelastauctiontookplacein2021andthenextauctionisexpectedtotakeplaceinDecember2023.InSweden,productioncapacitywaslastprocuredin2017(fordeliveryupto2024/25)undercontractsofthecapacitymechanismthatwasinplaceatthetime.35ACERSECURITYOFEUELECTRICITYSUPPLY107AllcapacitymechanismsdiscussedinthischapterhavebeenapprovedbytheEuropeanCommissionunderStateAidrules77,withtheexceptionoftheSwedishstrategicreserve,whereasinglecapacitycontractwassignedin2017andrunsuntil202578.SomeadditionalMemberStatesareconsideringimplementingacapacitymechanisminthefuture79,whileFranceisconsideringoverhaulingitsexistingcapacitymechanism80.4.1.2.Costsofcapacitymechanisms108Thissectiondiscussesthecostsofcapacitymechanisms.TheMemberStates’capacitymechanismsarefinancedbytheusersoftheelectricitysystem(forexamplebyendusersthroughnetworktariffsorlevies,orbysuppliersorbalanceresponsibleparties)81.Thecostsareanalysedperdeliveryyear,bothaggregatedintheEU,aswellasperMemberState.Additionalinsightsareshownbynormalisingthecostsofthecapacitymechanism–overthecapacityprocuredandoverthenationalelectricitydemand.109Figure4showsthecostsofcapacitymechanismsperdeliveryyear.Inabsoluteterms,thetotalcostsofcapacitymechanismsincreasedin2022and2023.Thetotalpaymentsfordeliveryofcapacityin2022amountedtomorethan5.2billioneurosperyear,upfrom4.8billionin2021.In2023,costsareprojectedtoincreasebyanother40%year-on-year,reaching7.4billioneuros.Thisislargelyduetohigher2023costsoftheFrenchandItaliancapacitymechanisms.For2024,thecostvaluesshownareindicative,astheresultsofanyT-1auctionstakingplacein2023arenotincludedinthecostprojectionsfor202482.Figure4:IncurredandprojectedcoststofinancecapacitymechanismsintheEU-27(left)andperMemberState(centreandright)—2020–2024(millioneuros)Source:ACERcalculationsbasedondataprovidedbyNRAs.Note1:NRAsreportcostsinnominaltermsandnoadjustmenttoconsiderinflationisperformedbyACER.Note2:InBelgium,paymentswithinthenewcapacitymechanismstartwithwinter2025/2026,asperthefouryearahead(T-4)auctionin2021.TheoverallcostsforFranceareanapproximationconsideringthatallcapacitycertificatesarevaluedatthemarketreferenceprice(PRM).Asignificantshare(whichvariesyear-on-year)ofthecapacitycertificatesisimplicitlyvaluedthroughthe“AccèsRéguléàl’ElectricitéNucléaireHistorique”(ARENH)mechanism,aschemethatenablessupplierstopurchaseelectricityfromnucleargeneratorsataregulatedprice.Therefore,theactualcostsforFrancearedependentonthereferenceusedtovaluethecapacity77Mostrecently,theFinnishstrategicreservewasapprovedinOctober2022.78Thecontractincludedanextensionoption,whichwascalledin2019.Forexample,theimplementationofastrategicreservehasbeencalledforbytheEstonianTSO.80France’scurrentcapacitymechanismisapproveduntil2026.DiscussionsaretakingplaceinFranceregardinganewcapacitymechanismthatwouldapplyin2026andbeyond(seee.g.theFrenchTSO’sconsultationonthefutureoutlookoftheelectricitysystem).81Fordetailsonthefinancingofthecapacitymechanisms,seeTable2inACER’s2021SOSmonitoringreportonsecurityofsupply.82Theprojected2024costsfortheFrenchmechanismarebasedontheresultsofthefirsttwoT-1auctionsthattookplacein2023andreflectthemarketparticipants’perceivedrisksatthattime.Itisalsoassumedthattheprocuredcapacityremainsthesameasin2023.Therefore,theactualcostsmayvary.36ACERSECURITYOFEUELECTRICITYSUPPLYcertificatesrelatedtotheARENHmechanism.ThecostsoftheFrenchcapacitymechanismfor2024arecalculatedonthepresumptionthatthesamevolumesofcapacitycontinuebeingawarded,andusingareferencepricethatcorrespondstotheresultsofauctionsthattookplaceuptoMay2023.ForItaly,costsuntil2021correspondtolegacycontractsinplaceuntilthatyear;for2022andbeyond,thecostscorrespondtothenewcapacitymechanism.ForGermany,the2024costsassumethatmaximumcostswillresultfromthe2023strategicreserveauctionwithdeliverystartinginOctober2024.InPortugal,atthetimeofdatacollection,Governmentapprovalwasstillpendingregardingthecapacitymechanismpayments,therefore,nocostsareconsideredfor2023.110Figure5showsthecostsofcapacitymechanismsperunitofprocuredcapacity.The‘unitcosts’arederivedbydividingthetotalincurredorprojectedcostsinadeliveryyearbythecapacityremuneratedinthesameyear.InseveralMemberStates,theunitcostsareincreasing.InFrance,thenuclearunavailabilityexperiencedin2022increasedthecapacityauctionpricesandthustheprojectedunitcostsofthecapacitymechanismin2023.InGermany,theincreasein2024isattributedtotheGermanNRA’sassumptionthatmaximumremunerationwillresultfromtheauctionthatistotakeplacein2023.InIreland,theincreaseinthecostsin2024ispartlyaconsequenceoftheresultsoftheT-3auctionforwinter2024/25(discussedinBox3above).Figure5:Costsofcapacitymechanismsovertotalcapacityprocured—2020–2024(thousandeuros/MW)Source:ACERcalculationsbasedondataprovidedbyNRAs.Note:TheNotesunderFigure4alsoapplytothisfigure.Theunitcostsarecalculatedbydividingtotalannualpaymentsandthetotalcapacityremuneratedandhencedonotnecessarilydepictindividualauctionresultsaccurately.ForItaly,onlyunitcostsrelatedtothenewcapacitymechanism(withdeliverystartingin2022)areshown,sincenoinformationonthevolumeofcapacitythatwasremuneratedin2021underthepreviousmechanismwasprovided.UnitcostsforPortugal(legacycontracts)andSpain(longterminvestmentincentives)arenotshowninthisfigure;theyareincludedinFigure10inthe2021editionoftheSOSmonitoringreport.111Figure6showsthecostsofcapacitymechanismsperunitofelectricitydemand83.Itprovidesanindicationoftherelevanceofthesecostsintheelectricitybill84.Thepercentagevalueinthefigureshowsthesecostsexpressedasapercentageoftheaverageday-aheadpriceinthebiddingzone(s)wheretherespectivecapacitymechanismapplies.Duetothehighwholesalepricesexperiencedin2022,thecostsexpressedasapercentageofthewholesalepricearelowerthanin2021.83DemanddataisbasedonEurostatdataandiscomplemented,ifnecessary,bydatafromtheENTSO-ETransparencyplatform.IfforanyMemberStateandcalendaryear,Eurostatdatawasunavailable,thefollowingmethodologyapplies.IfforagivenMemberState,Eurostatdatawasavailableforthetwoprecedingyearsofthecalendaryearinquestion,a‘correctionfactor’wascalculatedastheratiobetweenEurostatandENTSO-Edataforthesetwoprecedingyears.ThedemanddatafortheyearinquestionwasthencalculatedbymultiplyingtheENTSO-ETransparencyPlatformdataforthisyearwiththecorrectionfactor.If,however,Eurostatdatawasunavailableforthetwoprecedingyearsofthecalendaryearinquestion,thedemanddatawastakenfromtheENTSO-ETransparencyPlatformdatawithoutanyadjustment.84Thefiguredoesnotdepictactualtariffsorlevies,butonlyasimpleindicationassumingthecostsareequallydistributedtoconsumersaccordingtotheirelectricityconsumption.Ascapacitymechanismsonlyremunerateavailabilityofcapacityandnotgeneratedelectricity,theseunitcostsshouldnotbeconfusedwithactualelectricitygenerationcosts.37ACERSECURITYOFEUELECTRICITYSUPPLYFigure6:Costsincurredorprojectedtofinancecapacitymechanismsperunitdemand(2020–2024),andexpressedasapercentageoftheannualaverageday-aheadpriceintherespectiveMemberStates—2022(eurosperMWhofdemandand%,respectively)Source:ACERcalculationsbasedonNRA,ENTSO-EandEUROSTATdata.Note1:TheNotesunderFigure4alsoapplytothisfigure.Costsperunitdemandarebasedontotalannualrealisedorprojectedpaymentstocapacityprovidersfordeliveryofcapacityintherelevantyearandthetotalnationaldemandinthesameyear.DemanddataisderivedfromEurostatdataandtheENTSO-ETransparencyPlatform.Fortheprojectedunitcostsin2023and2024,demanddatafor2022wasused.ForIreland(wherethecapacitymechanismappliestotheSingleEnergyMarket,comprisingalsoNorthernIreland),demanddatafor2020wasusedforalltheyearsconsideredonthefigure.CostsforPortugal(legacytargetedcapacitypayments)andSpain(long-terminvestmentincentives)arenotshowninthisfigure;theyareincludedinFigure10inthe2021SOSmonitoringreport.Note2:Thepercentagevaluereferstothecostsofthecapacitymechanismperunitdemandin2022,dividedbythe2022averagewholesaleday-aheadpriceinthecorrespondingbiddingzone(s).ForItaly,theSingleNationalPriceisconsidered;forSweden,thearithmeticaverageoftheannualpricesintheMemberState’sfourbiddingzonesisused).112Fromtheperspectiveoftheelectricityconsumer(Figure6),thecostsofthestrategicreserves(inplaceinFinland,Germany,andSweden)aresubstantiallylowerthanthecostsofthefourmarket-widecapacitymechanisms.Thethreestrategicreserveschemesdo,however,differsubstantiallyregardingtheaveragepaymenttobeneficiaries,withtheGermanschemeseeingmuchlargerremunerationlevelsperMWofawardedcapacity(Figure5).4.1.3.Technologiesremuneratedbycapacitymechanisms113Figure7showsthebreakdownoftechnologiesremuneratedthroughcapacitymechanismsacrosstheEUfrom2019to2023.Intotal,around174GWofcapacitywasremuneratedin2022,mostlycorrespondingtonaturalgas,nuclearandcoalpowerplants.Theincreaseofnaturalgascapacityremuneratedin2022and2023comparedto2021islargelyattributedtotheintroductionofthenewcapacitymechanisminItaly85.Adetailedbreakdownofthecategoriesisavailablein(Figure16inAnnexI).114Figure7alsoshowsthatin2022,around5GWofcapacitywereprocuredfromdemand-sideresponseandbatterystorage.Theshareofcapacityprocuredfromthesenon-traditionalcapacityprovidersislowcomparedtoestablishedtechnologies,buttheshareisrising–forexample,theshareofdemandresponseandbatterystoragecapacityoverthetotalcapacityprocuredfordeliveryyear2026iscloseto10%intheIrishandPolishcapacitymechanisms.ThesetrendsarediscussedinmoredetailinBox4.85ThedataontheexacttechnologybreakdownforItalyisnotavailabletoACER,soanapproximationwasused(asdescribedintheNoteunderFigure7).38ACERSECURITYOFEUELECTRICITYSUPPLY115Inaddition,around12GWofcross-bordercapacity(bothforeignandinterconnectioncapacity)86wereprocuredin2022.Thetopicofcross-borderparticipationincapacitymechanismsisdiscussedinmoredetailinSection5.2.Figure7:TotalcapacityremuneratedinEUcapacitymechanisms,pertypeoftechnology—2019–2023(GW)Source:ACERbasedondataprovidedbytheNRAsandtheENTSO-ETransparencyPlatform.Note:SincetheItaliancapacitymechanismauctionsareportfolio-based,distributionofthecapacityprocuredintheMemberStatein2022andbeyondisanapproximationbasedontheresultsofthecapacityauctionsandthebreakdownofthe2022generationfleetinItalyaccordingtoENTSO-Etransparencyplatform.Noinformationonthecapacityremuneratedunderthepreviousmechanism(inplaceuntil2021)wasavailable.116Figure8showsthebreakdownofcapacityremuneratedunderlong-termcontractsbetween2027and2035,togetherwiththeassociatedcosts.Long-termcontracts87areacommonfeatureofEuropeanmarket-widecapacitymechanisms88.Ontheonehand,long-termcontractscanfacilitatethecommissioningofnewcapacityandfacilitatecompetitionbyreducinginvestmentrisksandloweringfinancingcosts.Ontheotherhand,long-termcontractscanalsorepresentabarriertotheentryofnewtypesofcapacityprovidersiflong-termsupportisinsteaddirectedatconventionalresources.Furthermore,long-termcontractscanimplyadditionalcostsforconsumers,assupportmaybeinefficientlyallocatedtocapacityresources,evenforperiodswhennoadequacy-relatedissuesareforeseen.Importantly,long-termcontractscanalsocompromisetheEUemissionandclimate-neutralitytargets:throughsuchcontracts,MemberStateswillcontinuesupportingfossil-fuelledpowerplantsfarbeyond2030.117Notably,thevolumeofcapacitywithlong-termcontractshasincreasedsubstantiallysincethelastreportingperiod.Approximately13GWofnewcapacitysignedsuchcontractsintheIrish,Italian,andPolishcapacitymechanisms,addinguptoabillioneurosperyeartothelong-termcapacitybill89.86Onthisfigure,‘foreigncapacity’correspondstocapacityprocureddirectlyfromresourceslocatedoutsideofthebordersoftheMemberStateadministeringacapacitymechanism,whereas‘interconnectorcapacity’referstocapacityprocuredfrominterconnectorsbetweentheMemberStateandtheneighbouringbiddingzones.87Forthisanalysis,ACERconsiderscontractswithadurationofmorethanfiveyearsaslong-term.88Long-termcontractshaveadurationof8or15yearsinBelgium,7yearsinFrance,10yearsinIreland,15yearsinItaly,andupto17yearsinPoland.InSpain,thecontractscorrespondtolegacypayments(seetheNoteunderFigure3).89SeeFigure12inthe2021SOSmonitoringreport.PerthedataavailabletoACERatthetimeofthe2021publication,21GWofcapacityhadsignedlong-termcontractsthatincludedeliveryin2028,atacostof1.1billioneuros(forthisdeliveryyear).Oneyearlater,13GWofcapacityhasbeenadded,andthetotalcostfordeliveryin2028hasdoubled.39ACERSECURITYOFEUELECTRICITYSUPPLYFigure8:Long-termcontractedcapacityandrelevantcostsbytypeoftechnologyintheEU-27—2027–2035(GWandmillioneuros,respectively)Source:ACERcalculationsbasedondatafromNRAsand,inthecaseofItaly,alsofrompubliclyavailableinformationonauctionresults.Note:Long-termcontractsexistinBelgium,France,Ireland,Italy,Poland,andSpain.Box4:Participationofdemandresponseandstorageinmarket-widecapacitymechanismsDemand-sideresponseandstorageareconsideredkeytechnologiestoachievetheEU’sdecarbonisationtargetsandatthesametimesecuresuppliesinadecarbonisedpowersystem.AsshowninFigure7,theparticipationofthesenon-conventionalcapacityprovidershasbeengrowingbutremainslimitedcomparedtotraditionalthermalgenerationtechnologies.Thistextboxtakesacloserlookattheexperienceacrossmarket-widecapacitymechanismssofar.Figure9showsthecontractedcapacityofdemandresponseandstorageacrossfourmarket-widecapacitymechanisms(France,Italy,Ireland,andPoland)inMWsofde-ratedcapacity,andasashareofthetotalcontractedvolumeineachcapacitymechanism.Thefigurepresentsdataforbothhistoricalandfutureyears,uptothelatestdeliveryyearforwhichauctionshavealreadytakenplace.Onecandrawtwokeyconclusionsfromthesegraphs.Firstly,theparticipationofdemandresponseandstoragehasbeensteadilyincreasingovertime.Forexample,participationofdemandresponseandstorageinthePolishcapacitymechanismhasgrownfromaround0.5GWfordeliveryyear2021tomorethan1.5GWfordeliveryyear2027.Thepaceofgrowthishigherforstoragecapacity,particularlyinthemostrecentauctions.Secondly,theparticipationofdemandresponseandstoragevariessignificantlyacrossthedifferentcapacitymechanisms.Forexample,theirparticipationisexpectedtoreachashareofjustunder10%intheIrishandPolishcapacitymechanismsinthefuture.Ontheotherhand,thecombinedparticipationofdemandresponseandstorageintheItaliancapacitymechanismisexpectedtoreachasignificantlylowershareof2.5%in2024,whilenodemandresponsehassecuredcontractssofar.40ACERSECURITYOFEUELECTRICITYSUPPLYFigure9:ContractedcapacityofdemandresponseandstorageintheFrench,Italian,Irish,andPolishmarket-widecapacitymechanisms(GW)4.2.Othermeasures4.2.1.Interruptibilityschemes118Thetrendobservedin2021regardingthephaseoutofinterruptibilityschemes90continuedin2022.Outofthesixschemesinoperationin202191fourschemeswereoperationalin2022,inFrance,Germany,Italy,andPoland.TheGermanschemewasterminatedinJuly2022.Table14intheAnnexIprovidesadescriptionofthemaincharacteristicsoftheschemes.Box5providesfurtherinformationonthenewlyintroducedschemesinPoland,Portugal,andSpain.119TotalcostsoftheFrenchandItalianschemesremainedatthesamelevelsaspreviously(63millioneurosand326millioneurosrespectively),whilethecostfortheGermanschemeaccountedto13millioneuros.Thetime-seriesevolutionofthecostsisshowninFigure15inAnnexI.Thereweresixty-sixactivationsintheGermanschemeandthreeactivationsinItaly.TherewerenoactivationsoftheschemeinFrance.90Interruptibilityschemesnormallyrefertonationalprogrammesdedicatedtodemandresponse,organisedbyTSOsfortemporaryloadinterruptionorreduction.AccordingtotheStateAidGuidelines,interruptibilityschemesaimtoensureastablefrequencyintheelectricitysystemoraddressshort-termsecurityofsupplyproblems.Aninterruptibilityschemetypicallypoolslargeindustrialconsumersfromenergyintensiveindustrieswithprocessesthatcanbesuspendedforalimitedamountoftime.91SeeSection4.2ofthe2021SOSmonitoringreport.41ACERSECURITYOFEUELECTRICITYSUPPLYBox5:Ancillaryservice-relatedschemes–thesuccessorsofinterruptibilityschemesAsinterruptibilityschemescometotheirend,someTSOsintroduceddemandresponseschemesthatprovidenon-standardisedancillaryservicesand,attimes,resourceadequacysupport.Threesuchschemes,inPoland,Portugal,andSpain,arebrieflydiscussedhereunder.Germanyalsoseekstoreplaceitsinterruptibilityschemewithasimilarmeasurebasedonancillaryservices.ThePolishschemethatreplacedthepreviousinterruptibilityschemeinApril2021isnowpartoftheancillaryservicesprocuredbythePolishTSOforbalancingpurposes.Itisbasedonday-aheadauctionswherequalifiedparticipantsareselectedonthebasisofsubmittedenergy(reduction)bids,i.e.,nocapacitypaymentsareincluded.In2022sixsuchauctionstookplace,buttherewasnoactualactivationinrealtime.Hence,therewerenocoststoconsumers.TheterminationoftheinterruptibilityschemeinPortugalin2021coincidedwiththephaseoutofelectricitygenerationfromcoalraisingadequacyconcerns.Inresponsetotheseconcerns,thePortugueseTSOintroducedanewschemeintheendof2021,calledthe“regulatoryreserveband”(RRB),thattargetsdemandresponse.Theschemeawardsannualavailabilitypaymentsthroughacompetitiveprocesstolarge(atleast4MW)consumers.Thesuccessfulcapacityprovidersarecontractuallyobligedtobeavailabletoprovideservicessimilartomanualfrequencyrestorationreserve(mFRR)balancingserviceswhencalleduponbytheTSO.AscommunicatedbytheNRA,theannualcapacityneedsforthisschemearedeterminedbasedontheTSO’ssecurityofsupplystudies,sothatcompliancewiththereliabilitystandardisassured.TheTSOhasidentifiedaneedfor425MWforallhoursof2022andaneedof800MWthroughout2023.Theauctionfordeliveryin2022procuredjustover304MWatatotalcostof53millioneuros(theauctionreachedthepricecapof175,000euros/MW).Thecapacitywasactivated402timesduringtheyearproviding1.5GWhatanaveragecostof228euros/MWh.Fordeliveryin2023,thepricecapwassetat385,000euros/MW.AverysimilarschemewasintroducedinSpaininautumn2022.The“activedemandresponseservice”isusedtoprocuredemandresponsecapacitythatisobligedtoprovidebalancingservicesinpre-definedperiods.Theseperiodscorrespondtoaround30%ofthehoursoftheyear.Theschemeisclassifiedasa“specificbalancingproduct”andwasadoptedbytheGovernmentasaRoyalDecree-Law.Anevolutionofthisproduct,alignedwiththeapprovalprocedureoftheBalancingRegulation,isbeingconsideredbytheSpanishNRAatthetimeoffinalisingthisreport.ThestatedpurposeoftheschemeistocomplementthestandardmFRRandRRservice,intimeswhentheupwardsregulationenergyprocuredthroughthesechannelsisinsufficient.Fortheperiodfrom1November2022to31October2023,thecapacityneedwassetat2,700MWforeachofthe2,714hourswhereavailabilityisrequired(thisisduringworkdaysbetween18handmidnightduringthewarmermonths,andbetween6hand24hduringthecoldermonths).Onlyoffersofatleast1MWwereeligible.Atotalof497MWofdemandcapacitywasprocuredatapriceof190,000euros/MW.Noenergypaymentstookplaceastherehasbeennoactivationyet(asofJune2023).4.2.2.Networkcongestionmeasures120Therearetwooperationalnetworkreserveschemes92intheEU,inAustriaandinGermany.TheyprovideadditionalcapacitytoTSOstoperformre-dispatchingwhennecessary93.AdescriptionofthemaincharacteristicsoftheschemesispresentedinTable15inAnnexI.92Networkreservesarenetworkcongestionmeasuresremuneratingresourcesthatprovidethenecessaryreservestomitigatelocalcongestionissues,essentiallyenablingre-dispatchingwhenexistingcapacityinthesystemisnotsufficientorisnotinthelocationwhereitisneeded.Theresourcesaretypicallyheldoutofthemarket–theycannotreceiveremunerationfromthewholesaleelectricitymarketorbalancingmarkets.AccordingtotheElectricityRegulation,networkreservesdonotfallwithinthedefinitionofcapacitymechanisms.However,accordingtotheStateAidGuidelinestheyaresubjecttosimilarcriteriaascapacitymechanismswhenitcomestoassessingtheircompatibilitywiththeinternalmarket.93FromJuly2022onwards,powerplantsthatparticipateintheGermannetworkreservenetworkreservesmayalsobeusedtoprovidesupporttothesysteminthecaseofadequacyissues.Similarly,theGermanstrategicreservemayalsobeactivatedtomitigatenetworkcongestionissues;thisisalsothecaseinSweden.42ACERSECURITYOFEUELECTRICITYSUPPLY121In2022thetotalcapacityofnetworkreservesfromthetwoschemesamountedto8.5GW.Thiscameatatotalcostofaround1.1billioneuros(Figure10),92%ofwhichcorrespondtotheGermanscheme.Almostallthecapacitycamefromfossilfuelledpowerplants;only35MWofdemandresponsecapacitywasprocuredinAustria(thecapacitybreakdownisshowninFigure14inAnnexI).Figure10:TotalcostofnetworkreservesinAustriaandGermany–2018-2022(millioneuros)Source:ACERbasedoninformationprovidedbytheNRAs.43ACERSECURITYOFEUELECTRICITYSUPPLYBox6:Variousout-of-marketmeasuresareimplementedbyMemberStatesSomeMemberStateshaveseveralout-of-marketmeasuresinplace,implementedindifferentcontextsbutallawardingtheavailabilityofvariousresourcestoaddressvarioussystemneeds.Forexample,inGermanyin2022,foursuchout-of-marketmeasuresapplied.Thestrategicreserve(discussedinSection4.1)isusedtoresolveadequacyissues.Thenetworkreserve(Section4.2.2)isprimarilydesignedtodealwithinternalnetworkcongestionissuesintheeventthatmarket-basedredispatchingisinsufficient.Theinterruptibilityscheme(Section4.2.1),targetinglargeconsumers,couldbeusedforvariouspurposessuchasbalancingandcongestionmanagement.In2022,allthreemeasurescouldbeusedforresourceadequacy.The“securityreserve”wasintroducedin2016.Eightligniteplantswithatotalcapacityof2.7GWweregraduallyenteredintothisstand-byreserve,wheretheyreceivedremunerationinreturnfortheirreadinesstosupportthesystemifneeded,foramaximumof240hoursperyear.InOctober2022,fiveofthesepowerplantsweretransferredtoanewlycreated“supplyreserve”,togetherwithseveralotheroilandcoal-firedpowerplants.ThesupplyreserveisinplaceuntilMarch2024andthecontractedpowerplantsshouldbeavailabletosupportthesystematanytime.Theestimatedtotalcostsoftheschemeare1.6billioneurosfortheperiodof2016-2022.Figure11showsthecapacitycontractedwithintheschemesasof2022,togetherwiththecorresponding(estimated)annualcosts.Figure11:Contractedcapacityandannualcostsofout-of-marketmeasuresinGermany—2022(MWandmillioneuros)Source:ACERcalculationsbasedondataprovidedbytheNRA.Note:Thefiguredoesnotincludethecostsofactivations(energycosts)ofthenetworkreserveandtheinterruptibilityscheme.Theannualcostsofthesecurityreserveareanestimation.Inadditiontothefourmeasuresdescribedabove,deliveryofthegridstabilityservicewillstartin2023.Theservicewasintroducedin2017todealwithnetworkcongestionincasesoffailureofgridelements.Theestimatedtotalcostsofthescheme(approx.2.5billioneurosor2millioneurosperMW)encompasstheconstructionandoperationoffournewgenerationfacilities(totalcapacityof1,200MW)thatwilloperateaspartoftheservicefor10years.44ACERSECURITYOFEUELECTRICITYSUPPLY5.Focaltopic:Designfeaturesofcapacitymechanisms5.1.Introduction122CapacitymechanismsmustfollowcertaindesignprinciplesasprescribedintheElectricityRegulation.Forexample,theymustbetransparent,competitive,opentoalltechnologiesabletoprovidetherequiredtechnicalandenvironmentalperformance,andmustnotgobeyondwhatisnecessarytoaddresstheadequacyconcerns,amongstothers94.123Thischapterexaminestwodesignprinciplesofcapacitymechanisms,namely,cross-borderparticipationandtheapplicationofpenaltiesonbeneficiaries.Itreviewscurrentpracticesacrossnationalmechanismsanddrawslessonsfromthem.5.2.Cross-borderparticipation124Cross-borderparticipationincapacitymechanismshashistoricallybeenenabledthroughtheparticipationofinterconnectioncapacity95.TheElectricityRegulationintroducednewrulesaimingatthedirectparticipationofforeigncapacityresourcesincapacitymechanismsandharmonisingtherulesfortheirparticipationacrosscapacitymechanisms96.ForthepurposesoftheElectricityRegulation,foreigncapacityreferstocapacitylocatedinanotherEUMemberState97.Tothisend,inDecember2020,ACERapprovedthecommonrulesandmethodologiesgoverningsuchdirectparticipation98.AssetoutintheElectricityRegulation,capacitymechanismshadtoenablethedirectparticipationofforeigncapacitybyDecember202299.125Thepurposeofthissectionisfirstlytoprovideanupdateontheimplementationstatusofdirectforeignparticipationincapacitymechanisms.Inaddition,thesectiondescribeshowtherelevantnationalauthoritiesestimatethecontributionofforeignresourcestothesecurityofsupplyincapacitymechanismsandthealignmentoftheirmethodologieswiththeapplicablerules.Finally,thissectiondiscussesthecurrentrulesfortheparticipationandremunerationofforeigncapacityorinterconnectorsincapacitymechanismsandexamineswhetherthecurrentdesignsenablealevel-playingfieldbetweendomesticandforeignresources.ThedataandinformationpresentedinthissectionwereprimarilyprovidedbytheTSOsandnationalregulatoryauthoritiesoftheMemberStateswithcapacitymechanismsinplace–inallcases,theseTSOsarealsotheoperatorsofthecapacitymechanisms.5.2.1.Directforeignparticipationincapacitymechanisms126Whilecross-borderparticipationismandatoryformarket-widecapacitymechanisms,strategicreservesshouldapplycross-borderparticipationifitistechnicallyfeasible100.Asof2022,nostrategicreserveschemeallowedtheparticipationofforeigncapacities.Thissectionthereforefocusesonthemarket-widecapacitymechanismsofBelgium,France,Italy,andPoland.127Ireland,theonlyotherMemberStatecurrentlyimplementingamarket-widecapacitymechanism,isexpectedtoconnectwithanotherEUMemberStateby2026,withthecommissioningoftheCeltic94Article22oftheRegulation.Formoredetails,seeBox6inACER’s2021SOSmonitoringreport.95Alternatively,MemberStateshaveconsideredthebenefitsoftheinterconnectedmarkettotheirsecurityofsupplybydiscountingtheexpectedcontributionofforeignresourcesfromthecapacityrequirementofacapacitymechanism.96Article26oftheElectricityRegulation.97Thischaptercontainsinformationaboutnon-EUcountriestoo,whererelevant,withouthoweverexploringindetailtheconditionsofcross-borderparticipationinthesecases.98ACERDecision36-2020ontechnicalspecificationsforcross-borderparticipationincapacitymechanismsanditsAnnexI.99Article26(2)oftheElectricityRegulationsetthedeadlinetoeitherJuly2023ortotwoyearsaftertheapprovalofthetechnicalspecifications,whicheverwastocomefirst.Asthetechnicalspecifications(referredtoinfootnote98)wereapprovedinDecember2020,theeffectivedeadlinewasDecember2022.100Article26(1)oftheElectricityRegulation.45ACERSECURITYOFEUELECTRICITYSUPPLYinterconnectorwithFrance101.Inlightofthis,theIrishauthoritieshavecommencedworktodevelopthedetailedrulesfordirectforeignparticipation.TheIrishNRA,CRU,anticipatesthatthedevelopmentoftheruleswillrequireafewyears,anddirectforeignparticipationwillonlybepossibleatsomepointinthesecondhalfofthedecade.Currently,theIrishcapacitymechanismdoesnotallowtheparticipationoftheCelticinterconnectoreither,butratherconsidersthecontributionofforeignresourcesbyreducingthecapacityrequirementofdomesticresources.Dependingonwhenthedetailedruleswillbeinplace,itispossiblethatthereservedcapacitywillbesoldtoforeigncapacitiesfromthefirstyearoftheCelticinterconnector’soperations(e.g.,throughtheT-1auctionfor2027/2028delivery)102.128Regardingthecurrentstatusofcross-borderparticipationincapacitymechanisms,onlyPolandhasimplementedthedirectparticipationofforeigncapacitiesinitscapacitymechanisminlinewiththeElectricityRegulation.Italycurrentlyallowsthedirectparticipationofforeigncapacitythroughasimplifiedapproachwhereforeigncapacitieshavelimitedobligations.Thisisduetotheauthorities’concernsregardingthetechnicalequivalenceofforeignunits,i.e.,theabilityofforeignresourcestoprovidethesameserviceasdomesticresources103.TheItalianauthoritieshaveexpressedtheirintentiontoallowafully-fledgeddirectforeignparticipation,however,thereisnoconcreteplanyetinplace.129ImplementationisongoingintheotherMemberStateswithmarket-widecapacitymechanisms.Belgiumisexpectedtoallowthedirectparticipationofforeigncapacitiesfromthefirstdeliveryyearofitscapacitymechanism,i.e.,fromwinter2025/2026104.InFrance,whiletherearerulesforthedirectparticipationofforeigncapacity,theyhavenotbeenimplemented,andonlyinterconnectorparticipationiscurrentlypossible.TheFrenchauthoritiesplantoimplementthedirectparticipationofforeigncapacitieswiththefirstdeliveryyearofthenewcapacitymechanism,plannedforwinter2026/2027105.130TheexistingrulesallowforeigncapacityproviderstobelocatedanywhereintheinterconnectedEUnetwork.Nevertheless,MemberStatescandecidewhichMemberStatestheyallowtoparticipateintheircapacitymechanism.Asaminimum,thesetofMemberStatesmustincludethosedirectlyconnectedtotheMemberStateimplementingthecapacitymechanism.Asof2022,thecapacitymechanismsofBelgium,Italy,andPolandonlyallowthedirectparticipationofforeigncapacitylocatedintheMemberStatesthathaveadirectconnectiontotheirnationalnetworks106.131WhethercapacityprovidersofoneMemberStatecandirectlyparticipateinagivenMemberState’scapacitymechanismissubjecttotheexistenceofanagreementbetweentheTSOsofthetwoMemberStates.TheagreementsgovernthecontractualrelationshipbetweentheTSOofthenationalcapacitymechanismandtheforeignTSOinwhoseareatheforeigncapacityproviderislocated.Theydefine,forexample,thefinancialresponsibilitiesrelatedtoeligibilityandavailabilitychecksperformedbytheforeignTSO.Currently,suchagreementsareonlyinplacebetweenthePolishTSOanditsneighbouringTSOs.InBelgiumandFrance,thediscussionsontheagreementsareongoing(withvaryinglevelsofprogress).TheBelgianTSOexpectstoconcludetheagreementswiththerelevantforeignTSOsin2023,includingthebidirectionalagreementwiththeFrenchTSO107.ThetimelinefortherestoftheTSO-TSOagreementsrelatedtotheFrenchcapacitymechanismisunknown.InItaly,noagreementisinplace,andnodiscussionsonpotentialagreementshavebeeninitiatedsofar108.ACERnotesthattherecanbechallengesimpedingtheconclusionofagreementsbetweenTSOs109.101FormoreinformationontheCelticinterconnectorseeforexample,theproject’swebsite.Accordingtotheprojectdevelopers,theinterconnectorisduetobecompletedbytheendof2026.Currently,theIrishmechanismallowstheparticipationoftheinterconnectorswithGreatBritain.102ThisisessentiallythesameapproachfollowedintheBelgiancapacitymechanism.Formoreinformation,seeparagraph(131).103TheItalianauthoritiesconsiderforeignresourcesasincapableofprovidingthesametechnicalperformancethatdomesticresourcescanprovide.AmongtheconcernsisthelackofcontrolthattheItalianTSOhasovertheoperationandmaintenanceofforeignunits(whilefordomesticresources,theTSOdoeshavecontrolovertheseaspects).Furthermore,theItalianTSOcannotinfluencetheforeignTSO’snetworkmaintenanceschedule.TheimplementationofforeigncapacityparticipationintheItaliancapacitymechanismisinlinewiththeDecisionoftheEuropeanCommissionC(2018)617.104AuctionsintheBelgiancapacitymechanismtakeplacefour(T-4)andone(T-1)yearbeforedelivery.Fordeliveryinwinters2025/26,2026/27and2027/28,directforeignparticipationwillbeallowedintherespectiveT-1auctions.Startingwithdeliveryin2028/29,directforeignparticipationwillalsobeallowedintheT-4auctions.105AnewcapacitymechanismisbeingdiscussedinFrance(seefootnote80).106ThispointisstillunderexaminationforthenewFrenchcapacitymechanism.107ThismeansthattheagreementwillallowtheparticipationofFrenchresourcesintheBelgiancapacitymechanism,andvice-versa(i.e.,BelgianresourcesintheFrenchcapacitymechanism).108Whilenostepshaveyetbeentaken,theItalianTSOdoesnotexcludethepossibilitythatdiscussionsonagreementstakeplaceinthefuture.109Forexample,theFrenchTSOobservedthattheconclusionofanagreementrequiresconsideringthespecificrulesthatareinplaceintheneighbouringcountry.46ACERSECURITYOFEUELECTRICITYSUPPLY132Forthepurposeofregisteringforeigncapacityprovidersthatareeligible110forcross-borderparticipationinaparticularcapacitymechanism,adedicatedregistryismaintainedbyENTSO-E,asrequiredbytheElectricityRegulation111.Atthemoment,theregistryonlycontainstheforeigncapacitieseligibletoparticipateinthePolishcapacitymechanism,asdirectforeignparticipationisnotyetimplementedelsewhere112.133Table2summarisesthekeyinformationregardingthestatusofdirectforeignparticipation,theeligibilityofforeignbiddingzones,andthestatusoftheagreementsbetweendomesticandforeignTSOs.DetailedinformationonthestatusofTSO-TSOagreementscanbefoundinTable16inAnnexI.Table2:Currentstatusofdirectforeignparticipation,eligibilityofforeignbiddingzones,andTSO-TSOagreementsinthecapacitymechanismsofBelgium,France,Italy,andPolandMemberStateStatusofdirectForeignbiddingStatusofTSO-TSONextstepsintheimplementingtheforeignparticipationzoneseligibletoagreementsimplementationcapacitymechanismofdirectforeignasof2022participateBelgiumparticipationImplementationinFR,DE/LU,NLAgreementsexpectedFrancedevelopmenttobesignedbytheImplementationendof2023plannedwiththeItalyfirstdeliveryyearPolandInterconnectorBE,DE/LU,ES,IT,GBPending(bidirectional(i.e.,deliveryyearparticipationagreementwith2025/2026)implementedinBelgianTSOexpectedcurrentcapacitybytheendof2023)Plannedforthenewmechanism(butrulescapacitymechanismfordirectforeignparticipationinplace)(i.e.,fromwinter2026/2027)ImplementedinaAT,FR,GR,SI,CH,MENoagreementssimplifiedmannerinplaceandnoNonextstepsdiscussionsinitiateddeterminedforfully-fledgedImplementedCZ,partofDE,LT,AgreementsinplaceimplementationSE,SKAlreadyinplaceSource:ACERbasedoninformationfromNRAsandTSOs.Note:“ME”referstoMontenegro.CH,GBandMEarenotEUbiddingzones,butcapacitiesfromthesezonesortherelevantinterconnectorsmayparticipateinthecapacitymechanismauctions.5.2.2.Maximumentrycapacity134Asanimportantpartoftheframeworkforforeignparticipationincapacitymechanisms,theElectricityRegulationintroducedtheconceptof‘maximumentrycapacity’(MEC).TheMECdeterminesthemaximumamountofforeigncapacitythatcanparticipateinthecapacitymechanismofaMemberState.ItessentiallyrepresentstheexpectedcontributionofforeignresourcestothesecurityofsupplyofaMemberStatewithcapacitymechanism,attimesofsystemstress.TheElectricityRegulationstipulatesthattherelevantauthoritiesassesstheMECforeachbiddingzoneborder113.135TheMECintendstoreflectthelikelihoodofsimultaneousscarcitybetweentwoMemberStates,andtheavailabilityofinterconnectioncapacitytotransferenergybetweenthem114.ThemethodologyforestimatingtheMECisdefinedintheTechnicalSpecificationsforcross-borderparticipationincapacity110I.e.,fulfilthetechnicalperformancerequirementsofthecapacitymechanism.111Article26(11)oftheElectricityRegulationandTitle6oftheTechnicalSpecifications.112TheregistrycurrentlycontainsinformationonthecapacityprovidersthatareeligibletoparticipateinthePolishcapacitymechanism,inthedeliveryperiods2026and2027.ItfollowsfromtheregistrythatonlycapacityproviderslocatedinSweden,SlovakiaandLithuaniaareeligibletoparticipateinthePolishCMinthesedeliveryperiods.Fordeliveryin2027,morethan2GWofforeigncapacityproviders(fromLithuaniaandSlovakia)havebeenregistered.113Article26(7)oftheElectricityRegulation.114Forexample,ahigherprobabilityofsimultaneousscarcitybetweentwoMemberStates,meansthattheMemberStatewithcapacitymechanismcancounttoalesserextentonimportsfromtheotherMemberState,oreffectivelyalowerMEC.Similarly,ahigheroutagerateofinterconnectorsmeansalowerMEC.47ACERSECURITYOFEUELECTRICITYSUPPLYmechanisms.TheSpecificationsmandatethattheMECsmustbecalculatedbyRCCs,basedontheresultsoftheERAAorasimilarregionalresourceadequacystudy115.136Currently,intheabsenceofanapprovedERAA,mostcapacitymechanismsusenationalassessmentsforthepurposeofcalculatingtheMEC(oranequivalent),withsignificantdivergenceintheapproaches.OnlyinPolandhavethenationalauthoritiesusedEU-wide(ENTSO-E’s)resourceadequacystudiestoestimatetheMEC,intheabsenceofanationalresourceadequacyassessment116,117.137TheTechnicalSpecificationsprovidetwopossiblemethodologicalapproachestoestimatetheMEC118.Themajorityofcapacitymechanismsuseoneofthesetwoapproaches:BelgiumusestheapproachunderArticle7oftheSpecifications,whileFranceandPolandusetheapproachunderArticle8.Ontheotherhand,theItalianauthoritiesusetheirownapproach,wheretheMECisbasedonhistorical,realisedflowsduringrelativelytighthours119.138AnimportantparameterforthecalculationoftheMECistheselectionofperiodsusedtoestimatetheexpectedcontributionofforeignresourcestothesecurityofsupplyofaMemberStatewithcapacitymechanism.TheTechnicalSpecificationsdefinesystemstresshours(i.e.,hoursofexpectedsupplydeficitorloadshedding)asthedefaultperiodsforestimatingtheMEC.Theresponsibleauthoritiesmay,however,selectabroadersetofperiodsifproperlyjustified.Currently,therulesoftheBelgian,French,andPolishcapacitymechanismsarealignedwiththedefaultoptionforestimatingtheMEC120.TheItaliancapacitymechanismusesabroadersetofrelevantperiods,thatlikelyincludesnear-scarcityhourstoo121.139TheElectricityRegulationanticipatesthecalculationoftheMECsbytheRegionalCoordinationCentres(RCCs)andthatthenationalTSOsconsidertherecommendationprovidedbytheRCCswhensettingthefinalvalues.BasedontheinformationprovidedbytheTSOs,nationalauthoritiesdonotintendtousetheRCCs’MECrecommendationsbydefault.Instead,theauthoritiesintendtoscrutinisetherecommendedvalues,andonlyutilisethemiftheydeemthemappropriate.Forexample,theauthoritiesinBelgiumandFrancehavesetasaprerequisitethattheMECvaluesbebasedonascenariothatisconsistentwiththescenariousedtodeterminetheotherparametersofacapacitymechanismauction.TheItalianTSO,foritspart,doesnotenvisagetheuseoftheRCCrecommendations,sincetheItaliancapacitymechanismdeterminesthemaximumcontributionsofforeigncapacityusingamethodologybasedonhistoricaldata.115Beingaresultofa(probabilistic)adequacystudy,theMECisbasedonsimulatedfuturestatesoftheelectricitysystem.116Forexample,forthelatestauctioninDecember2022,thePolishauthoritiesusedtheERAA2021.Priortothat,theMECwasestimatedbasedontheERAA’spredecessor,theMid-TermAdequacyForecast.117Allrulesregardingthecross-borderparticipationandMECcalculationaredefinedwithintheEuropeanCommission’sStateAidDecisiononthePolishCM.118TheTechnicalSpecificationsdeterminetwopossiblewaystoestimatetheMEC:i)thefirstmethodisbasedonnetpositions(Article7);andii)thesecondmethodisbasedoncross-zonalexchanges(Article8).119Todeterminethemaximumlevelsofforeigncapacity,theItalianTSO,Terna,considersrecentimportstatistics.Firstly,atimeseriesisbuiltcomprisingperiodsthatcouldbegenerallyconcerningfromanadequacystandpoint(mainlycorrespondingtoweekdayhoursduringthewinterandsummerseasons).Secondly,themaximumimportcontributiontotheCMauctionisthendefinedasapercentileofthetimeseries.120ThePolishTSOhasindicatedthatabroadersetofperiodscouldbeusedtoestimatetheMEC,ifthenumberofperiodswithasupplydeficitisnegligibleorlimitedinthesimulations.121Formoreinformation,seefootnote119.48ACERSECURITYOFEUELECTRICITYSUPPLYTable3:ApproachesfortheestimationofmaximumentrycapacityinBelgium,France,Italy,andPoland-2022MemberStateAssessmentusedtoApproachusedtoPeriodsusedtoIntentiontouseRCCBelgiumestimateMECfortheestimatetheMECestimatetheMECrecommendationFranceItalylatestauctionAsdeterminedinInprinciple,butitmayPolandmethodology(i.e.,deviate.ConsistencyNationalassessmentArticle7ofTechnicallossofloadhours)SpecificationswithotherauctionAsdeterminedinparametersessentialNationalresourceArticle8ofTechnicalmethodology(i.e.,InprinciplebutitmayadequacyassessmentSpecificationslossofloadhours)deviate.ConsistencyHistoricaldataStatisticalanalysisofScarcityandnear-withotherauctionhistoricalflows(notscarcityhoursparametersessentialbasedonTechnicalAsdeterminedinNoSpecifications)methodology(i.e.,lossofloadhours),Inprinciple,butitmayEuropeanresourceArticle8ofTechnicalbutabroadersetdeviateadequacyassessmentSpecificationsofhoursmaybeselectedSource:ACERbasedoninformationfromTSOs.Note:Belgiumundertakesanannualcalibrationanalysisoftheauctionparametersonthereferencescenarioofthecorrespondingcapacitymechanismauction.Thelatestannualcalibrationanalysisansreportcanbedownloadedhere.TheapproachforsettingtheMECinBelgiumisdetailedinArticle14oftheRoyalDecreeonthedeterminationofCMauctionparameters(availablehere).TheDecreedescribesthemethodologytodeterminetheauctionparametersfortheBelgiancapacitymechanismandspecifiesthecalculationmethodfortheMEConthereferencescenario,whichispublishedaspartoftheannualcalibrationreport.ForFrance,thenationalassessmentreferstotheFrenchTSO’sBilanprévisionnel,availableontheproject’sdedicatedwebpage.140Figure12showstheMECsandthecontractedcapacitiesforeachofthebiddingzonesinthefourmarket-widecapacitymechanismsexaminedinthissection.Thevaluespresentedinthesegraphscorrespondtothemostrecentauctions122,123.Thecompletedataset(contractedcapacity,MECsandremuneration)correspondingtoalldeliveryyearsforwhichdatawasavailablecanbefoundinTable17andTable18inAnnexI.122InthecaseofBelgium,theprovidedfiguresdonotrepresentauctionedMECs,butratherreservedMECs.SinceforeignresourceswillonlybeabletoparticipateintheT-1auctionforthefirstthreeyearsofdelivery(i.e.,fromdeliverywinter2025/25towinter2027/28),thiscapacityhassimplybeenreservedforthefutureT-1auctions.Asistypicalwithcapacitymechanisms,thecapacityrequirementandotherrelevantparameterswillberecalculatedfortheT-1auctions.Assuch,thereservedMECsaresubjecttochange.123InthecaseofItaly,themaximumlevelsofforeigncapacityshownarebasedonhistoricalflowsandarethereforecomparablebutnotequivalenttotheMECsaccordingtotheTechnicalSpecifications(Title2oftheTechnicalSpecifications;seefootnote98).49ACERSECURITYOFEUELECTRICITYSUPPLYFigure12:MaximumentrycapacityandcapacityactuallycontractedabroadinthemostrecentauctionofthecapacitymechanismsofBelgium,France,Italy,andPolandSource:ACERbasedoninformationfromNRAsandTSOs.Note1:Eacharrowcorrespondstoparticipationofonebiddingzone(oragroupthereof).Thefirstnumericalvalueistheactualcapacitycontracted,whilethesecondvalue(inbrackets)istheMEC(oritsanalogue)assignedtothe(groupof)biddingzone(s).Whereapplicable,theremunerationforeach(groupof)biddingzone(s)orinterconnectorsisshowninlightbluerectangles.Note2:ForBelgium,theMECsonthefigurerepresentthereservedcapacityfortheT-1auctionfordeliveryinwinter2027/2028.ForeignresourcesfromGreatBritaincannotparticipateintheBelgiancapacitymechanism,howevertheircontributiontosecurityofsupply(representedinthisfigure)isconsideredwhenestimatingthevolumestoprocure.ForFrance,thevaluescorrespondtotheT-1auctionfor2023delivery(MECsandremunerationrelatetointerconnectorparticipation).Theinterconnectorremunerationrefersto2023andisbasedontheresultsofthereferenceauctionthattookplaceinDecember2022.OnlyregulatedinterconnectioncapacitybetweenFranceandGreatBritainisconsideredonthefigure.ForItaly,thevaluescorrespondtothemaximumlevelsofforeigncapacitythatcouldbecontractedfordeliveryyear2024andtheresultsofthecorrespondingauctionthattookplacein2022.Forthepurposeofforeigncapacityparticipation,theItalianTSOconsidersthefourbiddingzonesconnectedtoItalyNorth(Austria,France,Slovenia,andSwitzerland)asasinglezone,andcalculatesasinglecorrespondingmaximumimportvalue.ForPoland,thevaluesshowncorrespondtotheMECsfordeliveryyear2027andthecorrespondingT-5auctionresultsforthisyear.PolandusesasinglevalueforthesynchronouszonecomprisingtheCzechRepublic,Germany,andSlovakia.OriginalvaluesforPolandwereprovidedinthelocalcurrency;forconversion,theexchangerateof1euro=4.69PLNwasused.50ACERSECURITYOFEUELECTRICITYSUPPLY5.2.3.Obligationsandremunerationofforeignresources141Thissectionreviewstheobligationsonforeignresourcesfortheirparticipationincapacitymechanismsandhowtheirremunerationisdetermined,particularlywhenthereisadivergencewiththatofdomesticresources.Itexamineswhethertheexistingcapacitymechanismdesigns,includingtheauctionconstructs,ensurealevelplayingfieldbetweendomesticandforeignresources.142TheElectricityRegulationprescribesthatforeigncapacitythatcanprovidethesametechnicalserviceasdomesticcapacity,shouldbeabletoparticipateinthesamecompetitiveauctions.Theparticipationofcross-bordercapacityshouldbeimplementedinatransparent,non-discriminatoryandmarket-basedway124.143InBelgiumandPoland,theobligationsonforeignresourcesandtheeligibilitycriteriafortheirparticipation,are,inprinciple,thesameforbothforeignanddomesticresources125.InItaly,theobligationsandeligibilitycriteriaforforeignresourcesaresubstantiallylessdemandingthantheobligationsfordomesticcapacity.ForeignresourcesonlyneedtoberegisteredwiththeItalianpowerexchange,forfinancialpurposes,tobeallowedtoparticipateintheItaliancapacitymechanism.Theyarealsosubjecttothepaybackobligation126,butotherwisehavenofurtherobligation.Forexample,unlikedomesticresources,foreignresourcesdonotneedtoprovephysicalavailabilityinanyofthemarkettimeframes.AccordingtotheItalianauthorities,foreignresourcesareunabletoprovideequivalenttechnicalperformance,whichjustifiestheirdifferenttreatmentcomparedtodomesticresources127.144TheparticipationofforeignresourcesinthecompetitiveauctionsofthecapacitymechanismsdiffersbetweenMemberStates.ThecapacitymechanismsofBelgiumandPolandincludepre-auctionstoidentifythecheapestforeignresourcesperbiddingzoneborder,uptotheMEC128.Theforeignresourcesthatclearthepre-auctioncanthenparticipateinthemainauctionsalongsidedomesticresources129.Ontheotherhand,inItalyandFrance,foreignresourcesandinterconnectorsparticipatedirectlyinthemaincapacitymechanismauctionsrespectively.145Inadditiontothedifferencesintheauctionconstruct,theremunerationrulesforforeignresourcesalsovaryacrossthecapacitymechanismdesigns.IntheFrenchcapacitymechanism,theremunerationofinterconnectorsanddomesticresourcesisthesame130.ThesameistruefortheItaliancapacitymechanism,unlesstheamountofcontractedforeigncapacitymatchestheMECforcertainbiddingzone(s)131.Inthiscase,theremunerationofforeignresourcesfromtherelevantbiddingzone(s)isequaltothehighestacceptedbidfromthatzone132.InthecaseofPoland,theremunerationofforeignresourcesislowerthanthatofdomesticresourcesbydesign.Specifically,foreignresourcesreceivethehighestacceptedbidassociatedwiththebiddingzone(orarea)thattheforeignresourceislocatedin133.TheBelgiancapacitymechanismisdifferentthantheothermarket-widemechanisms,inthatitusesthepay-as-bid,insteadofthepay-as-clear,principle.Resources,bothdomesticandforeign,are124AssetoutinArticle26(8)oftheElectricityRegulation.125TheFrenchTSO,RTE,hascommunicatedthattheobligationsonforeignresourceswillbethesamewiththeobligationfordomesticones,oncedirectforeignparticipationisimplemented.126Thismeansthatforeignresourcesneedtocompensatethecapacitymarketoperator,andultimatelytheItalianconsumers,withthedifferencebetweenthemarket(orreference)priceoftheItalianbiddingzonetheyareconnectedtoandthepre-determinedstrikeprice,whentheformerishigherthanthelatter.Thisfeatureappliestodomesticresourcestooandischaracteristicofthereliabilityoptiontypeofcapacitymechanism.127Formoreinformation,seefootnote103.128Thismeansthataseparatepre-auctiontakesplaceforeachoftheforeignbiddingzones(orareas)thatparticipateinacapacitymechanism.129Inbothcases,foreignresourcesareunabletochangethebidssubmittedinthepre-auctions.ForBelgium,thecapacitiesselectedinthepre-auctionstillneedtopassthefullprequalificationbeforeenteringthemainauction.130RegulatedinterconnectorsarepricetakersintheFrenchcapacityauctionsandalwaysoffertheircapacityinthelastauctionpriortotheyearofdelivery,i.e.,theT-1auctionthattakesplaceinDecemberbeforethedeliveryyear.TheirparticipationandvaluationaremanagedbytheFrenchTSOandanyrevenuesarisingfromtheirparticipationareultimatelypassedontoconsumersthroughreducednetworktariffs.Merchantinterconnectors,ontheotherhand,cansellthecapacityguaranteeslikeanyothercapacityprovider.131Theremunerationofforeignresourcesiscappedatthesamelevelwiththatofexistingresources,i.e.,33,000euros/MW/year.Similarly,whentheforeignparticipationislowerthantheallocatedMEC,theremunerationofforeignresourcesissetatthesamelevelasthatofexistingresourcesoftheinterconnectedItalianbiddingzone.132Orinotherwordsequaltothebidofthemarginalforeignunitthatclearedtheauction,asinapay-as-clearmechanism.133Theonlycasewhereforeignresourcesreceivethesameremunerationasdomesticresources,iswhenaforeignresourceclearstheoverallauction.Inthiscase,foreignresourcesbelongingtosamebiddingzoneanddomesticresourcesreceiveidenticalremuneration.Formoreinformation,seesection5.2.4.51ACERSECURITYOFEUELECTRICITYSUPPLYremuneratedbasedontheirsubmittedbids134.146TheexistingcapacitymechanismstreattheparticipationofforeignresourcesdifferentlywhenthisislowerthantheMEC.TheFrenchandItaliancapacitymechanismsassumethatthecontributionofforeignresourcesequalstheMEC,evenifthisisnotfullyallocatedtoforeignresources,i.e.,participationislowerthantheMEC.Onthecontrary,thePolishcapacitymechanismprocuresadditionaldomesticresourcestocompensateforanylackofforeignresourcesincasetheirparticipationislowerthantheMEC.AdecisionrelatedtothispointisstillpendingintheBelgiancapacitymechanism.147TheElectricityRegulationstipulatesthatcapacitymechanismsshouldallocatetheMECinamarket-basedmannerandthatrevenuesmayarisefromthisallocation135.Theserevenueseffectivelyrepresentthevaluethatforeignresourcesplaceontherighttoparticipateinacapacitymechanism.Currently,norevenuesarisefromtheallocationoftheMECexceptforthePolishcapacitymechanism.Inthelattercase,therevenuesarecalculatedex-postanddependonthecapacityauctionclearingpricesforthePolishandforeignbiddingzones136.148Table4summarisesthekeyfeaturesofmarket-widecapacitymechanismsregardingtheobligationsofforeignresourcesandthewaysinwhichtheyareremunerated.134AccordingtotheBelgiancapacitymechanismregulations,theBelgianTSOistaskedwithinvestigatingthepay-as-clearalternativeinthefuture.Achangeintheremunerationprincipleisnotenvisagedatthisstage.135Article26(9)oftheElectricityRegulation.136Therevenuesaresplitbasedona50-50rulebetweenthePolishTSOandtheTSOwheretheforeigncapacityisbased.52ACERSECURITYOFEUELECTRICITYSUPPLYTable4:ObligationsandremunerationofforeignresourcesinBelgium,France,ItalyandPoland-2022MemberStateObligationsonPre-auctionstoForeignandForeignRevenuesBelgiumforeignresourcesselectforeigndomesticcontributionarisingfromresourcesassumedalwaysallocationofcomparedtoresourcestobeequaltodomesticonesreceivesameMECYesremunerationMECSameNoNoNotdefinedyetAllresourcesremuneratedbasedonpay-as-bidprincipleFranceNAPNoYesYesNoYes,ifcontractedforeigncapacityItalyLimitedobligationsNothieslMowECer.LthoawnerYesNoremunerationiftheymatcheachotherNoForeignPolandSameYesresourcesNoYesreceivelowerremuneration,bydesign(withoneexception)Source:ACERbasedoninformationfromTSOsandNRAs.Note:TheFrenchTSOhascommunicatedthattheobligationsonforeignresourceswillbethesamewiththeobligationfordomesticones,whendirectforeignparticipationisimplemented.149Figure12presentstheMECandrealisedallocatedcapacitiesperforeignbiddingzone,alongsidetheremunerationreceivedfromforeignresourcesforeachcapacitymechanism.ACERobservesthatforeignparticipationhasatinstancesbeenlowerthantheMEC.Forexample,inthecaseofthelatestPolishauctions,participationofforeignresourceswaslowerforbothSwedenandthesynchronouszoneoftheCzechRepublic,GermanyandSlovakia137.Similarly,foreignparticipationfromthesynchronouszoneconnectedtotheNorth-ItalybiddingzonewaslowerthantheallocatedMECinthelatestItalianauction.Withregardtotheremunerationofforeignresources,Figure12clearlyshowsthatthisisoftenlowerthantheremunerationreceivedfromdomesticresources,aswasthecaseinboththelatestauctionsoftheItalianandPolishcapacitymechanisms.RemunerationdataforallconcludedauctionsisavailableinTable18inAnnexI:Additionalfiguresandtables.5.2.4.CaseStudy:AuctionconstructandforeigncapacityremunerationinthePolishcapacitymechanism150ThePolishcapacitymechanismisthefirstonethatalloweddirectforeigncapacityparticipation,asof2020(firstdeliveryyear2025).In2020,onlyresourcesfromLithuaniacouldtakepartinthePolishcapacitymechanism,whilethefollowingyearresourcesfromSwedenwerealsoeligibletoparticipate.GeographicalparticipationinthecapacitymechanismwasextendedtotheCzechRepublic,Slovakia,andapartofGermany(resourcesconnectedtothenetworkofoneoftheTSOs,50Hertz)inthe2022T-5auction.AllGermanresourcesareexpectedtobeabletoparticipateasofthenextT-5auction138.AllGermanresourcesareexpectedtobeabletoparticipateasofthenextT-5auction.ThemechanismconsidersparticipationfromLithuaniaandSwedenseparately,whileresourcesfromtheCzechRepublic,Germany,andSlovakiaparticipatejointlythroughasynchronousprofile.ThismeansthatthePolishcapacitymechanismessentiallydeterminesoneMECforthesynchronousprofile,wherebyresources137Inotherwords,theonlyforeignbiddingzonethatfullyutilisedtheallocatedMEC,wastheLithuanianbiddingzone.138Specifically,thenextT-5auctionisplannedinDecember2023,for2028delivery.53ACERSECURITYOFEUELECTRICITYSUPPLYfromallthreeMemberStatescompeteagainsteachother.151Thecapacitymechanismselectssuccessfulforeignresourcesintwosteps.Inthefirststep,foreignresourcesparticipateindedicatedpre-auctionsperparticipatingcountryorzone.Foreignresourcesbidtheircapacityandofferedprice,andthepre-auctionselectsthecheapestresourcesuptotheMECforeachoftheparticipatingzone,similartoameritordertypeofauctionclearing.Theoutcomeofthepre-auctionsisthereforeacceptedpairsofcapacitiesandofferedprices.152Theforeignresourcesthatweresuccessfulinthepre-auctionsthenparticipateinthemainauction,indirectcompetitionwithdomesticresourcesandforeignresourcesfromtheotherzones.Theobjectiveofthemainauctionistoselectthecheapestresourcesacrossbothdomesticandforeignresourcesthatsatisfythetargetedcapacityrequirement;theauctionisindifferenttowherearesourceisbased.However,unlikedomesticresources,foreignresourcescannotaltertheirbids,eitherfromthepre-auctionorbetweenroundsofthemainauction139.153Ultimately,themainauctiondeterminesoneclearingpriceforthePolishbiddingzoneandoneforeachparticipating,foreignzone.Unlessthemarginalunitthatclearedthemainauctionisfromaforeignzone,theclearingprice(orreward)deviatesfordomesticandforeignresourcesandislowerforforeignresources.Theclearingpriceforeachforeignzoneisdeterminedbythemarginalofferaccepted140.154Asexplained,themainauctionaimsatselectingthecheapestresourcesformeetingthetotalcapacityrequirementindependentofwhetherthesearelocatedwithinPolandorabroad.ThisisalsothecaseifparticipationofforeignresourcesislowerthantheMEC.Inotherwords,thePolishcapacitymechanismwouldprocureadditionaldomesticresourcestocompensateforthelower-than-expectedprocurementofforeignresources.Thiseffectivelylowersthepre-determinedMEC,eventhoughthelatterisindependentofforeignparticipationinthecapacitymechanism(i.e.,thecalculatedMECdoesnotconsideradditionalrevenuesforforeigncapacitiesandthereforeisindependentofthem).155ACERconsidersthatthisconstructcanleadtotheincreaseofthecoststoPolishconsumersintwoways:a.byprocuringmoredomesticcapacities,thuspayingmorethanifoneconsideredthatforeignresourceswoulddelivertheMEC;andb.byincreasingtheauctionpriceforallclearedcapacities,asbydefinitiontheauctionwouldselectmoreexpensivecapacitiestomeetthecapacityrequirement.156ThelatestPolishauctiondidnotfullyutilisetheallocatedMECfortwoofthethreeforeignzonesascanbeseenonFigure12.Thisoutcomecanbeconsideredsurprising,giventhesignificantnumberofcapacitieslocatedinthesebiddingzonescomparedtotheavailableMEC141.ACERbelievesthatthecapacitymechanismauctionshouldconsiderthattheMECisfullyutilisedintheeventoflimitedforeignparticipationtoavoidunnecessarycostincreasestoPolishconsumers142.ThisapproachiscurrentlyfollowedintheItaliancapacitymechanismforexample.Inanycase,thecalculatedMECdoesnotconsideradditionalrevenuesforforeigncapacitiesandtherefore,itshouldbeindependentofthem.157Lastly,ACERconsidersthatthecurrentauctionconstructofthePolishcapacitymechanismputsforeignresourcesatadisadvantage.Foreignresourcesmustdecideontheirofferedpriceswellinadvanceofthemainauction,withpartialinformationcomparedtodomesticresources,e.g.,intermsofthepre-selectedresources143.Moreover,whiledomesticresourcescanadjusttheirbidsbetweenconsecutiveroundsofthemainauction,foreignresourcesareprohibitedfromdoingso.ACERnotes,however,thatthemain139ThePolishcapacitymechanismfollowsaDutch(or“descending-clock”)auctiontypetodeterminetheclearingprice.140FormoreinformationontherulesfortheparticipationofforeigncapacityresourcesinthePolishcapacitymechanism,seethePolishTSO’sassociatedguidance.141ThePolishauthoritieswereunclearaboutthereasonsforthelimitedparticipationofforeignresources.Thismightsimplybeforpracticalreasons,e.g.,becauseforeignresourceswereunfamiliarwiththerulesofthecapacitymechanism,whichcouldbeparticularlytrueintheearlyyearsofimplementation.142Thisdoesnotmeanthatforeignresourcesshouldnotberewardedfortheservicetheyprovide.ACERanticipatesthatasdirectforeignparticipationbecomesmorecommonplaceandcapacitiesfamiliarisethemselveswithcapacitymechanismrules,theissueoflimitedforeignparticipationwilllikelyfadeaway.Inthemeantime,itisprudenttocloselymonitorforeignparticipationandwherethisislimited,investigatethereasonsforitandconsideriftheremightbeaneedforchangestotherulesofacapacitymechanism.143Accordingtothemechanism’srules,thepre-auctionmustbeorganisedbetween16and18weeksbeforethemainauction.54ACERSECURITYOFEUELECTRICITYSUPPLYauctionenablesthedirectcompetitionbetweendomesticandforeignresources144.158ACERconsidersthattheauctionconstructcouldimprovebyfocusingthepre-auctiononallocatingMECtickets,i.e.,foreignresourceswouldcompeteagainsteachotherforthepurchaseofMEC-capacity145.Followingthis,thesecondstepwouldconsistofacompetitiveauctionbetweenallresources,ascurrentlythecase,withthedifferencebeingthatforeignresourcescouldadjusttheirbidslikedomesticresources.Ultimatelyallsuccessfulresourceswouldreceivethesameremunerationfromthecapacitymarketauction,whileforeignresourceswouldpayfortheallocationofMECticketsbasedonthepre-auctionresults.5.2.5.Futuredevelopments159Besidecontinuingtomonitortheimplementationofdirectforeignparticipationinnationalcapacitymechanismsanddrawinglessonsfromnationalpractices,ACERwillalsofollowprogressinthetasksallocatedtoENTSO-EandRCCs.AsdescribedinSection5.2.2,theElectricityRegulationprescribesthattheMECsaretobecalculatedbytheRCCs.BesideanACER-approvedERAA(discussedinSection3.3.1),aMECcalculationprocedure(includingadedicatedcalculationtool)putforwardbyENTSO-EisaprerequisiteforaharmonisedMECcalculationprocess.ENTSO-Eexpectsthatthetoolandtheprocedurewillbeinplacein2024andthatinthesameyear,theRCCswillbeabletoprovidetheMECrecommendations.160ACERwillalsomonitorthestatusoftheregistryofforeigncapacityprovidersmaintainedbyENTSO-E,whichshouldbeexpandedbeyonditscurrentstatus(itcurrentlycoveringonlyunitseligibleforthePolishcapacitymechanism).5.3.Penaltiesincapacitymechanisms5.3.1.Introduction161Capacitymechanismsremunerateresourcestobeavailablewhenneededtosecuresupplies.Conversely,beneficiariesofcapacitymechanismsfailingtoprovidethepaidserviceduringtheseperiodsincurfinancialpenalties.Thisincentivisesbeneficiariestobeavailablewhenneededanddetersthemfromdisregardingtheirobligations.Ultimately,awell-designedpenaltyregimeaimstoensurethatunreliablecapacityproviders,whodonotdeliverontheircommitments,faceappropriateconsequencesfornotcontributingtosecurityofsupply.162TheElectricityRegulationspecifiesthatanycapacitymechanismshouldapplyappropriatepenaltiestocapacityprovidersthatarenotavailableintimesofsystemstress146.TheStateAidGuidelinesofferfurtherinstructions.Inthedocument,theCommissionpromptstoefficientlyincentivisebeneficiariestocontributetothesecurityofsupply,bylinkingtheseincentiveswithVOLL.Whentranslatingthisguidancetopenalties,acapacityproviderunavailableatthetimeofscarcityshouldfaceapenaltyrelatedtoVOLL,asitadequatelyrepresentsthevalueofuninterruptedsupply.163Forthepurposeofthisanalysis,ACERcategorisespenaltiesintotwotypes:non-deliverypenaltiesandnon-performancepenalties.Non-deliverypenaltiesapplywhennewresourcesarenotcommissionedforthecontracteddeliveryperiodorpartofit.Non-performancepenaltiesarecommonlyincurredbybeneficiarieswhentheircontractedcapacityisunavailableduringascarcity(ornear-scarcity)event.Itmatchesthecapacitymechanisms’aimtoremuneratereliableresources.164ThissectionfocusesonthecurrentpracticesregardingpenaltiesasadesignfeatureofcapacitymechanismsimplementedintheMemberStates.Itisdividedintotwosubsections,outliningnon-deliveryandnon-performancepenalties,respectively.Theobjectiveofthissectionistoofferathoroughinsight144Thedirectcompetitionessentiallymitigatesanypotentialconcernsaboutforeignresourcesexertingmarketpowerfollowingthepre-auctions.Asaresultofthepre-auctiononlyalimitedamountofforeigncapacitycanparticipateinthemainauctions,uptotheMECatmaximum,whichcouldraisesuchconcerns.145Asitstands,theMECticketpricesaredeterminedattheveryendoftheprocess,aftertheremunerationforforeignanddomesticresourceshasbeendetermined.ThisapproachessentiallyusesreverseengineeringtoassessthevalueoftheMEC.Theproposedalternativeapproachcloselyresemblestheallocationofcross-zonalcapacityintheforwardmarket,throughauctionsoftheJointAllocationOffice.146Article22(1)(i)oftheElectricityRegulation.55ACERSECURITYOFEUELECTRICITYSUPPLYintovariouspenalties’arrangementsanddrawlessonsbasedoncurrentpractices.5.3.2.Non-deliverypenalties165Penaltiesfornon-deliveryrefertopenaltiesfornewresourcesthatarenotinplaceforthedeliveryperiodtheyhavebeencontractedfor,orpartofit.Astheyrefertonewresources,theyarespecifictomarket-widecapacitymechanisms.Strategicreservesnormallytargetexistingcapacities(e.g.,existingthermalgeneration)andnoneofthemechanismscurrentlyinplaceapplynon-deliverypenalties.166Someofthecommoncharacteristicsofnon-deliverypenalties,describedinthissection,relatetothewaythepenaltiesaredetermined,whenandtheperiodforwhichtheyapplyandtheconditionsunderwhichacontractisterminated147.Inaddition,thissectionexamineswhethernon-deliverypenaltiesconsiderthecostofprocuringnewcapacitytocompensatefortheundeliveredcapacity,whathappensintheeventofnon-deliveryandothersafeguardsinplacetoensurethetimelyreactiontonon-deliveredcapacity.ThesectioncloseswithacasestudyfromtheIrishcapacitymechanism.167Regardingthedeterminationfornon-deliverypenalties,theanalysisidentifiestwomainapproaches.Inthefirstapproach,whichisapplicableintheBelgianandIrishcapacitymechanisms,thepenaltiesarefixedandpre-determined148.Thesecondandmorecommonapproach,however,isthatofvariablepenaltieslinkedtoareferenceprice.Thisreferencepricenormallyrepresentsthecostforsecuringcapacityforadeliveryyear.Forexample,inthecaseofthePolishcapacitymechanism,thepenaltyisdeterminedforeachdeliveryyearandisequaltothehighestauctionpricecorrespondingtothisyear149.IntheFrenchcapacitymechanism,thepenaltyislinkedtothelastT-1auctionpriortotheyearofdelivery150.168Afurtherdistinctionconcerningthesecondapproachisthatthepenaltiescanbedeterminedasapricedifferentialbetweenthereferencepriceandtheawardedpricesecuredbythebeneficiary.TheItalianandFrenchcapacitymechanismsfollowthislatterapproach151,152.Inthesecases,thepenaltymayvarywithinasignificantrange,essentiallyfromzerotothepricecap.169Penaltiescommonlyapplyfromthestartofabeneficiary’scontractandinproportiontothetimethecontractedcapacityisunavailableinayear.Forexample,inthePolishcapacitymechanismbeneficiariesthathavefailedtodelivertheircapacityontime,faceapenaltyforeachmonthofdelayedcommissioning.Forthefirstyearofnon-delivery,themonthlypenaltyis5%oftheequivalentannualpenalty,whilethepenaltiesincreaseforsubsequentyears153.Similarly,intheFrenchcapacitymechanism,thetotalnon-deliverypenaltyisdeterminedinproportiontothecriticaldayswithinayearforwhichtheresourcewasnotyetdelivered154.170Ultimatelyifabeneficiaryisunabletodeliveritscapacitywithinapre-determinedperiod,itscontractis147Anothercommoncharacteristicofnon-deliverypenaltiesisthatnewresourcesmustpayacollateralassecuritytothesystemoperator.Thistopicisnotexploredfurtherinthisreport.148TheBelgianrulesspecifythepenaltyratesdependingontheprojecttype(newcapacitiesincurhigherpenaltiesthanadditionalcapacities),projectprogressandtimeremainingtothedeliveryperiod.Thenon-deliverypenaltiesfornewcapacitiesvarybetween10,000and20,000euros/MW/year.Thelowendoftherangeappliesifthebeneficiarycandemonstratetheyhavemadeeveryefforttoobtaintherelevantpermitsbutdidnotreceivethem.TheIrishcapacitymechanismappliespre-determinedpenaltiesthatincreasetheclosertheterminationofabeneficiary’scontractoccurstothestartoftheircontract’sdeliveryperiod.Formoreinformation,seesection5.3.2.1.149Forexample,thepenaltyforthedeliveryyear2023,issetataround79,000euros/MW/year,basedontheclearingpriceoftheadditionalT-1auctionforthefourthquarterofthisyear.150InthecaseoftheFrenchcapacitymechanism,theDecemberauctionpriortothedeliveryyearisconsideredthereferenceauctionforthedeliveryyear.Thisisbecauseitisthemostliquidauctionandtheonethatinterconnectorcapacityparticipates,amongotherreasons.151IntheItaliancapacitymechanism,beneficiariesthathadtheircontractsterminatedarealsoresponsibleforthepaybackobligationfortheentiredurationoftheiroriginalcontract.152IntheFrenchcapacitymechanism,thenon-deliverypenaltiesapplytocapacitiescontractedthroughtheAOLT(offeringseven-yearcontractstodemandresponseandstoragecapacities)andAOE(offeringone-yearcontractstodemandresponsecapacities,andsince2023ten-yearlongcontractstoo)supportmechanisms.Currently,asignificantpartofdemandresponseiscontractedthroughtheAOEsupportmechanism.153Essentially,ifaresourceisunavailableforthefirstyearofitscontract’sduration,thebeneficiarypays5%oftheequivalentannualincome.Themonthlypenaltyrateincreasesto15%and25%forthesecondandthirdyearofthecontract’sdeliveryperiod.154IntheFrenchcapacitymechanism,thenon-deliverypenaltiesaremeasuredwithreferencetotheresources’availabilityduringcriticaldays,theso-calledPP1andPP2daysthatareapplicableforimplicitandexplicitdemandresponserespectively.Forexample,thecapacitymechanismrulesdetermine15PP1daysperyear:11areselectedfromthe1Januaryto31March,andfourareselectedfromthe1Novemberto31December.Thereare10PP1hoursperday:from7a.m.to3p.m.andfrom6p.m.to8p.m.Forexample,aresourcethatisunavailableduringjustoneofthePP1daysinayearwillpay1/15thoftheannualpenalty.ThePP1andPP2daysarenotifiedonthenationalTSO’swebsite.56ACERSECURITYOFEUELECTRICITYSUPPLYterminated.Forexample,inboththeItalianandIrishcapacitymechanism,thecontractisterminatedifabeneficiaryfailstomakeavailablethebulkofitscapacitywithinacertainperiodfromthestartoftheircontract’sdelivery155,156.171Whenthecontractisterminated,beneficiariesareusuallysubjecttomulti-yearpenalties,insomecasesuptoacertainthreshold.Resourcesthathadtheircontractterminatedpayamaximumoffouryears’worthofpenaltiesfromthedateofthecontractterminationintheFrenchcapacitymechanism,andthreeyearsofpenaltiesinthePolishcapacitymechanism.TherulesoftheItaliancapacitymechanismessentiallymeanthatbeneficiariesmustpaythenon-deliverypenaltiesfortheentiretyoftheiroriginallycontractedperiod,whileintheIrishcapacitymechanismthepenaltyappliesforoneyearonly.IntheBelgiancapacitymechanism,abeneficiary’scontractisterminatedifitfailstomeettheintermediatemilestonerequirementsforthreeyearsinarow.Thebeneficiaryissubjecttomulti-yearpenaltiesinthiscase157.Naturally,beneficiariesthatdelayedthecommissioningoftheircontractedcapacityorhadtheircontractterminatedloseanyrewardsfromtheircapacitymechanismcontractfortherespectiveperiod.172Thewaypenaltiesaredeterminedessentiallymeanstheydonotgenerallyrelatetothecostsincurredforreplacingthenon-deliveredcapacity.IntheItaliancapacitymechanism,thenon-deliverypenaltiesarelinkedtothecostofprocuringreplacementcapacityinthesecondarymarket(formoreinformation,seerecital(176)).Inthiscase,developersthatfailedtodeliverontimeareresponsiblefortheincrementalcostonly,ofprocuringnewcapacity;thisincrementalcostcanvarywithinasignificantrange.Forexample,thefirsttwoauctionsoftheItaliancapacitymechanismclearedattheauctionpricecap,essentiallyrenderingthispartofthenon-deliverypenaltyineffectual(beneficiariesarestillsubjecttothepaybackobligationfortheentiretyoftheiroriginalcontract)158.InthePolishcapacitymechanism,non-deliveredcapacitiesmayfaceapenaltylinkedtotheauctionpricesofthequarterlyyear-aheadauctions,ifthelatterishigherthanthepriceoftheT-5auction.Theyear-aheadauctionsarethedefaultoptiontoseekanyreplacementcapacity,ifneeded(seealsorecital(176)).173Toassesstheriskofnon-delivery,nationalauthoritiesmonitorthedevelopmentofnewresourcesinmostoftheexistingmarket-widecapacitymechanisms.Thiscommonlytakestheformofregular,progressdevelopmentreportsbythedevelopertothecapacitymarketoperator.Forexample,intheBelgianandItaliancapacitymechanismsdevelopersmustdeliverquarterlyprogressreports,andintheIrishcapacitymechanismhalf-annualreports.Moreover,intheIrishandPolishcapacitymarketsdevelopersneedtomeetcertainmilestonesandreportontheirfulfilment159.IntheFrenchcapacitymarket,theTSOisresponsibleforsigningcontractsfornewcapacitiesandmonitorstheirdevelopment,wherebybeneficiarieshavetoinformtheTSOincasetheyarefacinganyissueswiththecommissioningoftheirresources160.Inaddition,beneficiariesareresponsibleforcertifyingtheircapacitiesandinformtheTSOaccordingly.174Intheeventofnon-delivery,thereisagenerallackofspecialarrangementstocompensatefortheundeliveredcapacity.TheapproachfollowedintheIrishandPolishcapacitymarketsistoseekadditional155IntheItaliancapacitymechanism,thecontractisterminatedifthebeneficiaryusesthreetemporarynon-fulfilmentpermits,determinedasdeliveryoflessthan80%ofthecontractedcapacityformorethan25%ofthetimeinamonth.Thiswouldlikelytranslatetotheterminationofacontractifabeneficiaryfailstodeliverthebulkofitscontractedcapacitywithinthefirstthreemonthsfromthestartofitscontract.Someexceptionsapplytothisrule,forexampleinrelationtonon-availabilityduetomaintenance.156IntheIrishcase,thenon-deliverypenaltiesapplyifabeneficiaryisunabletodeliver90%ofitscontractedcapacityby18monthsafterthestartofthecontractforaT-4contract,oronemonthafterthestartofthecontractforaT-1contract.157Beneficiarieshavetomeettheintermediatemilestonerequirements(e.g.,signatureoftheEPCcontract,permitsfortheconstructionoftheprojectdeliveredinthelastadministrativeinstance)26monthsaheadofthestartofthedeliveryyear.Ifabeneficiaryfailstomeettheserequirements,thestartofitscontractisdelayedbyoneyearwhiletheendperiodremainsthesame,essentiallyshorteningtheoveralldurationofthecontract.Beneficiariesthathavetheircontractterminatedfacepenaltiesfornotmeetingtheintermediatemilestonerequirements,theso-calledpre-deliverypenalties,whicharehalfthepenaltiesapplyingfornon-deliveryattheendofthepredeliveryperiod.Inaddition,theyaresubjecttothenon-deliverypenaltiesforoneyear(thefirstyearofdelivery).SimilarlytotheItaliancapacitymechanism,beneficiariesthathadtheircontractterminatedarealsosubjecttonon-performancepenaltiesfortherestoftheoftheircontractduration(formoreinformation,seesection5.3.3).Beneficiarieshavetorighttoterminatetheircontract30daysafterthedeadlinefortheintermediatemilestone,uponwhichtheyonlyfacetheapplicablepenaltiesuntilthatpointintime.158Theauctionpricecapalsosetstheceilingforprocuringanyreplacementcapacitythroughthesecondarymarket.159Forexample,inthePolishcapacitymarket,thedeveloperofanewresourceneedstoprovideevidencewithin24monthsofconcludingthecontractthat:i)ithasreachedacapitalexpenditureofatleast10%oftherequiredinvestment;andii)ithasconcludedagreementsrelatedtotheinvestmentwithatotalvalueofatleast20%oftherequiredinvestment.Failuretoprovidethenecessaryevidenceleadstotheterminationofthebeneficiary’scontract.160Asalreadynoted,non-deliverypenaltiesonlyapplytodemandresponseandstorageintheFrenchcapacitymechanism,asnewfossilfuelpowerstationscannotparticipateinthemechanism.57ACERSECURITYOFEUELECTRICITYSUPPLYcapacityinthecomplementaryT-1auctionifneeded,thatisclosesttothedeliveryyear161.IntheItaliancapacitymechanism,theTSOisresponsibleforprocuringreplacementcapacityintheeventofnon-deliverythroughthesecondarymarket,whereitactsasapricetaker162.Finally,intheFrenchmarket-widecapacitymechanismthatdiffersfromtherest,inthatitisadecentralisedone,theobligationtoacquirecapacitycertificatesrestswiththesuppliers163.Table5:Keycharacteristicsofnon-deliverypenaltiesacrossmarket-widecapacitymarketsinBelgium,France,Italy,IrelandandPoland–2022MemberDeterminationConditionsDurationofPenaltiesActiveProcedureStateofnon-forcontractpenaltiesconsidermonitoringofinplacetodeliveryterminationapplyingthecostofbeneficiaries’compensateBelgiumpenaltiesuponcontractprocuringundeliveredterminationreplacementdeliveryincapacityFrancecapacityplaceItalyPre-FailuretomeetPre-deliveryNoNormallyIrelanddeterminedintermediatepenaltiesforPolandfixedpenaltiesmilestoneNoYesthroughT-1maximumVariable–requirementsforofthreeOnlyauctionlinkedtoathreeyearsinyearsplusincrementalreferencepricearownon-deliveryObligationforadeliverypenatlyforonecostyearandOntheinitiativeYesrestswithcontractpriceofbeneficiaryyearNosuppliersVariable–FailuretomakeMaximumfourShareoflinkedtothebulkofcapacityyears’worthofreplacementTSOpurchasespremiumforcosts,underreplacementcontractingavailableforpenaltiesconditionsreplacementthreemonthsYescsaepcaocnidtyariynOriginal(implicit)marketifcapacityFailuretomakecontractavailablebulkofcapacitydurationPre-availablewithinNormallydetermined,Oneyearfixedpenalties18monthsYesthroughT-1FailuretoThreeyears’Variablecommissionworthofauction–equaltobulkofcapacitypenaltieshighestauctionwithinthreeNormallypriceforaYesthqruoaurgtherTly-1deliveryyearyearsauctionsSource:ACERbasedoninformationfromNRAsandTSOs.Note1:Commonly,beneficiariescanterminatetheircontractontheirowninitiative,forexample,intheBelgian,FrenchandIrishcapacitymechanisms.Note2:FortheIrishcapacitymechanism,thecontractterminationruleappliesforresourcesthathavewonacontractattheT-4auction.ForresourcesintheT-1auction,thecut-offdateisonemonthafterthestartofthedeliveryperiod.Note3:FortheFrenchcapacitymechanism,thepenaltiesincaseofcontractterminationapplytobeneficiariesoftheAOLTsupportmechanism.Note4:ForthePolishcapacitymechanism,ontopofthepenaltiesapplyinguponcontracttermination,thecapacitymarketoperatoralsoseizesthecollateralpaidbythebeneficiary.Forunconfirmeddemandside-responseinparticular,thecontractisterminatedifthecapacityproviderhasnotobtainedtheconfirmationofthedemandreductioncapacitytestbeforethestartofthedeliveryperiod.Note3:ForthePolishcapacitymechanism,ontopofthepenaltiesapplyinguponcontracttermination,thecapacitymarketoperatoralsoseizesthecollateralpaidbythebeneficiary.161TheT-1auctionisacommonfeatureinmostmarket-widecapacitymarkets,aimedatrefiningthecapacityrequirementbasedonupdatedandrecentinformation(e.g.,ontheexpecteddemandlevelsandavailablecapacity).162Essentially,theItalianTSOwouldbuyreplacementcapacityatanypriceuptothepricecapfornewresourcesasdefinedinthemechanism’srules.TheItalianTSOcanalsorunanadjustmentauctionpriortothedeliveryyearifdeemednecessary.163Non-deliveredcapacitycannotsellcertificatesinthecapacitymechanismauctions,andassuch,itdoesnotaffectasupplier’scertificatesposition.58ACERSECURITYOFEUELECTRICITYSUPPLY5.3.2.1.Casestudy:Non-deliverypenaltiesintheIrishcapacitymechanism175TheIrishmarket-widecapacitymechanismhasbeeninoperationsince2018,replacingthecapacitypaymentmechanismthatwasinplacesince2007.ThefirstT-4auctionwasfordeliveryyear2022/2023andprocuredjustover700MWofnew(de-rated)capacity.Around500MWofthiscapacity,predominantlygas-firedpowerplants,failedtobecommissionedontimeandtherelevantcontractswereterminatedaroundoneandahalfyearspriortothestartofthedeliveryyear164.Asaresult,theundeliveredcapacityfacedapenaltyof10,000euros/MW165.176Intheshort-term,thesecurityofsupplyoutlookfurtherdeterioratedbytheacceleratedgrowthofdemand,primarilyfromdatacentres,andlower-than-projectedavailabilityofolder,existinggeneration.Inaddition,someofthesubsequentcapacitymarketauctionsfailedtoattracttherequiredcapacity,thusfurtherexacerbatingthesituationinthefuture.Asaresult,theTSOsoftheall-islandSingleElectricityMarketprojectedasignificantcapacitydeficitintheir2021GenerationCapacityStatement166.Theprojectedsupplydeficitwasexpectedtogrowrapidlyfromaround260MWindeliveryyear2022/2023to1850MWindeliveryyear2024/2025167.177Inreactiontothepotentialcapacityshortfall,theIrishauthoritiesemployedaplantoaddresstheincreasedrisksintheshort-andmedium-termandstrengthenthecountry’ssecurityofelectricitysupplyoverthelonger-term.Fortheshort-term,themostimportantmeasureappliedistheprocurementoftemporaryemergencygeneration.Specifically,thenationalTSOprocured250MWofcapacityforthe2022/23and2023/24wintersandhavesignedinitialequipmentcontractsforanadditional450MWforwinter2024/25168.Thiscapacityconsistsprimarilyofgas-firedpowergenerationandthetotalprocurementcostisexpectedtovary/exceedXYZ169,170.178Inaddition,thenationalauthorities,haveputanumberofothertemporarymeasuresinplacetoaddressthepotentialcapacityshortfallintheshort-term.Theseincluderetainingexistinggenerationunitsthatwouldotherwiseshutdownprimarilyduetoenvironmentallegislation,foremergencyuseonly,andimplementingchangestotheregulatoryframeworkfordemandresponse(e.g.,enablingtheparticipationofdemandresponseintheenergymarket)toenhanceitsparticipationandresponsivenessinthewholesalemarket171.179Forthelongterm,theIrishauthoritieshavedeterminedthedevelopmentofnewgas-firedgenerationoutto2030asakeyoverarchinggoal,alongsidethedeploymentofnewresources,suchasstorageanddemand-sideresponse172.Toachievethesegoals,theauthoritieshaverefinedthedesignofthecapacitymarkettoensuresuccessfuldeliveryofthiscapacityandarecontemplatingfurtheradjustmentsforthefuture.180Regardingthenon-deliverypenalties,thenewrulesintroducehigherandmoregradualpenalties.Theyestablishdifferentpenaltyratesfortheterminationofcontracts,dependingonthetimingofthecontract164Thereasonsforthefailuretodeliverthenewcapacityvary.Forexample,someofthenewcapacitycouldnotguaranteeitwouldmeettheenvironmentalrequirementsoftheapplicablelegislation,andotherfacedlengthydelayswithreceivingthenecessarypermits.Formoreinformation,seeforexample,ErnstandYoungs’sReviewofthePerformanceoftheIrishcapacitymarket,commissionedbytheIrishNRA.165Someoftheundeliveredcapacityparticipatedinlaterauctionsandreceivedsignificantlyhigherremunerationthantheoriginalcontractprice.Ibid.166EirGridandSONI,All-IslandGenerationCapacityStatement2021-2030.167Formoreinformation,seeforexample,CRU’s2021InformationPaperonSecurityofElectricitySupply–ProgrammeofActions168Ultimately,thetemporarygenerationprocuredforwinter2022/2023wasnotdeliveredontime.Workisunderwayinvolvingmultiplestakeholders(e.g.,siteownersanddevelopers,systemoperators),todeliverthistemporarygenerationcapacityasquicklyaspossible,withthemajorityaimedfordeliveryinthelastquarterof2023.169.TheIrishNRA,ElectricityTransmissionNetworkAllowedRevenuesfor2023AndDemandTransmissionUseofSystem(D-TUoS)Tariffs2022/23.For2022,theprojectedcostsfortheprocurementoftemporarygenerationwere115millioneuros,andfor2024,theprojectedcostsfortemporarygenerationamounttoaround372millioneuros.Forreference,thetotalcostoftheIrishmarket-widecapacitymechanism(concerningtheAll-IslandSingleElectricityMarket)hashistoricallybeenaround350millioneurosforadeliveryyear(seealsoFigure4formoreinformation).170Intermsofoperation,thetemporaryemergencygenerationisplacedoutsidethewholesalemarket,meaningitcannotparticipateineithertheenergymarket,capacitymarketortheancillaryservicesmarket.Accordingtotheassociatedrulesofoperation,thetemporaryemergencygenerationshouldonlybeutilisedbythenationalTSOwhenitisclearthatmarketresourceswillbeinsufficienttomeetexpecteddemand.171Foramorecompletedescriptionoftheshort-termmeasuresintroducedbythenationalauthorities,seeforexampletheCommissionforRegulationofUtilities’dedicatedwebpageontheElectricitySecurityofSupplyProgrammeofWork(includingtheoriginalworkprogrammeandupdatenotes).172Ibid.59ACERSECURITYOFEUELECTRICITYSUPPLYterminationwithregardstothestartofthecontract’sdelivery173.Table6belowpresentstheapplicablenon-deliverypenaltiesforthefirst(2022/2023delivery)andlatest(2027/2028delivery)T-4auctions174.Table6:Non-deliverypenaltiesintheIrishcapacitymechanismfortwodeliveryyearsNon-deliverypenalties(euros/MW)–T-4auctionforT-4auctionforexpressedwithregardstobeginning2022/2023delivery2027/2028deliveryofdeliveryyearPriorto27months10,00020,000Between27and13monthsprior30,000From13monthsprior,30,00040,000tobeginningofdeliveryyearFrombeginningofdeliveryyear40,00050,000Source:ACERbasedoninformationfromNRAsandTSOs.181Tocomplementthechangestothenon-deliverypenalties,theIrishauthoritieshaveintroducedmorerigorousassessmentoftheriskstonon-deliveryandenhancedmonitoringofthedevelopmentprogressfornewresources.Moreover,theyhavedecidedtoperformtheT-4auctionsearliertoprovideforamorerealistictimelineforthedevelopmentofnewresources175.Finally,theyareconsideringfurtherchangestotherulesofthecapacitymechanism,suchasarequirementfornewresourcestohaveallnecessarypermissionstoprequalifyinthecapacitymarketauctions.182TheIrishcasestudyofferssomeimportantinsights.Thenon-deliveryofnewresourceshasunderminedsecurityofsupplyinIrelandandledtoaflurryofemergencyactionstodealwiththeincreasedriskstosecurityofelectricitysupply.Theseactions,suchastheprocurementoftemporarygeneration,havecomeatasignificantcosttoconsumers,amultipleoftheoriginalcostforsecuringnewresources.Thiscanbeprimarilyattributedtotheshorttimeframetodeploytheseresources,limitingtheavailableoptionsandcompetition,consequentlyleadingtothedeploymentofmoreexpensivesolutionsoverall.Moreover,someofthesemeasurescouldhaveadverseeffectsonthecountry’semissionsbudgetandemissionsreductiontrajectory,astheyrelyonrunningmorepolluting,orlessefficient,generationtechnologies176.183Thiscasestudyprovidesstrongevidenceaboutthebenefitsofwell-designed,non-deliverypenaltiestoensuredevelopershavetherightincentivesinplacetoensuretheircapacitiesaredeliveredontime177.Ontheotherhand,lenientpenaltiescouldleadtolessrobustoffersbymarketparticipants178.Ultimately,ifnewresourcesfailtobecommissionedontime,thiscouldhavesevererepercussionsforsecurityofsupplyandleadtosignificantlyhighercostsforconsumers.ACERisoftheviewthatnon-deliverypenaltiesshouldbesetatanadequateleveltodeternon-robustorspeculativebidding.Additionalsafeguardsintheformofongoingmonitoringandriskassessmentsrelatedtothedeliveryofnewresourcescanalsoplayanimportantroletomitigaterisksandreactinatimelymanner.173Thegraduallyincreasingpenaltiesaimatprovidinganincentivetobeneficiariestoterminatetheircontractbeforethecut-offdateforthenexttime-step.174Formoreinformation,seeforexampletheapplicablepenaltiesforthelatestT-4auction(Table20ofthe2027/2028T-4CapacityAuction-InitialAuctionInformationPack).175ThenewruleshavebroughtforwardtheT-4auctionbyaround4months,essentiallyallowingaroundfouryearsforthecompletionofnewprojects,i.e.,fromtheannouncementoftheauctionresultstothestartofthedeliveryyear.176Asexplained,thetemporarygenerationwouldonlyrunasalast-resortsolution,ifthemarketisunabletomeetdemand.Asaresult,itsoperationcanbeexpectedtobelimited.177Stringentpenaltiesmayalsohavedownsides,suchasleadtooverallhigherbidstoaccountfortheriskassociatedwithhigherpenalties.Ontheotherhand,capacitymechanismsalreadyimplyatransferofriskfrominvestorstoconsumers,throughtheimplementationoflong-termcontracts(effectively,consumershavetopayfornewinvestmentsforalongperiod,independentoftheneedfortheseresources).Moreover,investorsarenaturallybetterplacedtomanagetherisksassociatedwiththeirinvestments,andthereforeshouldalsofacethem.Therulescouldallowflexibilityforrisksthatareoutsidethecontrolofinvestors(e.g.,risksassociatedwithextremeexternalconditions,suchastheonesexperiencedrecentlywithCOVID-19).178Thisisoftenreferredtoaswinner’scurse,wherebybiddersareover-optimisticabouttheirabilitytodelivertheircapacityontime,tosecureacontract.60ACERSECURITYOFEUELECTRICITYSUPPLY5.3.3.Non-performancepenalties5.3.3.1.Deliveryperiodandsystemstress184Resourcesunavailablewithintheperiodcoveredbythecapacitycontractarecommonlysubjecttonon-performancepenalties.Capacitymechanismrulesspecifywhenrelevantsystemormarketoperatorhasaright,orrequirement,tocallupontheproviderstomaketheircapacitiesavailable.Inprinciple,afailuretofulfilthecontractualobligationshouldbepenalisedwhenthesystemisinunderstress179.185TheEuropeanframeworkdoesnotprescribehowtodefinesystemstress180.Therefore,itisuptotherulesofeachcapacitymechanismtoindicatewhenthebeneficiariesareanticipatedtofulfiltheirobligation,i.e.,providecapacity.Theserulesfirstspecifythedeliveryperiod,thatisthetimewhencontractedresourcesshouldremainavailable(seeFigure13).Second,nationalruleslaydownconditionsthattriggerexpectationofperformance(seeTable7andTable8).Inotherwords,thesepredefinedtriggeringconditionsindicatesystemstresssuchasanticipatedmarkettightness.Onlywhenatriggeringeventtakesplacewithinadeliveryperiod,docapacityprovidershaveanobligationtoperform.Providersthatdonotfulfilsuchanobligation,incurnon-performancepenalties181.186Figure13presentsthedeliveryperiodsascurrentlydefinedinthenationalcapacitymechanisms.InsixMemberStates,beneficiarieshavetoremainavailableallyearround.Inprinciple,thisimpliesthatbeneficiarieshavearesponsibilitytoproviderequiredcapacity,regardlessofwhenthetriggeringconditionoccur182.InFranceandSweden,thedeliveryperiodlargelycoincideswiththewintermonths,duringwhichthelikelihoodofresourceadequacyrisksmaterialisingishigher,asbothpowersystemsarewinterpeaking183.Figure13:DeliveryperiodsacrosscapacitymechanismsintheEU-2022Source:ACERbasedoninformationfromNRAs.187Theoverviewoftriggeringconditionsexhibitsdivergentdefinitionsofsystemstress.TherulesfortheFinnishstrategicreservedifferentiatebetweenwinterseason(1Decemberto28February)andtherest179Article22(1)(i)oftheElectricityRegulation.180In2014,theCouncilofEuropeanEnergyRegulatorscarriedoutananalysisontheassessmentofgenerationadequacy.ItshowedthatbeforetheadoptionofcurrentEuropeanlegalframeworkMemberStateshaddivergingviewsonthedefinitionofsystemstress(ref.https://www.ceer.eu/documents/104400/-/-/a9517a5f-5a98-2974-dd61-e085c7971b53).Themostcommonindicatoratthetimerelatedtosystemstates(suchasnormal,alert,oremergencystate)aslaiddownbyRegulation(EU)2017/1485.181Inpractice,ifFrenchcapacitymarketoperatorexpectstightnesson21Juneandcallsuponcapacityproviders,theydonothaveanobligationtoperformandhence,donotincurpenaltiesasJuneisoutsidethedeliveryperiodinFrance.182Thisdoesnotmeanthatthedeliveryperiodisthesamewiththecalendaryear.Forexample.thePolishcapacitymechanismdefinesthedeliveryperiodasthecalendaryear,whiletheIrishcapacitymechanismdefinesthedeliveryperiodbetweenthebeginningofOctoberandendofSeptemberofthenextyear.183ThismeansthatbothMemberStatesexperiencehigherdemandlevelsduringthewinterseason,whichisoneofthekeydriversofadequacyrisks.61ACERSECURITYOFEUELECTRICITYSUPPLYoftheyear,withthewinterrequirementsbeingsignificantlymoredemanding184.TheFinishTSOmayrequestbeneficiariestoprovidecontractedcapacities,whenitassessesthatthebalancingresourcesarelikelytobeexhaustedinthegivenperiod.TheGermanstrategicreserveframeworkmandatesproviderstobeavailableallyearroundwithactivationannouncedattimesofscarcity.InGermany,scarcityisdefinedasasituationwhenthereisnomarketclearinginday-aheadorintradayauctions.InSweden,resourcesparticipatinginthestrategicreservehavetoremainavailableforthewinterseason,whendemandtendstobehighestcomparedtotherestoftheyear.188Market-widecapacitymechanismscommonlyapplysomereferencetoscarcityorotherlimitationsthatcouldbeconsideredsystemstress.InPolandandFrance,thecapacitymarketoperatorscallforavailabilitywhenday-aheadforecastsindicatesystemtightness.ProviderscontractedonPolishcapacitymarketarecalleduponwhentheforecastavailablegenerationintheday-aheadtimeframedoesnotexceedprojecteddemandbymorethan4%185.InPoland,theoperatorcanissueacapacitymechanismalert(requestingthatallbeneficiariesbeavailabletogenerateelectricity)atanytimeoftheyear.TheFrenchoperatorrequiresbeneficiariestobeavailableonspecificdaysofexpectedhighdemandorsystemtension,bysendingthemaperformancerequestonedayinadvance.RulesinFrancestipulatethattheoperatorcancallbeneficiariesbetween15and25daysinthewinterperiod.189AccordingtothedesignoftheBelgian,ItalianandIrishreliabilityoptioncapacitymechanisms,resourcesareexpectedtoprovidecapacityatanytimethesystemoperatesundertightconditions.Suchtightconditionsshouldbereflectedinthewholesaleprices,incentivisingbeneficiariesofthesecapacitymechanismstoperformasthemarketpricerisesagainstthestrikeprice(formoreinformation,seerecital(196)).Inaddition,theBelgiancapacitymechanismincludesanexplicitdefinitionofsystemstressperiod,referringtohourswhentheday-aheadpriceexceedsapredeterminedthreshold186.5.3.3.2.Penaltiesforunavailabilityduringsystemstress190Non-performancepenaltiesorpenaltiesforafailuretofulfiltheobligationattimesofsystemstressserveasadeterrenttounreliablecapacityproviders.Effectivedesignofnon-performancepenaltiesstimulatesappropriatereactionofresourcestosystemtightness.191TheStateAidGuidelinesrequiretolinknon-performancepenaltieswithVOLL.Thus,theconsequencesbeneficiariesfacefortheirunavailabilityreflectsthevalueofenergynotsuppliedduringsystemstress.AccordingtotheresponsesprovidedbytherelevantNRAs,noneoftheexistingcapacitymechanismsintheEUassociatestheamountofnon-performancepenaltywithVOLL.Nevertheless,onecanconsiderwhetherreasonablyhighpenaltyratesandwell-craftedframeworksprovidesufficientdisincentivestobeunavailableduringsystemstressperiods.Moreover,theStateAidGuidelinesrequirethatnon-performancepenaltiesgenerallyaccruefromimbalancesettlementprices,toavoiddistortionstothefunctioningofthewholesalemarket.192Nationalschemesemployvariouscalculationmethodswhenpenalisingunavailability.ProvidersinFinlandfailingtofulfiltheirobligationforlessthananhour,losetheirremunerationforthathour.Shouldthefailurelastoveranhour,theproviderlosestheremunerationforanentiredaywhenthecapacitywasnotprovided.Inaddition,nationalrulesconsiderbeneficiariesresponsiblefortheirimbalancesandimposerelevantimbalancecosts.193Theremainingstrategicreserveschemesdonotincludeimbalancecostsincasesofunavailability.InGermany,thenon-performancepenaltyisequalto15%oftheannualremunerationreceivedbythebeneficiaryandisapplicablewhentheresourceisnotfullyavailableattimeofsystemstress.InSwedenthecapacitymechanismoperatorappliesafixedratetochargeforanyunavailableenergyvolumes,whichisafractionoftheMemberState’sVOLL.Table7showsprincipaldesignelementsofthenon-performancepenaltiesintheapplicablestrategicreserves.184Duringwinter,resourcesshouldbeavailabletoprovidecapacitywithin12hoursoftheoperator’scall.Outsidethewinterseason,theoperatorhastherighttorequestcapacityproviderstoachievethe12-hourreadinessinamonth.185Acallforavailabilityisalsopossiblewhenthisdiscrepancyrangesfrom5%to9%.186ComparedtothePolishandFrenchcapacitymechanisms,theBelgianrulesspecifyastressperiodmoregranularlyascapacityprovidersareexpectedtoremainavailableduringeveryhourofexpectedscarcity.62ACERSECURITYOFEUELECTRICITYSUPPLYTable7:Keycharacteristicsofnon-performancepenaltiesacrossstrategicreservesinFinland,GermanyandSweden-2022MemberStateTriggeringconditionsPenaltyfornon-IncurringApplicationofperformanceimbalancecostspenaltyceilings(pernon-availablevolume)FinlandAcotibveligtahtriooungpheoruiotdtheLossofremunerationYesYes15%ofannualremunerationGermanyScarcitysituationPenalty:0.15Xeuros/MWNoYesAnnualremuneration:Xeuros/MW/annumSwedenActivethroughouttheFixedrateNoYesobligationperiodPenalty:170euros/MWhSource:ACERbasedoninformationfromNRAs.Note:Forthecomparisonpurposes,thepenaltyrateinSwedenwasconvertedfromSwedishkronastoeurosattherate1euro=11.76Swedishkronas.194InformationprovidedbytherelevantNRAsshowsthatreliabilityoptioncapacitymechanismsapplyadifferentapproachtoothertypesofexistingmarket-widemechanisms,regardingnon-performancepenalties187.InBelgium,ItalyandIreland,theimplementationofreliabilityoptionsinvolvestheapplicationofapaybackobligation.Atitscore,thereliabilityoptionguaranteesafixedincomeforbeneficiaries,basedontheauction’sclearingprice,tocompensateforinsufficientrevenuesintheelectricitymarket(“themissingmoney”).Inreturntotheserevenues,beneficiariesarerequiredtopaythecapacitymechanismoperatorthedifferencebetweenamarketreferencepriceandapre-determinedstrikeprice,whentheformerrisesabovethelatter.Inotherwords,thepaybackobligationprovidesconsumerswithapricehedgeagainsthighwholesaleelectricityprices.195Intermsofperformance,providersthatgenerateelectricityreceivethemarketpriceandhencecancoverthepaybackobligationfromtheirrevenue.However,non-performingprovidersdonotreceivethemarketpricebutarestillresponsibleforcoveringthedifferencebetweenthemarketpriceandstrikeprice.Thepaybackobligationessentiallyactsasanon-performancepenalty.Inprinciple,onewouldexpectthemarketpricetoriseproportionallytomarketscarcity,resultinginawidergapbetweenthemarketpriceandstrikeprice,andhence,anincreasingpenaltythetighterthesystemgets.Inthisway,thepaybackobligationincentivisesbeneficiariestorespondtoincreasingsystemtightness.Ingeneral,thenon-performancepenaltiesinthereliabilityoptiondesignarealignedwiththeStateAidguidelines.196Ontopofthepaybackobligation,theBelgiancapacitymechanismappliesasecondtypeofnon-performancepenalties.Resourcesunavailableattimesofsystemstress(asexplainedinrecital(191))incuradditionalnon-performancepenaltiesbasedprimarilyonaformulareflectingtheactualremunerationoftheunit,theseasonduringwhichthebeneficiary’scapacityisunavailable(i.e.,winter/non-winter)andpotentialnotificationsaboutunavailablecapacity188.197Unlikethereliabilityoptiontypeofcapacitymechanisms,thePolishandFrenchmarket-widecapacitymechanismsdetermineanon-performancepenaltyrateoutsidethewholesaleelectricitymarket.InPoland,theNRAcalculatesthepenaltyratebasedonaformulathatreflectsthegrossdomesticproductvalueperunitofelectricityconsumedforthesamereferenceyear.Thisformulaessentiallyseekstorepresenttheeconomicbenefitderivedfromelectricityconsumption.InFrance,aproviderpaysa187Inallcases,theNRAshavereportedthatbeneficiariesaresubjecttoimbalancecostsbasedonthenationalwholesalemarketrules.Essentially,non-performancepenaltiesandimbalancecostsaretreatedseparately.188Theformulaisdesignedtoimposeahigherpenaltyonunitsthatreceivehigherremuneration,unitsthatareunavailableduringthewinterseason,andunitsthathavenotnotifiedtheirunavailability.63ACERSECURITYOFEUELECTRICITYSUPPLYnon-performancepenaltyinproportiontoitsunavailabilityduringthecriticaldayswithinthewinterperiod189.Theannualpenaltyrateissetat120%ofthereferencepriceforadeliveryyearandisbasedonthedifferencebetweenthedeclaredandeffectiveavailability190,191.Asaresult,beneficiariesthatareunavailableattimesofscarcityfaceapenaltythatisafractionoftheVOLLandsignificantlylowerthanthecostsfacedbythepowersystem192.198Table8providesanoverviewofthekeyfeaturesofnon-performancepenaltiesinthemarket-widecapacitymechanisms.Table8:Keycharacteristicsofnon-performancepenaltiesacrossmarket-widecapacitymechanismsinBelgium,France,Ireland,ItalyandPoland-2022MemberStateTriggeringconditionsPenaltyfornon-ApplicationofpenaltyBelgiumperformance(pernon-ceilingsHighday-aheaddemandforecastavailablevolume)YesFormulatakingaccountoftheactualremunerationofaprovider,notified/unnotifiedunavailablecapacityandtimeoftheyearMarketpriceabovetheDifferencebetweenreliabilityoptionstrikepricemarketreferencepriceandstrikepriceHighday-aheadFrancedemandforecast120%ofthepriceofthelastYesSystemconstraintsT-1auctionprojectedforday-aheadMarketpriceabovetheDifferencebetweenIrelandreliabilityoptionstrikepricemarketreferencepriceYesandstrikepriceMarketpriceabovetheDifferencebetweenItalyreliabilityoptionstrikepricemarketreferencepriceNoandstrikepriceHighday-aheadAnnuallycalculatedratedemandforecastPolandCurrentpenalty:Yes1,015euros/MWhSource:ACERbasedoninformationfromNRAs.Note:PolishNRArecalculatestheapplicablerateeveryyear.Providedvalueisa2023penaltyrateconvertedfromPolishzlotystoeurosbythereportingNRA.189Formoreinformation,seefootnote154.Therationaleoftheunavailabilityisthesamewiththatusedtodeterminethenon-deliverypenalties.190Theframeworkessentiallysetsanannualceiling.Ifabeneficiary’sequivalentavailabilityduringthecriticaldaysis95%ofthecontractedcapacity,itwouldpay5%oftheannualceiling.ThereferencepricereferstothelastT-1auctionpricebeforeagivendeliveryyear.Thepriceofthisauctionisconsideredarobustreferencesinceittendstodrawthehighesttradingactivity.191Thepenaltyiscalculatedthreeyearsafterthedeliveryyear.Nevertheless,theproviderhasthepossibilitytoredeclare(i.e.,reduce)itsavailabilityinduetimeandpayareducedpenalty.Thereducedpenaltyrangesupto20%ofthemarketreferenceprice.Whenredeclaring,theprovidermustbuycertificatestocoverthedifferencebetweentheoriginallycontractedcapacityandtheredeclaredoneifitislessavailablethanexpected.192Forexample,thePolishregulator,URE,hasestimatedthecurrentnon-performancepenaltyratetobeequaltoaround1,015euros/MWh.ThisissignificantlylowerthantheVOLL,assuggestedbythecurrentreliabilitystandardinPoland,whichisaround22,000euros/MWh(thecurrentPolishreliabilitystandard,setbeforetheapprovaloftherelevantmethodologiesbyACER,isequaltoaLOLEof3hours/year;theCoNEwasestimatedataround65-70euros/MW/yearatthetimeofStateAidapproval).64ACERSECURITYOFEUELECTRICITYSUPPLY5.3.3.3.Othersafeguardstoensureperformance199Besidesthepenaltiesfornon-availabilityattimesofsystemstress,capacitymechanismscommonlyfeatureadditionalmeasurestoensuretheperformanceofconcernedresources.Accordingtothecurrentschemes,relevantcapacitymarketoperatorsorotherdesignatedentitiesmonitortheavailabilityofcapacityprovidersthroughoutthecontractedperiodandrundedicatedtests.Table9belowpresentsthesemeasures.200MostconcernedNRAsreportedthecontinuoustrackingofresources’availabilityoverthedurationofthecontract193.ACERconsiderssuchongoingoversightagoodpractice,indirectlydeterringanypotentialbreachoftheobligationssinceitallowstodetectpossibledeviationsfromagreed-uponterms.Possibly,thesedeviationscanbetrackedbeforetheactualsystemstress.Asanaccountabilitymeasure,monitoringfostersasenseofresponsibility.InSweden,wherethedeliveryperiodisshortestintheEU,thetransmissionsystemoperatordoesnotresorttocontinuousoversightasabreachofobligationmayresultincontracttermination.Thisismeanttoincentivisebeneficiariestoremainavailablethroughoutthewintermonths.201Dedicatedtestsonbeneficiaries’performanceandreadiness,andassociatedpenalties,furtherenhanceaccountability.Forexample,inFinlandandSweden,capacityprovidersaresubjecttotestspriortotheobligationperiod,i.e.,thewinterseason.Additionally,theFinnishsystemoperatormaytestresources’availabilityonetimeduringtheobligationperiod.TheSwedishcapacitymechanismincludessupplementarypenaltiesifaproviderfailsatest.InIreland,onlynewcapacityhastoproveitselfbeforeachievingsubstantialcompletion.Whilethereisnotestingregimeinplaceforexistingcapacities,theIrishauthoritiesareconsideringtheintroductionofadditionaltestingobligations202Thenumberofpossibletestsisusuallylimited.InGermany,beneficiariesaresubjecttotwotestsperyear,whereasinPoland,therecanbeuptoonetesteverythreemonthsofacalendaryear.Inbothcases,providersthatdonotpassthetestincurpenalties.TheFrenchcapacitymechanismincludestestsforresourcesnotscheduledtogenerateduringtheso-calledcriticaldaystoascertaintheiravailability.Forscheduledresources,theoperatorconductsrelevantmeasurementsduringthecriticaldays.Table9:OthermeasuresensuringperformanceacrosscapacityintheEU.MemberStateMonitoringofTestingConsequencesoffailureavailabilityAssociatedpenaltiesAssociatedpenaltiesBelgiumYesRelevanttestsarecarriedoutAssociatedpenaltiesTestaheadofobligationperiod;inFinlandYesaddition,operatormaytestonceduringtheobligationperiodGermanyYesTwotestsperyearSwedenNoTestaheadofobligationperiodAssociatedpenaltiesFranceYesRelevanttestsarecarriedoutAssociatedpenaltiesNAPIrelandYesNotestingforexistingcapacity.NAPIntroductionoftestingandpenaltiesItalyYesAssociatedpenaltiesbeingconsideredatpresentPolandYesSystemoperatordoesnotperformanytestsOperatormaytestselectedprovidersuptoonceaquarterSource:ACERbasedoninformationfromNRAs.193IncaseofSweden,whenbeneficiaries’availabilityfallsbelow95%,itmayamounttothebreachofcontractandleadtoitspossibletermination.Theauthoritiesconsiderthisframeworktobeasufficientsafeguard.65ACERSECURITYOFEUELECTRICITYSUPPLYAnnexI:AdditionalfiguresandtablesThisAnnexprovidesadditionalfiguresandtablesthatarereferredtointhemainreport.Table10:AdequacymetricsperMemberState‒statusasofJune2023SingleVOLLFixedCONEReliabilitystandard(EUR/MWh)(hours/year)CountryTechnology(EUR/MW)12,8323.00BelgiumaDemandresponse30,000CyprusbN/A3.00N/AN/ACzechRepublic4,016OCGTc57,95815.00Estoniad7,300OCGT63,0009.00Finlande8,000Renewal&2.10France33,000Prolongation17,0002.00Germany12,240Demandresponse2.77Greece6,83860,0003.00OCGT/Demand57,067responsef23,377/2,07218,735DemandresponseIreland(SEM)gN/AOCGT115,9908.00Italy20,000OCGT53,0003.00LatviaN/AN/AN/ANotinplacehLithuaniaN/AN/AN/ANotinplaceLuxembourg12,240OCGT/Demand33,9052.77Netherlands68,8874.00responseiN/AN/APoland17,700N/AN/ANotinplacePortugaliN/AN/AN/A5.00Slovenia10,700Demandresponse21,753N/ASweden8,132Demandresponse7,5370.99Sources:ACERbasedoninformationfromNRAsandforEstoniatherelevantstudytoestablishareliabilitystandard.Notes1:a:calculationsforVOLL,CONEandthereliabilitystandardupdatedin2022b:InCyprus,threeadequacymetricsareset:LOLEof3hoursperyear,reservemarginof189MWandexpectedenergynotservedat0.001%ofannualdemand;c:OCGTstandsforopencyclegasturbine;d:InEstonia,expectedenergynotservedequalto4,500MWh/yearandacapacitymarginequalto10%arealsoused;e:InFinlandanadditionalreliabilitystandardexpressedasexpectedenergynotservedequalto1,100MWh/yearisinplace;f:InGermanythereliabilitystandardiscalculatedastheaverageofannualreliabilitystandardsforafiveyearperiod.Thereferencetechnologyalternatesbetweendemandresponse(23,377euros/MWforcommercialand2,072euros/MWforindustrial)andOCGT(57,067euros/MW);g:Irelandiscurrentlyre-calculatingtheVOLLandthereliabilitystandard;h::ThereisnoreliabilitystandardlegallydefinedinLatvia,butaLOLEvalueof3hoursisusedbytheTSOasareferencevalue.i:LuxembourgusesthesameadequacymetricsasGermany;i:InPolandtheCONEvaluesforvariousreferencetechnologieshavebeencalculatedbytheNRA,yetthesettingofthereliabilitystandardisstillpending.Notes2:InSpain,a10%reservemarginformainlandandaLOLEof2.4hoursperyearfornon-mainlandisused.InDenmarka7‘outageminutes’(OM)peryearmetricisused,estimatedonthebasisofthedemandandtheexpectedunservedenergy(EUE)asOM=876060EUE/Demand.66ACERSECURITYOFEUELECTRICITYSUPPLYTable11:Competencesforandstatusofthenationalresourceadequacyassessments-2022MemberStateEntityEntityFrequencyofNRAALinktotheATresponsibleforresponsibleforNRAAimplementationpublishedNRAAperformingtheapprovingthein2022?-NRAANRAALinkNoassessmentperformedcurrentlyLinkLinkBETSONoapprovalEverytwoyearsNoLinkLinkBGTSOGovernmentEveryyearOngoing-CYNoinformationprovided--CZTSONoapprovalEveryyearPublished--Noapproval.-LinkDENRAPublishedbyEverytwoyearsPublishedLinkGovernment.LinkLinkDKTSOTSOEveryyearOngoing-EETSOTSOEveryyearPublishedLinkLinkESNoassessmentperformedcurrentlyLinkFINRANRAEverytwoyearsNo-LinkFRTSONoapprovalEverytwoyearsNoGRTSONoapprovalEveryyoenaersortwoCompupblelitsehde,dnotHRGovernmentNoapprovalEveryyearNotpublishedHUTSONRAEveryyearPublishedIETSONRAPerfforormme2d0y2e4arlyNoITTSONoapprovalEveryyearPublishedLTTSONRAEverytwoyearsNoLUGovernmentGovernmentEverytwoyearsYesLVTSOTSOEveryyearPublishedNLTSONoapprovalEveryyearPublishedPLGovernmentGovernmentEverytwoyearsNoPTGovernmentGovernmentEveryyearPublishedGovernmentandNotdefined.ROTSOGovernmentUsuallyeverytwoPublishedyears.SETSONoapprovalEveryyearPublishedSITSONRAEverytwoyearsNoSKTSOGovernmentEveryyearOngoingSource:ACERbasedoninformationfromNRAs.Note:Thefigureshowsinformationstemmingfrommid-/long-termnationaladequacyassessments,eveniftheyarenotperformed67ACERSECURITYOFEUELECTRICITYSUPPLYforthepurposeslaidoutintheElectricityRegulation(i.e.,complementingtheERAAandjustifyingacapacitymechanism).Austriaiscurrentlydevelopingasecurityofsupplystrategythatwillincludethedetailsofconductinganationaladequacyassessment.InCroatia,theGovernmentisentitledtoissueanannualreportonsecurityofsupplyforpreviouscalendaryearwithprojectionfornext10yearsbasedonannualreportsissuedbyTSOandDSOonwhichNRAgivesitsopinion.CyprusisexemptedfromadequacyrelatedprovisionspursuanttoArticle64(2)oftheElectricityRegulation.EstoniareliesontheERAAforitsadequacyassessment.InHungarytheTSOisobligedbylawtoincludeastudyonthemid-andlong-termadequacyintheannualnetworkdevelopmentplan,approvedbytheNRA.InIrelandtheTSOsarecurrentlyproducingan“All-IslandGenerationCapacityStatement”thatindicatedextensivedeficitofgenerationcapacityinthemid-term,yettheyarealsopreparingforanationalresourceadequacyassessmentfrom2024onward.LatviausesprimarilytheERAAforassessingthenationalresourceadequacy(seeannualstatementfor2021here).SimilarlyinLithuaniatheTSO’sbi-annualten-yearnetworkdevelopmentplan(TYNDP)reportincludesananalysisbasedontheERAAresultsandanationalresourceadequacyassessmentmaybeperformedonlyifthereisaneedtoanalyseadditionalscenarios.ThereisnoconsensusamongLithuanianauthoritiesonwhetherthisadequacyassessmentcanbeconsideredasanationalresourceadequacyassessmentcarriedoutinlinewiththeElectricityRegulation.Furthermore,thereisanongoinglegaldiscussioninLithuaniaregardingchangesinthenationallegislationgoverningnationaladequacyassessments.InLuxemburgtheGovernmentissuesanadequacyandsecurityofsupplyreportthatisnotbasedonprimarycalculationsandsimulationsbutanalysesinformationfromotherassessments(e.g.,the2022reportusedinformationfromtheERAA,thePentalateralresourceadequacyassessment,andtheGermanresourceadequacyassessment).InSlovenia,nonationalresourceadequacyassessmentwasconductedin2022.TheTSOpublishedanadequacyassessmentinthetenyearnetworkdevelopmentplanreport,usingprimarilytheERAAresults,andincludingasimpleassessmentofcapacitydevelopmentfordifferentscenarios.InSpain,nonationalresourceadequacyassessmenthasbeenpublishedsofar.68ACERSECURITYOFEUELECTRICITYSUPPLYTable12:Highlevelmethodologicalcharacteristicsofthenationalresourceadequacyassessments-2022MemberStatesRegionalscopeProbabilisticEconomicviabilityAdditionalscenariosMarketcouplingDemandresponseDemandresponsecalculationsassessmentand/orsensitivitiesapproachconsiderationconsistentwithVOLL/CONEYes(explicit–implicit)YesATYesNolong-termassessmentperformedcurrentlyYesBEYesYesYesYesFlowBasedBothNoYesBGYesYesNoYesNTCNoCHYesYesNoYesFlowBasedOnlyexplicitYesCZYesYesNoYesBothFBandNTCBothYesDEYesYesYes,forthewholeregionYesFlowBasedBothYesYesDKYesYesNoYesFlowBasedBothNoYesEEYesYesYes,forthewholeregionYesNTCOnlyexplicitYesESNoNolong-termassessmentperformedcurrentlyYesFIYesYes,onlyforthecountryYesNTCBothFRYesneigYhebs,ocuoriunngtrcyouanndtriesYesNTCBothYesGRYesYes,onlyforthecountryYesNTCOnlyexplicitYesHRNolong-termassessmentperformedcurrentlyHUITYesYes,onlyforthecountryYesNTCYesNTCNAPNLNoYes,forthewholeregionYesNocouplingOnlyimplicitNAPNTCNoneNAPPLNoNoYesNTCYesNTCOnlyexplicitNAPPTNoNoYesNTCOnlyexplicitNTCNoROYesBasedonERAAYesNoneOnlyexplicitSEYesYesYesNoneSIYesNoYesSKYesNoYesSource:ACERbasedoninformationfromNRAs.69Notes:ForBelgiumandPolandthetableshowsinformationprovidedforthe2021SOSmonitoringreport.TheNoteunderTable11appliestothistable.ACERSECURITYOFEUELECTRICITYSUPPLYFigure14:TotalcapacitycontractedasnetworkreservesinAustria(from2021onward)andGermany—2018–2022(MW)Source:ACERbasedoninformationfromtheNRAs.Figure15:Realisedandforecastcostsofinterruptibilityschemes—2019–2023(millioneuros)Source:ACERbasedoninformationfromtheNRAs.Note:InGermany,theschemeexpiredasof30June2022.Since2022,theFrenchschemeispartoftheTSO’sdefenceplaninaccordancewithArticle18(5)ofRegulation2017/2196.Theforecastcapacityprocurementfor2023is531MW,downfrom1131MWin2022.ForItaly,onlycapacitycostsareshownfor2023.70ACERSECURITYOFEUELECTRICITYSUPPLYFigure16:DetailedbreakdownofthecapacityremuneratedinEUcapacitymechanisms,pertypeoftechnology—2019–2023(GW)Source:ACERbasedondatafromNRAsandfromtheENTSO-ETransparencyPlatform.Note:TheNoteunderFigure7alsoappliestothisFigure.71ACERSECURITYOFEUELECTRICITYSUPPLYTable13:CharacteristicsofexistingcapacitymechanismsintheEU–2022MemberStatesLong-termcontractsbEligibilityAuctionleadtimecFrequencyofauctionsMinimumbidsizeTypeofCMaMin.eligiblecapacityDSR,RES,AuctionclearingmethoddStateAidapprovalStorageStartAggregatorsCO2limitseEndSecondarymarketDeliveryperiodCostrecoveryYES(81MW1MWPABYESYESspleevcyialBEMWCBYES20212031annualor15ALLYEST-1,T-4annualyears)DESRYES20202025annualfNOALLgDRonlyT-2,T-1everytwoyears5MW5MWPACNOhNOnteatrwifofsrkFISRYES20222031annualiNOALLYEST-1annual1MW1MWPABYESNAPnteatrwifofsrkMW-winterYEST-4,T-3,annual(T-4),fourYESYEST-2,T-1,peryear(T-3and0.1MW0.1MWPAC(onlyFRYES20162026season(1(upto7ALLYESsuppliersDCOT,T+1T-2),sixperyearfornewNov–31Mar)years)andT+3(T-1)units)YES(upT-4,T-3,T-2IESEMMWCBYES20172027annualto10ALLYESandT-1annualNAj10MWPACkYESNOsuppliersauctionsyears)possibleYyEeSar(s1)5ALLT-4,nofixedT-3,T-2frequency(twoITMWCBYES20182028annuallYESandT-1auctionsin20191MW1MWPACYESYESsuppliersauctionsandonein2022)possibleYES(upYEST-5,T-1T-5foaunrn/yueaal,rT-10M.0W0m12MWPACYESYESnteatrwifofsrkPLMWCBYES20182030annualto17ALLyears)winterSESRNO20032025season(16YESnALLYEST-1annual5MW5MWPACNONOBRPsNov-15Mar)72Source:ACERbasedoninformationfromNRAs.ACERSECURITYOFEUELECTRICITYSUPPLYExplanatorynotes:a:ThecategorisationoftheschemesisbasedonthetaxonomyoftheEuropeanCommission’ssectorinquiry.Abbreviationsrefertostrategicreserves(SR),targetedcapacitypayments(TCP),market-widecentralbuyer(MWCB),market-widedecentralisedcapacityobligations(MW-DCO).b:Long-termcontractsrefertocontractswithadurationoffiveyearsormore.c:Treferstothedeliveryyeartheauctionsconcern.d:Auctionclearingmethodsarepay-as-clear(PAC)andpay-as-bid(PAB).e:SeeArticle22(4)oftheElectricityRegulation.f:Non-availabilityisallowedforuptothreemonthsperdeliveryyear.Contractshaveadurationoftwoyears.g:Therearenolegalrestrictionsforrenewableenergysources(RES)participation,however,intermittentRESlikelydon’tfulfilthetechnicalrequirements.Furthermore,onlyresourcesthatarelinkedtothehigh-voltagenetworksareeligible.h:Accordingtoplans,emissionslimitswillbeconsideredintheauctiontakingplacein2023.i:Thedeliveryperiodisoneyear,butdifferentdeliveryleadtimesapply.From1Decemberto28February,capacityhastoassuredispatchwithin12hoursfromactivation,whileoutsideofthisperiod,theleadtimeisonemonth.j:IntheIrish-SEMauctions,bidsmayconsistofuptofivequantity-priceblockswithnominimumquantitysize.k:Ifcapacityiscontractedtosatisfylocationalcapacityconstraints,thentheofferedpriceratherthantheclearingpriceisgiven.l:RESandDRareobligedtobeavailableduringthepeakhoursofeachworkingday,peakhoursbeingthesixhourswiththehighestload(theycanchangeweekly).m:Theminimumtotalnetcapacityforparticipationintheauctionis2MW,howeverbidblocksmaystartfromaslowas1kW.n:Onlyonecontractwassignedin2017withanoptionforprolongationuntil2025.Theoptionwascalledin2019.Note:InFrance,atargetedcapacitypaymentisalsoprovidedforthecommissioningofa442MWCCGTplantintheBritanyregionfollowingaStateAidapprovalbytheEuropeanCommission(SA.404542015/C(ex2015/N)).FortheItalianCMauction,thepay-as-bidmethodisusedinthecasescapacityisclearedduetonetworkconstraints.InPortugal,atargetedcapacitymechanismwasintroducedin2017,andhasbeenrevokedsince2018,yetsomecapacitypaymentsareprovidedtohydropowerplantsdueto“legacy”contracts.InSpain,thecapacitymechanismusedtobecomprisedof“investmentincentives”and“availabilitypayments”.SuchavailabilitypaymentswereremovedinJune2018,andtheinvestmentincentivespaymentsstillapplyonlytogenerationcapacityinstalledbefore2016.73ACERSECURITYOFEUELECTRICITYSUPPLYTable14:SummarytableofinterruptibilityschemesintheEU-2022MemberStatesPurposeProduct/ProgrammeActivationcriteriaProcurementRemunerationTotalContractedCapacity(MW)MinimumEligibleCapacity(MW)AggregationAvailabilityMaximumlength/numberofinterruptionsNumberofparticipantsStatusImmediatelywithin1sor1tomax32Adequacy/interruptibleWholeweekquartersofanBalancing350msatCapacity&750except120Energy750DEReserves/load49.7HzAuction5YESquartersofhour/week11TerminatedonAuction(pay-as-bid)1200CongestionQuicklyanhourperMin.16quarters30July2022CapacityManagementinterruptiblewithin15minweekofanhourloadaweekActivationinAutomaticAvailability5s,max5Inplaceactivationuponactivationspersince2014.FRCoRnetsinegrveenscyfrequencydrop25aNOb75a0t0lehaosutrs/year.Minimum14ChangesinLot1(49.82Hzfor3s).yeardurationof2016andinterruptionis2022.1hourMainlandAutomaticAvailabilityNomaximumStartoftheschemewithin200(pay-as-durationofContingency24hours/in2004,ITmsat49.8HzAuctionclear)and43931YESdayNinotemraruxpntuiomnsbe/r163approvalbyReservesIslandsoforuponTSOEnergySardiniaandinstruction(pay-as-bid)ofinterruptionsNRAeverySicily3years.DurationofQualificationCapacityreductionAdequacy/IRPperiodfromsystemforEnergy(bidsbecomesRequeston5AnnualCongestion1to15hoursthesupplieroptimisedknowntoMin.1YESpreviousdayvoluntary(includingprocurementPLManagement(Interven-conductedtheTSOresponse,noforaperiodtionalPowerwithinthewithMax.100before11:30aggrega-/BalancingReduction)rangeof7:00viathealgorithm)afteralimit1April–purchasingrequestAMtors)Reserves31Marcha.m.to10:00platformforbidingp.m.Source:ACERbasedoninformationfromtheNRAs.Explanatorynotes:a:Minimumeligiblecapacitywasreducedto10MWfor2023andonwards.b:Astudyisongoing(conductedbytheFrenchTSOandDSOs)regardingthepotentialofextendingtheschemetodistributedresourcesconnectedtothedistributiongrid.74ACERSECURITYOFEUELECTRICITYSUPPLYTable15:CharacteristicsofthenetworkreserveschemesinAustriaandGermany–2022IssuesaddressedAustriaGermanyRemunerationtypeCongestionmanagementCapacityandenergy(includingcostsandCongestionmanagementandvoltageProcurementtypeincurredeconomicdisadvantages)controlEligibleparticipatingPay-asbidauctionCapacityandenergytechnologiesAggregationisallowed,foreignunitscanAdministrativeprocurement–theTSOMinimumeligibleparticipatecantransferanypowerplantintothecapacitynetworkreserveiftheplantisplannedtoNorestrictionsbedecommissionedorhasbeenawardedContractduration1MW(individualunitscanbesmallerifinthecoal-exitauctions,butisdeemedasActivationprocessaggregated)system-relevantSeasonal,annual,orbi-annualForeignunitsareprocuredthroughaCongestionmanagementprocedurestenderifdomesticcapacitydoesnotfulfilthecapacityrequirementNorestrictions10MWUsually24months,butcontractswithadifferentdurationarepossibleCongestionmanagementprocedures(activationoutsideoftheelectricitymarkets,basedonforecastsavailabletoTSOandthetechnicalconstraints)Source:ACERbasedoninformationfromtheNRAs.Note:FromJuly2022onwards,thenetworkreserveinGermanycouldalsobeusedforadequacypurposes.Table16:StatusofTSO-TSOagreementsfordirectforeignparticipationincapacitymechanismsCapacityForeignTSOStatusin2022mechanismoperator(MS)Elia(BE)RTE(FR),TenneT(NL),Agreementsareexpectedtobesignedin2023allfourTSOsinGermanyRTE(FR)Elia(BE),allfourGermanTSOs,Pending(discussionswithEliaareatamoreTerna(IT),REE(ES)advancedstage,andRTEexpectsthebilateralagreementtobeconcludedin2023)Terna(IT)NAPNoagreementsareinplaceandnodiscussionsonpotentialagreementshavebeeninitiatedCEPS(CZ),Litgrid(LT),SEPS(SK),AgreementsareinplaceSvenskakraftnät(SE)PSE(PL)50Hertz(DE)Agreementisinplace(onlyforthemainauction)allfourTSOsinGermanyAgreementsexpectedtobeconcludedin2023Source:ACERbasedoninformationfromTSOs.Note:InPoland,theagreementswithCEPS,LITGRID,SEPSandSvenskaKraftnatcoverdeliveryyears2025-2030.Theagreementwith50Hertzcoversthedeliveryyear2027.75ACERSECURITYOFEUELECTRICITYSUPPLYTable17:CalculatedMECs(oranalogues)andforeignorcross-bordercapacityprocuredinthecapacitymechanismsofBelgium,France,ItalyandPoland(delivery2019–2027)(MW)MemberStateDeliveryperiodimplementingthecapacityCMborderValue201920202021202220232024202520262027TotalReservedMEC1,9351,428934mechanismNoforeigncapacityparticipationFranceReservedMEC4196119BelgiumGermanyReservedMEC4611252NetherlandsReservedMECNoforeigncapacityparticipation599646260GreatBritainReservedMEC871461553TotalRegulated6,3206,5008,0727,5757,500/Auctionshaveinterconnector6,319/9,0009,2008,4008,300notyettakenplacecapacitysoldCalculatedMECBelgiumCalculatedMEC272/800700300300GermanyFranceCalculatedMEC1,733/2,0001,8001,3001,200ItalySpainCalculatedMEC959/8009001,0001,000AuctionshavenotyettakenplaceCalculatedMEC1,969/2,0002,0002,2002,200GreatBritainCalculatedMEC1,386/3,4003,8003,6003,60076ACERSECURITYOFEUELECTRICITYSUPPLYMemberStateDeliveryperiodimplementingthecapacityCMborderValuemechanism201920202021202220232024202520262027TotalContractedcapacityPreviouscapacity4,3944,3943,610RelevantauctionshaveMaximumlevelofmechanisminplace4,3944,3944,365notyettakenplaceNorthforeigncapacity4,2414,2413,445Italy(AT,FR,SI,CH)4,2414,2414,200ContractedcapacityMontenegroMaximumlevelofPreviouscapacity104104113Auctionshaveforeigncapacitymechanisminplace104104113notyettakenplaceGreece494952Contractedcapacity494952TotalforeignMaximumlevelofcapacityforeigncapacityNoforeigncapacityparticipation03505502,1661,1761,415ContractedcapacityNAPNAP300Maximumlevelof1,699825826foreigncapacity25000250Contractedcapacity800NAP3500MEC0351339PolandSynchronousContractedcapacityprofileMECNoforeigncapacityparticipationLithuaniaContractedcapacityMECSwedenContractedcapacityMECSource:ACERbasedoninformationfromTSO,ENTSO-E,andinthecaseofItaly,alsopubliclyavailableauctionreports.Note:ForBelgium,thedeliveryperiodcommencingwiththeindicatedyearisconsidered(e.g.2025meansdeliveryperiod2025/26).TheMECshavebeenreservedfortheY-1auctions.ForFrance,theMECvaluescorrespondtoauctionsthattookplacein2022(T+3auctionfor2019,T+1auctionfor2021,Tauctionfor2022,T-1auctionfor2023andT-2auctionfor2024).Theinterconnectorcapacitysoldcorrespondstoregulatedinterconnectorsonly.Fordeliveryin2022,thequantityofcapacitycertificatessoldwasadjusteddownwardstoaccountforlowerinterconnectoravailabilityforecastforthebeginningofthedeliveryyear,whichwastheresultofaninterconnectoroutagein2021.InPoland,intheauctionfor2025,nocapacitywascontractedabroad.OneunitlocatedinLithuaniahasparticipatedintheauction,butitsofferwasrejectedasitexceededtheclearingpriceinthemainauction.Intheauctionfor2026,onlycapacityfromLithuaniaandSwedencouldbecontracted.77ACERSECURITYOFEUELECTRICITYSUPPLYTable18:Remunerationofforeignandcross-bordercapacityinthecapacitymechanismsofFrance,ItalyandPoland(2019–2027)(euros/MW)MemberStateDeliveryperiodimplementingthecapacityRemuneratedpartymechanism201920202021202220232024202520262027FranceInterconnectors39516,58339,09523,90060,000ReferenceauctionhasnotyettakenplaceExistingdomesticcapacityPreviouscapacity33,00033,00033,000AuctionshavenotyettakenplacemechanisminplaceItalyNorth(AT,FR,SI,CH)4,4004,40033,000Montenegro3,4494,94917,010PreviouscapacityAuctionshavemechanisminplacenotyettakenplaceGreece4,0003,99925,075DomesticcapacityNoforeigncapacityparticipation36,85585,37186,652SynchronousprofileNAPNAP85,075PolandNoNocapacitycapacityLithuaniaNoforeigncapacityparticipationcontractedcontracted63,539SwedenNAP85,075NocapacitycontractedSource:ACERbasedoninformationfromTSOs,ENTSO-E,andinthecaseofItaly,publiclyavailableauctionreports.Note:ForBelgium,thecapacitywillonlybecontracted(andremunerated)intheT-1auctions(startingwiththeT-1auctionfor2025/26).ForFrance,interconnectorremunerationisshown.Theinterconnectorremunerationratecorrespondstothereferencepriceofthelastauctionconcludedbeforethedeliveryyear.ForPoland,foreigncapacityparticipatedinT-5auctions.Intheauctionfordeliveryin2025,nocapacitywascontractedabroad.OneunitlocatedinLithuaniahasparticipatedintheauction,butitsofferwasrejectedasitexceededtheclearingpriceinthemainauction.Originalvalueswereprovidedinthelocalcurrency;forconversion,theexchangerateof1euro=4.69PLNwasused.78ACERSECURITYOFEUELECTRICITYSUPPLYAnnexII:InputfromNRAsonlessonslearntfrom2022/2023winter203ThisAnnexreproducestheinputreceivedfromNRAsregardingthesituationduringthe2022/2023winter.OnlyminoreditorialchangeswereintroducedbyACER.AnyopinionsexpressedintheremainingtextdoesnotnecessarilyreflectACER’sview.Table19providesabriefsummaryofthemainpointsforeachMemberState.A-II.1.Austria204TheweatherconditionsexperiencedinAustriahadopposingeffectsonsecurityofsupplyinwinter2022/2023.Ontheonehand,thedelayedheatingperiodcausedbythehightemperaturesinOctoberandNovemberhelpedtosavegasreservesforpowergenerationand,atthesametime,reduceelectricitydemand.Ontheotherhand,thepersistentlylowhydroavailabilitysignificantlyreducedtherenewablegenerationpotentialinAustria.Inthiscontext,theEuropeanmarketcouplingprocessprovidedimportantflexibilitytocoverthecorrespondinghigherresidualdemandwithoutincreasinggasdemandforthermalpowerplantsinAustria.Additionally,theprevailinghighpricesincentivisedindustrialconsumerstoreducedemand,andlarge-scalemediacoverageandstatecampaigns(seetheMission11campaign)raisedgeneralawarenessamongthecommunity.Furthermore,anewlycreateddemandsideresponseproductintroducedbytheAustrianTSOprovidedflexibilityoptions.Figure15belowshowsanillustrationofAustrianelectricitygenerationanddemandfrom2020to2023.Figure17:WeeklyaggregationofelectricitygenerationinAustria-2020-2023Source:AustrianNRAA-II.2.BelgiumA-II.2.1.ElectricityConsumptionandGridLoad205Belgium’stotalelectricityconsumptionreached81.7TWhin2022.Thisrepresentsa3.2%decreasecomparedto2021(84.4TWh).Theconsumptionwasonlyslightlyhigherthantheexceptionallylow81.1TWhin2020,whichresultedfromtheconfinementmeasuresandeconomiccontractioninthecontextoftheCOVID-19pandemic.Atthesametime,theloadfromthetransmissionnetworkamountedonlyto64.0TWh,astaggering9.7%belowthe70.9TWhin2021.Thedeclineingridloadcontrastswiththesignificantincreaseinunmetered,locallyconsumedelectricitygeneration,forexamplethroughresidentialsolarinstallationsordistribution-connectedwindgeneration.79ACERSECURITYOFEUELECTRICITYSUPPLYFigure18:YearlytotalconsumptionandgridloadonthetransmissionnetworkinBelgium–2015–2022(TWh)Source:BelgianNRAcalculationsbasedondatafromtheBelgianTSO.Figure19:EvolutionofelectricityloadinBelgiumandneighbouringcountries–2015–2022(%,loadin2015takenasthereference)Source:BelgianNRAcalculationsbasedondatafromENTSO-E’stransparencyplatform.A-II.2.2.GenerationCapacity206Theavailabilityofelectricitygenerationunitsdecreasedin2022,mostlyresultingfromaloweravailabilityofnuclearandhydrounits.TheplannedmaintenanceofTihange1ledtoadecreaseintheavailabilityratefornuclearreactorsfrom90%in2021to76%in2022.207Thetotalgeneratedelectricityvolumesdecreasedby3.7%year-on-year,from93.4TWhin2021to89.9TWhin2022.Thelargestdecreasebyfueltypewasobservedfornuclearunits(-6.2TWh),whilesolar(+1.7TWh),gas(+0.9TWh)andwind(+0.1TWh)increasedtheiroutput.A-II.2.3.CrossborderFlows208Cross-borderflowsofelectricityremainedacrucialtooltobalancesupplyanddemandofelectricity,andtoensurethatthedispatchofelectricityproductionconsidersefficientlythepricesignal.At19.280ACERSECURITYOFEUELECTRICITYSUPPLYTWh,thetotalexportedvolumesofelectricityremainedataveryhighlevelin2022,onlyslightlybelowtherecord-highvaluesobservedin2021(20.0TWh).Thisledto2022beingthefourthconsecutiveyearwhereBelgiumwasanetexporterofelectricity,withanetexportpositionof6.3TWh.Sinceearly2019,Belgiumhashadastructuralpositivenetexportbalance,indicatingthatmoreelectricitywasexportedthanimported,explainingthepositivedifferencebetweenelectricitygenerationandelectricityconsumption.A-II.2.4.Projectionforwinter2024-2025209IntheframeworkoftheBelgianCM(withthefirstdeliveryperiodinNovember2025),theneedtoorganiseaspecificauctionfortheperiod2024/2025wasanalysed.Theanalysisconcludedthattherewasapositivemargin(i.e.surplusofavailablecapacitycomparedtoforecastdemand)of+100MWforwinter2024/2025.A-II.2.5.Conclusion210InWinter2022/2023,Belgiumdidn’tfacemajoradequacyissues.Highpricesontheelectricitymarketsandthecommunicationonthistopic,ledtoasignificantdecreaseinthegridload.A-II.3.CzechRepublic211TherewerenosignificantproblemswiththetransmissionofelectricityortheproductionofsystempowerplantsintheCzechRepublicduringthewinterof2022/2023.Overall,theCzechRepublicproducedslightlylesselectricityin2022incomparisonto2021(-0.7%).Thiswasprimarilycausedbyadecreaseindemandduetoeconomicaspects.Thedecreaseinelectricityproductionwasmainlyduetoadecreaseinoutputfromsteampowerplants,asperceivedbyadecreaseinoutputofmorethanhalfyear-on-year(-51.4%).Similarly,lesselectricitywasalsoproducedbypumpedstorage(-18.3%)andhydroelectricpowerplants(-13.1%).Ontheotherhand,productionfromphotovoltaic(+6.7%)andwindpowerplants(+6.6%)increased.However,thankstothemildwinter,asurplusintheamountofelectricitygeneratedwasrecorded,whichstillmakesitpossibletomaintainapositivebalancebetweenelectricityexportsandimports.ExportsofelectricityduringthemonthsofDecember,January,andFebruaryamountedto1,963GWh,1,226GWh,and934GWhrespectively.212Consideringtheimperativetoreduceelectricitydemand,electricityconsumptionintheCzechRepublicfellby5.6%year-on-yearduringthewintermonths.Specifically,November,December,January,andFebruaryweredownby6.8%,5.7%,7.2%,and2.8%.Thereductioninelectricityconsumptionwasparticularlyevidentamonghouseholds,whichaccountedforanaveragedecreaseof9%in2022.Itisclearfromthestatisticsthathouseholdssavedelectricitylastyear.The9%year-on-yeardropinconsumptionintheCzechRepublicwasthelargestinthepast20years.AmongthemanyreasonsforthisdeclineinelectricityconsumptionaretheGovernment’songoingcampaignssincethesummerof2022toencourageelectricityconsumerstosavemoneyandtoincentivisebehaviouralchangestoconsumelesselectricity.However,thebiggestmotivationtoconserveelectricitywasundoubtedlyitshighpricefollowingRussia’sinvasionofUkraineinFebruary2022.213Furthermore,thereductionofgrosselectricityconsumptionbyatleast5%duringpeakhoursinthewinterseason2022/2023,whichwassetbytheEnergyRegulatoryAuthoritybasedontheCouncilRegulation(EU)2022/1854,wassubjecttoevaluation.Basedonpreliminaryresults,areductionofmorethan6%inelectricityconsumptionduringpeakhourshasbeenachieved.214Overall,theabovecanbesummarisedbysayingthatfromthepointofviewofthemanagementoftheelectricitysystem,themildcourseofwinter2022/2023,andthereductioninelectricityconsumptioncontributedtoalargeextenttothepositivecourseofthewinter2022/2023.Duringtheyear,specificemergencymeasureswereadoptedbytheGovernmentoftheCzechRepublic,whichhadanimpactoncalmingthesituationoftheenergymarketcrisis.Theseincludedconcessionsonelectricitypaymentsandlatergovernmentcapsonelectricityprices.Furtherdevelopmentsinthenextwinterperiod2023/2024aredifficulttopredict,andalthoughtheGovernmentoftheCzechRepublichasbeenstronglypromotingthedecentralizationofelectricitygenerationthroughtheinclusionofsmall-scalerenewablesandthedevelopmentofcommunityenergysinceautumn2022,thecourseofthenextwinterperiodwillagaindependmainlyonconsumerbehaviourandtheweatherpatterns.81ACERSECURITYOFEUELECTRICITYSUPPLYA-II.4.Denmark215TheelectricalgridinDenmarkischaracterisedbyaveryhighlevelofsecurityofsupply,withanelectricityconsumerinDenmarkexperiencinganaverageof20minutesofinterruptionannually194.AlthoughtheDanishenergyagencyhadnotforecasttheoccurrenceofbrownoutsandblackouts,itacknowledgedthegravityofthesituationofwinter2022/2023.ItwasrecognisedthatriskswouldincreasewithacoldwinterinsofarasthewarinUkraineresultedinthecut-offoftheRussiangassupplyandtheweatherconditionsleadingtocriticallylowhydroreservesforNordiccountries.Riversrunningdryalsocausednuclearpowerplantstoreduceoutput,aswellastheybecameimpassableforcoalbarges.Cuttingoffelectricitytoconsumerswouldonlybeusedasalastresort.216TheDanishenergyagencylaunchedanationwideenergy-savingcampaign.Thetemperatureinpublicbuildings,withsomeexceptionssuchashospitalsandretirementhomes,wasloweredto19degrees.Someprivatelyownedcompaniesalsovoluntarilyjoinedthecause.Similarly,decorativelightingwasswitchedoff.217Thesecurityofsupply,notonlynowbutalsointhecomingwinterof2023/2024,isdependentonthewillingnessofconsumerstocurtailconsumption195.Evenastheweatherimproved,thespringandsummerperiodsareneededtofillthegasstorage.TheDanishenergyagencydoesnotexpecttohavetocurtailgasconsumersnextwinter,iftheDanishpopulationkeepsupthereducedconsumption.218Figure20showstheexpectedelectricityusage(inturquoise)whichisbasedonforecastsconductedbeforetheenergycrisis,alongwiththeactualusage(indarkblue).ByMarch2023,Danesachieveda4%reductioninelectricityusecomparedtothenormallevel,indicatingthatthereturntonormalitywithrespecttoelectricitypricesledtoconsumptionpickingupagain.Figure20:ExpectedandactualelectricityconsumptioninDenmark-September2022-March2023(GWh)Source:DanishEnergyAgency,Statusofenergysupply.219AshighlightedinFigure21below,thereductionintheuseofgaswasespeciallypronouncedwithupwardsof25%savingsinFebruary2023.Thereductioningasconsumptionwasmainlydrivenbythereplacementofgasinthemanufacturingindustries.Cominginto2023,thegasstorageswerebetterstockedthantheynormallywouldbeatthattimeofyear,duetothemildwinterandreducedconsumption.Russiangaswentfromcoveringabout35%oftheconsumptionin2021,toonlycovering6-8%196.194Moreinformationhere.195Moreinformationhere.196Moreinformationhere.82ACERSECURITYOFEUELECTRICITYSUPPLYFigure21:ExpectedandactualgasconsumptioninDenmark-September2022-March2023(GWh)Source:DanishEnergyAgency,Statusofenergysupply.220Retailelectricityusershaveshiftedtheirconsumptionawayfromthemoststrainedperiods,andtheintroductionofnewvariabletariffsismeanttofurtherincentivisethissortofbehaviour.Howtheconsumersadjustedtheirconsumptiondependedlargelyonthetypeofsubscriptiontheyhad.Ifpriceswerelinkedtothespotprice,therewasamuchgreaterwillingnesstoshiftone’sconsumption.ThisisreinforcedinFigure22,wheretheaveragedistributionofelectricityconsumptionoverweekdaysinSeptemberisseen.Denmarkalsosawmanyconsumersswitchfromafixed-priceagreementtoavariable-priceproduct,presumablysotheycouldsaveontheirenergybillbyshiftingconsumption.Figure22:DistributionofelectricityconsumptionoverweekdaysinDenmark-September2022Source:GreenPowerDenmark.A-II.5.Finland221ThesituationinFinlandwaschallengingbeforeandduringthewinterforseveralreasons.TheimportofelectricityandnaturalgasfromRussiatoFinlandwassuspendedinMay2022,followingRussia’sinvasionofUkraineon24February2022.Priortothesepoliticalchanges,theelectricityimportcapacityfromRussia(1,400MW)representedroughly10%ofthetypicalpeakloadinFinlandandcoveredapproximately10%ofelectricityconsumptioninFinlandin2021.Additionally,theshareofnaturalgasimportedfromRussiawasaround60%oftotalnaturalgasconsumptioninFinlandin2021.222Similartotheloweredelectricityandgassupply,thedelayofthenuclearpowerunitOlkiluoto3(OL3)(1,600MW)untilApril2023causedseverechallengestothesecurityofsupplyinFinland.Testrunswithvariablepoweroutputwereconductedthroughoutthewinter,providingsomehelptoensuresecurityof83ACERSECURITYOFEUELECTRICITYSUPPLYsupplyduringtheseperiods.Finlandtargetedtoacquire600MWofstrategicreservecapacityforthe12-monthperiodstartingfromNovember2023.However,nocapacitywasacquiredbecausetheonlytenderwasnotacceptable.Thatcoal-firedpowerplanthowevercamebacktothemarketafterbeingseveralyearsinstrategicreservecapacity.223TheFinnishGovernmentlaunchedanationwideenergy-savingcampaigninOctober2022toencourageallFinnstosaveenergyandtofacilitatethesecurityofsupply.Theshort-termgoalofthiscampaignwastogetover95%ofFinnishhouseholdstosaveenergyandcutdownontheirconsumptionby5%duringpeakhours.Additionally,electricitywasconservedbecauseoftheprevailinghighelectricityprices.Thisalsoresultedinsomeindustrialprocessesshiftingfromdaytimetonighttimetobenefitfromlowerelectricityprices.InDecember2022,theFinnishTSO,FingridOyj,introducedanewvoluntarypowersystemsupportprocedureaimedatpreventingelectricityshortages.Approximately500MWofdemandresponseandbackuppowerplantsparticipatedvoluntarily.224Thewinterof2022/2023turnedouttobewarmerthanexpected(apartfromsomechallengingdays)andtherewerenoseriousadequacyconcerns.Giventheuniquesocio-economicchallengesofthisperiod,monthlyelectricitysavingswere5-10%comparedtothepreviouswinter.Duringthemostchallengingdays,voluntaryenergysavingsanddemandresponseinpeakhoursbyhouseholdsandcommercialelectricityenduserswereremarkable–andthusplayedacriticalroleinkeepingtheelectricitysystemfunctioningwithoutanyfurtheractions.225Theuseofgaswasalsoreducedandreplacedbyotherfuels.Tosecurethesupplyofgastotheindustry,energyproduction,andhouseholds,aswellastosafeguardFinland’ssecurityofsupplyfromwinter2023onwards,theFinnishGovernmenttaskedthenaturalgasTSOinApril2022toleaseafloatingLNG-terminalvesselandtobuildupnecessarypierandmooringstructures.AfloatingLNG-terminalvesselarrivedinFinlandattheendof2022andwasconnectedtotheFinnishgasgrid.WithLNGterminalsandnaturalgasimportsfromEstonia,FinlandnowhasenoughsupplytoreplacealltheRussiangas.226ThemostchallengingmonthinFinlandwasDecember,whenthetemperatureswerethecoldest,thegassupplywasuncertain,andOlkiluoto3wasmostlyofflineduetoafeed-waterpumpfault.Figure23below,however,explainsthattheconsumptionwasasmuchas2GWlowerduringthelowesttemperaturescomparedtopreviousyears(forthesameleveloftemperature).Furthermore,thefigureshowsthatthevariationbetweendayandnightelectricityconsumptionwaslowerthaninthepreviousyear,suggestingthatbusinessesandhouseholdsmayhaveshiftedpartoftheirconsumptionfromdaytonighthours.Finally,windpowerproducedwellduringsomeofthemostchallengingdays.Figure23:HourlyelectricityloadinFinland-2019-2023(MW)Source:FinishNRAwithinformationfromthislink.84ACERSECURITYOFEUELECTRICITYSUPPLYA-II.6.FranceA-II.6.1.Adequacyrisksidentifiedaheadofthewinter227ThewinteradequacyassessmentpublishedbytheFrenchTSO(RTE)inSeptember2022concludedthattheelectricitysecurityofsupplyinFrancewasexpectedtobeunderunprecedentedstressduringthewinterof2022/2023andthatloadsheddingmightoccurifseveralrisksweretomaterialise.228Aheadofthewinter,severalparameterscontributedtoreducingthemarginsoftheFrenchpowersystem.Firstly,theavailabilityofnuclearpowergenerationwaslowduetoplannedmaintenanceandthereplacementoffuelrods,aswellastheunexpectedcorrosionproblemsdetectedonseveralreactorsinDecember2021.Forinstance,inSeptember2022,27GWofnuclearcapacitywasavailableoutofthe61GWtotalinstalledcapacity.Secondly,hydropowerstocksinSeptember2022werebelowhistoricallevelsduetoalongdroughtthathadaffectedFrancein2022andwasstillongoingatthetime,affectingotherEuropeancountriesaswell.229Additionally,multiplerisksthatcouldpotentiallycontributetoadeteriorationofthesystem’smarginsduringthewinterwereidentifiedinSeptember2022.TheseincludethepossibilityofagassupplyshortageinFranceandEurope,thespeedofreturntooperationofnuclearreactorsthatwereshutdown,theriskofacoldwinter,andconcernsregardingthepossibilitythathydropowerstockswouldnotfillduringthefallifthedroughtpersisted.Thegassupplyshortagescouldposeapriceandvolumeriskforgassupplies,whichcouldlimitgas-firedpowerproductionandelectricityimports.Consequentially,acoldwintercouldhaveresultedinhighpowerdemandpeaks.Giventhiscontext,RTEannouncedthattheFrenchpowersystemwasunderhighvigilanceasofautumn2022,andthehighestriskswereidentifiedbetweenNovember2022andJanuary2023.A-II.6.2.Preventivemeasurestocopewiththerisks230Inthiscontext,theFrenchGovernmentimplementedseveralmeasuresaheadofthewinter.Inthesummerof2022,theCO2emissionscapthatlimitedpowerproductionfromthermalpowerplantswasincreased,enablingtheSaint-AvoldcoalplanttorestartproducingelectricityasofNovember2022.InOctober2022,thegovernmentunveiledanationalEnergySobrietyplan,aimedatreducingenergyconsumptionby10%overthenexttwoyearscomparedto2019.Tomonitorthesituation,RTEexpandedthescopeofitswinteradequacyassessment,withadeeperanalysisofthesecurityofsupplysituation,thepublicationofmonthlyupdates,andweeklyreviewsoftheevolutionofFrenchpowerconsumption.Inaddition,RTEfurtherdevelopedits“EcoWatt”tool,downloadedby2.5millionusersasofDecember2022,whichnotifiescitizensincaseofananticipatedtightsituationonthesupply-demandbalanceandencouragesthemtoreduceorshifttheirpowerconsumption.A-II.6.3.Interactionswithmarket231Giventheadequacyrisksforeseenforwinter2022/2023,electricitywholesalepricesreachedunprecedentedhighlevels.AsdepictedinFigure24,averageday-aheadpricesremainedabove200euros/MWhinNovemberandDecember2022,beforedecreasingtoaround150euros/MWhinthefollowingmonths232Forwardpricesfordeliveryduringwinter2022/2023significantlyincreasedinthefirsthalfof2022,asconcernsoverFrenchsecurityofsupplyforthecomingwinterintensified.Pricesofbaseloadproductsfordeliveriesinthelastquarterof2022andthefirstquarterof2023werehigherthaninneighbouringcountriesandpeakedabove1,000euros/MWhinthesummerof2022.Theygraduallydeclinedfromautumnonwards,yetstillremainedatveryhighlevelsuntilearlyDecember,beforefallingrapidlyattheendoftheyearthankstotherapidreturntoserviceofsomenuclearpowerplants,theeasingofthegasmarket,andthefallinstructuralpowerconsumption.233CRE’spreliminaryanalysisofforwardpricesforthewinter2022/2023,publishedinsummer2022197,showedthatforwardpricesreflectedthemarket’santicipationofaparticularlytightsupply-demandbalanceinFrance.Theseforwardpricesincludedariskpremiumthatseemedveryhighcomparedwith197Thepreliminaryanalysisisavailablehere.85ACERSECURITYOFEUELECTRICITYSUPPLYareasonableanticipationoffutureday-aheadprices.Thefinalassessment198publishedinDecember2022concludedthattwomainfactorsexplaintherecord-highpricesreachedduringthesummer.Hedgingofriskslinkedtophysicalactivitiesledto,ontheonehand,purchasesinexcessofaverageanticipatedneedsand,ontheotherhand,reducedsalesontheforwardmarkets.Inaddition,whileFrancewasexpectedtobeanimportingcountryduringthewinter,thelateallocationoftheyearly2023interconnectioncapacityatFrenchborders(excepttheUK-FRborder),preventedmarketparticipantsfrombuyingthevolumescorrespondingtotheimportsrequiredtoensureadequacyontheFrenchforwardmarketwithoutriskbeforelateNovember-earlyDecember2022.234Marketexpectationsofsupply-demandimbalancesinwinterwerealsoreflectedintheFrenchcapacitymechanism.Capacitypricesforthe2023deliveryyearexceeded40,000euros/MWduringallauctionsconductedin2022,andthepricecapof60,000euros/MWwasreachedatthelastauctionof2022,ashighlightedinFigure25.235Whileintheory,highwholesaleenergypricescouldcontributetobringingcapacitypricesdownascapacityownerswouldcovertheircostswiththesaleofelectricity,theanticipatedcapacitydeficitsforthewinterledmarketparticipantstobuycapacityatveryhighpricestoavoidcostlypenalties.Figure24:Evolutionofday-aheadandbaseloadforwardpricesinFrance-2021-2023(euros/MWh)Source:FrenchNRAFigure25:EvolutionofcapacitypricesintheFrenchcapacitymechanismauctions-2020-2022(euros/MW)Source:FrenchNRA198Thefinalassessmentisavailablehere.86ACERSECURITYOFEUELECTRICITYSUPPLYA-II.6.4.Materialisationofrisksandlessonslearntfromthiswinter236InMarch2023,RTEpublishedareviewonhowtheFrenchelectricalsystemhasgonethroughthewinter2022/2023.Itconcludesthatwhiletherisksidentifiedinearlywinterwereveryhigh,theFrenchsystemeventuallybenefitedfromfavourableconditions.No“EcoWatt”redsignalwasissued,meaningthatRTEdidnotanticipateanysupply-demandimbalancesintheshorttermduringthewinter.237AccordingtoRTE,themaindriversthatenabledtheFrenchelectricitysystemtoavoidsupply-demandimbalanceswerethefollowing(rankedinorderofimportancewithregardtoRTE’sanalysis):a.wintertemperatureswererelativelymild;b.theweather-correctedpowerconsumptionwasonaverage8-9%lowerthanthehistoricalaverage(Figure26);c.hydropowerstocksrecoveredandreachednormallevelsaheadofthewinter;d.thefactthatFrancewasabletoimportelectricityfromneighbouringcountriesduringpeakhours;e.theactualavailabilityofnuclearreactorshadbeenalignedwithRTE’scentralscenario(Figure27).238Focusingspecificallyonpowerconsumption,oneofthemainlessonslearntfromthewinterwasthatthedropinstructuralconsumptionaffectedallsectors.Itwasmainlyobservedintheindustrialsector,withadropofaround10%to12%comparedwith2021,and,toalowerextent,intheservicesandresidentialsectors,reachingaround6%to7%.Fortheresidentialsector,RTEcarriedoutfurtherworkafterthewintertoinvestigatetheunderlyingfactorsbeyondthisfallandtheperspectivesforasustaineddropinthefollowingmonthsandyears.Theresultsofalarge-scalesurveypublishedon7June2023showedthatresidentialshavereducedtheirconsumptionmainlyinresponsetotherisingcostofelectricity,ortooffsetincreasesinotherexpenditureareas,and,toalowerextent,toavoidtheriskofpowershortagesinthecountry199.Figure26:Comparisonofweather-correctedpowerconsumptioninFranceinwinter2022/2023overhistoricalaverageSource:RTE’sBilandel’hiver2022/2023.Note:historicalaveragereferstotheyears2014–2019.199Thesurveywasconductedonmorethan10,000people.TheresultsofthisstudywillbeusedbyRTEtobuildconsumptiontrajectoriesforthenextNationalResourceAdequacyAssessment.87ACERSECURITYOFEUELECTRICITYSUPPLYFigure27:AvailabilityofFrenchnucleargenerationinwinter2022/2023(GW)Historical(2014-2019)Centralprojection(asofSeptember2022)Historical(2022-2023)Centralprojection(asofNovember2022)Source:RTE’sBilande’lhiver2022/2023.239AccordingtoRTE’sshort-termadequacyoutlook200publishedinJune2023,thelatestdevelopmentsinpowerproductionandconsumptionresultedintheassessmentofwinterof2023/2024assignificantlymorefavourablecomparedtotheinitialassessmentmadeforwinter2022/2023.Still,therisklevelsarehigherthannormal.Themainriskfactorshavedecreasedcomparedtolastwinter:thereducedconsumptionlevelsobservedduringthewintercontinuedthroughthespring,suggestingthattheycouldbesustainedoverthenextwinter;nuclearavailabilityisexpectedtobearound5GWhigherthanlastyear(althoughstillwellbelowhistoricallevels),hydropowerstocksarefilledatsatisfactorylevels;gasstoragefillinglevelsarehighinallEUcountries,andrenewablescontinuetobedeployedinFranceandinEurope.However,asofsummer2023,severaluncertaintiesremainregardingthefollowingmonths,inparticularconcerningtheexactavailabilityofnuclearreactorsandthepotentialofsustainingthelowerlevelsofdemand.240Despitethemorefavourablesituationexpectedforthewinter2023/2024,electricitypricesonforwardmarketsforthenextwinterare,likelastyear,veryhighinFranceandstillincludeasubstantialriskpremium,reflectingthemarket’sexpectationsoftensionsontheFrenchpowersystem.A-II.7.Germany241Germanyexperiencedrelativelyfewadequacyissuesduringthewinterof2022/2023,muchlikeothermemberstates.However,certainriskswereidentifiedincludingthepotentialobstructioninthesupplyofgas(giventheuncertainsocio-economicclimate),theneedforincreasedexportsduetoFrance’sreducednuclearpoweravailability,potentialcoaltransportationdifficultiesresultingfromlowriverlevels,andanincreaseindemandduetotheuseoffanheaters.TheGermangovernmenttookmeasurestomitigatetheforecastrisksbyreducinggasdemandby20%,implementinggasstoragetargetsandgasprocurement,prioritizingcoaltransportationbyrail,conductingadditionalnationalresourceadequacyassessments,prolongingthegenerationofnuclearpowerplantsuntil15/04/2023,andthereturnofcoalpowerplantsintothemarket.A-II.8.Greece242ThemainriskidentifiedinGreecewasthepossibilityofseveregasshortages.TheGovernmentimplementedmeasuresaimedatmitigatingtheanticipatedriskbyincreasingtheregasificationcapacityintheLiquefiedNaturalGas(LNG)terminal(leaseofanFSUfacilityconnectedtothemainLNGterminalincreasingcapacityfrom222mcmto375mcm),creatinggasstoragefacilitiesinItalyandBulgaria,committingtoincreasingdieselstocksforthegaspowerplantswithdoublefuelobligation,revisingtheplanforlignitephase-out,andamendingthegascurtailmentplan.TheGovernmentalsoimplementedmeasurestargetedatimprovingenergyefficiencybylaunchingeducationalcampaigns200Availablehere.88ACERSECURITYOFEUELECTRICITYSUPPLYonsocialmediatoinformconsumersaboutthefavourablebehaviouralchangesaimedatreducingconsumption.Amicrositewasdevelopedwhichallowedconsumerstocalculatetheirenergybillsandtheirdevices’consumption.Additionally,theGovernmentfurtherincentivisedbehaviouralchangestowardselectricityconsumptionbyawardingsubsidiesonelectricitybillstoconsumersthatreducedtheiraverageconsumptionby15%year-on-year.243Overall,theconcentratedefforttoconserveelectricityandgasconsumptionandthemildcourseofwinter2022/2023contributedtothepositivecourseandlackofadequacyissuesduringwinter2022/2023.Comparedtowinter2021/2022,therewasasignificantdecreaseintheconsumptionofelectricityforthemonthsofNovember,December,January,February,andMarch,9.96%,13.32%,13.58%,2%,and15.45%respectively.Asimilartrajectorywaswitnessedinthethermalpowerplantproduction,withJanuarytoMarchexperiencinga36.71%productionreductioncomparedtothesameperiodof2022,andaRESproductionincreaseof10.34%.A-II.9.Hungary244ThemainrisksidentifiedaheadofthewinterinHungarywerethatthecoldwintercouldhaveledtoasurgeinconsumptionandadecreaseindomesticproduction(e.g.duetoforcedoutages),agassupplyshortagecouldhavepotentiallyledtoasharpdecreaseinelectricityproduction,andthesignificantnarrowingofimportpossibilitiescouldalsohaveledtoasignificantreductioninsupplygiventhatroughly25-30%ofHungarianconsumptioniscoveredbyimports.245NumerouspreventivemeasuresweretakenbytheGovernment,includingwindfallprofittax,energyefficiencyprograms,increasedfuelproduction/stocks(otherthangas),reopeningcoal,lignite,oil,andnuclearpowerplants,assistingconsumersthroughsocialpolicyandsubsidies(theEnergyCostandInvestmentSupportProgram),Governmentloans(FactoryRescueGuaranteeandLoanProgram),increasedstoredgaslevels,reductionintaxes,levies,andsystemchargesonenergybills,regulatedretailprices,acceleratedRESdeployment,andpricelimitsatretaillevel.246Theintenseriseinwholesalepricesledtoanintenseriseinretailprices.Inthecaseoftheresidentialsegment,theGovernmentraisedthepricesforconsumptionthatwouldexceedpastconsumptioninthepast(byroughly200%),thustheoverallpriceincreasewasaround22%.Inthecaseofthenon-residentialsegment,thepriceincreasereachedthelevelof54%.247Therearenumeroustakeawaysfromthiswinter.Firstly,thegassupplyremainedreliable.Theproportionofnaturalgas-basedproductionreached27%(952MWhourlyaverage)duringthewinter,whereasthepreviouswinteraveragewas23%(1,242MWhourlyaverage).248Thetemperaturehasbeenmild,withtheaveragetemperatureforthiswinterbeing4.8°Ccomparedto3.9°Coftheprevious5years’average,asdepictedinFigure28.Thisreducedconsumptionandtherewerenoproductionoutagesduetocoldweather.Figure28:MonthlyandaveragetemperaturesfortheperiodNovember2022toMarch2023comparedwithfiveyearaverageinHungary(°C)Source:HungarianNRA89ACERSECURITYOFEUELECTRICITYSUPPLY249Thiswinterhasbeenfavourableforimportpossibilities.TheHungarianimportpossibilitiesdependheavilyonthehydro-basedproductionoftheBalkanregion.Thistypeofproductionincreasedbyroughly20%comparedtothepreviouswinter.Thiscouldcreateasouth-northflow.ThiseffectsupportedtheHungarianimportpossibilitiesduringseveralweeksofNovember,December,January,andMarch.250Duetothepriceincreasedescribedabove,consumptiondecreasedsignificantly.Accordingtoourestimation,thiseffectwasbetween6%and7%comparedtothepreviouswinter,asdepictedinFigure29.Figure29:ElectricityconsumptionreductioninHungaryfortheperiodNovember2022toMarch2023(GWh)Source:HungarianNRA251Finally,asfortheeffectofsmall-sizehouseholdPVpowerplants,thenumberofthesetypesofpowerplantsincreasesconstantly.Theaverageinstalledcapacityduringthepreviouswinterwas1,137MW,whilethisfigurereached1,538MWforthiswinter,roughlya35%increase.Giventhattheproductionofthesepowerplantsdecreasesconsumptiondirectly,thiscreatesdownwardpressureontheconsumptiontrend.Accordingtoourestimation,thewinteraverageofthiseffectwasonly0.22%,however,inFebruarythiseffectreached0.9%ofthetotalconsumption.A-II.10.IrelandA-II.10.1.Challenges252TheWinterOutlookfor2022/2023preparedbyEirGrid(TSO)fortheIrishelectricitysectorindicatedaveryhighLOLEvaluefortheDecember-Marchperiodof51hours,avaluewelloutsideofthereliabilitystandardof8hours.Thiscalculationwasinfluencedbyhigh(recentlyincreased)forcedoutageratesofconventionalgenerationandalackofavailablecapacityduringlowwindspells.ItwasalsounderstoodthattherewasariskofreducedimportsbeingavailablefromGreatBritainviatheinterconnectors.TheongoingsituationinUkrainecreatedariskofpotentialgassecurityofsupplyconsequencesacrossEuropethroughoutthewinterperiod.A-II.10.2.Achievements253ThesystemexperiencedrecordpeakdemandduringacoldsnapinDecember2022,andthisdemandwasservedwithnosystemAlertsorEmergencystatesrequiredtobedeclared.AshighlightedinFigure30,theexceptionallyhighdemandwasexperiencedonthe12thofDecember,andeventhoughbyatightmargin,availablegenerationwasstillabletocoverdemand.254Twopubliccampaignswereundertakenthroughoutthewinter.Thepublic‘Reduceyouruse’campaignusedmediamessagingtoappealtoconsumerstoreducetheiruseofenergywherepossibleduringthewintermonths.The‘BeatthePeak’campaignwasrunbytheDSO(ESBNetworks)andprovidedanopt-inserviceforconsumerstoreceivenoticeofupcomingpeakdemandeventsviaSMSandencouragementtoreducetheirelectricityusageduringtheseevents.90ACERSECURITYOFEUELECTRICITYSUPPLY255OthermeasurestakenincludedacollaborationbetweentheTSO,DSO,andregulatortodesignandimplementenhanceddemandcontrolproceduresforlargeenergyusers,tobedeployedifrequiredinanemergencysituation.Thisinvolvedalargemulti-stakeholderEmergencyTestexercise,usingascenarioinvolvinggas,oil,andelectricitytodemonstratetheimpactsacrossdifferentsectorsandtesttheresponses,andthedevelopmentofplansforreplenishingsecondaryfuelsuppliestogasgeneratorstofacilitatekeysitestorunforaprolongedperiodonoilduringagasshortage.A-II.10.3.LessonsLearnt256AsignificanteffortwasmadetocoordinateactionsbetweentheNRA,TSO,andGovernmentdepartmentstodriveinterventionstobothpreventandmitigatesecurityofsupplyissues.TheTSOengageddailywiththeNorthernIrishandBritishTSOstoleverageinterconnection,andthisensuredoptimaloutcomes.ThenationalTestExercisewasbeneficialintermsofsocialisingtheimpactsofadisruptiontotheenergysystemandraisingawarenessacrossmanydifferentsectors.Theopportunitywasalsotakentoenhanceplanninginanareanotpreviouslyconsidered,i.e.,thereplenishmentofsecondaryfuelstocks.Figure30:RecordpeakdemandinIrelandduringacoldsnapinDecember2022Source:IrishNRAA-II.11.ItalyA-II.11.1.Outlook257During2022,thesituationfortheincomingwinter2022/2023wasexpectedtobechallenging,mainlybecauseoftheriskslinkedtouncertaintiesregardingtheavailabilityofimportednaturalgasfromRussia.Roughlycovering40%ofthenationaldemandin2021,Italy’sdependenceontheRussiancommodityisnecessaryforheating,electricitygeneration,andindustrialdemand.Moreover,duetoarecordlowrainfalllevelregisteredinthepreviousmonths,hydropoweravailabilitywasexpectedtobeextremelylow.Finally,thereducedavailabilityofnucleargenerationcapacityinFranceincreasedtheuncertaintiesontheactualpossibilityofimportingtheusualamountofpowerfromabroad.258Theaforementionedscenario,incombinationwithprevailingadversegasmarketconditionsloweringtheincentivesofmarketparticipantstostoregasfortheupcomingwinterseason,ledtheGovernmenttotakepreventiveemergencymeasures201toensureahighdegreeofnaturalgasstoragefillingforwinter2022/2023.Additionally,therewasagoaltorapidlydiversifythesourcesofimportednaturalgas,maximizingtheuseoftheavailableinfrastructuresandatthesametimeincreasingthenationalLNGregasificationcapacity.201Formoreinformationseehere.91ACERSECURITYOFEUELECTRICITYSUPPLY259Regardingthefirstandmosturgentmeasure,theGovernmentestablishedanationaltargettofillatleast90%ofthestoragecapacitybeforethewithdrawalseasoninMarch2022.Thismeasurehadtheincentiveofsuggesting(notimposing)marketoperatorstoanticipatetheinjectioncampaignandrequestingtheNRAtodesignaspecificincentivemechanismtofacilitatetheprocess.Nevertheless,givenboththeunsatisfactoryresultsofthedailymonitoringofstoragefillingduetothereluctanceofmarketparticipants,andtheexcessivepricevolatility,furthercentralisedinterventionsbecamenecessary.Inparticular,theGovernmentidentifiedSNAM,themainItaliangasTSO,astheentityoflastresortsupportingthesystemreachingasatisfactorylevelofgasstorage.Thisservicewasthenallocatedtothestate-ownedcompanyGSE.Thankstothisadjustment,thestoragelevelsinautumn2022wereconsideredsatisfying.260Withregardtothesecondmeasure,actionsweretakentograduallyincreasethegassupplyfromAlgeriaandAzerbaijanthroughexistingpipelines(TransmedandTAP).Moreover,theGovernmenthasbeenactiveindevelopingnewLNGimportsfromEgypt,Qatar,Congo,andotherroutes.Thatgoesalongwiththenecessitytointroducenewregasificationterminals,giventhattheexistingonesworkatfullcapacity.AnewlyinstalledFSRUterminalinPiombino,purchasedbySNAMandofferedtothemarketatregulatedconditions,enteredoperationinspring2023.261Givennaturalgashasasignificantrolealsoforelectricitygenerationaswell,theGovernmentrequestedtheelectricityTSOtomaximisetheutilizationofpowerplantsusingcoal,oil,andbiofuel.ThemeasurewassupposedtobeimplementedfromSeptember2022uptoMarch2023andwasprolongedtoSeptember2023.262Actionswerealsotakenontheelectricityconsumptionside.InDecember2022,theItalianTSO,TERNA202,publishedacalltoprocureademandreductionservicefortheperiodlastingfromFebruarytoDecember2023,foratotalof2,500MW.Theresultsshowthatonly258MWwereawardedwithanaveragepremiumofalmost59,200euros/MWto13industrialoperatorsandcompaniesspecialisedinaggregationandflexibilityservices.AsecondauctionwaspublishedwithspecificreferencetoJanuary2023foramaximumreductionperiodof91hoursandatotalrequestof3,000MW.Twelvecompanieswereawardedanaveragepremiumofalmost8,300euros/MWforatotalof237MW.A-II.11.2.Review263Atatimeperiodwheredatacollectionisbeingundertakenandelaborationsatthenationallevelarestillongoing;therefore,thefollowingreviewshouldbeconsideredpreliminaryandbasedontheinformationcurrentlyavailable.264GasdemandreductionovertheperiodAugust2022–March2023wasaround18%203,higherthanthe15%voluntaryEUtarget.ThemajorcontractionwasregisteredinJanuaryfollowedbyDecember,November,andMarch.Thecoldseasonwasalmostalwayscharacterisedbytemperatureswellaboveaverage,exceptforFebruary2023,wheninfactconsumptiondecreasedlessthantheminimumtarget.TheworstperformancewasregisteredinAugust2022,whenconsumptionbythermoelectricassetssupportedgasdemanddespitethedeclineinotherconsumptionsectors,asdepictedinFigure31below.202InDecemberTernalaunchedalsoacommunicationcampaignrecommendingenergysavings(eco-clock)203EurostatandSNAM92ACERSECURITYOFEUELECTRICITYSUPPLYFigure31:MonthlyvolumesofgasdemandreductioninItaly-August2022-March2023(mcm)Source:ItalianNRA265Withreferencetothelevelofgasstorage,thesituationattheendofthewintershowsstocksaround58%offullcapacity,higherthantheprevious5years,ascorroboratedinFigure32.Figure32:GasstorageleveldevelopmentinItaly—April2022–March2023(bcm)Source:ItalianNRA266Withreferencetotheelectricitysector,althoughofficialdataisstillunderelaborationbutaccordingtopreliminaryinformation,electricitygeneration(tocompensateforthereducedgenerationfromgas)countedonanincreaseingenerationfromcoalandrenewables,withtheexceptionbeingfromhydropowerbecauseofthedroughtsthatprevailedacrossEuropeatthetime204.Additionally,accordingtopreliminaryunverifieddata205electricitydemandsavingswereabout4.7%overtheperiodfromNovember2022toMarch2023,comparedtotheprevious5years’average.Industrialdemandisstilllowanddidnotrecovertopre-crisislevelsattheendofMarch2023.267Averagewholesaleandretailpricesforbothgasandelectricity206reachedrecordlevelsforasustainedperiodfromautumn2021throughout2022(highestmonthlyaverageof543euros/MWhinAugust2022)uptoMarch2023,evenwithstrongfiscalpoliciesimplementedbytheGovernment,asthemarketinternalisedtheworstscenarios.Theunexpectedmildweather(exceptforFebruary),togetherwiththereductionofdemandbothfromhouseholdsandindustriesduetotheunfavourablepriceconditions,andtheavailabilityofimports,providedsomereliefmovingtospring2023.However,thereducedrainfallmightcreatefurthertensioninthemarketforthecomingsummer,especiallyifimportswillnotbefullyavailable.204Forandoverviewof2022:https://www.terna.it/en/media/press-releases/detail/electrical-consumption-2022205ICISPowerForesightanalysis:EUachievesa6.6%cutinWinter2022/2023powerdemand206SummarybytheItaliannominatedelectricitymarketoperator,GME.93ACERSECURITYOFEUELECTRICITYSUPPLYA-II.11.3.Preliminaryconclusions268TheimportanceofgasstorageforthesecurityofgasandelectricitysupplyhasbeenalwaysacknowledgedintheItalianlegislativeandregulatoryframework.269Someoftherelatedregulatorymeasures,suchasstrategicstoragevolumes,obligatoryinjectionandwithdrawalprofiles,andthefullregulatedaccess,havebeenoftencriticizedattheEUlevelforbeingtoorigid.270Themainlessonslearntfromthelastwinteremergencyarethattheadoptionofasimilarstorageregulationisvitaltoguaranteesystemsecurity.Leavingsuchastrategicsectorfullyunregulated,asthecaseinmanyjurisdictions,wherethemaingassupplierhadalsofullavailabilityofstoragecapacity,isposingaseriousthreatnotonlytothelocalmarketitselfbuttotheentireEuropeanintegratedmarket.271OtherimportantlessonslearntforthegassectorarerelatedtotheavailabilityofLNGvolumesandnetworkcongestion.Regasificationterminalsarenotperseenhancingthesecurityofsupplyintheabsenceoflong-termprocurementcontracts,asspotLNGcargoesmaynotbeavailableinthemostcriticalperiodsoftheyear.Forwhatconcernsnetworkcongestions,therecentcrisishasshownthatanew“eastbound”supplyscenariomightsuggestthatnewunexpectedinfrastructureinvestmentsareneededtomakeLNGvolumesavailableforthewholeofEurope,thusovercomingtheseveralbottlenecks(structuralorgas-qualityrelated)presentintheEUnetwork.272Fortheelectricitysector,themainlessonslearntarerelatedtotheimportanceofwateravailabilityforthesecurityofsupplyofmanyEUcountries.Wemayexpectthatclimatechangewillbringmoreandmoreoftenextremelydryseasons,leadingtovariablewateravailabilityconditions.ForthespecificItaliansituation,itisinparticularcriticalthetendencyoflowersnowprecipitationduringwinterwhichisaffectingthewateravailabilityduringtheentireyearandespeciallyinsummer.Lowwaterlevelsaffectnotonlythepotentialproductionofhydropowerplantsbutalsotheavailabilityofthermalgeneratorsthatusethewatersofriversforcoolingpurposes.273Anotherpreciouslessonisrelatedtotheavailabilityofimportelectricitytobeconsideredinadequacyassessmentsasthelastwinterdemonstratedthattheavailablevolumesmaybemuchlowerthanthehistoricalaverage.A-II.12.Latvia274WiththeRussianinvasionofUkraineonFebruary24,2022,thenecessaryactionsanddecisionshavebeentakenbytheLatvianGovernmenttoensurethattheenergysectorwillbeabletoguaranteeasecureandcontinuousenergysupply.275Since2009,theBalticStateshaveworkedinclosecooperationwiththeEuropeanUnionpurposefullytodisconnecttheelectricitysystemsfromtheBRELL(Belorussia,Russia,Estonia,Latvia,Lithuaniaelectricitysystems)andprepareforsynchronisedworkwiththeContinentalEuropeelectricitysystemsbytheendof2025.AfterRussia’sinvasionofUkrainein2022,theBalticStateshavetakenaseriesofmeasurestodistancethemselvesfromtheaggressorstateandtoensurethattheelectricalsystemscanbemanagedevenincaseofurgentdesynchronizationfromBRELL.TheBalticStatesstoppedthecommercialtradeofRussianelectricityinthewholesalemarketandTSOscontinueonlytheminimumnecessarytechnicaloperationalcooperationwithinBRELL276TheLatvianGovernmenttaskedastate-ownedcompanyJSC“Latvenergo”topurchaseanadditionalamountofliquefiednaturalgas(LNG)fromtheKlaipedaLNGterminaltoensurethesecurityofthenaturalgassupply,ensuringthattheprovisionofenergysupplysafetyreservesintheamountof1.8-2.2terawatthourscanbeprovidedin2023.ThosereserveshavebeeninjectedintotheInčukalnsundergroundgasstorageby1January2023.NaturalgastransmissionandstoragesystemoperatorJSC“ConexusBalticGrid”startedinjectionseasonintotheundergroundgasstoragefacilityalreadyon26February2022,althoughthiswouldusuallystartonlyon1May.On1January2023,LatviabannedtheimportofnaturalgasfromRussia.277InSeptember2022,inthelong-termcapacityallocationprocedure,Latvenergoacquiredtherighttouse6TWhannualcapacityoftheKlaipedaLNGterminalforthenext10years.Itspurposeistoensure94ACERSECURITYOFEUELECTRICITYSUPPLYregulardeliveriesofnaturalgasforthesafeproductionofelectricityandheat,andfornaturalgassupplytoconsumers.278On8February2022,theLatviangovernmentapprovedachangeinthemaintenancemodelofsafetyreservesofoilproducts.ItwasdeterminedthattheamountofsafetyreservestobestoredontheterritoryofLatviawillbegraduallyincreasedoverathree-yearperiod,with100%ofreservesbeingstoredinLatviaby2025.279On20September2022,theLatvianGovernmentadoptedenergy-savingmeasuresforpublicsectorentitiesduringthewinterseason2022/2023inordertosave9.7%onheatingconsumption,4.2%onelectricityconsumption,3.3%onnaturalgasconsumption,and1.8%onoilproductsconsumption.Inmulti-apartmentbuildings,thetemperaturemaynotexceed19°Cwhilekeepingtemperaturesatleast18°C.Inaddition,itwasdecidedthatthemanagersofmulti-apartmentbuildingshavetherighttoreducethehotwatertemperatureslightlyortemporarily,butitshouldnotbelowerthan55°C,apolicyputintoeffectfrom1October2022until30April2023.280SinceMay2022,theamountofelectricityconsumedinLatviahascontinuallydecreasedasaresultoftheincreasedamountofmicrogenerationforself-consumption,asreinforcedinFigure33below.Customersdecidedoninstallingmicrogenerationnotonlybecauseofsustainabilitygoalsbutalsobecauseoftheassociatedeconomicgainssincemicrogenerationbecameanappealinginvestmentintimesofincreasedelectricityprices.Throughout2022,thenumberofself-producinghouseholdsgrewfrom2,000microgeneratorsattheendof2021toalmost12,000microgeneratorsinDecember2022(95MW).Theforecastshowsthatattheendof2023,theinstalledmicrogenerationcapacityforhouseholdswillreach200MW.Figure33:ElectricityconsumptionbyhouseholdsinLatvia-2021-2022(MWh)sSource:LatvianNRA281Theyear2022wascharacterisedbypricefluctuationsandanti-records,however,thefirstquarterof2023sawthestabilizationofelectricitypricesataround65-100EUR/MWh.282TheamountofnaturalgasconsumedinLatviadecreasedbyapproximately30%in2022,withthistrajectorycontinuinginthefirstquarterof2023,asdepictedinFigure34.Thedecreaseinconsumptionwasinfluencedbylowerdemandfornaturalgasfromcogenerationplantsduetothehighnaturalgaspricesandwarmwinter.95ACERSECURITYOFEUELECTRICITYSUPPLYFigure34:NaturalgasconsumptionandaverageairtemperatureinLatvia-January2021-March2023(GWhand°C)GWh2.50025,02.00020,0Jan1.50015,0Feb1.00010,0Mar5,0Apr5000,0Mai0-5,0Jūn-10,0JūlAugSepOktNovDecJanFebMarAprMaiJūnJūlAugSepOktNovDecJanFebMarairtemperature202120222023consumptionactuallyairtemperaturenormairtemperatureSource:LatvianNRA283Additionally,naturalgastransmissionandstoragesystemoperatorJSC“ConexusBalticGrid”endedthegasextractionseasonwith9terawatthours(TWh)ofnaturalgasstoredintheInčukalnsundergroundgasstorage.Thisis21%morethanlastyearattheendofthestorage’snaturalgaswithdrawalseason,asreinforcedinFigure35.Figure35:GasstoredintheInčukalnsundergroundstoragefacilityinLatvia-January2020-March2023(GWh)20.000GWh15.00010.0005.000020-Jan20-Mar20-Mai20-Jūl20-Sep20-Nov21-Jan21-Mar21-Mai21-Jūl21-Sep21-Nov22-Jan22-Mar22-Mai22-Jūl22-Sep22-Nov23-Jan23-MarGasinstorageSource:LatvianNRAA-II.13.Poland284Thegeneralforecastforwinter2022/2023wasasfollows.Firstly,therewasnoriskofacoalshortageinpowerplants.Secondly,therewasthepossibilityofissuesarisingfromkeepingthereserveattherequiredlevelof9%intheinstanceoflongerperiodsofacoldwinterwiththesimultaneouslowwindfarmgeneration.Finally,thestableoperationofthesystemrequiredwindgenerationorcommercialimportatthelevelof2GW.285Duetotherelativelywarmwinter,therewerenomajorproblemswiththebalancingofthesystem.SomedifficultieswereatthebeginningofDecember2022,whichwerecausedbythecumulationofthelowtemperatures,inconsiderablewindgeneration,andtheemergencyandplannedoutageofunitgeneration.Thesecurityofsupplywasimprovedbytheoperator’simportofenergyfromneighbouringcountries.286Therewerealsosomeproblemswithasurplusofgenerationcausedbythelowdemandduring96ACERSECURITYOFEUELECTRICITYSUPPLYChristmas.Onthe26thand27thofDecember,theTSOhadtodecreasethewindgenerationby400to800MWatdifferenthoursbecauseofthelowdemand.ThetotalinstalledcapacityinwindfarmsinPolandis9GW,thegenerationwasatthelevelfrom0.3GWto5.9GWandthedemandwasfrom11.8to16.7GWduringtheChristmasperiodinPoland.287Figure36presentsthedomesticpowerdemandandpoweravailabletoTSOatpowerdemandpeaksbetween1November2022and31March2023.Figure36:PowerdemandandavailablepowerinPoland-November2022-March2023(MW)Source:PolishNRAA-II.14.Portugal288AlthoughthereisnoseasonalresourceadequacyassessmentinPortugal,thePortugueseTSOpresentseverytwomonthsanupdateofitsforecastsfortheseasonalsecurityofsupplyofthePortuguesesystematthemeetingoftheTechnicalCommitteefortheMonitoringoftheOperationoftheIberianElectricSystem.ThisassessmentisdoneonaweeklybasisandisbasedonanindicatorthatanalysestheabilityofthePortuguesegenerationunitstocoverthepeakdemand,insevereconditionsofgenerationanddemand(peakcovermargin).Forthisassessment,thePortugueseTSOdoesnotconsideranycontributiontotheinterconnectionimportcapacity.289AttheNovembermeeting,theforecastsforwinter2022/2023pointedtoatotalof10weeksinwhichtheavailablegenerationwouldnotbeabletocoverpeakdemandinsevereconditions,asdepictedinFigure37.Theseforecastsweremainlyjustifiedbyalackofhydroresources.ThewaterlevelsonthedamswereverylowduetoaverydrysummerandautumnandtheexpectedunavailabilityofsomeCCGTpowerplants.ThehydroresourceconditionsweresodrasticthattherewasevenaresolutionofthePortuguesegovernmentthatpreventedelectricitygenerationusingthewaterofsomedamns,exceptincasesofsecurityofsupplyemergency.Therewerealsoexpectationsofhigherdemandduetotheforecastlowtemperatures.97ACERSECURITYOFEUELECTRICITYSUPPLYFigure37:Securityofsupplyforecastforwinter2022/2023inPortugalSource:PortugueseNRAbasedonPortugueseTSOdata.290Thetwomainmeasurestakentocopewiththeriskswerethere-scheduleofsomeCCGTpowerplants’maintenanceandtheimplementationofatime-limitedandmarket-baseddemand-sideresponseproductforlargeindustrialconsumers(about300MW).291Contrarytotheforecasts,thewinter2022/2023progressedwithoutanyreportsofstresssituations.Itrainedmoreandthewinterwaslesscoldthanexpected.Forinstance,thewaterdams’fillinglevelwentfromabout43%inOctoberto90%inJanuary,asshowninFigure38,andthehydroproductibilityindexwentfrom0.60inOctoberto1.53inJanuary(with1.0beingtheaverageofayear),asdepictedinFigure39.Figure38:FillinglevelofwaterdamsinPortugal-2022-2023(%)Source:PortugueseNRA.98ACERSECURITYOFEUELECTRICITYSUPPLYFigure39:HydroproductibilityindexinPortugal-2022-2023Source:PortugueseNRA(thefigureispartoftheTSO’sreport).292ThesituationobservedthiswinterconfirmedtheimportanceofhydrogenerationinPortugalandtheneedtofindsuitablealternativesbothtohydroandCCGTpowerplants.293Currently,therearenosignificantmeasuresinplacefornextwinterotherthanthedemandresponseproductreferredtointheprevioussection,whichiscurrentlyavailableonlyuntiltheendof2023.Otherdemandresponseoptionsarestillinaveryearlystage,however,thelegalandregulatoryframeworkisbeingdevelopedtoensurethatthesesolutionsmayappear.ERSEheldapublicconsultationforthereviewoftheelectricityregulatoryframework.A-II.15.Spain294ThemainadequacyriskidentifiedintheSpanishelectricitysystemoccurredduringlastautumn2022/2023,duetothesignificantunavailabilityofthermal(CCGTandcoal)andnuclearpowerplantsfromtheendofSeptembertothebeginningofNovember.Insomecases,theunavailabilityofgenerationreached10,000MW,whichrepresentsalmostathirdoftheestimatedpeakloadofthatperiod,ascorroboratedinFigure40.AlthoughthelevelofCCGTundermaintenancewasnothighsinceitremainedatthesamelevelthanpreviousyears,thesituationwasmorechallenginglastyearbecauseofagreaterneedforelectricitygenerationinSpain,combinedwithaseveredroughtintheregionwhichdrasticallyreducedtheavailabilityofhydrogeneration.Theneedforextraproductionwasmotivatedmainlybytheincreaseinelectricityexportstotheneighbouringcountries(FranceandPortugal)duetodroughtsthataffectedPortugaltoo,scarcityofnaturalgasinEurope,andnuclearunavailabilityinFrance.Figure40:PredictedunavailabilityofpowergenerationinSpain-September2022-August2023(MW)Source:SpanishNRA99ACERSECURITYOFEUELECTRICITYSUPPLY295Undertheexposedcircumstances,theseasonalsecurityanalysisconductedbytheTSOinSeptemberconcludedthattherewasanon-negligibleprobabilityofloadshedding,ashighlightedinFigure41.Tomitigatetherisk,theGovernmentofSpainadoptedaplan(Plan+SeguridadEnergética)inOctobertoincreaseefficiencyandsavingintheenergysector.Thisincludedasetofmeasuresfosteringthereductionofelectricity(andgas)demand,suchasareductionoftemperatureforheatingto19ºCandincreasingto27ºCforcoolinginpublicbuildings,shoppingcentres,airports,trainstations,etc.TheGovernmentalsolaunchedaspecificbalancingproductfocusedondemand,tofacilitatedemandresponseandalleviatetherisk.Figure41:ProbabilisticcalculationofsupplymargininSpain-September2022-February2023(MW)Source:SpanishNRA296Fortunately,theriskforeseenintheSeptember2022securityanalysisnevermaterialisedbecauseofseveralfactorsthatcontributedtothereductioninelectricityconsumptioninSpainduringautumnandwinter2022/2023,asoutlinedinFigure42.ThemainfactorsforthispositivecourseweretheefficiencyandsavingmeasuresapprovedbytheGovernmentofSpain,themildtemperaturesoftheregion,andthereductionofdemandduetothehighretailelectricityprices.Additionally,themonthsofDecemberandJanuarywerecharacterisedbyperiodsofabundantrainintheIberianPeninsula,replenishinginasignificantwaythereservoirstoincreasetheavailabilityofhydropoweranddiminishingtherisksfortherestofthewinter.Figure42:ElectricitydemandinSpain—2019–2023(GWh)Source:SpanishNRA100ACERSECURITYOFEUELECTRICITYSUPPLYA-II.16.Sweden297Intheautumn,SVKpredictedthatduetoreducedenergyimportopportunitiescausedbythewarinUkraine,thelowwaterlevelsinNorwegianreservoirs,andreducedpowerproductioninFrance,therewasarealriskofmanualelectricityconsumptiondisconnectionduringwinter2022/2023.Despiteenteringthewinterunderworse-than-normalconditions,includingtheunavailabilityoftheRinghals4nuclearpowerplantandthedelayedstartoftheOlkiluoto3plantinFinland,Swedenwasabletoavoidanyelectricityconsumptiondisconnection.ThehighestconsumptionhourduringthewinterperiodwasonDecember16thfrom9to10AM,witharecordedconsumptionof23,900MWh/h,whichwaslowerthanthepreviousyear.Thiswasduetosuccessfulenergy-savingcampaignsandcommunicationaboutthepowersituation.Althoughtherewasstillashortageofover3,000MWhduringthepeakloadhourbecauseoftheOskarshamn3nuclearpowerplant’sbriefshutdown,Swedenmanagedtoovercomethesituationthroughrecord-highimportsfromneighbouringcountries.A-II.17.TheNetherlands298TheNetherlandstookanintegralapproachtowardselectricitysecurityofsupply.Theycheckedthepreparednessofallstakeholdersandproceduresandstayedintouchwithstakeholderstomonitorrisksandpreparedness.Themainrisksidentifiedwereashortageofgas,spillovereffectsfromstresssituationsinnearbycountries,andspillovereffectsfromliquidityissuesforBRP’s/NEMO’s/Systemoperators.Forpreparedness,thefocuswastocheckwhetherallSOshadload-sheddingplansinplaceandwhethertheSLRprocedurewasinplace.Beforewinter2022/2023,noadequacyissueswereforeseen(riskswerelow).299Overall,noadequacyissuesmaterialisedduringwinter2022/2023.FormonitoringelectricitySoSintheNetherlands,thefirstthingtodoistomonitorgasSoS.ACMmonitoredthisclosely.SomeofthemainindicatorsforthatwerethefillingrateofgasstoragesandtheavailabilityofLNG.AnotherlessonlearntisthatitisworthcheckingwhetherallSOshavethenecessaryproceduresinplace.101ACERSECURITYOFEUELECTRICITYSUPPLYTable19:SummaryofthelessonslearntbyMemberStatesMemberStateRisksIdentifiedMitigatingMeasuresLessonsLearntAustriaBelgium•PotentialGasShortagesincaseofcold•State-ownedgasreservewasestablished•Mildwinterreduceddemandwinter2022/2023orduringthefollowing•Enhanceddatacollection,monitoringandcoordinationwith•Additionaldemandreductionoccurredinsegmentswintersifgasimportsarecontinuouslyrestrictedotherinstitutionsandstakeholdersaffectedbyhighprices•Mediacoverageandawarenesscampaignstoreduce•Marketcouplingprovidedanimportantcontribution•Lowhydroavailabilityleadstohighersharesofpowergenerationbygas-firedpowerdemandtosubstituteforlowhydro-generation,mitigatingplants•NewproductsliketheDRproductintroducedbytheTSOtotheneedtoincreasegenerationbygas-firedpowerplantsinAustria•Marketuncertaintyleadingtoexcessiveprovideflexibilityifnecessaryprices•Significantdecreaseindemandduetoprice•Awarenesscampaignsresponsivenessandawareness•Lowavailabilityofnuclearandhydropowerplants•Thedecreaseinelectricityproductionwasduetoadecreaseinoutputfromsteampowerplants•Demandsituationinneighbouringcountries•Electricityconsumptionsignificantlydecreased,CzechRepublic•Highelectricityprices•Awarenesscampaignsparticularlyevidentamonghouseholds•Concessionsonelectricitypayments•Governmentcapsonelectricityprices•Thebiggestmotiveforthereductioninelectricity•Decentralisationofelectricitygenerationbytheinclusionofconsumptionwasthehighenergypricesmall-scalerenewables•Thenextwinterperiodwilldependonconsumer•Developmentofcommunityenergysinceautumn2022behaviourandweatherpatternsDenmark•Gasshortages•Awarenesscampaigns•Securityofsupplyisdependentonthewillingness•Energyefficiencyprogramsofconsumerstocurtailconsumption•Lowhydroreserves•Replacementofgasinthemanufacturing•Introductionofnewvariabletariffswhereconsumersswitch•Generationreductioncausedbylowwateravailabilityinriversfromafixed-priceagreementtoavariable-priceproduct102ACERSECURITYOFEUELECTRICITYSUPPLYMemberStateRisksIdentifiedMitigatingMeasuresLessonsLearntFinlandFrance•Risksofareducedsupplyofelectricityand•Coal-firedpowerplantscamebacktothemarket•VoluntaryenergysavingsanddemandresponseGermanygas•Awarenesscampaignsinpeakhoursbyhouseholdsandcommercial•TSOintroducedanewvoluntarypowersystemsupportelectricityend-usersplayedacriticalrole•Delayedoperationofthenewnuclearplant(Olkiluoto3)procedureaimedatpreventingelectricityshortages•Warmerwinterthananticipated•ThegovernmentassignedthenaturalgasTSOtoleasea•Lowavailabilityofnuclearpowergeneration•CO2emissionscapwasincreased•LowhydropowerstocksfloatingLNG-terminalvesselandtobuildupthenecessary•Saint-Avoldcoalplantrestartedproducing•Gasshortagepierandmooringstructures•Delaystonuclearreactorscomingbackinto•GasusagewasreducedelectricityasofNovember2022•Industrialprocessesshiftingfromdaytimetonighttime•TheNationalEnergySobrietyPlanwasintroducedservice•Testrunscenariosconductedwithvariablepoweroutput•TSOexpandedthescopeofitswinteradequacy•Riskofacoldwinter•CO2emissionscapwasincreasedassessment•Gasshortage•Saint-Avoldcoalplantrestartedproducingelectricityasof•Awarenesscampaign•ThenecessityforincreasedexportsduetoNovember2022•SomeissuesintermsofelectricityemissionsortheFrance’slowerednuclearpoweravailability•TheNationalEnergySobrietyPlanwasintroducedproductionofsystempowerplants•Potentialcoaltransportationdifficulties•TSOexpandedthescopeofitswinteradequacyassessment•Awarenesscampaignresultingfromlowriverlevels•Increaseindemandduetotheuseoffan•Reducedgasdemandby20%•Thegovernmentprioritisedcoaltransportationbyrailheaters•Conductingadditionalnationalresourceadequacyassessments•Prolongingthegenerationofnuclearpowerplants•Returnofcoalpowerplantsintothemarket103ACERSECURITYOFEUELECTRICITYSUPPLYMemberStateRisksIdentifiedMitigatingMeasuresLessonsLearntGreece•Gasshortages•Thegovernmentincreasedtheregasificationcapacityinthe•ConcentratedefforttoconserveelectricityandLNGterminalgasconsumptionandthemildcourseofwintercontributedtothepositivecourse•CreatinggasstoragefacilitiesinItalyandBulgaria•Committingtoincreasingdieselstocksforthegaspower•Therewasasignificantdecreaseintheconsumptionofelectricityplantswithdoublefuelobligation•Revisingtheplanforlignitephase-out•Reducedthermalpowerplantproduction•Amendingthegascurtailmentplan•Awarenesscampaigns•RESproductionincreasedby10.34%•AwardingsubsidiesonelectricitybillstoconsumersHungary•Riskofacoldwinter•Windfallprofittax•Gassupplyremainedreliable•Gasshortages•Energyefficiencyprograms•Mildtemperaturesreducedconsumption•Narrowingofimportpossibilities•Increasedfuelproduction•Importpossibilitiesdependedonthehydro-based•Dependenceonimports•Reopeningcoal/lignite/oil/nuclearplants•AssistingconsumerswithsocialpolicyandsubsidiesproductionoftheBalkanregion•Increasedstoredgaslevels•Priceincreasesresultedinaconsumptiondecrease•Reductionintaxes/levies/systemchargesonenergybills•HouseholdPVpowerplantsincreased•Regulatedretailprices•AcceleratedRESdeployment•Pricelimitataretaillevel104ACERSECURITYOFEUELECTRICITYSUPPLYMemberStateRisksIdentifiedMitigatingMeasuresLessonsLearntItaly•Gasshortage•Naturalgasstorage•Gasdemandreductionswerehigherthanthe15%voluntaryEUtarget•Lowhydropower•Diversifythesourcesofimportednaturalgas•Electricitygenerationreliedonanincreaseincoal•Spillovereffectsfromstresssituations•IncreasingthenationalLNGregasificationcapacityandrenewablesrelatingtothereducedavailabilityofnucleargenerationcapacityinFrance•Nationaltargettofillatleast90%ofthestoragecapacity•Theadoptionofasimilarstorageregulationisvitalbeforethewithdrawalseasontoguaranteesystemsecurity•CooperationthroughincreasinggassupplyfromAlgeriaand•Anew“eastbound”supplyscenariomightsuggestAzerbaijanthatnewunexpectedinfrastructureinvestmentsareneededtomakeLNGvolumesavailableforthe•TSOtomaximisetheutilizationofpowerplantsusingcoal,wholeofEuropeoilandbiofuels•Climatechangewillbringmoreextremeweather•TSOpublishedacalltoprocureademandreductionserviceeventsanddryseasons•AvailabilityofimportelectricitytobeconsideredinadequacyassessmentsIreland•VeryhighLOLEvalueindicatedbythe•Publicawarenesscampaigns•CoordinateactionsbetweentheNRA,TSOandthewinteroutlook•IncreasedcollaborationbetweentheTSO,DSOandregulatorGovernmentdepartmentisessential•Largemulti-stakeholderEmergencyTestexercise•Highforcedoutageratesofconventional•Developmentofplansforreplenishingsecondaryfuel•NationalTestExercisewasbeneficialforsocialisinggenerationtheimpactsofdisruptionstotheenergysystemsuppliestogasgeneratorsandraisingawarenessacrossmanydifferent•Lackofavailablecapacityduringlowwindsectorsspells•Opportunitytakentoenhanceplanninginareasnot•ReducedimportsavailablefromGreatpreviouslyconsideredsuchasthereplenishmentBritainofsecondaryfuelstocks•Gasshortages105ACERSECURITYOFEUELECTRICITYSUPPLYMemberStateRisksIdentifiedMitigatingMeasuresLessonsLearntLatvia•Gasshortages•SuspendedthecommercialtradeofRussianelectricityinthe•Adecreaseinelectricityconsumedresultedinanwholesalemarketincreasedamountofmicrogeneration•BannedimportofnaturalgasfromRussiaon1January2023•Thedecreaseinconsumptionwasinfluencedbylowerdemandfornaturalgasfromcogeneration•TSOscontinueonlytheminimallynecessarytechnicalplantsduetohighnaturalgaspricesandwarmoperationalcooperationwithinBRELLwinter•State-ownedcompanyJSC“Latvenergo”purchasedanadditionalamountofliquefiednaturalgas(LNG)fromtheKlaipedaLNGterminal•NaturalgastransmissionandstoragesystemoperatorJSC“ConexusBalticGrid”in2022startedinjectionseasonintheundergroundgasstoragealreadyon26February2022•Energyefficiencyprogramsforpublicsectorentities•Increasedamountofmicrogenerationforself-consumptionPoland•Problemswithkeepingthereserveatthe•Importofenergyfromneighbouringcountries.•Duetotherelativelywarmwinter,therewerenorequiredlevelof9%majorproblemswiththebalancingofthesystem•TSOhadtodecreasethewindgenerationby400to800MW•Riskofacoldwinteratdifferenthoursbecauseofthelowdemand•Lowwindgeneration•PlannedoutagesofsomegenerationunitsPortugal•Forecast10weeksinwhichtheavailable•Preventionstotheelectricitygenerationusingthewaterof•Itrainedmoreandthewinterwaslesscoldthangenerationwouldnotbeabletocoverpeaksomedamsexpecteddemand•Re-scheduleofsomeCCGTpowerplants’maintenance•Thesituationobservedthiswinterconfirmedthe•Lackofhydroresourcesimportanceofhydrogenerationandtheneedto•Market-baseddemand-sideresponseproductforlargefindsuitablealternativesbothtohydroandCCGT•UnavailabilityofCCGTpowerplantsindustrialconsumerspowerplants•RiskofcoldwinterSpain•Unavailabilityofthermalandnuclearpower•Energyefficiencyprograms•Mildwintertemperaturesandhighelectricitypricesplantshadadirectimpactonthereducedelectricity•Thegovernmentlaunchedaspecificbalancingproductconsumption•Lowhydrogenerationfocusedonthedemand106ACERSECURITYOFEUELECTRICITYSUPPLYMemberStateRisksIdentifiedMitigatingMeasuresLessonsLearntSweden•Lowwaterlevelsinreservoirs•Energy-savingcampaigns•Swedenmanagedthesituationthroughrecord-•Enhancedcommunicationaboutthepowersituationhighimportsfromneighbouringcountries•Spillovereffectsfromstresssituations•EmphasisedhighimportsfromneighbouringcountriesrelatingtothereductionofpowerproductioninFrance•Riskofmanualelectricityconsumptiondisconnection•Unavailabilityofnuclearpowerplant•DelayedstartofthenewnuclearpowerplantinFinlandThe•Gasshortage•Checkedthepreparednessofallstakeholdersand•TSOcloselymonitoredthesecurityofgassupply,Netherlandsprocedureswhichisseenasthefirststeptomonitoringthe•Spillovereffectsfromstresssituationsinsecurityofelectricitysupplynearbycountries•Stayedintouchwithstakeholderstomonitorrisksandpreparedness•Emphasisedtheimportanceofcheckingwhether•SpillovereffectsfromliquidityissuesforallSO’shavethenecessaryproceduresinplace.BRP’s/NEMO’s/Systemoperators•CheckwhetherallSO’shadload-sheddingplansinplaceandwhethertheSLRprocedurewasinplaceSource:ACERbasedoninformationfromNRAs.107ACERSECURITYOFEUELECTRICITYSUPPLYAnnexIII:Casestudies:Theroleofdemandresponseinwinter2022/2023inFinlandandFranceA-III.1.Finnishcasestudy300Typically,thepeakloadinFinlandisreachedduringthecoldestdaysofwinter,especiallyifthecoldperiodlastsforalongtime.However,duringthewinter2022/2023,evenonthecoldestdays,consumptionwassignificantlybelowitstypicallevels.Consumptionwasapproximately15%(2GW)lowerduringthepeakloadhourscomparedtothesametemperaturesinpreviousyears.Onamonthlybasis,consumptionwas5-10%lowerthanthepreviouswinter.Anenergy-savingcampaignbythegovernmentandotherformsofcommunicationisunderstoodtohaveinfluencedthebehaviourofFinnishconsumersduringthewinter.Additionally,increasedelectricitypricesencouragedelectricityuserstosaveelectricity.301InterestindemandresponseincreasedinFinlandduringthefallof2022.Beforethewinter,asurveywasconductedtoassesscompanies’readinessfordemandresponse1.TheEnergyAuthoritysentthesurveytoenergy-intensivecompaniesandreceivedresponsesfrom69companiesand5municipalities.Ofthosewhoresponded,25%werealreadyimplementingdemandresponseondifferentmarketplatforms,20%ofrespondentshadplanstoincreasedemandresponseand40%hadplansinprogressorwereabouttostart.Thesurveyparticipantshadatotalpotentialofnearly400MWforadditionaldemandresponse.302Figure43presentsthesupplyanddemandcurvesinoneofthemostchallenginghourslastwinterintermsofsystembalance.Thefigureshowstherewasstillaround400MWofunutilisedflexibledemandintheday-aheadmarketintheFinnishpricearea2.Figure43:Day-aheadcurvesofasinglehourinFinlandinwinter2022/2023(euros/MWh)Source:FinnishNRA.Note:Thefiguredoesnotcontainblock-offers,sotherewasevenmoreflexibilitythanthat.303Figure44showsthetypicaldemandpatterninFinlandinwintertime;theelectricityconsumptioncorrelatesstronglywiththetemperature.Thatis,theelectricityconsumptionincreaseswhentheweathergetscolder,duetoelectricheating.However,thefigurealsoshowsthatconsumptionreductioncorrelateswiththetemperature.Thecoldertheweather,themoreconsumptiondeviatedfromtheestimatesbasedonpreviousyears.Onthecoldesthourswhentheconsumptionwasexpectedtobethehighest,theelectricityconsumptionwasreducedthemost.Thereareprobablyseveralreasonsfor1ThesurveyisavailableinFinnishhere.1082Thefiguredoesnotcontainblock-offers,sotherewasevenmoreflexibilitythanthat.Blockofferscoverseveralhours.Whethertheyareacceptedornotdependsonthepricesofmultiplehours,sotheycannotbedrawninaone-hourfigure.ACERSECURITYOFEUELECTRICITYSUPPLYthis,including,forexample,adjustingthetimingsofelectricheating,improvingenergyefficiencyofbuildings,orusingotherheatingmethodswherepossible.Figure44:Meteredelectricityconsumption(blue),),expectedconsumptiongiventheexperiencedtemperature-basedonpreviousyears’consumptiondata(red)andtemperature(black,inversescale)(MWand°C)Source:FinnishNRA.304InFigure45,theblackcurvedenotestheday-aheadelectricityprice.Whileonemustbecarefulwheninterpretingcorrelations,thefiguresuggeststhatthepricewasnotthemaindriverinconsumptionreductions,buttemperaturewas.ThefigureshowsthatpricesdroppeddramaticallybytheendofDecember,however,theconsumptionreductionpatternsremainedthesame.Forexample,inMarch,whenthecoldesthourswereascoldasinDecember,theconsumptionreductionsweresimilartoDecemberevenifthepricesweremuchlower.Figure45:Meteredelectricityconsumption(blue),expectedconsumptiongiventherealisedtemperature-basedonpreviousyears’consumptiondata(red)andelectricityprice(black)(MWandeuros/MWh)Source:FinnishNRA.305Inconclusion,earlyanalysissuggeststhatconsumers’reactionplayedanimportantroleinsecuringsuppliesinFinlandlastwinter.Availableinformationindicatesthatreducedelectricityconsumptionforheating,forexampleintheformofstructuralsavingsandshiftingofelectricheatingdemandtooff-peakhours,werethemainreasonfortheloweroverallconsumptionlevels.Moreover,theinterestandparticipationofdemandresponseinthemarketincreasedthroughoutthewinter.Theimpactofhigherelectricitypricesonelectricityconsumptionislessobviousinthispreliminaryanalysis(probablymoreontheindustrialandcommercialsectorsandlesssoonthehouseholdsector).109ACERSECURITYOFEUELECTRICITYSUPPLYA-III.2.Frenchcasestudy306Thissectiondescribeshowdemand-sideresponsehelpedto“keepthelightsoninthepastwinter”inFrance.Implicitandexplicitdemandresponsearetreatedseparately,whereimplicitdemandresponsereferstoaconsumer’sconsumptionreductioninresponsetoapricesignal,andexplicitdemandresponsereferstoaconsumptionreductionthatisrewardedintheelectricitymarket.A-III.2.1.Implicitdemandresponse307AstrongdemandreductionwasobservedinFranceduringwinter2022/2023.Powerconsumptionwasonaverage8%to9%lowerthanthehistoricalaveragebefore2019,excludingtheeffectsofweather.Thedeclinewasmainlyobservedintheindustrialsector,withadropofaround10%to12%comparedwith2021and,toalowerextent,intheservicesandresidentialsectors,reachingareductionofaround6%to7%comparedto2021.Nevertheless,itisnotcleartowhatextentthisconsumptiondecreasewasduetoapricesignal,ortocollectiveeffortsinresponsetocommunicationactions,suchasthecallforcitizenstolowertheheatingtemperatureto19°Covertheheatingseason3ortheinformationcampaignonthe“Ecowatt”tooldevelopedbyRTE4.308InFrance,suppliersdeclareimplicitdemandresponseforthecapacitymechanism:thecorrespondingvolumeincreasedforyears2022and2023,comparedtopreviousyears,reachingaround700MWin2023(Figure46).Between2017and2022,thegeneraltrendfordeclaredimplicitdemandresponseinthecapacitymechanismwasdecreasing.Figure46:ImplicitdemandresponsedeclaredfortheFrenchcapacitymechanism-2017-2023(MW)900DSRcapacity(MW)800700201820192020202120222023600Year50040030020010002017Source:FrenchNRAA-III.2.2.Explicitdemandresponse309InFrance,explicitdemandresponsecanberemuneratedfortheavailablecapacityandfortheactivationontheelectricitymarkets.310Demandresponseproviderscanberemuneratedfortheavailablecapacitiesthroughthecapacitymechanism5andthroughthewholesalemarket.Underthosemechanisms,demandresponseprovidersmustensurethatthecontractedcapacityisavailableduringspecificmomentsoftheyear,whentheFrenchpowersystemisconsideredtight.Theycanalsoberemuneratedfortheavailablecapacitythroughthecallsfortendersforbalancingreserves.3Thecommunicationcampaignbeganon10October2022andaimedatencouragingactionstoreduceenergyconsumption.Moreinformationcanbefoundhere.4The“Ecowatt”toolhasbeendevelopedbyRTEtoinforminrealtimeaboutthelevelofconsumptioninFranceandtosignalperiodsoftensionsonthepowersysteminordertoencouragecitizenstoreducetheirconsumptionwhenthepowersystemisstrained.Moreinformationcanbefoundhere.5UndertheFrenchcapacitymechanism,allcapacitiesincludingdemandresponsecapacitiesreceiveacapacitypaymentfortheiravailabilityinadditiontotherevenuesreceivedonthewholesalemarketwhentheelectricityisproducedorwhendemandresponseisactivated.Specificsupportschemesexist,suchasthe“demandresponsecallfortenders”andthelong-termcontractsfornewcapacitiesconsistingincontractsfordifferenceoncapacity.110ACERSECURITYOFEUELECTRICITYSUPPLY311Thedemandresponseparticipationinthecapacitymechanism(meaningitscertifiedcapacity)wascontinuouslyincreasingbetween2017and2022.Itshouldbenotedthatcertifiedcapacityfordeliveryyears2021,2022and2023arenotfinaldata(whichareknowninMarchT+3)andmightevolve.Figure47:ExplicitdemandresponsecertifiedfortheFrenchcapacitymechanism-2017-2023(MW)4000DSRcertifiedcapacity(MW)35003000250020001500100050002018201920202021202220232017YearSource:FrenchNRA312Demand-sideresponseproviderscanalsosell“negative”electricity6intheday-aheadandintradaymarkets,throughtheso-called“NEBEF”mechanism7,aswellasinthebalancingmarket.Intheday-aheadandintradayelectricitymarkets,thevolumeofreducedconsumptioncorrespondingtodemandresponseistreatedinthesamewayasanequivalentvolumeofelectricityproduction.demandresponseproviderssellthevolumestheyplantoactivateontheday-aheadandintradaymarkets,andRTEcontrolsafterwardsthattheestimatedconsumptionreduction8duringthedeliveryperiodequalstothevolumessoldonthemarket.Onthewholesaleelectricitymarket,demandresponseisusuallyactivatedinwinter,whenwholesalepricesarehigher.Thisismainlyduetothefactthatdemandresponseischaracterisedbyhighermarginalcostscomparedtogenerators,meaningthatitsactivationisprofitableonlywhenpricespeakintheelectricitymarkets.313IntheNEBEFmechanism,alargeincreaseinactivatedvolumeshasbeenobservedasofwinter2021/2022(Figure48),whenelectricitywholesalepricessurgedduetothegrowingtensionsintheFrenchelectricitymarket.WhileinrecentyearsdemandresponsevolumesonNEBEFwereonlyactivatedonspecificdaysinwinter,withtotalmonthlyvolumesbelow10000MWh,historicallyhighvolumeswereactivatedfromtheendof2021andthroughout2022,withmonthlyactivatedvolumesabove40,000MWhinautumnandearlywinter2022/2023.Thiswaslinkedtothehighwholesaleelectricitypricesresultingfromthetensionsonthesupply-demandbalanceinFranceasofautumn2022,withthelowavailabilityofnuclearpowergeneration.MonthlyactivatedvolumesthendeclinedinJanuaryandFebruary2023assecurityofsupplyimprovedinFrancewiththereturntooperationofseveralnuclearreactors,highfillinggasstoragelevelsandthemaintaineddropinconsumption,translatinginlowerwholesaleprices.ThemaximumdemandresponsecapacitythathasbeenactivatedontheNEBEFmarketwasalsohigherinwinter2022/2023comparedtopreviouswinters.Whileamaximumof150MWdemandresponsecapacitywasactivatedduringthewinter2020/2021,morethan250MWwasactivatedontimeoverthemonthsofSeptember,OctoberandNovember2022.Themaximumcapacitywasactivatedon27September2022at9am(315MW).6Intheory,itisalsopossiblefordemandresponseproviderstosellincreasedpowerconsumptionifitishelpfultothesystem,namelyincaseofnegativewholesaleprices.However,thereiscurrentlylittleinterestfromthemarkettoproposesuchservicesinFrance.Onlyonedemandresponseoperatorhasthepossibilitytosellincreasedpowerconsumption,throughanexperimentalprojectstartinginJuly2023.7FormoreinformationontheNEBEFseehere.8Foreachtimestampofthedeliveryperiod,RTEcomparesthecapacityofareferenceconsumptioncurve(demandresponseoperatorscanchoosebetweenseveralmethodstoestablishthiscurve)whichestimatestheconsumptionwithoutdemandresponse,withtheactualconsumptioncurveofthesite(s).111ACERSECURITYOFEUELECTRICITYSUPPLYFigure48:MonthlyvolumesofdemandresponserealisedonNEBEF,between2018andFebruary2023(MWh)Source:FrenchNRAbasedondatafromtheFrenchTSO.Note:DataforDecember2022wasunavailable.Forthismonth,thevolumescorrespondtotheprogramsdeclaredbyparticipantsandnottheactualvolumesthathavebeenrealised.Figure49:MonthlymaximumcapacityactivatedonNEBEF,between2018andFebruary2023(MW)Source:FrenchNRAbasedondatafromtheFrenchTSO.NB:DataforDecember2022wasunavailable.Forthismonth,thevolumescorrespondtotheprogramsdeclaredbyparticipantsandnottheactualvolumesthathavebeenrealised.112