Bidding zone is the largest geographical area within which market participants are able to exchange energy without capacity allocation (Article 2(3) of the Regulation 543/2013 of 14 June 2013 on submission and publication of data in electricity markets and Article 2(65) of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (Electricity Market Regulation)).

         
          
                      New           


       

 

 

9 August 2022

 

ACER Decision 11/2022 on the Alternative Bidding Zone Configurations to be Considered in the Bidding Zone Review Process

In its Decision, ACER proposes alternative bidding zone configurations for five Member States;
• In Continental Europe, alternative configurations are proposed for Germany (4 alternatives), France (1), Italy (1) and the Netherlands (1).
• In the Nordic area, 4 alternative configurations are proposed for Sweden.
Following ACER’s Decision, TSOs have 12 months to conduct the bidding zone review and to recommend whether to keep or amend the existing bidding zones. Member States will then decide whether or not to change the bidding zones accordingly.

 
Within bidding zone electricity market wholesale prices are uniform (ENTSO-E Annual Report 2015, p. 17). Market participants who wish to buy or sell electricity in another bidding zone have to take into account grid constraints. 

 

The key point is that in the single European Union electricity market electricity offerings within the bidding zone are possible without having to acquire transmission capacity to conclude electricity trades.

 

In other words, the conception of the “copper plate” applies within bidding zones only.

 

It is often underlined that bidding zones reflecting supply and demand distribution are prerequisite for reaching the full potential of capacity allocation methods, the flow based method including.

 

Article 13(2) of the European Commission Proposal of 30 November 2016 for a Regulation of the European Parliament and of the Council on the internal market for electricity (being the part of the Winter Energy Package) envisioned the draft rule that each bidding zone should be equal to an imbalance price area.

 

Article 6(6) of the recast Electricity Market Regulation finally established that "each imbalance price area shall be equal to a bidding zone, except in the case of a central dispatching model where an imbalance price area may constitute a part of a bidding zone".

 

bidding zone 

Zonal vs. nodal congestion management design

 

 

The legal approach to bidding zones in the EU Internal Electricity Market reflects the political decision of a zonal rather than a nodal market model (where wholesale electricity prices are determined by physical node on the network).

 

ACER's Consultation document: “The influence of existing bidding zones on electricity markets” (PC_2013_E_04, 31 July 2013, p. 5) describes in short the aforementioned different congestion management designs.

 

ACER firstly reminds that the zonal design defines limited geographical areas (zones), within which trading between generators and loads is unlimited.

 

However, to cope with operational security constraints of the network, trading between these areas is limited by transmission capacity based on capacity calculation and allocation process.

 

An extreme implementation of this approach would result in one large bidding zone (copper plate) without capacity allocation and where all operational constraints are tackled via remedial actions.

 

The nodal design, in turn, considers all trades between generators and loads as equal in terms of using the infrastructure.

 

While in nodal design the bid price and quantity of each generator and load is weighed against its influence on the physical network, in zonal design only the import or export of electricity in each bidding zone is weighed against its influence on the physical network.

 

In the zonal design, congestion management methods consist of preventive and of curative methods.

 

clip2

 

See also:

 

Scheduling area

 

Responsibility area

 

Synchronous area 

 

Capacity Calculation Regions (CCRs)

 

Monitoring area 

 

Regulation 543/2013 of 14 June 2013 on submission and publication of data in electricity markets, Article 2(3) 

Preventive methods define ex-ante limitations to trade by calculating the cross zonal capacities and allocating them efficiently to market players so that they can decide on how to dispatch generators and loads.

 

Curative methods aim at modifying this initial dispatch when operational security is endangered with methods such as redispatching or countertrading.

 

These can also be classified as non-costly (e.g. topology switching, positioning the phase shifting transformers – PSTs) or costly (e.g. redispatching and countertrading).

 

The costs of undertaking costly remedial actions are often socialised on all consumers of a bidding zone through transmission tariffs.

 

In general, the larger the zone, the larger the proportion of congestions managed by redispatching; however, this also depends on the strength of the network within the zone.

 

In other words, the aggregation of nodes into zones may have a side effect on the quantity of remedial actions the Transmission System Operator (TSO) needs to apply in order to ensure operational security.

 

The European target model for the electricity market foresees a zonal approach implying the implementation of a mainly preventive way to tackle congestions between properly defined bidding zones by calculating and allocating cross-zonal capacities.

 

Remaining (mainly inside zones) congestions are to be managed by curative measures such as redispatching or countertrade.

 

 

Bidding zones' delineation and significance

 

 

According to the EU legal framework bidding zones should be defined in a manner to ensure efficient congestion management and overall market efficiency.

quote                                                                                                  
         


Opinion of the Agency for the Cooperation of Energy Regulators No 9/2015 of 23 September 2015, p. 6

In Europe, wholesale electricity markets are structured in bidding zones, featuring equal prices within them. Within each bidding zone, any consumer is allowed to contract power with any generator without limitations and hence disregarding the physical reality of the transmission network. This simplification, which aims at facilitating trade within each bidding zone, is however often made at the expense of electricity trading between bidding zones. For the latter TSO's indeed apply capacity allocation methods, through which they, ex-ante and most of the time, limit the amount of available cross-zonal capacity (i.e. net transmission capacities NTCs) to ensure that physical flows, including inside zones, remain within the network operational security limits.

...

For historical reasons, the bidding zones' boundaries mostly correspond to the borders between EU Member States, even though some Member States (e.g. Italy and Sweden) are split into several bidding zones. 


Therefore national borders are not a key driver for the delineation of bidding zones in the EU Internal Electricity Market, although some are defined in this way (for example France, the Netherlands, Poland, etc.).

 

Examples of bidding zones, which are larger than national borders, are Austria, Germany and Luxembourg and the Single Electricity Market for the island of Ireland (note, however, that according to the Opinion of the Agency for the Cooperation of Energy Regulators No 9/2015 of 23 September 2015, and the Decision of the Agency for the Cooperation of Energy Regulators No 06/2016 of 17 November 2016 on the electricity transmission system operators’ proposal for the determination of capacity calculation regions, the implementation of a capacity allocation procedure on the DE-AT border is required).

 

Some countries like Italy, Denmark, Norway or Sweden apply several bidding zones within their territory.

 

The ACER in its Final Assessment of the EU Wholesale Electricity Market Design published in April 2022 refers to an example of Norway and Sweden, which comprise five and four bidding zones, respectively.

These bidding zones are an approximation of the underlying congestions in the grid and illustrate the relevance of accurate locational price signals.

As different bidding zones may have different wholesale prices, reflecting the local supply and demand, prices observed in the South of Norway and Sweden in December 2021 were around three times higher than the prices of the bidding zones in the Northern bidding zones.

These price differentials incentivise generators to be located in the South and large consumers to be located in the North, something that is taken into account when considering the need for network investments.

The ACER argues in the above document of April 2022 that ignoring these incentives would aggravate the existing grid congestions, consequently, the perceived needs to invest in network infrastructure would increase, investments may be inefficiently located, and such increased (and partly avoidable) costs would ultimately be borne by consumers.

 

Article 16(1) of the recast Electricity Market Regulation stipulates that bidding zone borders must be based on long-term, structural congestions in the transmission network and that bidding zones must not contain such congestions.

 

According to the said Regulation, the configuration of bidding zones in the European Union must be designed in such a way as to maximise economic efficiency and cross-border trading opportunities while maintaining security of supply.

 

The EU regulations envision bidding zones can be modified by splitting, merging or adjusting the bidding zone borders.

 

An important element of the legal framework is that bidding zones must be identical for all market timeframes.

 

The bidding zone definition cross-refers to the 'capacity allocation' which means the attribution of cross zonal capacity, where the latter, in turn, denotes the capability of the interconnected system to accommodate energy transfer between bidding zones.

 

ACER Recommendation No 2/2016 of 14 November 2016 on the common capacity calculation and redispatching and countertrading cost sharing methodologies underlines congestion problems are addressed with capacity allocation (p. 5).

 

This implies that geographical areas within which market participants are able to exchange energy without capacity allocation, i.e. bidding zones, should be configured in such a way that:

 

- congestion appears only on the borders between bidding zones and there is no congestion inside bidding zone,

 

- internal exchanges inside bidding zones do not create loop flows through other bidding zones (creating congestion in those bidding zones and reducing the capacity between zones).

 

Cross zonal capacity can be expressed either as a coordinated net transmission capacity value or flow based parameters, and takes into account operational security constraints - see definitions, in particular, in:

 

- Regulation establishing a Guideline on Capacity Allocation and Congestion Management - CACM Regulation (Regulation on market coupling),

 

- Commission Regulation 543/2013 of 14 June 2013 on submission and publication of data in electricity markets.

 

The CACM Regulation requires that the price coupling algorithm must simultaneously produce for each bidding zone and for each market time unit at least:


(a) a single clearing price in EUR/MWh (Article 39(2)(a) of the CACM Regulation),


(b) a single net position (Article 39(2)(b) of the CACM Regulation).

 

 

Recital 11 of the Regulation establishing a Guideline on Capacity Allocation and Congestion Management - CACM Regulation (Regulation on market coupling)

 

Bidding zones reflecting supply and demand distribution are a cornerstone of market-based electricity trading and are a prerequisite for reaching the full potential of capacity allocation methods including the flow based method. Bidding zones therefore should be defined in a manner to ensure efficient congestion management and overall market efficiency. Bidding zones can be subsequently modified by splitting, merging or adjusting the zone borders. The bidding zones should be identical for all market time-frames. The review process of bidding zone configurations provided for in this Regulation will play an important role in the identification of structural bottlenecks and will allow for more efficient bidding zone delineation.

 


Bidding zones are also inherently linked with Physical Transmission Rights which are defined as a rights whose holder is entitled to physically transfer a certain volume of electricity in a certain period of time between two bidding zones in a specific direction.

 

Bidding zones will be consistent across different market timeframes and will be relatively stable across time, while reflecting changing network conditions.

 

It is noteworthy, the bidding zones' configuration (detailed provisions thereon stipulated in Articles 32 - 34 of the CACM Regulation) may have impacts on investments in generation and consumption.

 

In case the review process leads to a bidding zones' new configuration, some generators may be called to participate to the capacity allocation and congestion management process with previously unforeseen costs and risks.

 

Each generation and load unit must belong to only one bidding zone for each market time unit.

 

The bidding zones' determination is a complex and prolonged process. First practical examples of the bidding zones' reconfiguration show it is also a controversial one. 

 

On 15 May 2017, national regulatory authorities of Germany and Austria informed about their bilateral agreement on common framework for congestion management at the border between Austria and Germany (as a follow up to the earlier ACER's Decision) - to be introduced as from 1 October 2018.

 

According to the said agreement:

 

- the (previously unlimited) trade capacities on the German-Austrian electricity market should amount to at least 4.9 GW and be offered to market participants as long-term capacity,

 

- the day-ahead capacity allocation at the Austrian-German border was to be integrated in the existing Central Western European flow-based capacity calculation and allocation process.

 

EFET Press release 110/17 of 12 May 2017 "The implementation of the German-Austrian bidding zone split should be transparent and not before 1 January 2019" argued that enacting a split in the middle of the year "would effectively nullify calendar (yearly) contracts that have already been exchanged for 2018, and force market participants to re-arrange their hedging strategies for 2018 at short notice".

 

Further implications of the said bidding zone reconfiguration, in particular with respect to electricity trading in the forward and intra-day perspectives, were set out in the EFET statement of 11 May 2017 on the implementation of the BNetzA decision requesting TSOs to allocate cross-border transmission capacity at the German-Austrian border.

 

Also the V4 Transmission system operators (ČEPS, MAVIR, PSE, SEPS) and Transelectrica expressed their concern about the said reconfiguration of the Austrian-German bidding zone (Press release of the V4 Transmission system operators (ČEPS, MAVIR, PSE, SEPS) and Transelectrica are deeply concerned by nontransparent developments around the implementation of congestion management at the Austrian-German border).

 

ČEPS, MAVIR, PSE, SEPS and Transelectrica said in the above document: "we are confronted with at least 4.9 GW of guaranteed long-term capacity between Germany and Austria, without any technical justification and explanation of its impact on the capacities on other Core CCR bidding zone borders and secure system operation including the need for remedial actions and congestion income distribution".

 

The German(DE)/Luxembourg(LU)-Austrian(AT) bidding zone was split into the DE/LU and the AT zones and a congestion management scheme was implemented on the border as of 1 October 2018. 

 

Bidding zones' configuration

 

 

The CACM Regulation provides a framework that allows bidding zone configuration to adapt to the evolution of physical congestion (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016, p. 18).

 

However, this requires the consensus of the TSOs, the EU Member States and National Regulatory Authorities (NRAs) on methods and proposals to amend the bidding zone configuration.

 

Provisions on bidding zones' configuration are stipulated in Articles 32 and 33 of the CACM Regulation.

 

European Commission's Final Report of 30 November 2016 of the Sector Inquiry on Capacity Mechanisms ({SWD(2016) 385 final}, COM(2016) 752 final) found that inefficiently defined bidding zones create distortions both within a country and across borders, and concluded that an appropriate definition of bidding zones is likely to be the most efficient way to avoid the need for costly re-dispatching.

 

Commission Staff Working Document, Accompanying the document Report from the Commission, Interim Report of the Sector Inquiry on Capacity Mechanisms ({C(2016) 2107 final}, 13.4.2016 SWD(2016) 119 final) argues the bidding zones defined based on transmission constraints can allow zonal electricity prices to provide more accurate signals for the efficient location of generation capacity and electricity demand.

 

Given the price formed in each zone reflects the overall demand/supply balance in the zone, ideally, for electricity prices to appropriately signal local scarcity, the market area or bidding zone needs to reflect the technical limits of the transmission system.

 

Therefore, the price in a very large zone may not indicate with sufficient precision where additional generation capacity is most needed and transmission constraints may cause inefficient plants to run instead of more efficient ones.

 

On such occasions TSOs are forced to revert to re-dispatching measures in order to ensure system balance and minimize loop flows, leading to significant costs for consumers and possible market distortions.

 

Another area where bidding zones' configuration is particularly important are European resource adequacy assessments.

 

According to Article 23(1) of the recast Electricy Market Regulation, these estimations identify resource adequacy concerns by assessing the overall adequacy of the electricity system to supply current and projected demands for electricity at European Union level, at the level of the Member States, and at the level of individual bidding zones, where relevant. 

 

Pursuant to Article 14(1) of the Electricity Market Regulation, "Bidding zone borders shall be based on long-term, structural congestions in the transmission network. Bidding zones shall not contain such structural congestions unless they have no impact on neighbouring bidding zones or, as a temporary exemption, their impact on neighbouring bidding zones is mitigated through the use of remedial actions and those structural congestions do not lead to reductions of cross-zonal trading capacity in accordance with the requirements of Article 16. The configuration of bidding zones in the Union shall be designed in such a way as to maximise economic efficiency and to maximise cross-zonal trading opportunities in accordance with Article 16, while maintaining security of supply".

 

In addition, Article 33 of the CACM Regulation includes a list of minimum criteria that the bidding zone review shall consider.

 

While the bidding zone review study has to consider all the criteria listed in the CACM Regulation, the following three elements are explicitly mentioned in the Electricity Market Regulation as objectives to be pursued when delineating bidding zones.

 

Moreover, these three elements can be quantified and, as such, more efficiently compared. These elements are:
- minimisation of structural congestions within bidding zones;
- maximisation of economic efficiency;
- maximisation of cross-zonal trading opportunities.

 

A fourth element mentioned in the Electricity Market Regulation is security of supply.

 

Electricity Market Regulation in Article 16(8) prescribes that TSOs are required to make available for cross-zonal trade a minimum binding level of capacity (70%).

 

ACER Public consultation document of 6 July 2021 on the high-level approach for the identification of alternative bidding zone configurations to be considered for the bidding zone review (PC_2021_E_07) observes that the minimum 70% target introduced in Article 16(8) of the Electricity Market Regulation is a binding requirement to be satisfied as of 1 January 2026, which could lead to a bidding zone change if not met, pursuant to Article 15(5) of the Electricity Regulation.

 

Such minimum target is easier to meet when the flows that do not result from capacity allocation, i.e. loop flows and internal flows, consume a relatively small share of the capacity of network elements.

 

In this context, a flow decomposition analysis is an adequate tool to identify whether alternative bidding zone configurations are able to limit the amount of flows that do not result from capacity allocation and to achieve the legally required targets.

 

The process proposed to identify alternative bidding zone configurations is an iterative one.

 

Recital 5 of the CACM Regulation in the wording proposed by ACER Recommendation of 20 December 2021 on reasoned amendments to the Capacity Allocation and Congestion Management Regulation indicates that the bidding zones "should be regularly reviewed in order to ensure efficient functioning of the internal market and optimising the use of transmission infrastructure".

quote                                                                                                  
         


Recital 5 of the CACM Regulation in the wording proposed by ACER Recommendation of 20 December 2021 on reasoned amendments to the Capacity Allocation and Congestion Management Regulation 

Bidding zones reflecting long-term, structural congestions in the transmission network are a cornerstone of efficient functioning of the internal market as they are a prerequisite for reaching the full potential of electricity transmission infrastructure to carry the energy from supply to demand. The bidding zones should be identical for all market timeframes and should be regularly reviewed in order to ensure efficient functioning of the internal market and optimising the use of transmission infrastructure. This Regulation provides for regular reporting on structural congestions in the network as well as the process to review the existing bidding zone configuration in order to identify a more optimal bidding zone configuration aiming to remove structural congestions within bidding zones.

 


Modification of the bidding zone configuration - impacts on REMIT reporting

 


A modification of the bidding zone configuration impacts also REMIT reporting issues of outstanding contracts (standard and non-standard).

Details in this regard have been explained in an answer to the Question 2.4.12 of the 13th edition of the ACER FAQs on REMIT transaction reporting of 31 March 2022.

 
 


The 13th edition of the ACER FAQs on REMIT transaction reporting of 31 March 2022

Question 2.4.12

In case of a modification of the bidding zone configuration, how such event will affect the data reporting of outstanding contracts (standard and non-standard)?

Answer

In the Agency’s view, the modification/update of the bidding zone configuration (irrespectively of splitting or merging of bidding zones) represents an event independent from the business decisions carried out by individual market participants dealing with their trading activity on wholesale energy markets. Hence, as a general consideration, ACER does not expect to receive the reporting of lifecycle events on outstanding trades and contracts if referred to the modification of Data Field (48) Delivery point or zone in Table 1 or Data Field (41) Delivery point or zone in Table 2 solely.
From the REMIT data reporting point of view, it is expected that:
a) All new REMIT-reportable contracts (including standard and non-standard contracts) concluded on or after the date when the new bidding zone configuration enters into force have to report the delivery point or zone with the EIC of the new bidding zone(s) in Data Field (48) in Table 1 and Data Field (41) in Table 2.
b) The outstanding REMIT-reportable contracts, including executions concluded before the date when the new bidding zone configuration enters into force, do not require the reporting of lifecycle events, such as early termination or modification of the outstanding contracts, as triggered by the introduction of the new EICs.
c) Executions of outstanding Table 2 non-standard contracts with delivery start date on the date when the new bidding zone configuration enters into force and onwards shall populate Data Field (48) Delivery point of zone in Table 1 with the new EICs.
d) For executions of new Table 2 non-standard contracts concluded after the date when the new bidding zone configuration enters into force, the indication provided in paragraph a) applies.

 

 

 

Results of the first edition of the bidding zone review process - March 2018

 

 

In its letter dated 21 December 2016 ACER initiated the first edition of the bidding zone review process, specifying Central Europe (Austria, Belgium, the Czech Republic, Denmark, France, Germany, Hungary, Italy (North), Luxembourg, the Netherlands, Poland, Slovakia and Slovenia) as the relevant region.

 

The process began with the publication by the ENTSO-E of the document “First Edition of the Bidding Zone Review, Draft Version for Public Consultation”, lasted 15 months and ended on 21 March 2018.

 

In the said Final Report of March 2018 ENTSO-E concluded that:

 

“[...] the evaluation presented in this First Edition of the Bidding Zone Review does not provide sufficient evidence for a modification of or for maintaining of the current bidding zone configuration. Hence, the participating TSOs recommend that, given the lack of clear evidence, the current bidding zone delimitation be maintained.

This recommendation should in no way be interpreted as an endorsement of or an objection against the pending split of the German/Luxembourgian and Austrian bidding zones, where TSOs respect all relevant regulatory decisions, e. g. the decision of the Agency for the Cooperation of Energy Regulators no 06/2016 of 17 November 2016 on the electricity transmission system operators’ proposal for the determination of capacity calculation regions and the requests of the regulatory authorities of Germany and Austria” (p. 13).

 

The results of the first bidding zone review were criticised by some stakeholders.


In particular, EFET in its response of 9 March 2018 said:


“While we understand the political difficultly that a recommendation to delineate bidding zones borders without regard for Member States borders may face at a regulatory and political level, we believe it is not the role of ENTSO-E to care for such concerns. Rather, ENTSO-E is expected to deliver a technical analysis with hopefully a strong recommendation for a bidding zones delineation expected to maximise welfare at European level. Hence, we were very disappointed to see ENTSO-E abandon the model-based scenarios partly for concerns related to the reliability of the modelling, but also partly for judging the results as politically unrealistic. Concerning the expert-based scenarios, we expressed our disappointment from the start of the project on the imbalance between the splitting and the merging scenarios [...].”


In the above document EFET also expressed complaints as to the organisation and the transparency of the whole process.

 

The ACER in its Monitoring report of 30 January 2019 on the implementation of the CACM Regulation and the FCA Regulation assessed the whole process as follows: (p. 5): “[f]or various reasons, the first bidding zone review failed to deliver its objectives according to the CACM Regulation. The legal framework governing this process does not ensure finding and implementing an optimal bidding zone configuration. The Agency recommends several improvements, both in terms of governance and methodology, before this exercise is repeated”.

 

Subscribe to read more …