The European Resource Adequacy Assessment (ERAA) is a pan-European monitoring assessment of power system resource adequacy of up to 10 years ahead aiming to model and analyse possible events which can adversely impact the balance between supply and demand of electric power.

         
          
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As underline ACER and CEER in the document of 14 February 2023 “ACER-CEER Reaction to the European Commission’s public consultation on electricity market design" the European adequacy framework rests on two basic pillars:

(i) a common European approach to assess adequacy risks (ERAA Methodology), and

(ii) national capacity mechanisms to eliminate the risks identified.

While the ERAA Methodology provides an appropriate approach for a coordinated assessment both on a European and national level, it is not yet fully rolled-out.

The European Network of Transmission System Operators for Electricity (ENTSO-E) carries out the ERAA on an annual basis. The purpose of the annual ERAAs is to identify resource adequacy concerns, and to provide a robust and objective basis for policy decisions, in particular when assessing the need for capacity mechanisms.

Pursuant to Recital 46 of the Electricity Regulation (Regulation (EU) 2019/943 of the European Parliament and of the Council on the internal market for electricity), it is a Member State’s right to set its own desired level of security of supply. At the same time, Member States that have a capacity mechanism in place (or want to introduce one) need to express the necessary level of security of electricity supply in terms of a reliability standard calculated according to the VOLL/CONE/RS methodology (ACER Decision No 23/2020 of 2 October 2020 on the Methodology for calculating the value of lost load, the cost of new entry, and the reliability standard (VOL CONE RS)).

The ERAA is expected to have a major role in resource adequacy policies, and to be more advanced than ENTSO-E’s former monitoring assessment for the ten-year timeframe, i.e. the Mid-term Adequacy Forecast (MAF).

ERAAs are based on Article 23 of the recast Electricity Regulation, which sets the high-level respective characteristics (National Resource Adequacy Assessments (NRAAs) are based on the same methodology in many aspects). The results of resource adequacy concerns identified in the ERAA and/or NRAA represent the formal justification for the application of electricity capacity markets by the EU Member States. The Clean Energy Package requires that capacity markets are introduced only where adequacy issues are expected to arise and that justifications are provided in case of discrepancies between the national and the pan-European adequacy studies.

The recast Electricity Regulation sets the framework for the assessing mid-term resource adequacy and provides general principles and design rules for capacity markets (framework for seasonal and short term adequacy assessments is defned in the Regulation 2019/941 of the European Parliament and of the Council of 5 June 2019 on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC). According to Article 21(4) of the recast Electricity Regulation, “Member States shall not introduce capacity mechanisms where both the European resource adequacy assessment and the national resource adequacy assessment, or in the absence of a national resource adequacy assessment, the European resource adequacy assessment have not identified a resource adequacy concern”. Article 21(6) states that “Where a Member State applies a capacity mechanism, it shall review that capacity mechanism and shall ensure that no new contracts are concluded under that mechanism where both the European resource adequacy assessment and the national resource adequacy assessment, or in the absence of a national resource adequacy assessment, the European resource adequacy assessment have not identified a resource adequacy concern […]”.

In turn, select methodological highlights for National Resource Adequacy Assessments are:

  • the national assessment must have a regional scope;
  • the national assessment must rely on a robust central reference scenario which reflects the most likely pathway weighted with probabilities;
  • the central reference scenario must reflect the impact of the market reform plan on market functioning;
  • the central reference scenario must include an economic viability assessment, assessing market entry/exit of all technologies;
  • the national assessment and the reliability standard calculation must be fully consistent regarding all assumptions and input data (ACER document of October 2022 Security of EU electricity supply in 2021: ACER Report on Member States approaches to assess and ensure adequacy).

According to Article 25 of the recast Electricity Regulation “when applying capacity mechanisms Member States shall have a reliability standard in place” and Article 25(3) of the recast Electricity Regulation states that the reliability standard  “shall be calculated using at least the value of lost load and the cost of new entry over a given timeframe and shall be expressed as ‘expected energy not served’ and ‘loss of load expectation’”.

Hence, the reliability standard must be calculated over a given timeframe using at least: 

and be expressed as: 

Pursuant to Article 11(1) of the recast Electricity Regulation the EU Member States applying or planning to apply a capacity mechanism were expected to calculate the value of lost load (VoLL) and consistently define reliability standards by 5 July 2020. Annual ERAAs must be based on the methodology for the European resource adequacy assessment which was developed by ENTSO-E pursuant to Article 23 of the recast Electricity Regulation, and approved by ACER on 2 October 2020 (Annex I to ACER Decision No 24/2020). Before that date not all EU Member States had defined an adequacy standard, and the national adequacy standards were very heterogeneous and did not rely on a uniform methodology. As a result, many EU Member States "will likely update their national adequacy standards in the near future" (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Markets in 2018). The ERAA methodology is expected to be fully implemented by ERAA 2024.

The said ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Markets in 2018 contains also a practical example of the energy regulator’s analysis of the resource adequacy concerns in the context of capacity mechanisms. As the Report indicated, in order to foresee whether future regional adequacy studies may highlight adequacy concerns, the ACER relied on the results of the 2018 Edition Mid-term Adequacy Forecast (MAF 2018), and applied a conservative reliability standard as follows.

 

The preliminary condition for hinting at the need for further studies to assess potential adequacy concerns for the purposes of this initial appraisal is based on two relevant reliability indicators, i.e. the LOLE and the EENS, i.e. further studies would be needed if both indicators exceed the following limits:
- LOLE > 1 hour,
- EENS > 0.001% of annual demand.

According to the Report, for a given EU Member State, if either of the reliability indicators is below the respective threshold for both of the examined years, i.e. 2020 and 2025, there is some indication that no security of supply issues may be perceived at the regional level for this Member State - the necessity of a capacity market in this EU Member State may thus be challenged.

On 16 November 2021 the European Network for Transmission System Operators for Electricity submitted to ACER the results of the ERAA for 2021, pursuant to Article 23(7) and Article 27 of Regulation (EU) 2019/943. Moreover, on 23 November 2021 the ENTSO-E launched the First European Resource Adequacy Assessment. The deadline for the ACER to decide on this matter, according to Article 27(3) of Regulation (EU) 2019/943, was three months, i.e. by 17 February 2022.

On 1 December 2021, ENTSO-E published its Winter Adequacy Outlook 2021/2022. In the Outlook, ENTSO-E concluded that the observed surge of gas prices in Europe should not pose adequacy risks, and that overall, there was no risk to electricity security of supply in the winter 2021/2022.

On 22 February 2022 the ACER published its Decision No 02/2022 on the European Resource Adequacy Assessment for 2021 - in the Decision ACER decided not to approve the ERAA 2021, "due to significant shortcomings that compromise its accuracy and reliability". ACER finds that the ENTSO-E assessment:
- underestimates the level of profits that resources (e.g. generation and demand-side response) could make in the market;
- underestimates the volume of capacity available for cross-zonal trade; and
- does not recognise the value of demand-side response sufficiently.

Also on 28 February 2023 ACER decided not to approve nor amend ENTSO-E’s European Resource Adequacy Assessment 2022.

 

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Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), Article 21(4) and (6)

 

4. Member States shall not introduce capacity mechanisms where both the European resource adequacy assessment and the national resource adequacy assessment, or in the absence of a national resource adequacy assessment, the European resource adequacy assessment have not identified a resource adequacy concern.

 

6.Where a Member State applies a capacity mechanism, it shall review that capacity mechanism and shall ensure that no new contracts are concluded under that mechanism where both the European resource adequacy assessment and the national resource adequacy assessment, or in the absence of a national resource adequacy assessment, the European resource adequacy assessment have not identified a resource adequacy concern or the implementation plan as referred to in Article 20(3) has not received an opinion by the Commission as referred to in Article 20(5).

   

 

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