Network Code on Forward Capacity Allocation (FCA)
- Category: Energy Market
Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (FCA Regulation, Network Code on Forward Capacity Allocation, FCA Guidelines) establishes common rules for forward capacity allocation including the establishment of common methodology for determining the volumes of capacity simultaneously available between bidding zones.
6 February 2023
ACER’s policy paper on the further development of the EU electricity forward market
1 June 2022
ACER and CEER consult on the EU electricity forward market
ACER and CEER, Draft Policy Paper on the Further Development of the EU Electricity Forward Market for Consultation, 1 June 2022
The ACER calls on the European Commission:
The FCA Regulation was published in the EU Official Journal on 27 September 2016 and entered into force on 17 October 2016. Initially, the FCA Regulation was envisaged to be adopted as a network code under Article 6 of Regulation (EC) No 714/2009), which, however, would require a sufficient level of technical and legal detail. Given that fully harmonised procedures and timings with the said level of detail could not be achieved in the circumstances, ENTSO-E and the ACER proposed that many terms, conditions or methodologies jointly be developed by the Transmission System Operators (TSOs) and/or NEMOs after the adoption of the FCA Regulation and jointly approved by the regulatory authorities.
FCA Regulation lays down detailed rules on:
1. cross-zonal capacity allocation in the forward electricity markets (i.e. timeframes longer than day-ahead),
2. the establishment of a common methodology to determine long-term cross-zonal capacity, in the forms of:
- a cordinated net transmission capacity approach (CNTC) or
- a flow-based approach,
3. the establishment of a single forward capacity allocation platform at European level offering long term transmission rights (LTTRs), and
4. the possibility to return long-term transmission rights for subsequent forward capacity allocation or transfer long-term transmission rights between market participants.
FCA Regulation applies to all transmission systems and interconnections in the European Union, except the transmission systems on islands which are not connected with other transmission systems via interconnectors. The entities affected by the requirements set forth by the FCA Regulation will be TSOs, National Regulatory Authorities (NRAs), the Agency for the Cooperation of Energy Regulators (ACER), Allocation Platforms, platforms for LTTRs’ secondary trading and, last but not least, market participants.
The purposes of the FCA Regulation are:
(a) promoting effective long-term cross-zonal trade with long-term cross-zonal hedging opportunities for market participants;
(b) optimising the calculation and allocation of long-term cross-zonal capacity;
(c) providing non-discriminatory access to long-term cross-zonal capacity;
(d) ensuring fair and non-discriminatory treatment of TSOs, the Agency, regulatory authorities and market participants;
(e) respecting the need for a fair and orderly forward capacity allocation and orderly price formation;
(f) ensuring and enhancing the transparency and reliability of information on forward capacity allocation;
(g) contributing to the efficient long-term operation and development of the electricity transmission system and electricity sector in the European Union.
Importantly, the FCA Regulation does not focus on the design of national forward electricity markets, but the interconnection’s aspect is central, i.e. the allocation of long-term cross-zonal allocation rights. The rules incorporated in the FCA Regulation are particularly important in the context of a limited number of liquid forward markets in Europe, where the cross-zonal access to these markets needs to be facilitated. The FCA Regulation plays a crucial role in this regard, as the respective provisions establish a framework for calculating and allocating interconnection capacity, and for cross-zonal trading in forward markets.
ACER in its Monitoring report od 30 January 2020 on the implementation of the CACM Regulation and the FCA Regulation (p. 62 - 63) assessed that the implementation of the FCA Regulation “is experiencing relatively few problems mainly because the market design in the forward timeframe is much simpler and less ambitious than in the day-ahead and intraday timeframes [...]”. One problem observed by the ACER in the implementation of the FCA Regulation relates to the decisions on cross-zonal risk hedging opportunities, which are made bilaterally by the regulatory authorities competent for the specific bidding zone borders. Hence, the decisions to introduce LTTRs or not are not based on the same criteria. This casts some doubt on whether the problem is actually addressed in the most efficient way.
Another issue relates to regional specificities contained in the annexes to the Forward Capacity Harmonised Allocation Rules (HAR). Some TSOs interpret these annexes could include any kinds of regional specificity, even if the latter significantly deviate from the HAR or even from the FCA Regulation itself.
In turn, in Final Assessment of the EU Wholesale Electricity Market Design published in April 2022 the ACER assessed that a possible review by the European Commission of the Forward Capacity Allocation Regulation could take on board mandating TSOs to allocate long-term cross-zonal capacities in a way that enables the ‘coupling’ of national forward markets - as in the single day-ahead and intraday coupling - to provide an efficient pooling of liquidity in forward markets. According to the ACER extending the time horizon for the allocation of cross-zonal capacities beyond one year would stimulate liquidity in forward markets in longer horizons, TSOs should also maximise the long-term cross-zonal capacity, as a prerequisite for well-functioning and integrated forward markets.
Nevertheless, ACER’s policy paper on the further development of the EU electricity forward market of 6 February 2023 observes that under the current legal framework, each zone has its own market (with the exception of the Nordic region) bridged by transmission rights issued by the TSOs. Unlike the day-ahead market and intraday market, the EU forward market does not work as a single integrated EU market. This problem has been partially addressed in the short term markets through the allocation of cross zonal capacities. Therefore, the ACER proposes a set of changes to improve the functioning of the EU electricity forward market:
- creation of virtual trading hubs combined with the issuance of transmission rights between bidding zones and those hubs;
- improved allocation of the transmission rights (more frequent, over longer period of time, in revised quantities) by the TSOs;
- transmission rights issued in the form of financial obligations; and
- optionally, the possibility to assign market making tasks.