Internal Electricity Market Regulation

Introduction and Overview

Regulation (EU) 2019/943 on the internal market for electricity is a cornerstone of the European Union's energy policy, specifically within the 'Clean Energy for all Europeans' package. It is a recast of the previous Regulation (EC) No 714/2009, aiming to overhaul the EU's electricity market rules to make them fit for the future. The regulation establishes a new, more flexible market design that facilitates the integration of renewable energy sources, empowers consumers, ensures security of supply, and promotes a fully interconnected and decarbonized European power system.

Its primary function is to set out the fundamental principles for a well-functioning, competitive, and non-discriminatory integrated electricity market. This includes rules on price formation, cross-border electricity trading, network access, congestion management, and the roles and responsibilities of various market actors.

Evolution and Relation to Other Laws

This regulation is a recast of Regulation (EC) No 714/2009, updating and replacing it to address the challenges of the clean energy transition. It is intrinsically linked with Directive (EU) 2019/944 (the 'Electricity Directive'), which sets out common rules for the generation, transmission, distribution, energy storage, and supply of electricity, focusing on consumer rights and retail markets. Together, the Regulation and the Directive form the main legal framework for the EU's internal electricity market.

It has been subsequently amended, most notably by Regulation (EU) 2024/1747, which reformed the electricity market design in response to the energy crisis of 2022. This amendment introduced new measures to protect consumers from price volatility, accelerate the deployment of renewables, and enhance market stability, such as promoting Power Purchase Agreements (PPAs) and two-way Contracts for Difference (CfDs).

The regulation also builds upon and mandates the development of more detailed technical rules through network codes and guidelines adopted by the European Commission.

Main Goals and Objectives

According to Article 1, the main goals of the regulation are to:

• Achieve Energy Union and Climate Neutrality Objectives: Set the basis for efficiently meeting the EU's 2030 climate and energy framework and the 2050 climate neutrality goal.
• Establish Well-Functioning Markets: Create integrated electricity markets that allow non-discriminatory access for all participants, empower consumers, and ensure competitiveness and security of supply.
• Set Fair Cross-Border Rules: Enhance competition by establishing fair rules for cross-border electricity exchanges, including harmonized principles for transmission charges and capacity allocation.
• Promote Investment: Support long-term investment in renewable energy, flexibility, and grids to make energy bills more affordable and less dependent on volatile fossil fuel prices.
• Address Price Crises: Lay down a framework for measures to address electricity price crises.

Who It Applies To

The regulation applies to a wide range of actors within the EU energy sector, including:

• EU Member States and their designated competent authorities.
• National Regulatory Authorities (NRAs).
• Transmission System Operators (TSOs) and the European Network of Transmission System Operators for Electricity (ENTSO-E).
• Distribution System Operators (DSOs) and the EU DSO entity.
• Market Operators, including Nominated Electricity Market Operators (NEMOs).
• Regional Coordination Centres (RCCs).
• Market Participants: This includes electricity producers, suppliers, traders, customers (wholesale and final), aggregators, and operators of demand response and energy storage services.

Key Dates and Timeline

• Proposed: 30 November 2016 (as part of the Clean Energy Package).
• Adopted: 5 June 2019.
• Published: 14 June 2019.
• Entered into Force: 4 July 2019.
• Became Applicable: 1 January 2020 (with some provisions applying from the date of entry into force).
• Last Updated: 16 July 2024 (date of the consolidated version incorporating the latest amendments).

Exemptions and Derogations

The regulation includes provisions for specific exemptions and derogations:

• New Interconnectors (Article 63): New direct current (and exceptionally, alternating current) interconnectors can be exempted from certain rules on third-party access and tariff regulation for a limited period to encourage investment.
• Small and Isolated Systems (Article 64): Member States can apply for derogations for small isolated and small connected systems facing substantial operational problems.
• Outermost Regions: Regions that cannot be interconnected with the Union's energy market for physical reasons may receive derogations.
• Specific Member States: Cyprus has a derogation until its transmission system is interconnected. Estonia, Latvia, and Lithuania have specific derogations related to balancing capacity contracts in preparation for synchronization with the Continental Europe grid.

Key Provisions and Requirements

Market Design and Principles

• Price Formation: Prices must be formed based on demand and supply, with no maximum or minimum limits on wholesale prices (Article 3, 10).
• Market Integration: Rules for day-ahead, intraday, and forward markets are designed to maximize cross-zonal trade and liquidity (Article 7-9).
• Balance Responsibility: All market participants are financially responsible for the imbalances they cause in the system (Article 5).
• Dispatch Rules: Dispatch of generation and demand response must be market-based, transparent, and non-discriminatory, though priority dispatch is maintained for certain smaller renewable and high-efficiency cogeneration installations (Article 12).

Network Access and Congestion Management

• Bidding Zone Review: Bidding zone borders must be based on long-term structural congestion, with a regular review process to ensure an optimal configuration (Article 14).
• Capacity Allocation: TSOs must make the maximum level of interconnection capacity available to the market. A minimum target of 70% of capacity on critical network elements must be available for cross-zonal trade (Article 16).
• Congestion Income: Revenues from the allocation of cross-zonal capacity must be used for specific priority objectives, such as guaranteeing capacity availability or investing in network infrastructure to relieve congestion (Article 19).

Investment and Flexibility

• Power Purchase Agreements (PPAs): Member States must promote the uptake of PPAs and remove unjustified barriers (Article 19a).
• Contracts for Difference (CfDs): Direct price support schemes for new investment in specified low-carbon generation (wind, solar, geothermal, hydro, nuclear) must take the form of two-way CfDs to avoid overcompensation (Article 19d).
• Flexibility Needs: Member States must assess their national flexibility needs (from demand response, storage, etc.) and set indicative national objectives (Article 19e, 19f).

Resource Adequacy

• Adequacy Assessments: The ENTSO-E must conduct a pan-European resource adequacy assessment. Member States may complement this with national assessments (Article 23, 24).
• Capacity Mechanisms: Member States may only introduce capacity mechanisms if an adequacy concern is identified. These mechanisms must be temporary, non-distortive, open to cross-border participation, and comply with strict CO2 emission limits (550g CO2/kWh) for new participating power plants (Article 21, 22).

System Operation

• Regional Coordination Centres (RCCs): The regulation mandates the establishment of RCCs to perform critical regional tasks, such as coordinated capacity calculation and security analysis, complementing the role of national TSOs (Article 35, 37).
• ENTSO-E and EU DSO Entity: It defines the tasks and governance for the ENTSO for Electricity and establishes the new EU DSO entity to ensure cooperation and coordination among TSOs and DSOs, respectively (Article 30, 55).

Penalties and Enforcement

Member States are required to establish rules on penalties for infringements of the regulation, which must be effective, proportionate, and dissuasive. The Commission is empowered to impose fines of up to 1% of the total turnover of the preceding business year on undertakings that intentionally or negligently supply incorrect, incomplete, or misleading information in response to a request from the Commission (Article 66).