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The electricity industry is undergoing major changes mainly dictated by the need to simultaneously accomplish integration of European energy markets and build a low-carbon economy. This process was facilitated if not initiated by a wave of technological innovation. The EU power transmission enters a brand new world which has not been foreseen by the former three “single energy market” packages. Florence School of Regulation offers you a conceptual framework to understand where the European power system and transmission networks are going to and what are the biggest challenges and alternatives for the EU power regulation and governance. Florence School of Regulation is not pushing any roadmap or blueprint. We are offering “food for thought”: knowledge frames to understand how the power landscape moves. Up to decision makers and stakeholders to draw the actual future that EU deserves and will get.

QM-01-14-857-EN-C QM-01-14-857-EN-N This report describes and scrutinizes hydropower regimes through a unified analysis framework to ensure their comparison on an equal basis. This framework is structured around 4 blocks: (1) the institutional framework of hydropower regimes (e.g. type of rights to use hydropower, authorities granting rights to use hydropower, etc.); (2) the framework for granting right to use hydropower (duration of rights and procedure, competitive process and existence of a possible EC infringement procedure); (3) the obligations of the hydropower operator (environmental and investment obligations and royalties); and (4) small hydro characterisation and support schemes.

International audience

QM-02-13-593-EN-C QM-02-13-593-EN-N Related PB 2014/01 The objective of this paper is to study the potential consequences of national regulatory choices with regard to network investments influencing the development of the European market in the North Western region. To reach our objective, we first build an analytical framework to study the different properties of the national regulatory regimes. We consequently define criteria to compare the economic properties for investment of any regulatory regime. We establish a set of theoretical and empirical principles to identify the key economic properties of the main regulatory characteristics and the main design options, summing it up in a graphical analysis. In a second step, we study selected countries in our analytical framework. Our high level analysis focuses on five European countries that are connected in a regional market and cover more than half of the EU electricity production. These countries are namely Belgium, France, Germany, Great Britain and the Netherlands. We address the existing regulatory incentives for investments in this area, relying on theoretical and applied economic literature as well as an analysis of each country regulatory regime. The frame is then used to compare the economic properties of these various national regulatory regimes. Third, after discussion of the potential reasons of national choices, we analyse the potential outcomes of these regulatory regimes when being put together in the context of regional market integration. Finally, we discuss the need of some harmonisation and the key harmonisation targets.

This paper proposes a support mechanism for energy storage devices for island power systems where intermittent renewable generation is rapidly growing. We base our proposal on the maturity level of storage devices (Chen and al., 2009) and on the linear model for the development of innovations (Foxon et al., 2005). We focus on storage technologies that can be technically developed in island power systems and that achieve the technical needs of these systems. We conclude that the horizon when the power storage shall extend to prevent the development of intermittent renewable generation from being thwarted in these systems, a feed-in tariff with a price varying within the time of day must be put in place.

International audience

This paper proposes a probabilistic model to evaluate if a proactive TSO that anticipates the connection of new generators with short construction duration compared to the time needed to reinforce the network is more efficient than a reactive TSO that does not make any anticipation but that may then face higher congestion while the network is being reinforced. This evaluation is made in presence of anticipation costs both related to the study of the project of network investment and to the administrative procedures needed to obtain the building agreement. Our results in terms of social costs clearly show a limit of probability for the connection of generators beyond which a proactive TSO is more efficient than a reactive TSO. Evaluated on realistic cases of connection, this limit of probability is found quite low, which indicates that the proactive behaviour for a TSO shall generally be the optimal one. null

International audience; With the increased use of wind energy the power generation several Transmission System Operators (TSO) have increasing difficulties for congestion forecasting due to the unpredictable nature of the energy source. This paper proposes to enhance the congestion management using a real time supervisor. This supervisor is developed to perform automatic and dynamic re-dispatching using both wind and conventional generators. In order to reduce the production constraints to the minimum, the real time congestion management is based on an indicator of the efficiency of a re-dispatching on the power flowing in the overloaded line. This approach leads to reduced re-dispatching costs and increased network reliability. The simulation of the supervisor and the test grid is realized using by the EUROSTAG [1]. It is shown that the real-time supervisor allows maximization of renewable production during congestions while ensuring network reliability.

EUI Working paper RSCAS 2009/37; The Clingendael International Energy Programme (CIEP), the Loyola de Palacio Chair on EU Energy Policy of the Robert Schuman Centre of Advanced Studies (European University Institute), the Fondazione Eni Enrico Mattei (FEEM) and Wilton Park Conferences (WPC) organize a four-tier program for discussing the potential for a smart EU Energy Policy. The Florence workshop is then the first one in a series of four where academics will discuss the various interactions between the three objectives of the EU Energy Policy with stakeholders from governments, regulators and the industry. This workshop adressed the internal energy market design and its consequences for energy supply security and climate change policies. The workshop gathered over on day and a half 42 experts to discuss current problems and possible solutions for a smart EU Energy Policy.

International audience; Following several regional initiatives on the day-ahead and intra-day stage, integrating real-time balancing markets constitutes a logical next step in the process towards an Internal Electricity Market (IEM) in Europe. So far, realtime balancing market designs significantly differ between European countries and a coordinated approach for cross-border exchange of balancing services is non-existent. This paper aims to illustrate that the current lack of balancing market harmonisation – in combination with an increasingly integrated day-ahead and intra-day trade – can be profitably exploited by traders. More specifically, trading strategies taking advantage of structural design differences in the imbalance settlement of two countries are identified and assessed. The paper analyses detailed data of the Belgian and French power system using statistics in order to verify the profitability of different trading strategies between both countries. Some of the identified trading strategies are found to be significantly profitable; others turn out to be loss-making. On average, France was the most attractive country for traders to be long in 2008; Belgium to be short. Profitable trading strategies can usally be carried out without any expense as cross-border capacities available at the intra-day stage are currently far from being used and no value is attributed to them. However, some profitable trading activities resulting from market design imperfections may induce economic inefficiencies

Stockage des énergies renouvelables

(FR) Cet article analyse l’organisation de la coordination à long terme entre la production et le transport dans un système électrique libéralisé. Nous nous appuyons sur un cadre d’analyse modulaire afin de séparer les mécanismes de coordination en modules distincts. Dans une logique de complémentarité institutionnelle, la structure de gouvernance du réseau de transport complète ce cadre analytique et influence les options de gestion des flux mises en œuvre par les Gestionnaires de Réseaux de Transport d’électricité. Les contraintes de localisation des nouveaux moyens de production et la structure de gouvernance du réseau expliquent que les signaux de localisation sont nécessaires mais pas suffisants pour coordonner à long terme production et transport (ENG)This paper analyses the organisation of coordination between generation and transmission in a liberalized power system. We rely on a modular analysis framework in order to split in distinct modules the coordination mechanisms. In a logic of institutional complementarities, the governance structure of the power transmission grid completes this analysis framework and influences the power flow management schemes that are implemented by the power Transmission and System Operators. The locational constraints of generators and the governance structure of the network explain that these signals are necessary but not sufficient to coordinate generation and transmission to the long term.

The Clingendael International Energy Programme (CIEP), the Loyola de Palacio Chair on EU Energy Policy of the Robert Schuman Centre of Advanced Studies (European University Institute), the Fondazione Eni Enrico Mattei (FEEM) and Wilton Park Conferences (WPC) organize a four-tier program for discussing the potential for a smart EU Energy Policy. The Florence workshop is then the first one in a series of four where academics will discuss the various interactions between the three objectives of the EU Energy Policy with stakeholders from governments, regulators and the industry. This workshop addressed the internal energy market design and its consequences for energy supply security and climate change policies. The workshop gathered over one day and a half 42 experts to discuss current problems and possible solutions for a smart EU Energy Policy.

Report on Workshop Proceedings of 6 March 2009 Florence, Italy The mainline of the workshop was the transmission tariffs on gas network from a European perspective. Transmission tariff is a key issue for the European gas system for two reasons. First, transmission tariff should incentivize the efficient use of infrastructure and so facilitate the development of competition. Second, transmission tariff should also give enough return to network investors so that they upgrade the network efficiently compared to their current and future uses not only for national infrastructures but also for cross-border pipelines. Three issues were especially treated in the different sessions during the workshop, namely: 1° competition and efficient use of the network, 2° investment in national infrastructures, and 3° investment in cross-border infrastructures. Key conclusions and open questions from the debate among regulators, TSOs, stakeholders and academic delegates are reported here.

Following the grant of exemptions from the EC rules on third party access to the interconnectors BritNed, Estlink and East West Cables, the regulation of merchant transmission investment has become an important issue in the electricity sector. The creation of a new Agency for the Cooperation of Energy Regulators (ACER), which will enjoy decision powers on this issue, is therefore a unique occasion to question and maybe re-design the current strategy. This paper shows that the recent decisions evidence a strong bias against dominant generators and that incumbent or new entrant TSOs are generally favoured by European regulators and the European Commission. It argues that this strategy is misguided as it fails to recognize both the conflict of interest between the regulated and non-regulated activities of incumbent TSOs and the new incentives of generators. The opportunity to let dominant generators undertake merchant investment is then investigated and we find that it is generally welfare-improving as long as potential abuses of dominance can be mitigated. To deter possible anti-competitive effects, the paper proposes a new and feasible allocation of regulatory powers based on a clear demarcation between the monitoring of transparency requirements by ACER and antitrust enforcement by the European Commission.

International audience

International audience; This paper evaluates regulatory uncertainty and inefficiency that may prevent merchant transmission investors from committing in Europe, in particular when they are dominant generators. We argue that market players may perceive regulatory uncertainty to acquire exemption on merchant line mainly because of the discretion given for the application of Art. 7 of the Regulation 1228/2003 on cross-border exchanges. However we show that an emerging strategy of the European Commission for granting exemption on merchant transmission line can be eventually derived from recent legal and regulatory proceedings. It mainly consists in relying on TSOs to build merchant lines. We demonstrate that this strategy is neither a first best nor a second best given imperfect unbundling and the current flows in the allocation of regulatory powers. Indeed, it prevents merchant line investment by dominant generators with low generation cost while they have currently more incentive than TSOs to build merchant lines. Since unregulated merchant transmission investment by generators would be problematic, we show eventually that the current strategy of the application of Regulation can easily be fine-tuned to reach this second-best optimum.

International audience

This thesis analyses how the long term coordination between generation and transmission is organised in a liberalised power system. It relies on a modular analysis framework that allows us to separate the coordination mechanisms into distinct modules. The governance structure of the power network completes this analysis framework. In a rationale of institutional complementarity, this governance structure impacts the way the TSOs effectively implement the power flow management. The proactive behaviour of the TSO for the coordination of generation and transmission can be explained in two ways. Firstly, the network investment can be the only effective process of long term coordination between generation and transmission. Secondly, when forecasting network investment, the TSO can prepare the accommodation of the fast-built generation units and detect the potential failures of locational incentive signals., Cette thèse analyse comment s'organise la coordination à long terme entre la production et le transport dans un système électrique libéralisé. Elle s'appuie sur un cadre d'analyse modulaire permettant de séparer les mécanismes de coordination en modules distincts. La structure de gouvernance du réseau de transport complète ce cadre d'analyse. Dans une logique de complémentarité institutionnelle, cette structure de gouvernance influence les options de gestion des flux effectivement mises en œuvre par les GRT. Le rôle proactif que le GRT doit prendre dans la coordination entre production et transport s'explique alors de deux façons. Tout d'abord, l'investissement en réseau peut être le seul procédé effectif de coordination à long terme entre production et transport. Ensuite, en anticipant le renforcement du réseau, le GRT peut préparer l'accueil des moyens de production les plus rapides à s'installer et prendre en compte la réaction des producteurs aux signaux de localisation.

International audience; In a “Weak institutional complementarity” type of institution building it is typically the less replaceable institutional characteristic which dictates the path of change for the institution as a whole. We will show it is exactly what explains the diversity and imperfection of actual transmission monopoly designs in competitive electricity markets. Firstly we argue that transmission monopoly in competitive electricity markets has to be analysed within an industry modular frame. Transmission is a set of several modules which have to be distinguished and separated in any design analysis and comparison. At least three modules make the core of transmission design: 1° the short run management of network externality; 2° the short run management of cross border trade; and 3° the long run management of network investment. Second in a new-institutional economics perspective we say that 1°monopoly design in a competitive policy cannot handle these three modules irrespective of the “institutional” definition and allocation of property rights on transmission; while 2°definition and allocation of property rights on transmission cannot ignore the existing electrical industry and transmission network structure: they basically have to complement each other. Third we apply this frame to compare PJM (USA) and NGC (UK) and we show it remarkably illuminates the reality.

International audience

International audience; As far as the management of the power flows on a transmission network is concerned by externality, Transmission and System Operators (TSOs) are externality market designers, and so can be studied thanks to a modular analysis grounded on Wilson [2002], Brunekreeft et al. [2005] and Glachant et al. [2005]. Since TSOs are institutional entities, the design of each module that they implement are constrained by compatibility requirement or “weak institutional complementarity” (Pagano [1993], Aoki [2001]) from their governance structure. The governance structure of TSOs is set by transmission ownership unbundling, governmental energy policy and political economy. Our paper develops such a framework and such an argumentation. Then, although the economic theory specifies a unique arrangement – that we will call “ideal first-best TSO” – to manage efficiently a power transmission network, we can understand why there is such a diversity of TSO arrangements and of heterogeneous results among TSOs. Our comparison between the “ideal first-best TSO” and two reference TSOs, PJM and NGC concludes that some network management schemes may be inefficient compared to an “ideal first-best TSO”. But these schemes may be relatively satisfactory regarding the institutional context that frames their design especially as regulation may limit inefficiency

International audience; Competition is an efficient alternative to regulation for the power transmission network only for peculiar investments in peculiar conditions. The competitive network investments are generally radial and/or create new commercial links in Direct Current between big markets with high and sustainable difference in zonal prices. In these conditions, the impact of the inefficiencies due to economies of scale, lumpiness and externalities of network investments is small enough for a quite efficient transmission market. To reach these conclusions about competition to develop the power transmission network, we will analyse the assumptions on which “pros” (Hogan (1992), Littlechild (2003, 2004)) and “cons” (Peréz-Arriaga et al. (1995), Joskow-Tirole (2005)) ground their theoretical analyses thanks to a survey of the network revenue and of the network cost structure. We also analyse the heterogeneity of the experiences of competitive power transmission network investment thanks to the same criteria, to confront eventually the theory and the practice of competition to develop the power transmission network.

International audience; Transmission and System Operator (TSO) is the power flows externality market designer. And so, not only is TSO a module of power markets but its missions that are related to the management of power flows can also be studied thanks to a modular analysis. An ideal first-best TSO can then emerge as a benchmark for comparison with real TSOs. The governance structure of TSO accounts for the gap between such an ideal first-best and real TSOs. Then, although the economic theory specifies a unique arrangement to reach efficiency, the diversity of transmission governance accounts for the diversity of arrangements to manage power flows. Moreover the comparison between an ideal first-best TSO and two reference TSOs, PJM and NGC, with quite opposite features accounts for heterogeneous results among TSOs.