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We increasingly hear the concept of an interconnected energy market. In favorable contexts or not. We aim to shed some light on this emerging and important idea. This is a first introductory article on a subject that will become an increasingly important concern for EU countries, especially Romania and its neighbors.

The energy market is changing. Why do we need an integrated market?

With the introduction of more and more renewable energy, various problems arise, as highlighted by an ACER report.

Changes in energy sources affect the dynamics of the electricity market. For years, fossil fuels have helped balance electricity systems by quickly adjusting output to meet short-term changes in demand. But the energy world is changing radically. So, with more renewables, fossil-fuel units are being phased out. The downside is that the market as a whole is losing flexibility.

The report points out that there are also "clean", i.e. carbon-free, alternatives to provide this flexibility: zonal, i.e. cross-border, interconnectivity, storage to allow demand response.

ACER believes that it is precisely this lack of flexibility that has led to high day-ahead prices and instances of low or negative prices, with disruptions to market operations and investments. In 2023, limited market flexibility has triggered price volatility, with low prices during periods of renewable surplus, damaging the profitability of renewables.

Demand response, whereby consumers adapt their consumption patterns, can provide much-needed flexibility that can mitigate both very high and very low prices. A sluggish development of demand response therefore discourages investment and prevents price reductions in the long run.

In conclusion, ACER considers that :

  • Integration of energy markets at EU level is necessary for renewable energy systems.
  • Increased connectivity will help balance supply and demand between Member States.
  • To achieve the goal of interconnectivity, investments in grid infrastructure are needed, including upgrading transmission lines and adopting innovative technologies to manage the variability of renewable energy.
  • The integration of balancing markets is still limited and the participation of several transmission system operators is essential to maximize benefits.
  • Stronger connections allow the transfer of surplus renewable energy from one region to another to reduce price volatility.

What is ACER?

The European Union Agency for the Cooperation of Energy Regulators (ACER) was established in March 2011 and aims to encourage cooperation between national regulatory authorities (NRAs) in the EU and to help ensure a single European market for electricity as well as natural gas. ACER is headquartered in Ljubljana, Slovenia.

And experts from the think-tank Bruegel highlight the benefits of the interconnected energy market and the steps that need to be taken for the EU to reap them:

"The 'techno-economic' benefits can be secured from optimizing the design and operation of more national power systems jointly rather than individually. These benefits will increase massively with higher shares of renewables and include less use of fossil fuels and less volatile prices in the short term, cost savings by capitalizing on regional renewable advantages, reduced need for expensive back-up capacity and flexibility, and increased resilience to shocks."

Further market integration requires substantial political investment, emphasizes Bruegel. But experience has shown that domestic political constraints in this respect are often numerous and difficult to overcome.

SOURSE

https://www.acer.europa.eu/sites/default/files/documents/Publications/ACER_2024_MMR_Market_Integration.pdf

https://www.acer.europa.eu

https://www.bruegel.org/policy-brief/unity-power-power-unity-why-eu-needs-more-integrated-electricity-markets

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