Bernd Rajal Stefanie Orator-Saghy July 10 2017 Update on Austrian-German single electricity market Schoenherr | Energy & Natural Resources - Austria Bernd Rajal, Stefanie Orator-Saghy Energy & Natural Resources IntroductionACER Decision 6/2016Appeal proceedingsAgreement on bidding price zone splitCommentIntroductionFor nearly 15 years Austria and Germany have shared a single electricity market, under which traded power market flows and cross-border capacity are not formally matched, and thus there is no congestion management on the Austrian-German interconnector. The German and Austrian electricity wholesale markets have since constituted a single bidding zone for electricity; thus, the same wholesale electricity price applies in both countries.On September 23 2015, following a request from the Polish National Regulatory Authority, the Agency for the Cooperation of Energy Regulators (ACER) issued an opinion stating that the Austrian-German interconnector must be considered "usually and structurally" congested pursuant to the Electricity Regulation.(1) The opinion further included a request to introduce a coordinated capacity allocation procedure at the Austrian-German border. The implementation of such request would mean splitting the existing single Austrian-German electricity market into two.ACER Decision 6/2016In reaction to ACER's opinion, the Austrian National Regulatory Authority, E-Control, and transmission system operators (TSOs) have since proven that there is no physical congestion at the interconnector, but rather internal congestion within Germany. However, according to ACER, an interconnector is considered to be congested not only in the event of physical congestion, but also when international trade on the interconnector causes physical flows over physically congested network elements else in the network of another member state (eg, in Poland or the Czech Republic). E-Control and other stakeholders considered ACER's interpretation of 'congestion' to go far beyond the legal definition set out in the Electricity Regulation and therefore appealed ACER's opinion. However, the appeals were rejected, since ACER's opinion was not regarded as legally binding.Nevertheless, on October 28 2016 the German National Regulatory Authority announced that it intended to unilaterally introduce a congestion management procedure at the German-Austrian border from July 3 2018 onwards. This announcement was followed by ACER's legally binding decision on November 17 2016, which also foresees a split of the Austrian-German electricity market.(2) While the vast majority of the European national regulatory authorities support the decision, it has been heavily criticised by E-Control and the Austrian TSOs, which announced that they plan to exhaust all legal possibilities in order to appeal ACER's decision.Appeal proceedingsIn January 2017 E-Control and the Austrian TSOs appealed against the decision before ACER's Board of Appeal, claiming that, on the one hand, there was no physical congestion at the interconnector and, on the other hand, that the European Network of Transmission System Operators for Electricity and not ACER had competence to decide this issue. The appeal proceedings before the board of appeal attracted significant attention from national regulatory authorities, electricity-intensive industries and other stakeholders. The board of appeal received 45 requests for intervention and approximately 100 statements of support, of which only six interveners were admitted (only national regulatory authorities or TSOs). In March 2017 the board of appeal dismissed the appeal from E-Control and the Austrian TSOs as unfounded.According to Article 20 of EU Regulation 713/2009 establishing an Agency for the Cooperation of Energy Regulators, the board of appeal's decision can be appealed before the EU General Court. The deadline for an appeal before the General Court was the end of May 2017. E-Control and the TSOs stated that they have already submitted an appeal, claiming that the board of appeal failed to properly state the reasons for its decision.Agreement on bidding price zone splitIn the meantime, on May 15 2017 E-Control announced that it reached an agreement with the German National Regulatory Authority to safeguard the German-Austrian electricity trade even after a split of the single electricity market. E-Control stated that from October 1 2018 onwards, restrictions will curb the German-Austrian trade activities which are currently unlimited. Peaks in the exchange of electricity will then be capped. However, E-Control promised that electricity trading between the traditionally well-integrated markets will – for the most part – remain possible. Up to 4.9 gigawatts (almost half the Austrian demand during peaks) will still be allocated as long-term capacity.According to E-Control's statement, the capacity allocation procedure in day-to-day trading will be integrated into the Central-West region (France, Belgium, the Netherlands, Luxembourg and Germany). As a result, the agreed capacity of 4.9 gigawatts could be increased by short-term trade capacity. In order to safeguard the transmission capacity in the system further, E-Control affirmed that transmission system operators in Germany and Austria will continue their already close collaboration; therefore, Austrian power plants will continue to be available for German transmission system operators in the event that a so-called 're-dispatch' (ie, an adjustment of power output of power plants with a view to system stability) becomes necessary. As a next step, the agreement will now be discussed with neighbouring member states and the European Commission.CommentAlthough E-Control stated that the agreement with the German National Regulatory Authority will help to lower the expected increase in electricity costs, the split of the German-Austrian single electricity market will still increase prices for consumers in Austria. Moreover, it does not address the key problem of internal congestion in Germany and insufficient electricity transmission capacity within the German transmission system. It remains to be seen how the General Court and possibly, at second instance, the European Court of Justice will assess the situation and decide on the future of the European electricity market.For further information on this topic please contact Bernd Rajal or Stefanie Orator-Saghy at Schoenherr by telephone (+43 1 53 43 70) or email ([email protected] or [email protected]). The Schoenherr website can be accessed at www.schoenherr.eu.Endnotes(1) ACER Opinion 09-2015 on the compliance of NRAs' decisions approving methods of cross-border capacity allocation in the Central and Eastern Europe region.(2) Decision of the Agency for the Cooperation of Energy Regulators 06/2016 of November 17 2016 on the electricity transmission system operators' proposal for the determination of capacity calculation regions.