An extract from The Energy Regulation and Markets Review - Edition 10

Energy markets

i Development of energy markets

The opening up of EU electricity markets has led to the introduction of a power stock exchange in Belgium: EPEX Spot Belgium, in short, is the physical power exchange for electricity supply and off-take on the Belgian hub and was established in Brussels in 2006. EPEX Spot Belgium facilitates anonymous, cleared trading in two different market segments, namely a day-ahead market segment (DAM) and a continuous intraday market segment (CIM). EPEX Spot Belgium's day-ahead market segment is coupled with the APX in the Netherlands and the United Kingdom, the EPEX Spot in France and Germany, and the Nord Pool Spot in the Nordic region. The intraday market segment is coupled with the APX in the Netherlands and the Nord Pool Spot in the Nordic region.

The futures market is organised by the ICE Endex through the 'ICE Endex Power BE' module.

The futures market for gas is organised on the ICE Endex (under the 'ICE Endex ZTP Natural Gas Futures' module in monthly, quarterly and annual nominations) and on the PEGAS (the 'SEA' module in monthly, quarterly, seasonal- and yearly-nominations and the 'ZTP' module in monthly nominations). ICE Endex uses 'MW' as a unit, PEGAS uses 'MWh' for ZTP and ZEE 'therms'. The gas spot market is organised on the ICE Endex (the 'ICE Endex ZTP Natural Gas Daily Futures' module for the H zone) and on the PEGAS (the 'PEGAS Spot ZTP', 'PEGAS Spot ZTP L' and 'PEGAS Spot ZEE' modules).

On the power market, the BRP is responsible for maintaining a quarter-hourly balance between total injections and total withdrawals of the grid users in its portfolio. The BRP can be a producer, a major customer, an energy supplier or a trader. Each BRP can exchange energy with a view to maintaining a balanced portfolio. Annual, monthly, daily and intraday capacities are allocated by means of different allocation mechanisms. The annual and monthly capacities are allocated by means of explicit auctions. At such auctions, the BRP can acquire the right to import or export a certain volume (in MW) of power for each hour of the year, month or day in question. The transmission system operators (TSOs) in 22 countries of the European Union have created shared rules governing these explicit auctions. The auctions are organised through a jointly created entity called Joint Allocation Office.

ii Energy market rules and regulation

Energy market rules are set out in the respective regulation. Market monitoring is done by the regulator. To have access to trading activities, traders must enter into a participation agreement with the hub operator and usually also provide some kind of financial guarantee. Gas traders must also enter into the standard transport contract with Fluxys. Depending on the nature of their activities, electricity traders might have to conclude a BRP agreement with Elia.

iii Contracts for sale of energy

Electricity generators can either enter into direct, private contracts with suppliers and traders or sell their electricity on the wholesale market (over the counter or on the stock exchange).

There are three Belgian gas hubs: Zeebrugge Beach, ZPT (H) and ZTP (L). The user can submit nominations for ZTP Notional Trading Services, ZTPL Notional Trading Services or Zeebrugge Beach Physical Trading Services.

Following the liberalisation of the energy market, end consumers are free to choose their electricity and gas suppliers. To protect the consumer from any negative effects as a result of the liberalisation, the federal minister for consumer goods, a majority of the suppliers and the consumer organisation entered into an agreement setting out good practices and consumer protection measures. This agreement is regularly updated.

Furthermore, the regional governments set up a system of social obligations, of which the most important one pertains to maximum pricing, obliging electricity and gas suppliers to supply energy at a fixed price to certain consumers. This price is set by the regulator and adjusted every six months according to the lowest commercial tariff on the electricity market. Only protected and low-income residential consumers or those in a vulnerable situation benefit from this lowest commercial tariff. These protected consumers are placed on the social tariff automatically, regardless of the supplier they choose.

To ensure that every person can live in a dignified way, a DSO must always provide a minimal supply of electricity and gas to consumers, even if the bills are not paid or if the budget meter credits are exhausted. However, the consumer must still pay the cost of this minimal supply. DSOs are only allowed to terminate this minimal supply of electricity and gas in very restricted circumstances. These circumstances are set out in more detail in the respective legislative decrees relating to the sector. In Flanders and Wallonia, the installation of a budget meter is expected in certain circumstances. A budget meter is a device that can limit the supply of electricity and gas, and that is paid for in advance.

iv Market developments

Demand side management and energy flexibility are expected to become more and more important, hence increasing the role of aggregators. In the summer of 2017, a legal framework for commercial energy flexibility was introduced. Each end-consumer has a right to valorise his or her own energy flexibility. To this end, he or she can enter into a contract with an electricity supplier or with a flexible service provider, who in turn must have a BRP or similar contract with the grid operator. Each end-consumer is also the holder of its grid data.

In the European Clean Energy for All Europeans Package, demand-side management also has a prominent role. Smart meters and dynamic electricity price contracts should foster the development of demand-side management, allowing consumers to adapt their consumption to real-time price signals.

The different regions are also developing their own legal framework for technical flexibility.