Study regarding Flow-Based Market Coupling in the Central-West European electricity market
ACM requested Berenschot Energy & Sustainability to conduct a study regarding market and competition issues under Flow-Based Market Coupling (FBMC) for electricity. The positive decision of ACM as well as the Berenschot report were published recently. The Berenschot report can be found here and on the ACM website.
ACM supervises the energy market as well as market competition in general. From this responsibility, ACM has been reviewing the proposal by TSO’s and power exchanges for the introduction of a Flow-Based Market Coupling (FBMC) in the region of Central Western Europe (CWE). Initially, a CWE Market Coupling based on Available Transmission Capacity (ATC) was realized in 2006. This has been highly successful with improvements in price convergence and economic surplus in the CWE area. Compared to the current ATC method, FBMC is ought to bring additional benefits because it further optimizes the use of available transmission capacity of the existing grid. This will reduce price difference between the CWE countries, for example between the Netherlands and Germany.
The study focused on the competition aspects of FBMC, i.e., the loss of partial convergence after FBMC and the consequences of flow-factor competition for parties in different countries. It appears that the loss of partial convergence does not constitute a major obstacle to competition between countries. The analyses on flow-factor competition shows that the benefits for the Dutch consumer, i.e. lower electricity prices in the case of congestion, strongly depends on the import and export positions of the participating countries. Under certain import and export configurations during a limited number of hours, flow-based does not reduce prices. In general however, flow-based has a positive effect on welfare for the Netherlands and other CWE countries.
Changing the existing ATC method to a method based on flow-based principles is thus presumed to have additional advantages as well as some potential drawbacks. Proper monitoring of market conditions under FBMC is therefore being advised.