International interconnections and their role in IME (Internal Market for Electricty)

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International interconnections and their role in IME (Internal Market for Electricty)

When talking about international interconnections, all are in favor and enumerate its many advantages. Advantages that to date have been true:

  • Interconnected electricity systems have achieved greater security of supply. Proof of this was this past winter when France, traditionally an exporter country, survived to the problem of its nuclear park thanks to the power imports from its neighbouring countries such as Belgium, Germany and Spain. In January 2017, France imported 1,001 GWh of Spain when in January 2016 France exported 986 GWh.
  • In this sense, interconnections provide greater stability and frequency assurance in interconnected systems. In the case of Spain, it is precisely the nuclear in France that reduce the distortion of the power factor in the peninsular networks, improving the quality of the supply in the networks.
  • At the same time, they make possible an increase of the efficiency by the commercial exchanges of energy. Interconnections increase competition by taking advantage of energy price differences in interconnected electrical systems. With capacity remaining vacant on the lines and not intended for security of supply, commercial exchanges of electricity are established daily by taking advantage of the differences in energy prices between interconnected electrical systems. These exchanges allow electricity generation to take place with the most efficient technologies, flowing energy from where it is cheaper to where it is most expensive. With this flow the market coupling is generated giving rise to the same price for an hour in several countries as shown in figure 1.

Intra-day Market prices provided by EPEX Spot (France) and OMIE (SPA & PORT)

As a consequence of the third advantage, competition between neighbouring systems increases. Energy imports from other countries force the country’s own agents to have more competitive proposals if they want their offers to be accepted, generating a reduction in the price of electricity at the wholesale level.

They also provide a better use of renewable energies; a better integration of them. As interconnection capacity increases, the volume of renewable production that a system is able to integrate in safety conditions is maximized, since renewable energy that has no place in the system itself can be sent to other neighbouring systems, Instead of being wasted. At the same time, given the lack of renewable production or problems in the network, a high degree of exchange capacity allows to receive energy from other countries. In Spain there are cross-border balance services that allow REE, together with its counterparts in France and Portugal, to use the exchange capacity that has been left free after its commercial use. Having a better forecast of the generation of renewable energy as they are closer to real-time, this mechanism has proven to be a very useful service to balance in a country with a high penetration of wind.

Interconnections play a key role in the so-called Internal Market for Electricity in Europe (MIE), which seeks to integrate all the existing markets in the European Union into one single market.

The exchange capacity is defined as the maximum value of instant electrical power that can be imported or exported between two electrical systems maintaining the safety criteria of each of them. For each country to achieve the advantages listed above, maintaining a high level of exchange capacity is essential. In this regard, the European Union recommends that it represent at least 10% of the production capacity installed in each of them.

Currently, Spain’s interconnection ratio is below 5%, far from the recommended target. In addition, due to the geographical position of Spain, the possibilities of interconnection with the rest of Europe are very limited. Considering that real support for the Iberian Peninsula can only come from Central Europe through the border with France, the interconnection ratio of the Iberian Peninsula is 2.8%.


Commercial exchange capacity (MW) 1 fortnight March.

The trade capacity of the operational interconnection infrastructures in March is illustrated in Figure 2. This scenario may improve as the European commission accepted four new projects of common interest with France and another with Portugal in 2015. Although these projects will not be effective until 2025. The project that will have the greatest impact with a contribution of 2.5 GWh and with a cost of 1,900 million € is the electrical connection with France by the Bay of Biscay, using a submarine cable. And this project has just begun its 2017 authorization process!

It is possible to say that Spain will continue to be practically an electric island in 2020. What is more, by 2020, Spain is expected to be the only continental European country below the 10% target, so further interconnections will be necessary.

While in Spain the integration as a single energy market at a physical level draws a long and tedious path, something that is evolving faster is the integration of organized markets. The European Market Daily Link has already been made with the same algorithm for matching buy-sell offers across the EU known as the “Price-Coupling of Regions” (PCR). And now OMIE has set its sights on the continuous intra-day market: the launch of a pan-European platform (XBID) to establish a continuous market, with implicit allocation of cross-border capacity, in the short horizon, and to be compatible with the existence of intra-day auctions at sub-regional level.

OMIE has opened the consultation to the interested agents so that they could decide which of the two hybrid models proposal of platform they prefer. Both combine the current system of daily and intra-day markets with the pan-European continuous intra-day market platform. A platform that is discussed if it should allow to negotiate only the next three hours until the next traditional intra-day session or allow to negotiate all the remaining hours, except the hour after where agents are trading. A consultation that ends this very March 17, to begin testing the new platform in the third quarter of this year.

Something that is clear is that OMIE will replace REE in the management of the interconnection between France and Spain in a relatively near future, applying the mechanism that already exists between Portugal and Spain of implicit auction. A mechanism that will be complemented by the pan-European platform with the intra-daily continuous market model of the European Union. What is not clear is how this mechanism will improve the management of the congestion of interconnections if , physically, there will still be the same bottleneck between Spain and the rest of Northern Europe.

Marta Merodio | Energy Consultant

By | 2017-05-16T07:40:37+00:00 March 8th, 2017|Categories: Electricity Markets, M·Blog|Tags: , , , |Comments Off on International interconnections and their role in IME (Internal Market for Electricty)