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Regulators take important step toward a single Central Western European electricity market

In early September, the regulators of electricity markets in Central Western Europe (CWE), including the Netherlands Competition Authority (NMa), and the transmission system operators (TSOs) reached agreement on harmonized (common) auction rules for trade in interconnection capacity (cr0ss-border trade of electricity). As a result, electricity trade between the Netherlands, Belgium, Luxembourg, Germany, and France will become more efficient as existing differences between these countries are removed, and as a level playing field emerges for traders active on the cross-border electricity market.

The NMa has approved a proposed amendment of the Dutch Grid Code, since agreement on the harmonized (common) auction rules was reached last week. This amendment of the Grid Code will enable the auction rules to be introduced in the Netherlands. The auctions between the various countries will be carried out by the TSOs, and will be coordinated by CASC-CWE, a joint auction office established by the TSOs.

One of the most important improvements is the introduction of the so-called 'use it or sell it' principle. Under this mechanism, any transmission capacity that traders had purchased, but which, for whatever reasons, end up being unused, will no longer be lost without those traders being compensated. A trader can now choose whether to use the capacity himself or to trade that capacity and be thus able to better manage his risks in cross-border trade.

After introduction of the common auction rules, the only remaining unharmonized auctions in the CWE region will be the daily auctions on the Dutch-German and the French-German borders. However, in order to get these harmonized, TSOs and regulators are currently working on introducing so-called market coupling on these borders. Coupling of the Dutch and German electricity markets should lead to increased competition and to higher levels of supply reliability. Market coupling on the German border is scheduled to be introduced in 2010, and, once introduced, will complete the integration of the important Central Western European electricity market.

The year auction of Dutch cross-border capacity for 2010, which will be held in mid-October, is expected to be the first auction under the new auction rules.