UPDATE 1-Europe introduces harmonised power market across 15 countries

Tue Feb 4, 2014 8:42am EST

Related Topics

* Linked markets allow electricity to flow where it's needed

* Market coupling to cover 75 percent of EU power use

* EU says fragmented European energy markets soon to be history (Adds exchange comments)

By Henning Gloystein

LONDON, Feb 4 (Reuters) - Europe took a step towards a single power market on Tuesday by unifying electricity trading across 15 countries and creating what has been called the continent's most important IT system.

Because power markets were designed to be national, a lack of links between neighbouring countries as well as differing trading rules make it difficult to tackle regional undersupply or gluts of electricity.

Through a process called market coupling, the European Commission together with national governments over the past decade has pushed grid operators across Europe to link its electricity markets and introduce harmonised trading rules, with the goal of creating a pan-European market.

"Fragmented European energy markets will soon be history, which is certainly good news for European customers," European Union Energy Commissioner Guenther Oettinger said in a statement.

The integration is mainly aimed at improving security of supply and reducing price volatility by allowing electricity, which cannot easily be stored, to flow freely to regions where it is most needed.

"In time, Europe's power consumers will benefit from the more efficient use of the power system in the region, resulting from a more closely connected market," the involved exchanges APX, Belpex, Nord Pool Spot and Epex Spot said in a joint statement, although analysts said price reductions for customers were a less likely outcome.

On Tuesday, the first joint auction for electricity deliverable the next day took place across a region that encompasses three quarters of European power demand.

"It (market coupling) will be the most important IT system in Europe, because it will basically run all power plants. It will decide who will produce and how much. If it breaks down, power plants would not know what to produce," said Juka Ruusunen, chief executive of Finland's power grid Fingrid.

The North-Western Europe (NWE) market coupling initiative was originally made up of France, Germany/Austria and the Benelux countries (Belgium, the Netherlands and Luxembourg), but has been widened to Britain, the Nordic countries (Denmark, Sweden, Norway and Finland), the Baltics (Lithuania, Latvia and Estonia), as well as Poland.

SLOW PROGRESS

A mismatch of regional oversupply and shortage has affected Europe's electricity markets as the share of volatile renewable power has soared.

The fast expansion of renewable capacity has clashed with much slower adaptation by Europe's power grids, threatening network stability as renewable power supplies rise and fall quickly, depending on the time and changing weather conditions.

Despite EU efforts to bring national power markets together, officials have said the initial deadline to complete integration this year will not be met as many member states are slow to fully adapt their systems, and some in the industry think the entire project is still under threat.

The chief executive of Germany's biggest utility, E.ON , said in Brussels last year the risk was that the single energy market was on the brink of falling apart rather than nearing completion.

In an effort to push the project forward, the Commission - the EU's executive - has introduced legislation to speed up development of physical links and reduce planning bottlenecks. (Additional reporting by Barbara Lewis in Brussels, Nerijus Adomaitis in Oslo and Vera Eckert in Frankfurt; Editing by Dale Hudson and David Evans)

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