Capacity Withdrawals in the Electricity Wholesale Market

In electricity wholesale markets market power is mainly exercised either by withdrawing generation capacity (physical withdrawal) or by pricing above competitive levels (economic withdrawal) in order to achieve a higher market price and, thereby, increase revenues. Capacity withdrawal practices can be very harmful for the market and consumers. Thus, the ability of competent authorities to intervene against practices of physical and economic withholding of capacity is crucial. In Chap. 2, the capacity withdrawal practices are put into context and explained and the general background is set out.

Every research project that revolves around electricity inevitably has as its starting point the fact that electricity is not like any other commodity. It is the backbone of modern society. No other commodity in the history of human kind has had such a tremendous influence on the development and wealth of today’s society. For most of us, life without electricity would be unimaginable. Electricity is a unique commodity in several respects. First, electricity cannot be easily or efficiently stored. Thus, it must be generated in real time based on market demand. Electricity consumption and production must be balanced at all times. Any imbalances might cause system failures. Second, electricity is grid bound, which means that delivery is only possible via an existing power grid. Third, physical laws and the physical constraints of generation and transportation influence the commoditisation and trading of electricity.

The first step in competition analysis is the definition of the relevant product and geographic markets. By defining the relevant market, the competition authorities indicate the companies or products which exercise competitive pressure on each other. In order to be able to identify and assess market abuse, it is a prerequisite that the relevant product and geographic markets have been carefully defined.

In the final report on its sector inquiry the Commission concluded that the state of transparency of the energy wholesale markets in the EU was insufficient. It also varied widely between Member States. In most Member States market participants had no access to information considered necessary to trade. The EU financial market legislation covered neither physical products nor derivative products not traded on regulated markets. Thus, energy and financial regulators were lacking a comprehensive overview of energy wholesale markets. The lack of transparency, in addition to the fact that market abuse can be a reason for concern, reinforced the need for sector-specific rules both on reporting obligations and on market abuse in energy wholesale markets.

The REMIT prohibits two kinds of market behaviour, namely insider trading and market manipulation. With regard to inside information, REMIT provides in Article 3 for the prohibition of insider trading and in Article 4 for the obligation of market participants to publicly disclose inside information. Persons who possess inside information in relation to a wholesale energy product shall be prohibited from improper disclosure of that information as well as from trading in wholesale energy products and recommending another person to acquire or dispose of wholesale energy products on the basis of inside information. According to Article 2(1)(a) of the REMIT, information includes ‘information which is required to be made public in accordance with Regulations (EC) No 714/2009 and (EC) No 715/2009, including guidelines and network codes adopted pursuant to those Regulations’. This includes information referred to in the Regulation 543/2013 which amends the guidelines annexed to Regulation 714/2009. As it has been explained by the ACER, inside information should be considered as ad hoc, structured data that is likely to have a significant effect on price if it were made public. The definition goes beyond the periodic and regular publication of data under Regulations 714/2009, 715/2009 and 543/2013 and may be fulfilled by certain transparency information. As provided for in the REMIT and elaborated upon by the ACER, information on planned and unplanned unavailability of facilities for production, storage, consumption or transmission of natural gas or electricity may constitute inside information which needs to be published. Information on planned and unplanned unavailabilities of generation units may significantly affect the price of wholesale electricity as it affects the supply and, due to its influence on the supply curve, also the decisions of other suppliers, traders and users of electricity. In contrast, information on the actual generation output of generation units does not seem to qualify as inside information. Information on the actual generation output as such would not be likely to significantly affect the prices of wholesale energy products if it were made public. It is rather the information on planned and unplanned unavailabilities of generation units that directly affects the supply curve and thus impacts on prices.