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From: The Dutch Market Surveillance Committee
To: DTe
Final: 25 October, 2001
Towards more transparency in the Dutch electricity sector Introduction
The Dutch Market Surveillance Committee (MSC) has been asked by DTe to investigate market transparency in the Dutch electricity market. The Committee has based its investigation upon theoretical as well as practical considerations. The issue has been raised in meetings with representatives from agents in the Dutch electricity market, including market participants and government authorities, some of whom have also provided written input in various forms. In addition, the Committee has considered practices and experience from electricity markets in other countries, including the USA, United Kingdom and the Nordic countries.
The Committee finds, as explained in more detail below, that in the Dutch electricity market transparency is lacking in several important respects. We recommend a series of measures that should be implemented immediately, notably the regular publication of relevant information. In our view these measures are necessary, but not necessarily sufficient, to reach a satisfactory degree of market transparency. We will continually review the issue and, if warranted, propose further measures in the future.
The transparency issue
In order to operate in an economically rational manner, agents need information about the development of the market. Lack of such information subjects businesses to increased risk and uncertainty. The consequence may be mistaken decisions. Agents may also be driven to undertake costly actions to protect their businesses from the associated risk and uncertainty. The higher costs – as well as any competitive disadvantages created by unequal access to relevant information – discourage participation in the market and reduce entry and new investment.
Improved access to relevant information – or greater market transparency – may therefore improve market conditions in a number of ways, including
• the reduction of risk and uncertainty (by providing market participants with better information);
• the removal of information asymmetries (by allowing participants access to the same information);
• the improvement of market liquidity (by encouraging more parties to actively participate in the market).
In addition, improved market transparency facilitate better monitoring by third parties and hence a greater chance of detecting anti-competitive behaviour. All in all, the result of better transparency will be more cost- effective operation across the industry and lower prices to consumers.
The above argument may seem to call for maximum information openness. Such a conclusion would, however, be premature. Firstly, certain types of information must remain private to allow firms the opportunity for reaping benefits from efforts to improve competitive positions. Consequently, in order to provide incentives for innovations (technical, operational, administrative etc.) that cannot be protected by other means (by patents, say) firms should not be forced to disclose information that undermines their ability to profit from such innovations.
Secondly, information openness may facilitate (overt or tacit) collusion. If firms have to disclose their
pricing strategies they have little or no opportunity for gaining market shares by price cutting; any such
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attempts would be quickly revealed and met by an aggressive response. In order to be successful price cutting must be done in a manner that cannot be discovered and responded to immediately. Consequently, in order to discourage collusion and increase incentives for price competition firms should be discouraged from sharing pricing information.
Note that these caveats concern the format in which information should be presented to the market, as well as the timing of such presentations, more than the issue of information openness as such. In particular, there may be reasons to limit the revelation of information at the level of the individual firm or, alternatively, to delay the disclosure of such information (this is of course different in the case of the regulator who should have access also to such information and without delay). However, there is little or no reason to limit the availability of information so long as publication is in a format that does not allow the identification of individual firms. Anyway, these types of concerns do not justify the lack of transparency that currently plagues the Dutch electricity market.
Below we consider various measures that will improve market transparency while at the same time respecting the above-mentioned constraints. We also discuss how, where and when this information should be published.
Recommendations System load
System load provides information about overall supply and demand conditions. Such information is necessary in order to evaluate the evolution of the market and to forecast future developments. These data were available within the SEP in the past, but is currently not available to the market.
It would appear that, at the moment, nobody has access to information on system load. Load on the high voltage grid represents an approximation to total system load and is readily available since TenneT, as system operator, continuously measures it. However, given that only a fraction of generators is directly connected to the high voltage grid load on the high voltage grid represents only about 60% of total system load. Since there can be substantial fluctuations in load at lower voltage levels with little or no corresponding variations at the highest voltages, information on load on the high voltage grid may be potentially misleading.
To obtain the relevant information one would need more detailed information on load in lower voltage grids.
In particular, one would need information based on the ‘aansluitingsregister’ (connection register). Each
‘netbeheerder’ (or local system operator) has an overview of connected generators (with a capacity bigger than 60 MW). If such information could be collected and systematised, it would provide a basis for measuring total load.
Data on system load should be considered non-confidential by nature as it describes the entire market and hence provides little or no opportunity for identifying the behaviour of individual participants. Consequently, there is also no reason to believe that the publication of such data would affect opportunities for collusion.
Data on system load is currently published for markets in, for example, the UK, Spain, some states in the USA as well as the Nordic countries, and some of these markets are no less concentrated than the Dutch market.
Data on system load should be published continuously, for example on the web site of the system operator, in a manner that allows for easy downloading. In addition to the publication of actual load ex post one should also consider the publication of ex ante load forecasts, for example based on the daily forecast made by the system operator for operation planning purposes.
Import and export
In addition to system load, load flows over interconnections with neighbouring countries provide important
information about the overall demand and supply situation. Information about export and import flows will
be particularly important to agents who operate both in the domestic and in foreign markets. They will want
to know in which direction power is flowing at each border, and whether this is in line with prices on the
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different markets. For planning purposes, and in order to forecast price developments in both domestic and foreign markets, participants should be provided with information about available interconnection capacities and how these may change due, for example, to planned maintenance of transmission lines.
Information on interconnections is regularly published for a number of border crossings, including:
Denmark - Germany (maintenance)
Denmark – Norway (scheduled flows, maintenance) Denmark – Sweden (scheduled flows, maintenance) Finland – Sweden (scheduled flows, maintenance) France – Spain (scheduled flows, maintenance) France – UK (scheduled flows, maintenance) Norway – Sweden (scheduled flows, maintenance)
Ex ante and ex post interconnection data at an aggregate level should be published on a daily basis by the system operator. Such data should include available capacity, scheduled flows as well as information about maintenance on each of the interconnectors. Information on maintenance should include objective estimates of the reduction in available capacity as produced by the system operator.
Plant outages
Plant outages may have a considerable impact on the demand and supply balance in the market and hence on market prices. Outages can be the result of planned maintenance or unplanned plant failure. In either case market participants will need to be informed in order for them to respond rationally to such changes in supply conditions. In particular, information sharing is a prerequisite for an orderly and co-ordinated scheduling of plant maintenance across the industry.
Plant outages may also create information asymmetries between market participants. Particularly in a small market, such as the Netherlands, privileged access to information about plant outages may allow agents to extract value at the expense of others. Therefore, in the interest of providing a level playing field for all participants, information about plant outages should be made available to the entire market in a non- discriminatory manner.
TenneT has published accounts on production units in the past. However, as we understand it TenneT no longer receives information on plant outages, whether planned or unplanned. There is also no act or rule that requires generators to report such information. Currently, Tennet receive information on outages only for power plants that are directly connected to the high voltage grid (TenneT apparently also receives some outage information from generators connected to lower voltage grids, but this information is neither comprehensive nor systematic).
Currently, the following countries, among others, publish data on plant outages:
Denmark (planned and actual) Finland (planned and actual) Norway (planned and actual) Spain (actual)
Sweden (planned and actual)
UK (publication planned to start again)
We recommend that changes be made to the current regulation so as to allow the system operator to systematically collect information on both planned and unplanned outages. This information should be published on a continual basis on the web site of the system operator.
Market demand and supply curves
Since 28 August 2001, the APX has been publishing aggregated demand and supply curves for the Day
Ahead Market. Such information increases transparency, enabling market participants to assess the impact of
changes in general market conditions, such as demand, domestic capacity and available import
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capacity. This sort of information is published also in the UK and in Spain, among others.
The MSC considers the steps taken by the APX to be in the right direction. We recommend that the regulatory authorities review the current publication practices of the APX, as well as other organised markets (incl. interconnection and balancing markets), to see whether changes in the regulatory framework is needed to ensure adequate information procedures.
Timeliness of publication
The timeliness of information publication is extremely important. Market participants will only be able to respond to events once they have received appropriate information. Also, given that some market participants may have better access to information than others, publication delays will potentially damage the position of those participants who are less informed relative those with better access to information.
As a general rule, therefore, information should be updated and published on a continual basis in a format that is readily available to all market participants. Data on system load, interconnections and plant outages should be published in real time, or with a delay of at most a few hours. Information about market outcomes (such as aggregate supply and demand curves) should be published immediately upon clearing of the exchange. It should be possible to download data in a format that allows agents to undertake their own analyses based on the publicly available information.
Signed on behalf of the
Market Surveillance Committee 25 October 2001David Newbery
Chairman, Market Surveillance Committee
