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Power market liberalisation in the Western Balkans

Market liberalisation has been one of the main buzzwords of the Winter Package, a set of legislative proposals that aims to make energy in the European Union cleaner and cheaper for consumers. It's final shapes and forms are currently not known because it's contents are still to be debated in Brussels among the many interest groups. Still the implementation of liberalised power markets is one of the key prerequisites for the Western Balkan 6 countries to fully take advantage of the age of digitalised energy that the Winter Package supports.

The Western Balkan 6 (WB6) comprises of Serbia, Bosnia and Herzegovina, Montenegro, Albania, Kosovo and Macedonia. These countries have monopolised power markets, dominated by state owned companies. Hence the envisaged market liberalisation would mean breaking up these monopolies into smaller companies in charge of individual market segments. For instance separating electricity production and distribution in two separate legal entities etc. This would also mean enabling consumers to choose between multiple electricity providers. Most importantly it would entail having electricity markets, which in the Western Balkan case would be bundled and connected to rest of Europe. Lastly these countries are obliged to adopt the Third Package, which is a set of legislative measures aimed at creating a single EU gas and electricity market.

The Transmission System Operators, regulators and energy ministers of the WB6 have signed in 2016 in Vienna a Memorandum of Understanding, where they have agreed on joint targets for regional market integration and these include:

Day-ahead market integration between the six countries of the WB6 region with the aim of achieving market coupling of national organised day-ahead markets with at least one neighbouring WB6 or EU country by July 2018

Cross-border balancing cooperation between the WB6 countries by December 2018.

Until now progress has been made and in this Energy Community Secretariat report you can read in more detail about individual countries. However apart from CROPEX, which joined the memorandum additionally in 2017, the SEE Power Exchange (SEEPEX) in Serbia is the only other operational power exchange in the Western Balkan region.

SEEPEX has until now traded much more than CROPEX, while the prices on these two markets have remained more or less the same, and on average around 40 EUR/MWh. This is still higher than in Western European markets. For instance in Germany the power prices have dropped to about 30 EUR/MWh, and this has mainly been caused by an increase in zero-marginal-cost renewable electricity. A snapshot of CROPEX and SEEPEX from their opening until today is available on the graph below.

Source: CROPEX and SEEPEX market data, day ahead auctions

We are entering the age of digitalised energy. In this world new business models are surfacing that are taking advantage of the mass amount of data being generated by our devices. In this so-called Internet of Things environment, we have Virtual Power Plants that control the electricity demand of multiple consumers, and match this to supply of intermittent renewables. Smart meters are emerging, through which consumers remotely control their homes temperature and/or devices, such as tado from Germany. Through dynamic pricing contracts it's becoming possible to choose not to consume electricity when the electricity prices are high, for instance through receiving notifications about the prices on your smart phone.

Such developments are supported in the Winter Package and they should derail investment into new grid infrastructure, while enabling consumers to save costs. If the Western Balkan countries are to decarbonise their electricity systems, power markets and greater competition among providers are a necessity.

I am eagerly waiting to see the upcoming developments in the region, and whether or not the Western Balkan 6 (and Croatia) can live up to the promises they made in Vienna.

#powermarketliberalisation #electricitytrading #westernbalkans