• • • EDITOR’S CHOICE • • •
INTEGRATING EUROPE’S
ELECTRICITY MARKET RELIES ON WIDENING MARKET PARTICIPATION
BY THOMAS KIEFFER, COO, JOINT ALLOCATION OFFICE T
he EU recently unveiled new proposals to finance and fast-track grid interconnections which is central to its goal of reducing reliance on gas imports, accelerating electrification and reaching net zero. Joining up grids across Europe would allow surplus clean power to flow to areas with scarce supply, boosting collective energy security and sustainability. Yet building more cables alone will not be enough to achieve this without measures to enable Europe-wide market integration and participation. For example, renewable energy intermittency is creating more volatile, variable costs and there is a lack of long-term financial instruments to hedge against these risks. Silos between IT systems are impeding cross-border power trading while complex settlement processes, high collateral requirements and opaque rules can deter smaller companies from entering the market. Overcoming these barriers is an important factor in bringing energy generators, traders and utilities of all sizes into the cross-border electricity market and enabling greater energy system integration.
Renewable intermittency
drives market volatility Europe recently reached a major milestone in the energy transition as renewables produced more
8 ELECTRICAL ENGINEERING • APRIL 2026
electricity than fossil fuels for the first time in the EU and the UK. Yet the accelerating transition to intermittent renewable power sources is also producing more volatile, regionally variable costs for cross-border transmission capacity. Extreme fluctuations in renewable output drive price signals to diverge sharply between ‘bidding zones’, regions with uniform internal prices, causing a build-up of congestion costs where demand exceeds interconnector capacity. Research also shows that renewable price volatility can spread across borders as markets become more integrated. These growing price variations and fluctuations are creating a more risky market landscape for cross-border power trading.
An unpredictable risk landscape As renewable generation expands, variability is increasing and price distributions are widening across the continent. As energy price volatility increases, market participants increasingly need the ability to buy long-term transition capacity to help plan energy portfolios and hedge their risks. Complex, slow settlement processes, high transaction costs and large collateral requirements for cross-border capacity auctions also raise barriers to entry for smaller market participants. A lack of interoperable, transparent guarantees, credit limits and margin calls across different platforms create further confusion around collateral arrangements. Meanwhile, the fragmented patchwork of IT systems across markets further increases the cost and complexity of market integration.
Lowering the cost of mass
market participation Encouraging market participation among companies of all sizes supports greater integration of Europe’s energy resources to provide secure, sustainable power for all. This could be supported by lowering barriers to market entry and reducing risks through long-term price certainty, interoperable IT systems, fairer collateral requirements, underpinned by a level playing field of fair, transparent and consistent market rules. For example, JAO provides mechanisms that allow market participants to buy cross-border transmission capacity at a set price up to a year ahead, bringing greater predictability and stability to increasingly volatile costs. To further hedge against long-term risks, market initiatives could introduce more forward auctions anchored in long- term transmission rights. This could include Financial Transmission Rights (FTR) obligations requiring TSOs to pay the price difference when congestion costs are higher at their end while requiring market participants to pay when congestion costs are higher on their side. FTR obligations could balance risks between buyers and sellers and offer long-term hedging against congestion costs, helping to de-risk cross-border capacity auctions for all utilities and market participants.
Lowering cost and complexity is also vital to broaden access to Europe’s cross-border electricity markets. Collateral risks need to be reduced by recalibrating collateral requirements to real-world risk exposure. Collateral arrangements should also be interoperable across borders, further
electricalengineeringmagazine.co.uk
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