The importance of a sound bidding-zone review for the efficient functioning of the internal electricity market

Abstract

An inadequate bidding zone configuration for the EU electricity market risks jeopardising the benefits of market integration for energy consumers, by increasing the need for costly remedial actions. According to the CACM Regulation, liquidity is one of the criteria for assessing different possible configurations in a bidding-zone review. The available evidence from Europe and the US does not seem to support the claim, often made, that larger bidding zones promote liquidity. While liquidity is important for the well-functioning of markets, it cannot promote competition if not supported by the capability of the physical network to transport flows within a bidding- zone. Therefore, what seems to be more relevant is the structure (concentration) of the sector with respect to the structure (congestions) of the network.