Communication from the Commission to the Council and the European Parliament - Report on the experience gained in the application of the Regulation (EC) No 1228/2003 "Regulation on Cross-Border Exchanges in Electricity"
Date: 2007-05-15
Institutions: European Commission
Subjects: electrical energy, energy grid, intra-EU transport, market access, report, single market, transport network

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.5.2007 
COM(2007) 250 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND 
THE EUROPEAN PARLIAMENT 

Report on the experience gained in the application of the Regulation (EC) No 1228/2003 
"Regulation on Cross-Border Exchanges in Electricity" 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND 
THE EUROPEAN PARLIAMENT 

Report on the experience gained in the application of the Regulation (EC) No 1228/2003 
"Regulation on Cross-Border Exchanges in Electricity" 

(Text with EEA relevance) 

1. 

INTRODUCTION 

This  report  fulfills  the  obligation  of  the  Commission,  contained  in  Article  14  of  Regulation 
(EC)  No  1228/2003  on  conditions  for  access  to  the  network  for  cross-border  exchanges  in 
electricity1, to publish a report on the experience gained in the application of the Regulation. 
The  Regulation  aims  at  setting  fair  rules  for  cross-border  exchanges  in  electricity,  thus 
enhancing  competition  within  the  internal  electricity  market.  The  Regulation  establishes  a 
compensation mechanism for cross border flows of electricity, sets harmonised principles on 
transmission  charges  and  rules  on  allocation  of  available  capacities  of  interconnections 
between national transmission systems. 

2. 

DEVELOPMENT OF CROSS-BORDER TRADE VOLUMES 

Cross-border electricity flows in Europe have increased modestly year on year since market 
opening. However, on average, only 10% of electricity consumed in the EU crosses Member 
States' borders. Chart 1 gives the overall evolution of the physical cross-border flows in the 
EU27 countries, as well as in Norway and Switzerland. 

Cross-border Electricity Exchange in EU

8,9%

8,8%

9,4%

9,6%

9,1%

10,3%

8,2%

7,5%

12%

10%

8%

6%

4%

2%

0%

n
o

i
t
p
m
u
s
n
o
C
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e
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n
a
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1998

1999

2000

2001

2002

2003

2004

2005

Year

Chart  1:  Development  of  the  cross-border  electricity  flows  between  EU  Member  States, 
Norway  and  Switzerland  (percentage  of  cross-border  flows  compared  to  gross  electricity 
consumption). 

1 

OJ L 176 of 15.7.2003, p. 1. 

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Chart 2 shows the cross-border flow quantities inside and between certain regions in Europe, 
as defined by the amended congestion management guidelines2, with the addition of the South 
East  Europe  (SEE).  In  this  chart,  those  countries  belonging  to  several  regions  have  been 
counted in the region to which they have the strongest physical connection. Switzerland has 
been  included  in  the  Central  Western  Europe  region  and  Norway  to  the  Northern  Europe 
region. The chart gives only a rough picture of the reality and does not catch all features of the 
geographical markets. For example the German and Austrian markets are in practice largely 
integrated. 

Electricity consumption
and exchanges in regions
in Europe in 2005

Northern Europe
Cons. 388 TWh
Exch.int 36 TWh = 9,3%
Exch.ext. 28 TWh=7,2%

11 TWh

UK and Ireland
Cons. 400 TWh
Exch.int. 2 TWh = 0,5%
Exch.ext.12 TWh=3,0%

12 TWh

15 TWh

35 TWh

2 TWh

3 TWh

Baltic countries
Cons. 23 TWh
Exch.int 2TWh = 10,0%
Exch.ext 3TWh = 13,0%

Central Western Europe
Cons. 1310 TWh
Exch.int 97 TWh = 7,4%
Exc.ext. 111 TWh=8,6%

Central Eastern Europe
Cons. 335 TWh
Exch.int 39 TWh = 11,6%
Exch.ext. 70 TWh = 20,9%

8 TWh

8 TWh

9 TWh

41 TWh

Iberian peninsula
Cons. 303 TWh
Exch.int. 12 TWh = 4,0%
Exch.ext. 9 TWh=3,0%

Italy
Cons. 328 TWh
Exch.int. 0 TWh = 0,0%
Exch.ext. 51 TWh=15,2%

18TWh

1 TWh

South East Europe
Cons. 207 TWh
Exch.int. 25 TWh = 12,1%
Exch.ext. 20 TWh=9,7%

1 TWh

1TWh

Cons. = Consumption
Exch.int. = Cross-border electricity inside region
Exch.ext. = Cross-border electricity between regions

Chart 2: Electricity consumption and exchanges in regions in Europe in 20053 

The Chart shows that the largest region is the Central Western Europe (CWE) with an annual 
consumption  of  1310TWh.  The  CWE  region  exchanges  substantial  amounts  of  electricity 
with all neighbouring regions, particularly with Italy (41 TWh) and with the Central Eastern 
Europe (CEE) region (35 TWh). Until recently, the Baltic region has been separate from the 
rest of the EU regions, but now the interconnector from Estonia to Finland, commissioned in 
December 2006, has ended this isolation. 

2 

3 

2006/770/EC:  Commission  Decision  of  9  November  2006  amending  the  Annex  to  Regulation  (EC) 
No 1228/2003  on  conditions  for  access  to  the  network  for  cross-border  exchanges  in  electricity, 
OJ L 312, 11.11.2006, p. 59–65  
Sources: UCTE, Nordel, DTi, Baltic TSOs 

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Of the total consumption in these regions (3271 TWh), 6,5% (213 TWh) is exchanged across 
borders  inside  the  regions,  4,3%  (141  TWh)  between  the  regions  and  0,7%  (24  TWh)  with 
third  countries.  However,  it  must  be  noted  that  physical  flows  are  only  a  proxy  to  actual 
traded  volumes  on  borders.  When  opposite  commercial  exchanges  are  netted,  gross  traded 
volumes  can  be  higher  than  the  physical  volumes.  Also,  due  to  loop  flows  and  due  to  the 
present method of capacity calculation, which poorly addresses the impact on third countries, 
commercial exchanges seldom coincide with the physical flows.  

It seems evident from the current exchange patterns between regions, and from the underlying 
interconnection capacities, that there is scope for further integration of the regions towards a 
European market. This will lead to a higher price convergence between regions with similar 
generation mixes, and to a better use of arbitrage possibilities between regions with different 
generation mixes, such as between the CWE and the Northern European market.  

Overall,  cross-border  trade  opportunities  are  far  from  being  fully  utilised.  This  has  been 
confirmed  by  the  results  of  the  sector  inquiry  into  the  electricity  and  gas  markets4.  This  is 
partly due to a lack of integration of wholesale and balancing markets. In other cases, many 
countries do not yet have a reliable price signal to guide cross-border trade.  

3. 

DEVELOPMENT OF CROSS-BORDER TRADING METHODS 

The  adoption  of  the  amended  congestion  management  guidelines  was  a  step  forward  in  the 
design  of  the  EU  internal  electricity  market.  These  guidelines  contain  practical  rules  to 
implement several principles, already included in Regulation 1228/2003. The main elements 
of the guidelines are the split of the EU into regions (seven regions plus South East Europe), 
the  obligation  for  transmission  system  operators  (TSOs)  to  operate  a  common  coordinated 
capacity calculation and allocation system, and finally the requirements on transparency. 

Capacity allocation methods currently in use on congested interconnections are the following 
(see also the chart in Annex 1): 

(1) 

(2) 

(3) 

(4) 

(5) 

retention (vertically integrated company holds the capacity) 

priority allocation for legacy contracts 

explicit auctions 

implicit auctions 

for intra-day allocations, first-come-first-served and pro-rata 

Only  coordinated  explicit  and  implicit  auction  fulfil  the  requirements  of  Regulation 
1228/2003.  However,  retention  is  still  used  on  some  of  the  old  merchant  lines  and  some 
priority allocation is still granted to old contracts in spite of the ruling of the European Court 
of  Justice  in  case  C-17/035.  The  Commission  has  already  started  legal  action  against  these 
cases. 

4 

5 

Inquiry  pursuant  to  Article  17  of  Regulation  (EC)  No  1/2003  into  the  European  gas  and  electricity 
sectors COM(2006)851, see Part b II.3 Market Integration 
Vereniging voor Energie, Milieu en Water and Others v Directeur van de Dienst uitvoering en toezicht 
energie, OJ C 182 of 23.7.2005, p.2. 

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In the future, more capacity will be allocated through implicit auctions. The so-called market 
coupling  method  developed  by  ETSO  and  the  association  of  European  Power  Exchanges 
(EuroPex)  has,  at  the  moment,  the  highest  potential  of  truly  integrating  the  European 
electricity  market  through  implicit  auctions  at  the  day-ahead  stage.  The  sector  inquiry6 
showed  that  explicit  auctions  as  currently  practiced  often  lead  to  inefficient  use  of 
interconnection capacity and prevents market integration. 

The calculation of cross-border capacity has been in the past largely based on the net transfer 
capacity  (NTC)  methodology  developed  by  the  European  Transmission  System  Operators 
(ETSO). More sophisticated capacity calculation methods which are integrated with capacity 
allocation  have  recently  been  proposed,  and  are  required  in  order  to  fulfil  the  amended 
congestion  management  guidelines.  The  most  promising  one  is  the  so  called  flow-based 
method. In this method the available capacity is calculated in a global network model without 
sub-optimally disaggregating ex-ante the total capacity into bilateral NTC values. The flow-
based method has the means to ensure that the resulting physical flows of all involved TSOs 
keep  the  network  within  its  security  limits.  This  method  has  large  potential  benefits  when 
used in a highly meshed transmission network. 

A lot of effort is still needed to implement new arrangements, including those set out in the 
amended congestion management guidelines. As a result, not all main projects could deliver 
by 1 January 2007, the deadline for having a common co-ordinated capacity calculation and 
allocation  in  place  according  to  the  amended  congestion  management  guidelines.  These 
difficulties are, firstly, of technical nature as the system needs to be tested and robust before 
being  implemented.  Secondly,  it  is  often  a  political  challenge  to  agree  on  changes  in  the 
market  outcome.  Even  if  a  better  method  would  increase  the  overall  benefit  for  market 
participants and would provide a secure and more efficient use of the existing infrastructure, 
the amount of capacity to be allocated at some borders might diminish.  

Some progress has been made in development of access to intra-day cross-border trade. This 
is  also  required  by  the  amended  congestion  management  guidelines,  being  mandatory  from 
1 January 2008. 

The national regulators and the Commission will closely monitor the implementation of the 
amended  congestion  management  guidelines.  The  Commission  is  prepared  to  start 
infringement procedures in case of non-compliance with the new guidelines. 

4. 

INTER-TSO COMPENSATION MECHANISM 

Regulation  1228/2003  also  provides  the  framework  in  which  compensation  for  the  use  of 
neighbouring networks is no longer based on explicit fees for individual trades (cross-border 
or transit fees) but on a global compensation mechanism based on physical flows. This makes 
a lot of sense in a meshed electricity network where opposite commercial flows net each other 
and physical flows almost never match with the contract path. 

6 

Inquiry  pursuant  to  Article  17  of  Regulation  (EC)  No  1/2003  into  the  European  gas  and  electricity 
sectors COM(2006)851, Market Integration, see Part b II.3.5.3 

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Progress in the inter-TSO compensation (ITC) mechanism has been made on a voluntary basis 
through the Florence forum process. The first voluntary agreement was made in March 2002 
between  ETSO  members,  although  it  still  included a 1 €/MWh  cross-border  fee,  which  was 
collected either collectively or from export and import transactions, depending on the country. 
In 2003, this fee was reduced to 0.5 €/MWh and was finally abolished in 2004.  

The voluntary agreement between TSOs has been based on a method that is a simplification 
of the reality in the cross-border flows. This simplification contains several flaws, which have 
become  increasingly  unsustainable  for  some  participants  to  support.  ETSO  has  worked  to 
improve  the  methodology,  and  it  has  put  forward  a  so  called  IMICA-model  (Improved 
Modelling  for  Infrastructure  Cost  Allocation)  which  addresses  some  of  the  flaws  of  the 
previous system. However, as the method is very complicated, and as discussion is still going 
on on the principles of an ITC method, a new interim ITC mechanism is implemented in 2007 
with some improvements. 

The European Regulators' Group for Electricity and Gas (ERGEG) has worked on guidelines 
on ITC to be adopted by the Commission under Regulation 1228/2003. However, after several 
attempts and several candidate methods, the latest and the most promising being the IMICA 
method, no agreement had been reached within ERGEG by the end of 2006.  

The  Commission  is  still  considering  whether  the  work  by  ERGEG  provides,  in  any  case,  a 
sufficient  basis  to  adopt  guidelines  with  the  assistance  of  the  electricity  cross-border 
committee set up by Article 13 of Regulation 1228/2003.  

5. 

NETWORK ACCESS TARIFF HARMONISATION 

Network tariffs for accessing the transmission network vary enormously (see also the chart in 
annex 2). The average network tariff for a load connected to the transmission network, the L-
charge, ranges from ca. 2 €/MWh (Sweden) to ca. 27 €/MWh (Denmark East). The average 
network  tariff  for  a  generator  connected  to  the  transmission  network,  the  G-charge,  ranges 
from 0 €/MWh (several Member States) to ca. 1.8 €/MWh (Ireland). There are several factors 
explaining these differences. In addition to differing infrastructure costs, these tariffs may or 
may not include losses, locational signals, system  services or charges not directly related to 
TSO  activities.  These  other  charges  are  mostly  related  to  public  service  obligations  such  as 
support to renewable energy sources and combined heat and power (CHP) as well as stranded 
costs. 

Tariff harmonisation is needed in order to have a level playing field for the electricity market 
and  it  is  one  of  the  main  issues  addressed  by  Regulation  1228/2003.  Although  a  binding 
guideline  on  tariff  level  has  been  in  preparation  already  for  several  years  in  the  Florence 
forum  process,  it  cannot,  according  to  the  regulation,  be  adopted  independently  of  the 
guideline  for  the  ITC  mechanism.  The  draft  guideline  on  transmission  tarification  aims  at 
gradually  diminishing  the  spread  on  the  G-charge.  This  is  because  the  G-charge  is  more 
important regarding the level playing field than the L-charge. 

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6. 

CONGESTION 

It  can  be  noted  that  congestion  patterns  have  become  more  volatile,  even  if  there  is  no 
uniform method to collect and publish data on the appearance of congestion yet. In the past 
the  flows,  often  dominated  by  long-term  contracts,  remained  relatively  stable.  Increased 
volatility  can  be  seen  as  a  sign  of  a  better  functioning  market  leading  to  increased  trade  on 
both  directions  over  the  interconnectors.  In  some  cases,  this  might  also  be  due  to  a  new 
trading  strategy  of  players  in  a  dominant  position  in  one  market:  cross-border  volumes  are 
being optimised.  

With  market  based  mechanisms,  the  TSOs  collect  congestion  rents  which  reflect  the  price 
difference between zones and the volume traded over each interconnector. On borders where 
explicit auctions have been used already for some time, the following rents were collected in 
2005 (2004)7: Germany 158 M€ (98 M€), the Netherlands 48 M€ (35 M€), Czech Republic 
44 M€ (41 M€), Poland 41 M€ (9 M€) and Denmark (borders with Germany) 28 M€ (19 M€). 
In the Northern region the following aggregated congestion rents have been collected under 
the market splitting system8: 48 M€ in 2004, 117 M€ in 2005 and 104 M€ in 2006. For 2006 
several new explicit auctions were introduced in order to replace retention, priority allocation 
for  legacy  contracts  or  first-come-first-served  methods,  which  are  not  compatible  with 
Regulation 1228/2003 or the ruling of the European Court of Justice in case C-17/03 . 

According to the Regulation, congestion revenues can only be used for guaranteeing capacity, 
building  infrastructure  or  lowering  the  network  tariff.  Unfortunately,  lowering  the  tariff  has 
been the most common use of congestion revenues. Only in some cases network investments 
have  been  preferred  (Nordic  countries,  the  Netherlands).  According  to  the  amended 
congestion  management  guidelines  the  regulators  will,  from  2007,  have  to  publish  a  yearly 
report on the collection and use of the congestion income. 

7. 

ACCESS TO CROSS-BORDER ELECTRICITY TO END USERS 

The  borders  between  countries  and  control  areas  still  form  an  important  obstacle  to  true 
market integration. A medium term target is to aim at regional harmonisation of the market 
and  building  of  new  infrastructure  in  such  a  way  that  the  market  participants  will  be  less 
hindered  by  the  borders  than  they  are  today.  This  situation  has  been  largely  created  for 
wholesale market participants in the Nord Pool area. When market participants in the Nordic 
market  are  bidding  into  the  day-ahead  spot  market,  the  system  automatically  optimises  the 
cross-border  infrastructure  use.  The  balancing  market  is  also  integrated  using  bids  from  the 
whole region. However, this Nordic market does not yet extend directly to the retail market, 
as  the  customers  are  still  obliged  to  use  suppliers  established  in  the  same  country.  Work  is 
going  on  in  view  of  establishing  a  true  Nordic  end-user  market.  Another  example  of  an 
integration  of  wholesale  markets  is  Germany  and  Austria.  Retail  market  integration  in  this 
area is also being discussed. 

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8 

Information collected from auction office websites. Rent at each interconnector is assumed to be split 
50-50 between the TSOs involved. 
Nordel 

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8. 

SECURITY OF SUPPLY 

The first year of the Regulation being in force, 2003, proved to be a difficult one for security 
of electricity supply. Italy suffered a major black-out in September 2003 due to problems in 
the  interconnection  lines  with  Switzerland  and  due  to  failure  in  limiting  the  spread  of  the 
fault. Also in September 2003, a major black-out happened in southern Sweden and in eastern 
Denmark.  Less  far-reaching  blackouts  occurred  in  2003  in  London  and  Helsinki.  The  most 
recent black-out on 4 November 2006 affected the whole Union for the Coordination for the 
Transmission  of  Electricity  (UCTE)  synchronous  area.  This  incident  originated  in  northern 
Germany  and  lead  to  the  splitting  of  the  UCTE  area  into  three  parts  and,  consequently,  to 
approximately 10% of load shedding in the western area in order to preserve the integrity of 
the transmission network. 

As major system disturbances occur very seldom, it is not possible to draw conclusions yet on 
whether  the  probability  of  the  occurrence  of  black-outs  is  becoming  higher  or  lower  than 
before  the  increases  in  cross  border  transmission.  It  was,  however,  clear  from  the  Italian 
black-out that the TSOs did not have a sufficient framework in place to guarantee a high level 
of  system  operation  on  a  European  scale.  Co-operation  was  based  on  non-binding 
recommendations  without  monitoring  and  enforcement  of 
recommendations. 
Consequently UCTE started work on changing the recommendations into a handbook of rules, 
enforced and monitored through a binding agreement between all UCTE member TSOs. This 
process is not yet finished although considerable progress has been made.  

those 

It has been discussed especially in the Florence forum process, whether binding security rules 
at the European level are necessary. This is already possible through the Regulation, although 
the Commission has not chosen to make any proposal to date. 

The recent ETSO report on generation adequacy9 indicated that there is no major concern for 
most of the European network until 2012. After 2012, the situation might become critical if 
the  investments  take  place  more  slowly  than  predicted.  The  situation  can  change  rather 
quickly  when  new  investments  are  announced,  such  as  in  Italy,  Spain,  Netherlands  and 
Germany. The Nordic countries are dependent on rainfall, due to a high share of hydro power. 
Therefore, generation capacity becomes an issue in dry years such as 2006. 

The  ETSO  report  takes  into  account  the  influence  of  cross-border  connections  to  the 
generation adequacy at regional level with the expectation that TSOs would not unilaterally 
cut interconnectors between Member States in the case of extreme peak demand conditions. 
However,  the  behaviour  of  some  TSOs  in  these  conditions  is  not  very  predictable.  Some 
examples  indicate  that  domestic  customers  might  be  preferred  to  foreign  ones.  This  is  a 
violation  of  both  the  Directive  2003/54  on  common  rules  for  the  internal  market  of 
electricity10  and  the  Directive  2005/89  concerning  measures  to  safeguard  security  of 
electricity  supply  and  infrastructure  investment11.  Further  discussion  on  this  important  issue 
will take place in the context of the implementation of the latter directive. 

9 

10 
11 

Generation  adequacy,  an  assessment  of  the  interconnected  European  power  systems  2008-2015 
May 2006, ETSO 
OJ L 175 of 15.7.2003, p. 37. 
OJ L 33 of 4.2.2006, p. 22. 

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9. 

LOCATIONAL SIGNALS 

Locational signals are a fundamental requirement for the functioning of the electricity market. 
Locational  signals  refer  to  any  transmission  tariffs  or  conditions  which  influence  the 
generation  dispatch  in  the  short  term  and  the  siting  of  new  generation  plants  and  electricity 
intensive customers in the long term. 

Currently, congestion effects provide the strongest network related locational signal in the EU 
electricity  market.  Effectively  the  existence  of  congestion  means  that  the  market  is  divided 
into price zones and congestion maintains a price difference between zones. This is a strong 
signal  when  a  company  chooses  where  to  invest  in  generation  capacity.  In  addition,  within 
some countries (the United Kingdom, Sweden and Norway) there is also an inbuilt locational 
signal  element  in  the  network  access  tariff.  This  signal  is  supposed  to  influence  both  short 
term  behaviour  (dispatching)  and  long  term  behaviour  (investments).  There  are  not  yet  any 
European-wide  locational  signals  in  tariffs  to  supplement  those  arising  from  congestion. 
Harmonisation  of  network  tariffs  may  be  needed  before  a  European-wide  locational  signal 
could be reasonably built into the tariffs. 

There is a major issue concerning locational signals within some Member States, especially in 
large countries with a single price area and where congestion is not explicitly recognised. For 
example,  in  Germany  there  is  a  high  penetration  of  wind  power  in  the  north  of  the  country 
with priority dispatch. Although congestion exists between northern  and southern Germany, 
the  maintenance  of  a  single  price  area  means  that  the  locational  signal  for  conventional 
generators  does  not  exist.  Southern  Sweden  and  southern  Austria  also  suffer  from  a  lack  of 
locational signals for generation due to the maintenance of a single price area. In France there 
is  a  single  price  area  for  electricity  and  a  zonal  tariff  for  gas:  it  creates  congestion  on  the 
electricity  transmission  system  whereas  it  would  be  more  economic  to  transport  primary 
energy  than  electricity.  Flow-based  allocation  methods  are  expected  to  provide  more 
information about the location of bottlenecks in the power system. 

10. 

CONCLUSIONS 

During  the  period  when  the  electricity  markets  have  been  open  in  Europe,  there  has  been  a 
steady but modest increase in cross-border flows. The main driver has been the possibility to 
trade  between  price  areas  with  price  differentials.  The  capacity  calculation  and  allocation 
methods  have  developed,  with  possible  further  improvement  to  come  as  a  result  of  the 
amended  guidelines  for  congestion  management  adopted  in  November  2006.  They  will 
require methods based on a wider regional optimisation of the use of the network instead of 
concentration on bilateral trade between two adjacent countries. This will also provide a more 
secure management of physical flows. 

However,  there  are  signs  that  the  transmission  network  sometimes  operates  close  to  its 
physical limits. The blackout in Italy in 2003 and in UCTE in 2006 showed how costly any 
incident  in  the  European-wide  transmission  network  can  be.  Therefore  it  is  important  for 
increase  in  trade  to  be  accompanied  with  more  co-ordinated  network  operation  and  the 
building  of  new  infrastructure,  including  upgrading  existing  lines,  building  new  lines  and 
investing in other network components, where needed. Due to the local nature of electricity, 
this increase potential is not unlimited, but there is still substantial scope to optimise the use 
of existing transmission resources. This being said, increasing flows is not a target as such. It 
is rather the possibility for flows which is a necessary condition for cross-border trade and a 
fundamental element for a well functioning internal electricity market. 

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The  European  market  is  increasingly  based  on  a  regional  concept.  This  first  developed 
naturally, following the physical realities of the network. With the establishing of the regions 
in  the  amended  congestion  management  guidelines  and  with  the  development  of  the 
Electricity  Regional  Initiatives  by  ERGEG,  the  regional  approach  has  received  an  official 
status. The regional approach should, however, be considered as a pragmatic tool to achieve 
an overall European market. There is a priori, no major reason why the implementation of the 
electricity market should vary a lot between the regions. 

The  amended  congestion  management  guidelines  entered  into  force  1  December  2006.  The 
ITC  guidelines  and  tariff  harmonisation  guidelines  are  under  preparation  and  should  be 
adopted  during  2007  by  the  Commission.  With  these  guidelines  the  rules  foreseen  by 
Regulation 1228/2003 will be achieved, with the exception of security and reliability rules. In 
the meantime it has become clear that there is a need to address a number of issues on which 
the Regulation does not foresee detailed guidelines. The following tentative list contains the 
ongoing  issues  relating  to  cross  border  trade,  only  some  of  which  are  fully  covered  by  the 
Regulation. However, most of them are already addressed by various ERGEG initiatives:  

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

Security and reliability rules: rules between the TSOs to ensure safe operation of the 
grid. A mandate for the adoption of guidelines by the Commission is already contained 
in Article 8 of Regulation 1228/2003. 

Connection  rules:  governing  the  relation  between  the  TSOs  and  the  customers 
(generators, distribution system operators and big end-customers). 

Rules  for  trading  electricity:  harmonisation  of  trading  arrangements,  timetables  and 
products, including intra-day trade. 

Transparency  rules:  detailed  rules  on  data  exchange  and  publication  between  market 
participants.  Transparency  rules  are  already  addressed  in  the  amended  congestion 
management guidelines. 

Balancing and reserve power rules: aiming at further integration of the balancing and 
reserve  power  markets.  Cross-border  balancing  is  already  addressed  in  the  amended 
congestion management guidelines. 

Data exchange and settlement rules: aiming at integration of the retail market through 
sufficiently harmonised data exchange and settlement rules. 

Investment  incentive  rules  including  locational  signals:  providing  a  European 
framework  for  efficient  investment  signals  for  both  generation  and  network 
investments. 

The need for and the level of detail of these rules are still to be discussed, and further studies 
are  needed  in  order  to  provide  the  necessary  input.  However,  it  has  become  evident  that 
further  integration  of  the  internal  market  needs  a  coherent  set  of  rules,  as  elaborated  in  the 
communication  from  the  Commission  on  prospects  for  the  internal  gas  and  electricity 
market12. Many of these rules already exist, but on a national basis or a company basis, with a 
different oversight by national regulators. The incompatibility of these rules may be one of the 
biggest obstacles to market integration. The communication on prospects for the internal gas 
and  electricity  market  elaborates  what  role  the  regulators  should  have  in  preparing, 
monitoring and enforcing these rules, and how the TSOs should be involved in this process.  

12 

Prospects for the internal gas and electricity market, COM(2006)841 

EN 

10 

   EN 

 
                                                 
Annex  1:  Congestion  management  methods  in  use  in  Europe  (source  ETSO  report:  An 
Overview of Current Cross-border Congestion Management Methods in Europe, May 2006) 

Day-ahead allocation (updated in January 2007) 

NL

DK 
(W)

IRIR

U
U
K
K

B

L

L

D

F

CH

A

PP

E

MO

II

N

S

DK 
(E)

CZ

FI

R

Pl

SK

SL

H

GG

Implicit auction 

Explicit auction 

No congestion 

Access limitation 

Other method 

EN 

11 

   EN 

 
 
 
 
 
 
 
 
 
Annex 2: Level of transmission tariffs in Europe  
(source ETSO report from 2006: ETSO Overview of transmission tariffs in Europe: Synthesis 
2005) 

EN 

12 

   EN