Yearly exchanges

62. This section shows the results for the explicit auctions for yearly cross-zonal capacity on the borders between Belgium on the one hand, and France, the Netherlands and Great-Britain on the other hand.¹¹ Generally, these auctions are organized and results are subsequently published in the month of November preceding the year of delivery: for example, cross-zonal capacity for delivery in 2020 was sold on JAO (the Joint Allocation Office) in November 2019.

11 Given the recent go-live of the ALEGrO interconnector between Belgium and Germany in November 2020, no data for long-term auctions is available yet on the BE – GB border.

Figure 26 Results of annual capacity auctions on southern border

63. The allocated volumes for cross-zonal capacity on the southern border have historically been relatively stable in the import direction: in 2020, 1.400 MW cross-zonal capacity was available for the yearly timeframe. These values are consequently and significantly lower in the export direction, where only 200 MW was sold through the explicit auctions. The allocated volumes between 2010 and 2020 (including the 2021 timeframe) are shown in the top panel of Figure 26.

The bottom panel shows the resulting marginal price. Market participants who submitted bids at prices at least equal to the marginal price, established at the end of the auction, obtained cross-zonal capacity as a result. Year-to-year fluctuations are much more pronounced in the prices than in the volumes:

these prices are the result of the market participants expectations of the price spread in the relevant market time unit. For the 2020 timeframe, prices for annual cross-zonal capacity on the Belgian – French border amounted to 2,08 and 1,36 € / MWh for the export and import direction, respectively.

The spread between the import and export direction further increased in the auction for 2021: 4,87 € / MWh for export capacity and 0,86 € / MWh for import capacity.

Figure 27 Results of annual capacity auctions on northern border

64. On the northern border, cross-zonal capacities are sold in a more even manner between the import and the export direction. For the 2020 timeframe, allocated capacities reached 473 MW in the export direction and 472 MW in the import direction. These values have been nearly identical since 2010.

This does not imply stable prices: as on the southern border, prices fluctuate in the range between 0,5 and 6 € / MWh. The cost of cross-zonal capacity amounted to 1,73 € / MWh for the export direction and 2,56 € / MWh for the import direction in 2020 and 2,14 € / MWh (export) or 2,16 € / MWh (import) in 2021.

These results are summarized in Figure 27 above (volumes in the top panel, prices in the bottom panel).

Figure 28 Results of annual capacity auctions on western border

65. On the border with Great-Britain, data for the yearly allocations is only available since the end of 2019 (auction for 2020), as the Nemo Link interconnector became operational in early 2019. The allocated capacities reached 100 MW (export) and 99 MW (import) for 2020, increasing to 200 MW (export) and 150 MW (import) for 2021.

These auctions resulted in marginal prices which were significantly higher in the export direction (6,69

€ / MWh for 2020 and 9,76 € / MWh for 2021) versus the import direction (0,98 € / MWh in 2020 and 0,43 MWh in 2021).

This matches the patterns observed in the day-ahead timeframe (see also chapter 5): Nemo Link is structurally used in the export direction, to transport electricity from Belgium to Great-Britain. This explains the higher value which market participants attach to capacity in the export directions, reflected in their bids for capacity in the explicit auctions. In turn, the desire to export electricity results from the observed price differences in the day-ahead timeframe.

Figure 29 Sufficiency of cross-zonal capacity to meet market demand

66. Figure 29 shows, for each border and direction, the difference between the allocated and requested capacity for the 2020 yearly auctions. Generally, market participants desire to acquire much more capacity than the volume offered by Elia. Depending on the considered border and direction, requested capacity is about 10 to 15 times higher than what is made available.

This is the result of the practice where, based on its availability planning, Elia calculates the offered long-term cross-zonal capacity well in advance of the delivery period. The supply of cross-zonal capacity is therefore independent of its price: supply may be seen as completely inelastic and the capacity price is determined at the intersection with the demand curve.

For this reason, Figure 30 looks at the potential for market power (measured through demand-side concentration) in the annual capacity auctions.

Figure 30 Demand-side market concentration in yearly capacity auctions

67. For each border and direction, the HHI is calculated and presented for the yearly timeframe in Figure 30. Generally, it can be concluded that – especially since 2019 – market demand is relatively competitive: different market participants manage to obtain a share of the offered capacity in the explicit auctions. A market is considered to be concentrated if the HHI exceeds 20%, while values of around 10% indicate a relatively equal distribution of market share between participants. Calculated values range between 10% and 20% in the last years, with an increase for the 2021 auction (especially for the import from the Netherlands).

High market concentration (as reflected in a high HHI) would, theoretically and ceteris paribus, have a downward effect on the prices for cross-zonal capacity. Of course, the price also critically depends on the value of the transmission right as a hedging instrument, and hence of the market participants’

estimations of the day-ahead market spread (which sets the remuneration of the transmission rights).

Therefore, the link between Figure 30 and the figures with the results of the annual auctions is less evident.