EU's CACM driving NEMO movement from power exchanges

Major market operator Nord Pool could be the first to split its exchange business following EC regulation

By Alex Hamilton | 11 April 2019

Nord Pool’s splitting of its market coupling operator (MCO) operations from its power exchange business could be the first indication of a wider movement by nominated electricity market operators (NEMOs) in reaction to the EU’s Network Guidelines on Capacity Allocation and Congestion Management (CACM), according to a source close to the matter.

“CACM is identifying two subset activities by NEMOs: the commercial one, which offers a platform and services and is the competitive part by nature; and the MCO function, which tends towards a monopoly,” says the source.

“Will other big NEMOs follow the principal approach of Nord Pool? I do not know, but it seems not for the time being. There are other ways out and everybody is basically trying to move away from the competitive ground and focus on the monopolistic side of the business.”

In May 2018 Nord Pool announced that the legal structure of the company was going to be re-organised to comply with CACM. The exchange stated that it would be separating its role as MCO from its position as a provider of trading products and services.

According to a statement released in March this year, Nord Pool has opted to initiate a “review of the strategic alternatives” for its commercial power exchange business. In March, a Nord Pool spokesperson told Montel News a sale of Nord Pool’s commercial business is a possibility. The company has employed SEB as an advisor.

“Many think that having the two components together could create interferences on the MCO function which should serve the community. We could read in this light of Nord Pool’s decision to divide and unbundle to focus on the MCO with a dedicated company,” says the market source.

Nord Pool outlined its strategy further in a position paper published the same month. It argued for full ownership unbundling of the MCO operations from the businesses of competitive power exchanges. “A solution should centre around a cooperation model, in which national or regional unbundled MCO operations cooperate to perform the MCO functions under a governance framework which balances the legitimate specific interests of the member states or regions with the fair and equal treatment of all market participants,” it reads.

“Up until now competition has mainly been driven by market design by using different products and offering different services,” says the source. “As you head towards the harmonization required in CACM things become more complex. Either it means allowing everyone access to these products and services, increasing enormously complexity, or harmonizing on a lower number of products, which might not be desirable for market participants.

“Obviously everybody wants to enter the market of the competitor but not have to be competed with in their own domestic market. That can slow down the process, indeed. It has been complex, and it has not been finalised.”

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