Market

Market

The electricity market structure reflects the way in which the sector itself and its activities are organised, namely as a result of the liberalisation process, which is a common feature in Europe, implemented through the publication of directives by the European Commission.

As part of the markets’ liberalisation process, in which network activities (including transmission and distribution networks) are considered to be natural monopolies and are therefore subject to economic regulation, the production and supply of electricity are open to competition. In economic terms, this is justified by the fact that it allows for greater efficiency in the management and operation of the resources allocated to these activities.

Electricity production activity in the market system is associated with a wholesale market, where production market agents ensure its placement and market agents who require supplies seek to acquire electricity, either to meet the portfolio of end customer supplies or for self-consumption purposes. The supply activity is associated with a retail market, in which supply market agents compete with each other to ensure the supply of end customers.

To these main activities, the liberalisation model for the electricity sector has added organised markets, which are negotiation platforms that tend to be independent from traditional agents involved in electricity production and supply.

Monitoring the functioning of the electricity market in the current liberalised context requires a close look at the organised spot and forward markets (in simple terms, exchanges where electricity is traded between two parties and which offer risk management instruments in the form of derivatives) and at the development of other commodity markets that influence electricity pricing (e.g. coal, oil, natural gas, carbon dioxide emissions, financial markets, etc.).

The electricity contracting involve multiple forms, from contracting for the following day (daily market), to contracting closer to real time through the intraday market (through auctions and continuous trading) and for longer periods (forward market), or bilaterally in the over-the-counter market and/or through specific legal or regulatory mechanisms.

Iberian Electricity Market (MIBEL)

The establishment of the Iberian Electricity Market (MIBEL) on 1 July 2007 was the result of a process of cooperation between the Portuguese and Spanish Governments with the aim of promoting the integration of both countries’ electrical systems.

The activity developed since then within the framework of MIBEL represents a significant contribution not only to establishing Iberian electricity market, but also an important step towards the construction of an Internal Energy Market at the European level.

The process of harmonising and developing the MIBEL framework aims to benefit the Iberian consumers, by allowing them to purchase energy under a free competition regime from any producer or supplier operating in Portugal or Spain, and to ensure access to the market for all agents under conditions of equal treatment, transparency and objectivity, within a stable legal framework and in accordance with European legislations and regulations.

Organisation and operating principles

Following the review of the Santiago de Compostela Agreement, the Board of Regulators was established, comprising representatives from Portugal, Entidade Reguladora dos Serviços Energéticos (the Energy Services Regulatory Authority - ERSE) and Comissão de Mercados de Valores Mobiliários (the Securities Market Commission - CMVM), and their Spanish counterparts, Comisión Nacional de los Mercados y la Competencia (the National Commission for Markets and Competition - CNMC) and Comisión Nacional del Mercado de Valores (the National Securities Market Commission - CNMV).

The following functions have been assigned to the Board of Regulators:

To monitor the implementation and development of MIBEL
To issue a preliminary statement of opinion, which is mandatory but not binding, on the imposition of penalties for very serious administrative infractions by MIBEL to be agreed between the Governments of both countries
To coordinate the actions of its members in the exercise of MIBEL’s supervisory powers
To issue and/or amend coordinated statement of opinions on draft regulation for the functioning of MIBEL or changes thereto and the draft regulations on the management companies of markets comprised therein
Any other tasks that may be agreed by the two Governments

The Board of Regulators operates through a Committee of Presidents and a Technical Committee. The Committee of Presidents is composed of the chairpersons of each of the participating authorities, each of which appoints its representatives on the Technical Committee. The chairmanship of the Committees is held simultaneously by each of the participating authorities for a period of six months. In accordance with the rotation system, the chairmanship alternates between the States on an annual basis.

Regulatory harmonisation

In order to further develop the MIBEL, and in line with the Santiago de Compostela Agreement and the decisions of the Badajoz Iberian Summit, the Portuguese and Spanish governments decided to agree on a regulatory harmonisation plan based on six main areas:

Definition of the general principles of organisation and management of the Iberian Market Operator (OMI) and its implementation model
Strengthening the link between System Operators
Definition of common rules to increase competition in MIBEL and reduce market power
Incentive to liberalisation and definition of the tariff convergence plan between Iberian electricity systems
Implementing a Mechanism for the joint management of interconnections
Standardising mechanisms for guaranteeing capacity

The contribution of the Board of Regulators to the implementation of this plan has led to the submission to the Governments of the two Iberian countries of proposals and studies in some of these areas: