One of the actual creators of the common electricity market, the Pentalateral Energy Forum is considered one of the most-advanced operational structures for Energy in Europe aiming at a further integration of electricity markets and the development of common approaches in guaranteeing the security of supply. Its activities have grown to become highly elaborated in the recent years, and as a consequence, ever greater expectations are being placed on it.
Since the European Commission launched the Regional Initiatives facilitating electricity trade and setting fair rules for cross-border exchanges almost fifteen years ago, the stakeholders of the electricity sector have increasingly engaged in important dialogues to build a common market. The shift from a mosaic of national visions to a wider set of regional and EU frameworks is already a reality. The need for closer links between the Benelux, French and German electricity markets was concretely expressed by a voluntary association of the national Transmission System Operators in 2005 (called the ‘Pentalateral Energy Forum’), who were joined by Austria and Switzerland two years later.
However, despite Commission-given incentives for the interconnection of national grids, it remains the State representatives who dominate decision-making in the Forum. Indeed, individual European member states retain control over decisions concerning their energy mix and the general structure of their energy supply. Therefore, one may wonder whether the Forum is an intermediate step to the Energy Union or a long-term structural organization. Let's dive a little deeper into this intriguing regional grouping.
An association of volunteers
In an ever more interconnected European electricity market, the independent management of risks by each country is no longer possible. One of the most recent achievements of the Pentalateral Energy Forum is the signing, last June, of an agreement for the management of the power sector in case of a crisis. This new regulation for the open electricity market between these seven countries is a concrete expression of the work stemming from their cooperation. There is a long tradition of cooperation between the founding countries of the Pentalateral Forum; a driving force facilitating dialogue and agreement on Energy issues.
The early years of this Forum had been marked by a purely intergovernmental expression of the necessity to cooperate. The cooperation was organized under the support of the Benelux General Secretariat. A Memorandum of Understanding signed in June 2007 formalized the cooperation between the signatories, namely, the Transmission System Operators (TSOs), the National Regulatory Authorities (NRAs), the market parties, the Power Exchanges (PXs), the national ministries and the European Commission. The dialogue was materialized by the creation of so-called “Support Groups” which serve as platforms for sharing experiences to fulfill a more integrated market. The Groups are driven by experts and market players; which is why it is more a place for a confrontation of economic interests rather than national interests. Energy ministers play also a key role in directing the Forum, through regular review and support throughout the whole process.
The true formal architecture of the Forum's work came with the Second Political Declaration in 2015 which established a Ministerial Conference as the governing body of the Forum, tasked to define its global objective. It also set up a Committee composed of Coordinators (representing the ministers) in order to monitor the overall process. They have the duty of ensuring the practical preparation of the meetings and the follow-up of decisions. This Committee meets at least twice a year to discuss and make sure that the consensus over the working program and methods remains guaranteed. Indeed, decisions are taken by consensus of the Ministerial Conference.
This decision making process can be intricate and highly nuanced due to the diversity of the signatories and the interplay of these actors with national stakeholders. Two elements facilitate the overall conclusion of agreements. First, the search for unanimity across the parties starts in the preparatory research and in the discussions among Ministries and Director Generals where divergent interests are overcome through political compromise. Second, the signatories make use of the possibility to have informal meetings in a Penta-format, but without any formal institutional framework. Then, there are several ad hoc groups of experts trying to solve the main problematic issues. This system between the seven Member States allows for an intense dialogue and for an attainment of the most suitable solutions and directions for the electricity market.
A driving force for concrete accomplishments
Today, the Forum is the leading format for the cooperation in Europe on energy issues, working through coupling, security of supply and enhanced flexibility of the market. The 2007 Memorandum expressed the principles which must form the basis of this process: fairness, transparency, efficiency, security and non-discrimination. Taking into account these principles, the Pentalateral Energy Forum has since developed a method to coordinate the levels of electricity generated between the states, in order to achieve market coupling (allow energy distributors to easily by electricity in a neighboring market on a day-to-day timeframe). To reach this objective, the stakeholders adopted harmonised rules for electricity trade and have created an independent, non-discriminatory and transparent governance structure composed of Transmission system operator and Power Exchanges taking the form of working groups.
Results are also notable in the field of security of supply. The main step towards this was the publication of the Pentalateral Generation Adequacy Assessment in March 2015. This document constituted the first analysis of electricity security of supply in Europe conducted from a Regional perspective. Thanks to the cooperation among regional actors, the Forum established a common methodology in the assessment of electricity generation for the future. By doing so, the Pentalateral Forum illustrates its leading role in the regional cooperation through this document. As well as developing a common working methodology, the document analyzed the state of existing infrastructures, strategic reserves and their necessary improvement.
Presently, two further generation adequacy assessments are planned, one for the period 2018-2019 and one for 2023-2024. Moreover, it is important to highlight that in 2015, the adoption of the Joint Declaration for Regional Cooperation on Security of Electricity Supply was signed by 12 electricity neighbors. This is a step forward to improve the broader cooperation between neighboring countries by giving a political stimulus for creating concrete bridges among the different grids.
Renewables, the forgotten issue?
The integration of electricity from Green power plants in the market is one of the main challenge for the sector. A common action for the promotion of Renewables has been completely absent in the first common action plans. It is still possible to view the 2015 Declaration as the first step towards a stronger coordination and the development of joint instruments here. Indeed, the signatories expressed their wish to develop “a common vision for the market integration of renewable energy” in order to “ensure the transition to a sustainable electricity system based on an increasing share of renewable electricity generation”. No concrete actions or tools are foreseen in the document, but stakeholders will have to implement the so-called “no regret measure”. The latter is a new way to act in which decisions will be taken in order to reduce the threat of climate change through energy-saving measures. The only requirement is the call for an analysis on the development of new low-carbon economy and the integration of Renewable energy sources in the market. This is simply a formal announcement of something already developed at national level, because the ministerial conference indicated the need to be in accordance with the new guidelines on State Aid for environmental protection and energy, issued by the EU Commission.
But even if the Forum is not yet the place for forming a joint policy for Renewables, the stakeholders want to enhance the flexibility of their electricity market. Indeed, flexibility is the key element to elaborate the essential conditions for an increased share of renewables in the system. Among the concrete actions taken, it is particularly worth highlighting the elaboration of a Roadmap toward the alignment of opening and closing times of electricity markets. There is also an intense cooperation among NRAs, TSOs, DSOs, market parties, PXs, renewable energy producers, the Smart Energy Demand coalition (a European Business association) and the neighboring actors who exchange together through intense discussions on balancing, intra-day exchanges and the role of the demand-side response. Finally, within the Support Group discussions, there is also a process of identification of best practices concerning energy storage, and regulatory or other obstacles to the enhancement of flexibility.
In spite of the advances brought to the fore by the Pentalateral Energy Forum towards a fully-integrated electricity market, it remains separated from the formal political processes for building the Energy Union. Whether it will eventually be integrated into the wider EU-framework is an unanswerable question, but it is representative of a growing trend towards regionalization for decision-making. What is clear is that this organization and its engaged stakeholders have found a unique but effective means of working together to achieve a level of interconnectedness never-before imaginable in a European mosaic of national energy visions.
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Ronan Haas holds a Master degree in European Interdisciplinary Studies from the College of Europe Natolin as well as a master degree in International and European law from the university Grenobles Alpes He is now working in Bruxelles as Public Affairs officer Intern in the energy field.