The origin of REMIT and its initial implementation

Summary:

In the energy sector, the European Union (EU) has been working since the early 1990’s to create an Internal Market for electricity and gas, in which consumers would be able to choose their energy supplier and electricity and gas would move seamlessly between Member States. This process was supported by a sequence of legislative packages and took new impetus after an Inquiry by the European Commission in the mid-2000’s found that there were still significant barriers to the development of a fully competitive Internal Energy Market (IEM), including too much concentration in most national energy markets and the lack of transparently available market information leading to distrust in the pricing mechanisms.

With the 2009 Third Energy Package, rules for cross-border exchanges of electricity and gas were reinforced, supported by a stronger governance framework with the establishment of the Agency for the Cooperation of Energy Regulators (ACER) and the European Networks of Transmission System Operators for gas and electricity (ENTSO-E and ENTSOG). This framework also provided for Network Codes and Guidelines to be developed, to define the implementation rules for the integration of electricity and gas markets across the Union.

In the IEM, electricity and gas are expected to move across Europe by responding to prices, so that they flow from where they are cheaper to produce or be made available to where they are more valuable. In this way, consumers would benefit from being able always to resort to the cheapest available energy. Reliance on prices to govern the flows of electricity and gas across the Union required that such prices reflected the fair interplay of demand and supply. This, in turn, called for a high degree of competition in the wholesale markets, which was itself promoted by the widening of their geographical scope, and for greater integrity and transparency of such markets.

In this latter respect, at the time of the Third Energy Package, no specific provisions existed to prevent market abusive behaviour in the electricity and gas market. Therefore, taking inspiration from the market abuse framework which existed in the financial markets, in 2011 the Regulation on Wholesale Energy Markets Integrity and Transparency (Regulation (EU) No 1227/2011 - also known as REMIT) was adopted.