For Fingrid, an active role in participating pays off. Not only can we help shape legislation which is more robust and fit for purpose, but we can also help guide our stakeholders in understanding what the impact of the codes are for them and use their input to guide the drafting and implementation process.
The coming year is set to be a busy one for the drafting and revision of Network Codes and Guidelines.
But what is a Network Code or Guideline? In short, they lay down the harmonised and detailed rules and arrangements for operating and organising the European internal electricity market. These rules are legally binding and applicable across the whole of the European Union and countries such as Norway that apply EU laws.
The rules cover all three dimensions of the internal electricity market – connection, operation and markets. For this reason the current set of Network Codes and Guidelines have been grouped into these three ‘families’. It is the three market codes that are likely to be most familiar to market parties: the Guidelines on Capacity Allocation and Congestion Management (CACM GL), Forward Capacity Allocation (FCA GL) and Electricity Balancing (EBGL).
Before delving deeper into the arcane world of Network Codes and Guidelines it helps to take a step back and understand why they are needed and how they fit into the regulatory landscape that governs the operation of the European power market.
At the highest level, legislation in the form of European Regulations and Directives provides the fundamental framework and principles upon which more detailed provisions are based.
To implement the legislation, the European Commission, in cooperation with ACER and Member States and with input from key stakeholders such as TSOs, will need to draft implementing acts in the form of Network Codes and Guidelines. These expand upon and specify who needs to do what, by when and how, to implement the overarching provisions contained in higher level legislation.
To make matters more complicated, spelling out who needs to do what, by when and how will require generating further legal texts in the form of methodologies and terms and conditions (commonly referred to as TCMs). This is because Guidelines such as the CACM tend to merely identify the specific tools and rules that need to be developed within a defined timeline.
Guideline can be viewed as the baseline from which starts a lengthy development and implementation process that lasts for years.
For example, developing regional capacity calculation methodologies, such as the Nordic flow-based methodology, is stipulated in the CACM GL but the actual methodology needs to be developed and implemented by the concerned TSOs in close cooperation with all affected stakeholders.
So a Guideline can be viewed as the baseline from which starts a lengthy development and implementation process that lasts for years.
Again, the case of the CACM GL is instructive. It was the first market code to be adopted and came into force over a decade ago, but its full implementation has taken many years. One of the most recent significant new features implemented across the European electricity market that stems from the CACM GL was the introduction of intraday auctions in the summer of 2024. It is the direct product of Article 55 of the CACM GL whereby TSOs are required to price intraday cross-zonal capacity.
The evolution of codes in 2026 and beyond
• The CACM GL, SO GL, and FCA GL and EBGL are all imminently due to be recast
• Revision of CACM GL will set out an updated regulatory framework for wholesale spot markets
• Reforming the framework for forward markets will be delivered by the updated FCA GL
With implementation of the current crop of market codes having run their course since their entry into force in the period 2015–2017, the time has come for updating them as markets and power system needs have evolved since then.
First in line is the CACM GL for which the European Commission kicked off the revision process back in the summer of 2021.The energy price crisis conspired to halt the process the following year with legislators’ attention shifting to mitigating the price shocks incurred by the war in Ukraine.
However, the process is now back on track with the Commission having shared two rounds of drafts of the updated Guideline (along with accompanying revisions to the System Operation Guideline) with Member States.
TSOs and power exchanges, the key stakeholders affected by the CACM GL, are following the drafting process closely and have provided comments and insights to the Commission along the way.
The CACM GL is crucial for the efficient functioning of the European day-ahead and intraday markets and for this reason it garners plenty of attention from market parties. With such an expansive set of rules, the road to adoption will be rocky – as it was first time round – but the aim is to have the legislation entering into force sometime this year.
Next in line for recast is the FCA GL which governs the organisation of the forward markets. The hedging needs of market players have evolved since the FCA GL’s adoption in 2016 and a reorganisation of how the market is structured is needed to better serve participants.
Key issues, such as the level of financial firmness, geographical scope of trading hubs and product maturities, are under revision.
These are all highly contentious features of the forward markets, not least because of their financial impact on stakeholders. The Commission is conducting an impact assessment which is due in January before the detailed drafting of the guideline.
The revision of the EBGL, which provides the detailed framework for operating and arranging the balancing markets, is currently at a very early stage and will only likely gain traction once the CACM and FCA guidelines are adopted or nearing adoption.
Fingrid’s role in shaping Network Codes and Guidelines
As with all things European Union, the cycle of drafting, implementing and amending network codes is a continuous and never-ending process of evolution and refinement with periods of intensification, such as now.
This is resource intensive work for TSOs such as Fingrid, but taking an active role in participating pays off as not only can we help shape legislation to be more robust and fit for purpose, but we can also help guide our stakeholders in understanding what the impact of the codes are for them and use their input to guide the drafting and implementation process.
Fingrid’s main venue for shaping the content of Network Codes is through the committees and working groups of the European Network of Transmission System Operators (ENTSO-E), the pan-European association to which all European TSOs belong. Implementation of the codes meanwhile takes place at the European level through ENTSO-E as well as at the regional and national levels.
Regional level coordination is especially important for developing regional methodologies.
Regional level coordination is especially important for developing regional methodologies, such as the aforementioned Nordic flow-based capacity calculation methodology.
In that case, Fingrid worked in close partnership with the three other Nordic TSOs and stakeholders first in drafting and refining the methodology and then in implementing all the technical systems and procedures to apply the methodology in practice.
Nordic market parties will know the significant impact flow-based has had on price formation and capacity allocation in the Nordic market since its application just over a year ago.
It serves as a good example of why market parties should be interested in Network Codes. Years down the line their provisions will have a far-reaching and significant impact on how the market functions.
Ali Haider
Senior Expert
Fingrid
