Regulated price caps in Italy's electricity ancillary services market have hampered trading activity and failed to reduce costs, according to energy traders' group AIGET.
Traders slam MSD 'distortions'
Uplift price up to 11-month high
New entrants 'dissuaded by restrictions'
"It's been obvious for some time that the mercato dei servizi di dispacciamento (MSD - Italy's ancillary services and pay-as-bid balancing market) has been the object of serious distortions in the market," the group said in a note published Thursday.
"The only concrete result (of the reforms) has been the application of double standards, which has weakened opportunities for new market entrants rather than stimulating the sector," it said.
The group is unhappy at the way a dual solution from a regulatory ruling in 2016 has played out, noting that the moves to limit arbitrage operations by traders have failed to bring about desired improvements.
The so-called uplift cost (the per megawatt hour cost of electricity contracted in the balancing market) has risen to its highest price in nearly a year, up 20% year on year this April to Eur8.23/MWh ($9.67/MWh).
"Even excluding the arbitrage operations of suppliers, the MSD costs have remained very high," AIGET said.
After hitting a level of Eur18.62/MWh in May 2016, Italy's regulators implemented measures to cap the spikes (Delibera 342/2016).
AIGET complains that, while electricity producers that were investigated reached agreements to cap future earnings at relevant generating plants, traders were ordered to repay some of their gains retroactively, equivalent to 30% of arbitrage gains.
This is unfair, AIGET argues. Traders had taken advantage of arbitrage opportunities and were not to blame, as they were merely observers of the interaction between grid operator Terna and the investigated generating units. The nature of the arbitrage operations merely highlighted "problems that were already there."
In October 2016 Italy's antitrust authority AGCM opened an inquiry into the bidding behaviour of generators Enel and Sorgenia.
The authority said that prices on the MSD market reached as high as ten times the prevalent benchmark wholesale day-ahead price, citing a level of Eur420/MWh achieved in one instance by Enel Produzione.
AGCM said it that the total extraordinary amount earned by Enel's 2.6 GW coal-fired Brindisi power plant was around Eur320 million more than it had received in the previous year.
The investigation followed on from a similar probe carried out by the country's market regulator AEEGSI, looking at possible market manipulation contravening the EU's REMIT rules.
The regulator had asked AGCM to evaluate potential violations of competition law on both the day-ahead (MGP) and the balancing market (MSD).
In May 2017 AGCM dropped its investigations into Enel and Sorgenia with neither party fined, the regulator having accepted an offer by Enel to cap income from Brindisi.
