Acer steps up

EU regulatory agency Acer is taking on new tasks and challenges. Listen to a discussion on the complexities of supervising increasingly automated and interconnected markets, the expansion of the Remit framework, the regulatory body’s new investigatory powers and how it handles huge amounts of data.  In addition, what plans does Acer have to improve its brand recognition in parts of Europe where its role has been misunderstood?

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel
Guest: Christian Zinglersen, Director, Acer

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:01

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. In today's pod, we discuss regulation, in particular, the challenges faced by the agency for the corporation of energy regulators or Acer in supervising the ever complex markets in Europe. What's on the regulatory agenda for this year? And how is Acer planning to solve some of the ongoing problems with the Picasso cross border balancing market mechanism? Also, how does its view its role in persuading Norway and Iceland? That the agency isn't an all powerful entity that threatens the national energy sovereignty of those Nordic nations. Joining me, Richard Sverrisson to answer these questions and hopefully much, much more is Acer director Christian Zinglersen, a warm welcome to you Christian.

Christian Zinglersen, Director, Acer: 0:52

Thanks a lot, Richard. Happy to be with you.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:54

Perfect. What's what's on your agenda for 2024? Is it gonna be as busy as 20, 22 and 23? Were?

Christian Zinglersen, Director, Acer: 1:00

I hope not. And I, and I think not, it'll be ample busy. But I think that 22 and 23, certainly the first half of 23 were very unusually busy. I think for many people in the energy sector. What I would say is this year is a bit of unusual year because let's say we have a. An array of, let's call 'em more normal tasks, for instance, in market monitoring, which I think you may be interested in as well. But in addition to that, we have these three new legislative packages, which were adopted at the end of last year, where we have a whole array of new tasks for which we are grateful, and we are starting to set them up and get ready for them, even though some of them will not be formally initiated yet. So one of them is on remit or remit two the overall framework for detecting attempts at manipulation and getting the bad guys, so to speak. But we also have a new tasks in PPA platforms, enhancing the transparency of the PPA market, and we have a new. Mechanism, which we need to establish the methodologies for, and then subsequently conduct assessments according to the methodology in the terms of overall flexibility needs across Europe. So it's a mix of, let's say regular tasks as it were. Also a number of decisions and also these new. Mandates and tasks that we have been accorded that we need to set up. So that's the order for 20 24. So there is plenty to do, but it is I think more structured and plantable than we saw during the crisis where every one of us needed to be, yeah, very nimble and flexible because there were demands on us quite rightly which were un unusual.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:30

Absolutely. Every day was almost different and broad. Brought new challenges as, as well last year and in 2022. But let's I'd like to go into some of the news tasks that you've taken on board or have been asked to take on board Christian. But if I can start with the, you mentioned the remit regulation, so this is the Yeah. The regulation of market integrion and transparency. And so what's new here? What's maybe you can talk a little bit about the scope here and what the focus is catching the bad guys, as you say, but also maybe the wider challenges because the, as I mentioned in the intro, these markets are growing in complexity, not just a lot of automated traders coming in bots algorithms, so it's not. An easy task, is it?

Christian Zinglersen, Director, Acer: 3:15

No. No, it's not. And I think remit from the very setup was a complex exercise. It is the most expansive monitoring system on the planet, actually more expansive than the one in the us which it was a bit inspired by, I think currently we have around 15 million data. Points coming to us per day, which is quite significant. So it it really is a big setup. Simply just the data collection and processing exercise. And that is just bound to increase. So to have a few come, come with a few let's say highlights of remit reform, the commission came out with, two proposals in February of last year, and one of them was electricity market design. Safe to say that got some more attention and discussion than remit, even though remit got its fair share as well. And I see those two proposals as quite late sometimes refer to the ER form as the other side of the coin. Basically speaking, we rely quite considerably on markets across Europe. Quite rightly in my view. And therefore there also needs to be trust in those markets and the market rules being abided by, including by those who trade. That's the other side of the coin. And in terms of the main headlines of the remit reform indeed the scope of remit is expanding now also to include algorithmic trading, which you were mentioning. Robot trading, in, in in everyday parlance. And that can, yeah, that, that brings with it some complexity in terms of detecting market abuse. But you could also use algorithms and complex learning tools to detect attempt and manipulation. So it goes a bit both sides. But anyway, scope of remit is expanding a bit. Also the obligations on reporting and monitoring. For market partic participants is also being expanded. Accordingly, there'll be a closer alignment between let's say the energy market rules and the financial market rules. Maybe that's more nitty gritty, and then something which I think was discussed more than. More than some of these other elements. Notwithstanding that these other elements are also important is the fact that we as an agency, as something new have now been granted investigatory powers in certain select cross-border cases. So there are not necessarily that many, but they could be pretty big and complex. And there are some conditions attached to us being able to exercise those investigatory powers. But that is new. And that is something that we will need to set up new hire people get it systems and develop quite advanced protocols on how we seek information. How do we conduct searches of business premises? That won't be an everyday activity, but it'll happen once in a while and that we don't have experience with yet. Even though we do have staff with us who have experience from that, from. Let's say a national competition or financial authority, or indeed some with strategic competition from the commission. But we don't, as an agency, as an organization have that set up yet. So that will be a significant thing for us to put in place. And that'll take some time. The resources, staff and financial resources and human resources will come as of 2025, but not, we're not waiting for 2025. We are getting ready with the planning as such. So that's, that's a big feature of it for us as an agency.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:13

And how does that work then, Christian, in terms of, it's a cross border issue. They're cross border issues, so something that goes over two jurisdictions you wouldn't have those powers in individual member states, but it's only if there's something crosses 2, 2, 2 jurisdictions, as I said.

Christian Zinglersen, Director, Acer: 6:28

Indeed, It needs to be a case which not just affects multiple countries, but it, the trading pattern in question, which we would then find suspicious and would wish to investigate, would need to involve delivery of energy wholesale products in multiple countries. And there is also some provisions, maybe this is a bit nitty gritty for those listening, but there are some provisions as to if the national regulatory authorities are taking those cases on in stride we would not go in and let's say, supersede that. It would be, let's say, in the absence of that, that we would do it. So there are some conditions attached to it, and rightly because there's no need for us to get involved there where the National Regulatory Authority or authorities are investigating it already.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 7:08

Or if they ask you in particular, then that, then you'd that too. That too. So Christian, just for the listeners out there who don't really understand maybe how the oversight or the supervision works in practice, so do you have, obviously there are, there are oversight supervisory systems in place at the exchanges for the national regulators, but then do you also monitor 'em at the same time? Is it, or do you react on hints or some suggestions of suspicious behavior in markets? How does it work in practice?

Christian Zinglersen, Director, Acer: 7:37

I would say The, they both phenomenon occur. So we collect directly a vast amount of data. This is the more than 10 million data points per day that I was mentioning. And then we have some systems in place which scrutinize. Data and we have certain alerts which points to possible suspicious behavior, which will then be looked at in more detail. Obviously, it's not people to go through 15 million data points as thought that would be a pretty long day job, but there is, there are some let's say mechanisms which select certain things that we would look more closely at. And some amongst them, a subset of them we would want to dive further into. And then we would develop some, let's say, reporting or overview file, which we would share with the national regulatory authority or authorities in question, and it then would be up to them to pursue it further. There is also the examples of us getting the proverbial heads up and then we look into certain things and share our views and findings. With the relevant authorities again and again, it would then be for them to follow up what I mentioned before these new investigatory powers only adds to that, let's say, division of labor in the sense in a few select cross-border cases. The following up in terms of further investigations may then be us as opposed to strictly at the national level. That is the new element in this particular, yeah, let's say evolving remi story.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 8:57

And you'd be able to take those cases further as in to, to, to the courts or wherever they may lead?

Christian Zinglersen, Director, Acer: 9:04

Yeah. The investigation would consist, for example, of seeking various types of relevant information from the company or let's say entities in question. And it can also involve us, showing up at the business premises and getting access to information, the dawn raids that, from competition, et cetera, very some dramatic term. And then we would analyze the information we retrieved and we would have a final report coming out from that. And then your question perhaps is, oh, so what happens with that then? And that. That report once done, would be handed over to the relevant national authorities for the enforcement. So we don't have enforcement powers alongside our investigation powers. That is still a strictly national issue. We have a, we have enforcement powers on a few procedural issues, let's say we show up at the premises and they are not so keen to open the door and share their heart disc with us. Then there's enforcement powers in line with national procedural law, et cetera. But I will call them somewhat more procedural in terms of be allowing us to exercise our investigatory powers, not enforcement in the sense of, going going all the way and having a final decision with sanctioning, which may be challenged in courts, et cetera. That would be up to the national authorities.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 10:14

Yeah, I think that's quite an important clarification.'cause that's one of the main misunderstandings of your role in the energy markets, I think is that the enforcement role and breaches and stepping onto national sovereignty. And I think that's very clear that's not the case Christian. But if I can also ask, if you have all these, this amount of data piling in every day, do you, to what extent do you use AI to help you to digest and analyze the data?

Christian Zinglersen, Director, Acer: 10:37

I wouldn't say AI specifically, but we do have some quite advanced coding and using, let's say advanced tools to help scrutinize that data. And and we have quite complex, codes that determine which types of activity are worth looking at in more detail. Not to say that they are ipso facto suspicious, but they're worth looking at in, in more detail. I'm not the greatest expert on the planet on artificial intelligence. But if we were, let's say, to use that. Go down that route a bit more. We would of course need to be extraordinarily careful as to which tools and mechanisms we were to use. I would think it would be something that need to be quite closed and bespoke.'Cause it would not be so fortunate if we were to share with a broader. Machine learning tool available to all what type of codes we were looking for as you might suspect. But remedy is a, is an it intensive part of our work. And so we have quite complex systems and we have both in-house and outhouse experience that we use to continuously update them. I would say.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:37

Absolutely. This is the very sensitive data indeed. So Christian. You've been in the I with a, I'm not saying you personally, but Acer has certainly been in the news in recent weeks regarding the 70 descent the 70% cross border capacity. And you're saying countries are moving too slowly in making that available. What needs to happen now going forward, or what are you urging TSOs, national regulators, governments to do to enforce this 70% target?

Christian Zinglersen, Director, Acer: 12:05

Indeed. Maybe for those of you who are not so familiar with it the 70% is let's say the out the political outcome of a year, multi-year discussion, but also multi-year frustrations with what was perceived as a discrimination across border flows to the benefit of internal flows. So against the internal market. Logic and indeed also rules as such. And the frustration was that this was actually difficult to do away with. It was difficult to enforce, it was difficult to get a hold on. And the political solution opted for amongst governments and ultimately translated into legally binding obligations. This 70%, so 70% cross border capacity should be made available for trade. There's 30% buffer for system operation, safety, whatever. So that's it. And there are some discussions at. I think legitimately whether this is a somewhat cr target, why is it not 68? Why is it not 72.5? Or why is it not more system dependent? And I think you know that, that may be pertinent, but it comes from a certain place and it follows a certain logic. And it was these many years of frustration with the lay of the land. So it is what it is. It's legally binding, and we have been entrusted with quite significant monitoring tasks, which also is very data intensive, by the way to see how that target is being complied with or not. And what we find basically is one, there are significant differences from jurisdiction to jurisdiction, but on balance we see on average maybe. 30 to 50% cross border capacity being made available for trade. There are different reasons for that. There could be a lot of internal congestion, for instance and whatnot. But that's how it is. And all member states need to reach that target by the end of 2025. And if we're at 30 to 50% now, and there's roughly a year and a half to get there, it looks uphill. And that's why when we issued our formal opinion. Friday of of last week I think it was we called it a proverbial yellow card. So it's not red yet. We have 18 months to go, but it's red yet and performers will need to pick up significantly in order to avoid the proverbial red card, as it were. And what needs to be done is basic, are basically three things which you can do. To live up to the 70% or at least get closer to living up to the 70%. First is you can apply remedial action which sort of you, you levelize on, on both sides of of the border. Put a bit popularly that is being applied today. And more and more. And actually the cost of doing so are increasing significantly which at some point may become yeah, an issue in certain jurisdictions that the costs are in the multi-billion euros for media action. The second is to alleviate congestion via targeted grid investments. Something which was the focus of the informal ministerial meeting earlier this week as well. And that is certainly being pursued in many countries. The issue is that takes time and I would be surprised if the speed with which this is pursued is enough to get, close to that target by the end of 2025. And thirdly there is the avenue of looking at one's bidding zone configuration and assessing whether that needs to be changed either via a bigger bidding zone or more likely smaller bidding zones. That is currently the subject of a quite intense study which is being undertaken by TSOs according to certain directions that we have given as Acer, and we respect the result of that to come out end of year. And then afterwards there is, let's say more of a political process where that is assessed and pros and cons are discussed, and then choices will be made as to whether to change the bidding zone configuration in certain jurisdictions or keep them as they are. So those are the three tracks. Neither of them are particularly. Easy in terms of economics or easy in terms of politics, but that's where we are. And that's why we issued this opinion to, let's say, raise awareness and also in some ways try to translate if you allow that term, what comes across. I think for some as a technical issue, as a target, what does it mean? Why is that important? Leave me alone. Try to translate that into what is the operational. Significance of that target in terms of future of the future of electricity market integration across Europe, which was a point we also made earlier this week at the informal ministerial. Namely, don't record it as a, strictly techie type target. It is linked to a much more integrated electricity market in the future. If governments opt to have that, given the benefits associated with it, because under such a system, you will have the current interdependencies between exporters and importers amplified significantly. And so there will be greater levels of structural interdependence. And if you have that go countries need to trust that energy will flow. That that's let's say the broader context of it. Notwithstanding its somewhat technical sounding. Appearance.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:43

Absolutely. But this is quite a hot topic, I would say, especially in terms of the bidding zone review. We hear constantly from the market about to split or not to split Germany, for instance. But these decisions or recommendations from ASSA can't come until that study's been been delivered at the end of the year. Is that what you're saying? Christian?

Christian Zinglersen, Director, Acer: 17:02

Yes, I we will not come with very strong recommendations one way or the other as such. We do recognize that there is a technical, analytical phase of this, which is very significant by the way and complex we find. And then there is a more political phase as such. So we will want to be careful not to jump into the political phase, but we also want to be diligent in. Contributing to the technical analytical phase that we have done so far in terms of putting a methodologist together and giving directions for the analysis that the TSOs are currently undertaking. And it's a complex exercise, actually quite delayed for that reason as well. What I would say is I would expect the analysis when it comes to show that there are economic benefits, for a split in Germany. But at the same time, I will also add that there are also other aspects than strict economic efficiency, which would guide such decisions. And I'm sure that would be a live discussion quite legitimately at the political level in Germany and maybe also Germany and some of the governments in the neighboring countries. And that's probably a discussion I think we should stay out of because it's more of a political one. But we can contribute to the technical analytical elements and showing what's at state and what are the trade-offs, et cetera. And then we leave it to the democratically elected politicians to take it on.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 18:19

Yeah. Christian, would you be able to highlight any best performers or any laggards in the 70, 70% targets here?

Christian Zinglersen, Director, Acer: 18:28

I think there are some in the Nordics that are doing pretty well. For laggards. I think I would just indicate to your listeners we have the 70% monitoring report available on our website. It's quite detailed one can have one curiosity satisfied. By that, we'll have a new one. Updated monitoring report coming out this summer as well. So that will also show fresh on paper who is who has the most uphill hill to climb in the next 18 months.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 18:51

And which yellow cars may be going a bit more orange. But Christian indeed. Another aspect that's been the news in the last weeks, months has been the Picasso balancing market mechanism and the problems around that. What's your view here and what role can aa play to alleviate or to, to alleviate some of the issues here?

Christian Zinglersen, Director, Acer: 19:10

Yeah, indeed. I regard it as bit of a chicken and egg type dilemma. Sharing reserves is fundamentally a good idea. Brings liquidity, it'll bring down costs enhances options, et cetera. That is a good concept and that is of course, the ethos behind this particular platform. Then come. So where's the egg? Vis-a-vis this chicken? The egg is that there are a significant share of TSOs who have not been able, or have not felt comfortable to join. And some of the national regulatory authorities, I think are skeptical of that decision, whereas other national regulatory authorities share those concerns and that sort of, those concerns are linked to the issue of, let's say a small minority, but still impactful share of unusually high prices. And that's the chicken and egg. So you say the more TSOs that were to join and the more one could actually make that liquid and pool resources. The more those prices will fall with very significant benefits we estimate across Europe and the multi-billion Euro size. But this reticence because one sees these spikes, albeit they, they're not so frequent but then they are, they're quite high in the several thousand euros. Prices that can let's say scare some off. Maybe that's too popular in expressive, but so TSOs have asked us to look at some adjustments let's say maximum minimum price adjustments like you have an intraday, and that we have, pledged that we would indeed look at to try to address at least partially some of the concerns expressed with a view to have more TSOs join with a view to then pull resource with a view then to bring prices down. Also in light of the fact that there are some who are joining now and perhaps they feel. I dunno if it's the right term, but maybe it's a bit unfair that they joined in the expectations that others would join and now they're waiting, et cetera. So this, we have dedicated ourselves. We tried to work on and hopefully resolve before the summer. And that's important because the legal deadline for TSOs joining, at least those that are in the, I say the synchronous areas, not the B necessarily, but those that are. That's a part of that club to join before I think the end of July. So that's what we're hoping will happen if we manage to address these concerns at least partially at time. And then we will hopefully turn the page and move into a different phase. Of, of Picasso.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 21:25

But you're optimistic that these will be resolved and that you will have more and more TSOs coming on board than from July wards?

Christian Zinglersen, Director, Acer: 21:31

Yes. Ye yes. Yes, I am. I, and I hope we can have them all come board on board within the deadline. That may not be possible for some, maybe there are some data tweaks at their end that need to be undertaken. But. Okay. The delay, the deadline has already been extended two years, so legally speaking it's end July or, or in compliance. But we also need to, of course, to be pragmatic and let the necessary data systems be in place, et cetera. But I hope we can have a big collective jump by July and then maybe a few will jump in the pool a bit later.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:00

Would it be fair to say these are more teething problems than anything else? And I, they would evolve and flatten out over the next sort of 12 to 24 months.

Christian Zinglersen, Director, Acer: 22:10

These, I would expect. Yes. But I guess maximum and minimum price adjustments are more than just tweaks. They are, they're significant because of course it is a market intervention as it were. And. Some might criticize those things and saying, okay, if you allow higher prices, you'll give new solutions a better business case and therefore they will be developed faster, et cetera. So that's the classical discussion, but there are these concerns and we have an interest in addressing those concerns at these partially so that more can joinin and that's what we will do.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:39

Perfect.'cause I, there are many questions I'd like to ask you, but I, since we are running out of time, if I can just finally ask you, the two, about two countries and ace's role in two countries in particular. One is the country where I live Norway, and the other is the country where I'm from, where I was born Iceland. They have been there have been several delays previously. Introducing the third energy packet, Acer was a big issue there. I think rightly wrongly I I think it was the role of Acer in energy markets was very much misunderstood. But it's become almost like a dirty word in some circles in Norway, unfortunately. And I just wonder how you and the agency. What kind of PR campaign or how are you gonna address this? Because, the fourth energy pack is gonna come on the agenda soon. We've already seen warnings in Norway about delays to the renewable energy directive. So what's your role here, Christian in, in shining light on, on the work that you do and that you're not this scary monster that's gonna tell everybody about how to conduct their energy policy.

Christian Zinglersen, Director, Acer: 23:39

Yeah, indeed. I think it's safe to say that acer's brand recognition value, if I can take that commercial term is the highest in Norway and Iceland across Europe, and it's not necessarily for the positive. I actually visited Oslo back in the autumn. I used to live there when I was a kid. My, my dad was in a defense college. Training, NATO training program. So we were there for a year in Oslo. So it was nice to be back. And I went at the invitation of NBE. So the. The Energy Agency slash regulator for Norway. And I went deliberately after the Supreme Court judgment was rendered 'cause I found it inappropriate to, to come. During that high profile court case, which actually centered around as you say, whether it was constitutionally compliant to accept the third energy package of which in a relevant sub component. Was Ace or Indeed. So what I did there was I met some of the authorities, but I also did a few media interviews, et cetera and tried to explain what we do and in particular, what we do not do and what our ambitions are, and in particular what our ambitions are not, et cetera. So that was one attempt at hopefully putting a bit more of a human face on Acer and be maybe demystifying a little bit what we're about and how we work. And that's probably not the end of it. And maybe we need to do a lit a little bit more in that way. So I'm in contact regularly with our Norwegian counterparts. This is NV I, me they are called in Norway. And we'll see when it's beneficial for us to, let's say, speak more directly to the Norwegian authorities or indeed Norwegian media or Norwegian people. I'm Danish myself, so Danish Norwegian translates pretty well so that can maybe also help in Mormed. Let's say a direct dialogue.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 25:16

I think that makes a lot of sense and good luck with that Christian. But I think we've run out of time now, so I, much more I'd like to discuss. Maybe we can invite you back some points maybe when the debate starts hotting up in Norway and Iceland. But in the meantime. In the meantime Christian, thank you very much for joining the Montel weekly podcast.