New ACER Tool Simulates Power Trading with Potential Virtual Hub Prices

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New ACER Tool Simulates Power Trading with Potential Virtual Hub Prices

The European Union Agency for the Cooperation of Energy Regulators (ACER) has rolled out a new digital platform to simulate price correlations for forward trading with potential virtual hub prices in the forward electricity market. The tool aims to serve as a guide for the European Commission when it assesses whether there is a need […]

The tool aims to serve as a guide for the European Commission when it assesses whether there is a need for regional virtual hubs for forward markets, the ACER said in an online statement.

Using real-day ahead prices, ACER’s simulator allows users to explore geographical configurations for potential hubs to hedge prices.

“High correlation between day-ahead price of a given zone and the day-ahead price of the virtual hub implies that a hedging product linked to a virtual hub is considered as an appropriate hedge against the day-ahead price of that zone (as specified in Article 30(4) of the FCA Regulation)”, the platform explains, referring to the Forward Capacity Allocation Regulation.

ACER is proposing shifting away from separate long-term transmission rights (LTTRs) for each bidding zone border toward LTTRs between bidding zones and a virtual regional hub.

“To enable this approach (should the Commission decide to go this route), the revised FCA Regulation would need to establish a methodology that defines virtual hub prices”, it said. The FCA Regulation is expected to be revised 2026.

ACER explained, “Market participants who lack sufficiently liquid forward electricity products for their bidding zone may want to address their hedging needs via a similar but more liquid electricity forward product”.

“The efficiency of using such an alternative forward electricity product (known as ‘proxy hedge’) depends on liquidity — the proxy product must be actively traded to ensure it can be easily bought and sold — [and] price correlation — the proxy’s price must closely reflect price movements in the bidding zone where the market participant has an open risk position”, it added.

“Currently, many market participants use the (large and liquid) German forward market as a proxy for their hedging needs. A virtual hub forward electricity product, with better price correlation to EU bidding zones, may offer an efficient alternative for proxy hedging under a future integrated European forward electricity market design”.

The simulator shows how the prices of virtual hubs would have correlated with current EU bidding zones from 2021 to 2024.

ACER said, “The data suggests that a well-designed virtual hub price would have stronger correlations with most bidding zone prices than the forward products currently used as proxies for hedging”.

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