Frederick Johnsen, CEO of the Joint Allocation Office (JAO), discusses why resilient border trading in the European electricity market is essential and how JAO can help overcome important barriers to full integration.
As Europe accelerates its transition to a low-carbon future, the electricity market is undergoing major changes. Based on ambitious climate targets, the shift towards renewable energy sources has brought new complexities to how electricity is generated, distributed and consumed across the continent.
At the same time, geopolitical pressures, economic uncertainty and increased demand have tested the resilience and adaptability of the national energy system. In this evolving landscape, integration, flexibility and cross-border cooperation are important to ensure a stable and efficient power supply. Traditional siloed approaches to energy policy are no longer suitable for purpose. A more interconnected and harmonious system is essential.
As regulatory reforms gain momentum and innovation reshapes market operations, questions arise about the role of infrastructure, governance, and coordination in enabling a truly integrated European electricity market. Against this background, I spoke with Frederick Johnsen of Yao to explore the structural changes and strategic challenges that will shape the future of Europe’s energy.
When Europe pushes to decarbonize, why is renewable energy not enough, and what makes cross-border electricity an important part of the puzzle?
Renewable energy sources, primarily wind and solar, are intermittent and location-dependent, leading to fluctuations and instability in the power supply. Renewable energy alone cannot guarantee consistent availability due to variations in weather conditions and geographical disparities.
Cross-border electricity trading is essential as it can balance these fluctuations by enabling regions experiencing surplus renewable generation to export electricity to areas with deficits. These cross-border exchanges significantly improve grid stability, optimize renewable energy use, reduce the need for expensive backup capabilities, and support cost-effective, stable, and safe energy transitions.
What are the key challenges that will hinder the creation of today’s fully integrated European electricity market?
Challenges include a fragmented national regulatory framework, different market rules, conflicting commercial interests, diverse IT and financial systems, and sometimes lacking national coordination. The recent crisis can complicate integration as individual countries prioritize national security and domestic interests over European collective goals.
The central government may implement measures to protect local consumers and industries from rising prices caused by increased cross-border demand. Politically, rising local electricity prices are controversial as they affect the affordability of consumers and industry competitiveness, and impact local investment and economic growth decisions.
Thus, the disconnect between the immediate regional benefits of maintaining lower electricity prices to attract investment, protect consumers, enhance resilience, use of optimized resources, and long-term cost-effectiveness complicates integration efforts. Balancing these interests is a key challenge to achieving a fully unified and efficient European electricity market.
How does Yao’s role as a central platform help to overcome these barriers?
Jao acts as a central and neutral facilitator, streamlining cross-border electricity trading and market integration. By harmonizing allocation rules, standardizing management procedures, and centralizing financial settlements in 45 European countries, JAO will significantly reduce barriers to market entry, increase transparency and promote interoperability.
Its neutral governance reduces profit conflicts, builds trust among market participants, and supports efficient regulatory integrity. This role will help ensure smoother power market operations and ultimately improve market stability, reliability and resilience across Europe.
Technology is not a problem. Infrastructure, standards, and coordination. Specifically, what is missing and how does jao deal with it?
Currently, the gap lies in standardising infrastructure, harmonising regulatory frameworks, and adjusting market players. Certain flaws include inconsistent power market rules, fragmented regulatory approaches, and diverse IT systems across a variety of domestic markets.
Jao addresses these issues by promoting standardization across the supply chain, particularly across IT systems that streamline development and testing, reduce the need for customization and improve interoperability. This standardized approach not only simplifies the operational process, but also significantly reduces costs and improves the overall quality and reliability of market interactions.
By centralizing and tuning market functions, JAO ensures a consistent implementation of regulatory updates, enabling Europe to maintain a cohesive, resilient, integrated electricity market.
How is Jao coordinated across borders with diverse IT and financial systems to ensure interoperability and scalability?
Jao coordinates Europe’s diverse IT and financial systems by providing a centralized platform that harmonizes processes such as allocation rules, settlement procedures, and taxation (including VAT integration).
This centralized platform enables interoperability between multiple previously fragmented systems, encouraging efficient real-time data exchange, publication of transparency data, unified cross-border financial operations and market surveillance.
By centralizing these complex features, JAO significantly reduces management burden, minimizes discrepancies, and ensures scalability. This approach is particularly beneficial in adapting to the regulatory shifts expected from the Power Market Design Reform (EMDR), as it allows for efficient implementation of updates on a single platform rather than requiring individual adaptation with multiple TSOs.
As climate targets approach 2030, what are the key milestones Jao needs to hit to keep Europe on track?
As Europe moves towards its 2030 climate target, JAO must prioritize preparation for the impact of new regulations, such as FCA 2.0. This includes factors from EMDR, particularly those that will affect the future of long-term market products. This is essential to providing price stability.
Jao aims to invest in developing and deploying a new flexible auction platform that can accommodate regulatory changes introduced by EMDR. By centralizing these critical updates, JAO ensures faster, uniform implementation, minimal disruption and seamless market operation.
This centralized approach is much more effective than individual TSOs making fragmented adjustments to increase consistency, reduce operational costs and maintain reliability in the electricity market.
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