On 1 March 2023, the European Agency for the Cooperation of Energy Regulators (ACER) published an Effects Assessment Report on the Market Correction Mechanism (MCM).
ACER and the European Securities and Markets Authority (ESMA) were tasked with publishing two preliminary reports, concerning the adoption of the MCM and focussing on the developments in the financial and energy markets and on security of supply by 23 January 2023, and a final report by 1 March 2023.
Given their different legal mandates, ACER and ESMA will deliver separate reports in relation to the MCM. ACER focuses on energy market developments and security of energy supply, while ESMA focusses on the impacts in the derivatives market and hedging, clearing and risk management.
This ACER MCM Effects Assessment Report offers a more comprehensive outlook of the effects prompted by the MCM, than its earlier preliminary data report. It also aims to assist the European Commission on specific tasks pursuant to Articles 8 and 9(2) of the MCM Regulation, namely assessing:
- the technical aspects of the potential extension of the MCM to derivatives traded at EU Virtual Trading Points (VTPs) other than the Dutch Title Transfer Facility (TTF) as of 31 March 2023; and
- the functioning of elements of the MCM, to the extent that the short application period of the mechanism (since December 2022) allows.
The Effects Assessment Report highlights the following:
- The MCM seems to not have a discernible gas market – In the analysis, ACER found that no significant impacts could be directly and unequivocally attributed to the adoption of the MCM in the observed period. However, one should not infer from this outcome that the MCM might not have any impacts on financial and energy markets or on security of supply in the future.
- Market dynamics are driving prices – Gas prices have continued to fall further from the end of January 2023 and remain significantly lower compared to the months prior to the adoption of the MCM Regulation. ACER links the fall of prices to the favourable gas markets fundamentals (e.g. warmer weather, continued reduction of gas consumption, above average LNG supply, above average gas in storage, etc.) during the last months of 2022 and the first months of 2023.
- The challenges of extending the MCM to derivatives linked to other EU VTPs – ACER finds there are valid arguments for extending the MCM only to VTPs where the liquidity of gas derivatives trading is modest to high. ACER considers that the extension of the MCM to other VTPs would likely not lead to significant negative effects in gas markets.
- Technical reasons for changing elements of MCM’s design – ACER could not identify a need for revising the price references used for calculating the reference price. In addition, ACER could not identify technical reasons to change the current activation or de-activation conditions. Finally, ACER could not identify technical reasons to change the dynamic price bidding limit.
- Potential effects and continuous monitoring of risks – ACER will continue monitoring the effects of MCM on energy markets and on security of energy supply.
