What is the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT)?

Definition

The term "REMIT" is the commonly used acronym for "Regulation on Wholesale Energy Market Integrity and Transparency," or Regulation (EU) No. 1227/2011. It is a legislative centerpiece for energy markets within the European Union (EU), demanding fairness and transparency to ensure the integrity of the wholesale energy market. Its primary aim is to foster a competitive marketplace for electricity and gas while safeguarding against market abuse and manipulation.

REMIT applies to physical and financial transactions involving wholesale energy products, such as supply and transport contracts, derivative transactions, as well as delivery and distribution contracts with a volume of 600 gigawatt-hours (GWh) or more per year.

REMIT Functions

Ensure transparency

REMIT mandates energy companies and market participants to furnish comprehensive information regarding their trading transactions and orders for energy products to dedicated transparency platforms. This reporting obligation is a cornerstone of the regulation, with the ultimate goal of creating a level playing field for all stakeholders.

Example for a transparency requirement

An energy company trades natural gas on a European exchange for energy products; thus, the company is obligated to report all of its trading activities for the day in question to a dedicated transparency platform. The encompasses intricate details of the volume of gas traded, the transaction prices, and the exact date and time of the trades. This information is made publicly available and provides insight into the dynamics of the energy market.

Insider Trading and Market Manipulation

One of the pivotal functions of REMIT is to prohibit insider trading and market manipulation. The regulation enforces strict rules and procedures to detect and prevent such detrimental activities that can impair market integrity.

Insider trading is the exploitation of inside information. This refers to information that is not publicly known, the disclosure of which would presumably influence the prices of wholesale energy products.

Market manipulation refers to a series of illegal activities that are intended to distort the price signals on a market and mislead other market participants. Even an attempt of market manipulation constitutes a violation of REMIT.

Example for Insider Trading

Suppose a trader working for a gas supplier gains knowledge of a significant pipeline disruption before it becomes public knowledge. Instead of reporting this critical information to the relevant authorities, as would be his duty, he purchases large amounts of natural gas futures. These financial instruments are contracts in which the seller undertakes to sell a certain quantity of natural gas at an agreed future date at a price fixed in the present.

The trader in this example exploits his inside information to take advantage of other market participants, as the pipeline disruption will foreseeably lead to supply bottlenecks and, thus, to rising gas prices. The value of the agreed gas delivery will, therefore, most likely be higher at the time of delivery than agreed in the contract. Such action is explicitly prohibited by REMIT.

Example of market manipulation

If the trader from the example above were to spread the rumour that there was a significant disruption in a pipeline, even though this was not the case, this would probably be considered market manipulation. His actions would have the foreseeable consequence that the price of gas and gas futures would rise, even though there is no shortage at all.

Means of enforcing REMIT

Obligation to publish inside information

Companies involved in energy trading are not only prohibited from exploiting insider information. They are also obliged to report it. This includes transaction details and order data, but also information on the capacity and utilisation of generation, storage and liquefied natural gas facilities as well as data on the consumption or transmission of electricity or natural gas.

The reliable publication of such data is crucial to maintaining transparency, market integrity and ultimately the efficient functioning of the wholesale energy market.

Example of the obligation to disclose inside information

According to REMIT, an electricity generation company must regularly report detailed information about its electricity generation, for example: the amount of electricity generated, the fuels used and their origin, as well as planned maintenance or decommissioning.

By publishing this information, the company not only complies with legal requirements and enables market participants to act with foresight. It also makes it easier for the regulatory authorities to monitor the energy market and compliance with environmental and operational standards.

Sanctions

To enforce compliance with the regulations and deter violats, REMIT contains national sanction mechanisms. This allows the respective regulatory authorities to penalise entities found in breach of the regulation's provisions.

Example for Sanctions

An energy trading company is found guilty of market manipulation. The regulatory authority then imposes substantial fines on the company, suspends its trading privileges, and bans key personnel from participating in energy trading for a certain period.

Disclaimer: All given examples are fictitious and are merely intended to illustrate the aforementioned REMIT regulations.

Institutional Oversight

In the German energy market, two institutions are central to compliance with the REMIT regulations: the European Agency for the Cooperation of Energy Regulators (ACER) and the Bundesnetzagentur (Federal Network Agency, short, BNetzA). These institutions are responsible for ensuring the integrity and transparency of the energy market in Germany at the national and EU levels.

ACER (Agency for the Cooperation of Energy Regulators)

ACER is a decentralised agency of the European Union based in Ljubljana, Slovenia. It was established in 2009 to promote cooperation and coordination between national energy regulators in the Member States of the European Union. ACER plays an important role in the implementation and enforcement of REMIT rules at the EU level. ACER's main tasks in the administration of REMIT in the German energy market include:

Data Collection and Publication

To increase market transparency, ACER collects and publishes market data from various market participants such as transaction and order data, fundamental data, and inside information.

Market Monitoring

ACER also uses the collected data to detect irregularities or suspicious activities in order to detect possible cases of market abuse, insider trading, and other violations of REMIT.

Enforcement

BNetzA (Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen)

The BNetzA is the Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railway. As such, BNetzA is the national regulatory authority responsible for ensuring that the REMIT regulation is complied with in Germany. Its tasks in this context include:

Market surveillance

BNetzA actively monitors the German energy market for possible violations of REMIT, in particular for insider trading, market manipulation, and non-compliance with reporting obligations.

Investigations and sanctioning

When BNetzA identifies suspicious activities or potential breaches of REMIT, it conducts investigations and inquiries to gather evidence and establish whether violations have occurred.

Like ACER, BNetzA can also initiate and conduct investigations if it notices suspicious activities or receives or finds indications of potential breaches of REMIT. If there is sufficient evidence of an infringement, the BNetzA can sanction the market participants concerned. To this end, it can impose fines, withdraw or suspend trading licences or impose penalties.

Sanctions

BNetzA has the authority to impose sanctions and penalties on market participants found in breach of REMIT. These sanctions can include fines, suspension of trading privileges, and other corrective measures.

Cooperation

BNetzA collaborates closely with ACER and other national regulatory authorities in the EU to exchange information and coordinate efforts to ensure consistent enforcement of REMIT across borders.In summary, ACER and BNetzA are instrumental in the administration and enforcement of REMIT in the German energy market. ACER operates at the European level to facilitate cross-border cooperation and oversee market integrity across the EU, while BNetzA serves as the national authority responsible for monitoring and enforcing REMIT compliance within Germany. Together, these institutions contribute to the transparency, fairness, and integrity of the German energy market in line with the objectives of REMIT.

In conclusion, REMIT is a critical regulatory framework in the European Union that serves to ensure transparency, fairness, and ethical conduct within the wholesale energy market. By addressing insider trading, enhancing transparency, imposing reporting requirements, promoting a code of conduct, and enforcing sanctions, REMIT plays an indispensable role in fostering investor and consumer confidence, supporting market integration, and promoting healthy competition within the European energy industry.