Detection of Market Manipulation in Electricity Trading

1. Introduction

Market manipulation in electricity trading means using trading activity, false information, artificial orders, capacity restrictions or other methods to influence electricity prices or market conditions in a way that does not reflect genuine supply and demand.

Electricity markets are especially sensitive because electricity must generally be balanced continuously. A relatively small change in available generation can produce a large price movement during periods of high demand.

The legal objective is therefore to ensure that electricity prices are based on real market conditions, rather than artificial conduct.

In the EU, the main framework is REMIT (Regulation on Wholesale Energy Market Integrity and Transparency). REMIT prohibits market manipulation and attempted manipulation, including false or misleading transactions, artificial pricing, fictitious devices and dissemination of misleading information. (ACER)

2. Meaning of Market Manipulation

Market manipulation can take several forms.

For example, a generator may:

deliberately withhold available generation;

submit an unjustifiably high bid;

provide false information about a power plant;

place orders that it never genuinely intends to execute;

manipulate transmission capacity;

spread false information about electricity availability; or

use one market to influence another connected market.

The important distinction is between legitimate commercial behaviour and artificial conduct.

A high electricity price by itself does not prove manipulation. Prices can legitimately rise because of genuine scarcity, high demand, fuel costs, weather or unexpected outages.

ACER's guidance specifically recognises the need to distinguish genuine scarcity from manipulation through capacity withholding. (ACER)

3. Legal Framework Under REMIT

Article 5 of REMIT prohibits engagement in, or attempts to engage in, market manipulation in wholesale energy markets.

Market manipulation can involve:

giving false or misleading signals;

securing an artificial price;

using fictitious devices;

deception or contrivance;

spreading false or misleading information; and

deliberately making electricity-generation or transmission availability appear different from what is technically available.

ACER's updated guidance also covers balancing markets, coupled markets and algorithmic trading, reflecting the changing structure of electricity markets. (ACER)

4. Capacity Withholding

One important form is capacity withholding.

Suppose a generator has 1,000 MW available but offers only 600 MW without a genuine technical, regulatory or economic justification.

The market may then appear to have less electricity available.

This can push prices upward.

Capacity withholding can be:

Physical withholding

Available generation is simply kept out of the market.

Economic withholding

Generation is offered at an excessively high price so that it is unlikely to be dispatched.

ACER identifies both physical and economic withholding as potentially relevant forms of market manipulation. (ACER)

5. False Generation Information

Generators provide important information to the system operator.

This can include:

expected generation;

availability;

operating limits;

outages; and

technical characteristics.

If false information is deliberately supplied, other market participants and the system operator may make incorrect decisions.

This can change:

market expectations → dispatch → electricity prices → financial outcomes.

Therefore, information manipulation can be just as important as direct price manipulation.

6. Case Law / Enforcement Case: InterGen

A leading UK example is Ofgem's InterGen enforcement case (2020).

Ofgem found that InterGen submitted false or misleading Physical Notifications concerning the expected generation of several power stations.

The notifications indicated that the plants would not generate during important high-demand periods. InterGen subsequently submitted revised information indicating that the plants would generate.

Ofgem found that this strategy was used to influence the Balancing Mechanism and obtain additional payments.

InterGen also submitted misleading Stable Export Limits, making the system operator purchase a higher volume of electricity to keep the plants available. (Ofgem)

Ofgem found a breach of Article 5 of REMIT and imposed a financial penalty of £35 million, reduced to £24.5 million following early settlement. It also agreed to return £12.791 million to affected parties. (Ofgem)

Relevance

The case demonstrates that manipulation can occur through false operational information, not merely through direct buying and selling.

7. Incorrect Market Information

Market manipulation can also occur through inaccurate information published by a system operator or other market participant.

Case: National Grid Electricity Transmission

Ofgem investigated National Grid Electricity Transmission (NGET) after incorrect De-Rated Margin (DRM) calculations were published.

The incorrect information created false or misleading signals concerning electricity supply, demand or price.

Ofgem found that the problem was unintentional, resulting from deficiencies in internal processes rather than deliberate manipulation. Nevertheless, the incident raised concerns under Article 5 of REMIT because the information affected market transparency and integrity. (Ofgem)

Relevance

This case is important because it shows that regulators must carefully distinguish intentional manipulation from accidental inaccurate information.

8. Spoofing and Layering

Modern electricity trading is increasingly electronic.

Spoofing or layering involves placing large non-genuine orders to create a misleading impression of buying or selling interest.

For example:

Large fake sell orders → market appears oversupplied → other traders react → manipulator trades elsewhere.

The large orders may then be cancelled.

ACER explains that layering and spoofing can create false or misleading signals concerning supply, demand or price and can influence the price-formation process. (ACER)

9. Wash Trades

A wash trade occurs where trading activity gives the appearance of genuine buying and selling without creating a genuine change in economic ownership or market exposure.

Such transactions can create an artificial impression of:

trading volume;

liquidity;

demand; or

market interest.

ACER specifically identifies wash trades as one of the practices covered by its REMIT market-abuse guidance. (ACER)

10. Transmission Capacity Manipulation

Market manipulation does not always involve generation.

A participant may attempt to manipulate transmission capacity.

For example, deliberately acquiring or restricting cross-border capacity may prevent competitors from moving electricity between markets.

This can artificially increase price differences between bidding zones.

ACER has issued specific guidance concerning transmission-capacity hoarding, recognising it as a potential form of market manipulation. (ACER)

11. How Regulators Detect Manipulation

Detection requires comparison of different types of information.

A. Trading data

Regulators examine:

prices;

volumes;

orders;

cancellations;

trading times; and

counterparties.

B. Physical data

Trading behaviour is compared with:

generation availability;

outages;

network constraints;

demand;

weather; and

system conditions.

C. Bidding behaviour

Regulators examine whether bids are unusually high, low or inconsistent with the participant's normal behaviour.

D. Financial position

Investigators may ask whether the participant financially benefited from the suspected manipulation.

E. Cross-market behaviour

A participant may manipulate one market to benefit from another, so regulators may examine electricity, gas, balancing and related markets together.

ACER states that market surveillance relies on trading information and other system data to identify potential market abuse. (ACER)

12. Role of Automated Surveillance

Modern markets generate enormous amounts of data.

Regulators can use automated systems to identify:

unusual price movements;

abnormal orders;

repeated cancellations;

suspicious bidding;

unusual capacity withholding;

possible coordinated behaviour; and

relationships between physical availability and trading activity.

ACER has developed capabilities for detecting potentially abusive order-based behaviour and shares relevant alerts with national regulators for investigation. (ACER)

However, an automated alert is not itself proof of manipulation. Human and legal assessment is required.

13. Inside Information

Market manipulation can overlap with insider trading.

Inside information may include precise, non-public information concerning:

unexpected power-station outages;

major generation changes;

transmission restrictions; or

other events likely to affect wholesale electricity prices.

REMIT restricts unlawful use or disclosure of inside information. (ACER)

Therefore, regulators examine both what a trader knew and what the trader did with that information.

14. Cross-Border Market Manipulation

Electricity markets are increasingly interconnected.

Manipulation can cross borders through:

interconnectors;

coupled electricity markets;

cross-border transmission;

balancing arrangements; and

related financial products.

The revised REMIT framework gives ACER an enhanced role in certain cross-border investigations, while national regulators continue to have important enforcement powers. (ACER)

This makes cooperation between regulators essential.

15. UK Enforcement

In Great Britain, Ofgem monitors wholesale energy markets and enforces rules concerning market manipulation and insider trading.

Ofgem states that it can impose unlimited fines and that REMIT-related enforcement can also involve criminal sanctions under the applicable UK framework. (Ofgem)

Ofgem also monitors energy markets using information collected from organised marketplaces and provides channels for reporting suspected market abuse. (Ofgem)

16. Important Difference: High Prices vs Manipulation

This distinction is essential in electricity law.

Genuine market condition

High demand + low generation + network constraint
→ legitimate scarcity
→ high price.

Manipulative conduct

False information + capacity withholding + artificial orders
→ artificial scarcity signal
→ potentially unlawful price movement.

Therefore:

A high electricity price is not automatically evidence of market manipulation.

The regulator must establish the facts and determine whether the conduct falls within the legal prohibition.

17. Remedies

When unlawful manipulation is established, regulators may use:

financial penalties;

compliance directions;

regulatory orders;

recovery or redress mechanisms where legally available;

licence-related measures; and

criminal enforcement where applicable.

The objective is to protect:

consumers;

competing market participants;

market transparency;

reliable price formation; and

confidence in electricity markets.

18. Conclusion

Detection of market manipulation in electricity trading is essential because electricity prices must reflect genuine market conditions.

The main forms of manipulation include:

capacity withholding;

false generation information;

economic withholding;

spoofing and layering;

wash trades;

transmission-capacity manipulation;

misleading outage information;

artificial price positioning; and

misuse of inside information.

The InterGen case is particularly important because it shows how misleading generation information and Balancing Mechanism activity can be used to manipulate electricity-market outcomes. (Ofgem) The NGET investigation demonstrates the separate problem of inaccurate market information, even where the error was found to be unintentional. (Ofgem)

In simple words, detecting electricity-market manipulation means checking whether trading behaviour matches the real physical and economic conditions of the electricity system. Regulators use trading data, generation data, network information, algorithms and financial evidence to identify suspicious behaviour, and then investigate whether the conduct was genuinely commercial or unlawfully designed to distort the market.