EU Electricity Market Design

Europe is facing an unprecedented energy crisis. The root cause of this energy crisis is an abnormal increase of gas prices, which the European Commission identifies as the transitional fuel for the EU power system. The crisis has been aggravated by drought causing lower levels of hydropower and an unavailability of the nuclear fleet. 

Naomi Chevillard, Head of Regulatory Affairs at SolarPower Europe:

“Fundamentally, the crisis is driven by the high prices of gas, on which we based our energy system. The only way out of the energy crisis is to phase gas out of the power system ASAP, by dramatically increasing renewable energy investments and clean flexibility in the grid. 

Changing the foundations of electricity markets, such as marginal pricing, is creating regulatory instability and actually halting investments into new renewable technologies. We have already seen negative consequences of the market revenue cap on the Power Purchasing Agreement market. 

Revised market design should empower corporate and citizen consumers to benefit more directly from low-cost renewable electricity by facilitating access to renewable Power Purchase Agreements. Corporate PPAs for energy-intensive industries should be de-risked through specific guarantees, while the retail energy market must incentivise retailers to conclude PPAs on behalf of their consumers. 

The reform must also accelerate clean flexibility – like storage – access to the wholesale and balancing market to support electricity system reliability. 

Finally – and returning to the heart of the issue – an electricity market moving towards 100% renewables needs to be based on a resilient and reliable electricity grid. Operators will need to conduct thorough and regular grid planning, consider flexibilities on offer, and their role in the market. 

Grid operators will need the right remuneration incentives to invest into the most efficient technologies and permitting procedures need to be fast-tracked to allow for the timely connection of renewables energies.”