Industry shows mixed response to EU market reforms
The European Commission proposed reforms to the EU’s electricity market design this week to accelerate renewables and the phase-out of gas, protect consumers, as well as make the EU’s industry more competitive.
The proposed reforms make Contracts-for-Difference the new norm for supporting renewables investments. It actively supports the growth of power purchase agreements and allows investors to sell their electricity via PPAs or directly on the electricity market.
These reforms, which are part of the Green Deal Industrial Plan, come in response to the Russian invasion of Ukraine, as well as increased competition from the US, both of which have highlighted the need for a more adaptable and competitive electricity market.
While the consensus seems to be positive that these reforms are a step in the right direction, it seems the reforms are more targeted and toned down than initially expected.
Concerns have also been expressed that the reforms are incomplete and will need further tweaking in the future.
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Politico reports Georg Zachmann, senior fellow at European think tank Bruegel as stating: “Last year, politicians essentially wanted to take over electricity market designs and thought they knew what outcomes they wanted — they wanted to repair the market with a hammer.
“At the same time, the pressure in European energy markets has somewhat relaxed and the result is we have a much more targeted reform.”
Zachmann suggests political discussions which will follow could become long-winded and complex and recommends greater coordination on both the supply and demand side and consistent messaging on how old and new market mechanisms should work together.
ENTSO-E, the European Network of Transmission System Operators for Electricity, supports the objectives of the proposals to optimise the current electricity market design but has expressed concerns in a statement.
ENTSO-E considers that some key elements are currently missing from the proposals. In particular, “a need to improve investment signals for adequacy in order to secure the availability of reliable and affordable electricity when needed”.
The organisation also has some concerns about the impact of specific provisions that were included without a proper impact assessment.
According to its statement, this could have a “detrimental effect on the functioning of the market (e.g. including in legislation detailed provisions on intraday gate closure time, compensation mechanisms for offshore renewables using congestion income, mandatory development of Regional Virtual Hubs for forward markets).
“These topics could be considered in a possible future more comprehensive market reform, if the net benefits of these measures can be proven by a thorough impact assessment.”
WindEurope chief executive Giles Dickson suggests that the problem of Europe’s electricity market these last two years has not been the market design.
“It’s been high gas prices, made worse by the war. The market design has been extremely efficient in matching supply and demand – and has given consumers years of affordable electricity prices.
It’s good the Commission proposal builds on the strengths of the existing market design. What’s needed is an evolution not radical changes.”
Daniel Fraile, chief policy officer of Hydrogen Europe said in a statement: “The possibility to combine both contract-for-difference and power purchase agreements will be hugely beneficial for renewable hydrogen producers who depend on these PPAs to prove the renewable character of their hydrogen.
“The proposed obligation for Members States to regularly assess their flexibility needs is also much welcome because it will highlight the need to deploy long-term storage solutions where hydrogen is poised to play a fundamental role,” he added.
Ignacio Galán, Iberdrola’s executive chairman, said the proposed reforms “recognise that increasing electrification through investments in renewables, networks and storage is the only way to achieve energy security in Europe”.
“Offering customers stability through long-term clean energy contracts has been core to our strategy for years, so we welcome measures that seek to strengthen these aspects based on market mechanisms.
“The Commission has acted swiftly to respond to the crisis and keep the Single Market and the Green Deal goals on track. Members states and the European Parliament now need to be unified and move with the same speed to ensure a clean and secure energy future for the continent becomes a reality.”
The proposed reform will now have to be discussed and agreed upon by the European Parliament and the Council before entering into force.
