You can find ECCO’s response to the consultation here.
The current energy crisis has exposed some vulnerabilities of the current EU electricity market design. In the current setup, the price of electricity is to a large extent correlated to the price of the marginal fuel, which is normally gas. This has meant that the increase of the price of gas has caused electricity bills to increase to an unsustainable level for consumers, in spite of a growing share of renewables in the energy mix. In turn generators that have low production costs (such as renewables) have benefited from unexpected surplus profits, while their minimum profitability has been often protected by public support. As a result, EU energy markets have been subject to increased ad hoc regulatory intervention in price – setting targeting windfall profits on the one hand, and consumer support on the other aiming to protect large industrial consumers, SMEs and households against high prices and excessive volatility. These interventions have however proven to have limits and have caused increasing uncertainty on future regulatory developments.
The Commission is now considering long term policy changes to the electricity market design in order to ensure that the benefits from rising renewable power deployment are brought to consumers, whilst preserving incentives for investments for generators. The Commission has therefore launched a consultation on this, which closes today, and intends to adopt the proposal with any relevant amendments to the electricity market design by the end of Q1 2023.
You can find ECCO’s response to the consultation here.
In ECCO’s view the price shock caused by gas has a precedent in previous fossil fuel price shocks caused by oil, another fossil fuel. Whilst consumers must be protected from high prices, it is equally important that the price signal is kept to a degree where it incentivises energy efficiency and the reduction of energy consumption, as well as demand response solutions and network balancing. Re-structuring European electricity markets entirely, hoping to hide the effects of what is a real fragility in the procurement of fossil fuels, would only delay the transition to renewable sources and therefore delay reaching the real long term solution to the problem.
Facilitating the uptake of long- term energy contracts to accompany the development of new renewable energy plants, as proposed by the European Commission, would be a positive move.
Some of the key instruments that would enable the achievement of that goal are:
- Accelerating the development of energy storage through public auctions such as those activated by Italy and which are currently awaiting State Aid approval from the European Commission.
- Making storage capacity available on the market through ‘storage certificates’ that can help utility companies to cover the risk in purchasing production from renewables and in committing with customers to provide renewable energy.
- Making dynamic energy pricing available for all consumers, taking advantage of smart meters (which in Italy have already largely been paid for in various network areas).
- Updating the Capacity Market so that it no longer over-incentivises new gas capacity and instead it focuses on preventing sudden closures of existing gas plants and on facilitating the installation of the necessary infrastructure for demand flexibility aggregation.
Photo by Rodolfo Clix
