Reaching net-zero

Eurelectric's three pillars for Europe's electricity market reform

BRUSSELS, March 29, 2023 /PRNewswire/ -- Today, the European Electricity trade association Eurelectric releases its landmark study on how to make the EU electricity market design fit for a net-zero future. The conclusion is clear: Europe's power market needs an evolution that builds on the existing structure which has been refined over more than two decades. The study proposes to add three new pillars to empower consumers, incentivise clean energy investments, and ensure security of supply in a changing energy system.

 

Following the historical price spikes in August 2022, an intense political debate has played out over the design of the EU internal energy market. The debate is set to continue on the basis of the legislative proposal tabled by the European Commission on 14 March 2023. The outcome could have major implications for customers as well as investors.

To inform the decision-making process, Eurelectric has commissioned the internationally renowned consultant Compass Lexecon to develop pragmatic political options.

"With this study, we contribute to the market design debate with very tangible solutions. For consumers to limit their exposure to the most extreme price volatility. For investors to benefit from higher certainty and long-term visibility. And for public authorities to inform their decisions on how to steer the development of the energy system" – says Eurelectric's President and E.ON CEO, Leonhard Birnbaum.

Giving customers choice

A key element in the debate over the electricity market is the impact of the supply shock on customers.

The Eurelectric study demonstrates how a revised market design could benefit customers by establishing a new balance between long-term and short-term price signals. The tools: enhanced use of long-term instruments – power purchasing agreements (PPAs) and contracts for difference (CfDs) – combined with improved liquidity in forward markets.

The study highlights the importance of financially robust suppliers, but it also underlines the economic efficiency of a market-led approach. Rather than politically imposed hedging obligations, a flexible resilience framework implemented by Member States should therefore help ensure supplier robustness.

Eased collateral regulations and enhanced cross-border hedging opportunities can further develop forward markets and stimulate liquidity, thus making hedging more manageable - to the benefit of customers.