EU presents proposals for electricity market design reform

The revision to the electricity market design is aimed at switching the focus away from short-term markets, boosting electrification and intermittent renewables and protecting consumers, European Commissioner for Energy Kadri Simson said. Prosumers will be able to sell excess rooftop solar electricity to neighbors or share it with them.

The energy crisis has worsened in the wake of Russia’s attack on Ukraine a year ago as the surge in gas prices has spilled over to the wholesale electricity market, hurting consumers and bankrupting retailers. Following intensive and long talks, the European Commission has now tabled changes to the Electricity Regulation, Electricity Directive and the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).

The electricity market design reform is part of the broader plan to enhance the competitiveness of Europe’s net-zero industry and accelerate the transition to climate neutrality, according to the European Commission.

Simson: Consumers weren’t able to benefit from growing share of lower-cost renewables

“In many national markets, there are hardly forward instruments with a maturity beyond three years. The dominance of the short-term market has amplified the effects of the gas price rise, and has been the source of various problems during the crisis. This has been felt by consumers, who have been exposed to wholesale prices that are too often dictated by the price of gas-fired power plants. They have not been able to benefit from the growing share of lower-cost renewables,” European Commissioner for Energy Kadri Simson stated.

Energy bills need to be more independent from short-term market prices

The European Union should triple its renewables deployment rate, she said and stressed that much more electricity would be needed by 2030 to power the economy. The proposed measures should make the energy bills of consumers and companies more independent from short-term market prices, Simson explained.

CfD payouts to lower consumer bills

The commission wants to boost the market for power purchase agreements to spur investment in renewables. Enhancing the flexibility of the electricity system through storage and demand response measures including incentives should facilitate the integration of cheaper renewables and stabilize prices, it added.

The EU’s executive body said it would require member states to use two-way contracts for difference (CfDs) for subsidies for new low-carbon (essentially nuclear) power plants and renewables. The idea is to limit excessive revenues of energy producers and accelerate the phaseout of fossil gas.

The payout that is generated by CfDs when market prices become high would have to be used by member states to directly lower all electricity bills.

Electricity market fit for consumers

“We will allow consumers to have more than one meter and different contracts to serve their electric vehicle, heat pumps or domestic consumption. We introduce a right to energy sharing,” Simson stressed. The package includes mechanisms to protect vulnerable consumers.

Consumers will be able to invest in wind or solar parks and sell excess rooftop solar electricity to neighbors, not just to their supplier, according to the blueprint. Tenants would also be able to share surplus rooftop solar power with neighbors.

Timmermans: Renewables are our ticket to energy sovereignty and ending our dependence on fossil fuels

The proposed measures will also improve the efficiency of short-term markets, so that renewable energy market participants have more trading opportunities, according to the changes. Based on the experience during the crisis, the reform also extends the so-called peak shaving, a set of measures to reduce gas consumption in the power sector by lowering demand during peak hours.

“Renewable energy will increasingly be the go-to resource for European citizens and industries in the future. Renewables are our ticket to energy sovereignty and ending our dependence on fossil fuels. We need to update our market design to ensure that this transition happens as quickly as possible, and that consumers can benefit from the lower costs of renewables,” said the European Commission’s Executive Vice-President for the European Green Deal Frans Timmermans.

Industry urges for evolution instead of revolution

The package is going to the Council of the EU and European Parliament for negotiations. They must now stick to the balanced proposal and end the current investment uncertainty caused by uncoordinated national market interventions, WindEurope warned. “It’s good the commission proposal builds on the strengths of the existing market design. What’s needed is an evolution, not radical changes,” its Chief Executive Officer Giles Dickson said.

His statement mirrors the reaction from Europex – the Association of European Energy Exchanges also expressed belief in the “evolution, not revolution” approach. Market participants need regulatory stability to enable the necessary investments to deliver an energy transition at the least cost, according to its view.

Only new low-carbon and renewable electricity plants will be put under a two-sided CfD subsidy mechanism

The proposals should incentivize flexibility solutions, demand response and energy storage, yet via a technological-neutral and market-based approach, Europex pointed out.

“It’s a relief to see that only new solar projects which benefit from state support will be put under government-organised two-sided CfDs. We’re particularly grateful to have avoided CfD as the only route to market for new solar, or retroactive CfDs on existing solar projects. Investors can trust that the terms of their investments won’t suddenly change,” SolarPower Europe’s Head of Regulatory Affairs Naomi Chevillard said.

The electricity market design reform contains support for large-scale and residential grid flexibility resources including solar batteries, which will empower energy storage to alleviate pressure on the grid, in her view.