EU’s electricity market design reform deemed as temperate, positive step

In its usual manner, the European Commission has come up with middle-of-the-road solutions for the electricity market design reform proposal. The initiative was mostly met with approval from the industry and analysts, with some reservations.

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, according to the European Commission. The proposal drew a balanced reaction in the market and among think tanks, given that, after lengthy negotiations, energy policy makers in Brussels typically opted for consensus.

European Commission President Ursula von der Leyen earlier pushed for a more interventionist approach. Spain and France were advocating for a more radical reform, opposed by a group including Germany, Finland, Denmark and the Netherlands.

The proposal was mostly the response to last year’s unprecedented spike in electricity prices in the European Union and concerns over supply security, which have significantly subsided in the meantime.

Focus on long-term contracts is challenging for consumers

Noting that the reform’s main thrust is to encourage more long-term contracts, Brussels-based think tank Bruegel said it is a challenge to bridge the mismatch between producers that want to secure prices for their output for decades ahead and consumers, who often cannot commit to buy electricity at a certain price for more than a few years in advance.

“The commission formally acknowledges that EU countries have and will devise national support instruments for investments in the power system. This does not need to be a bad thing, but what seems to be missing is a mechanism to ensure a basic level of consistency of national choices,” the report adds.

The EU needs to improve investment signals in order to secure the availability of reliable and affordable electricity when needed, according to the European Network of Transmission System Operators – ENTSO-E, which expressed support for the tabled measures in general.ž

Storage gets crucial role

The European Association for Storage of Energy or EASE said the 27-member bloc’s executive body has recognized “the crucial role of energy storage in enabling the deployment of renewable energy and reducing dependence on fossil generation.”

Historically, capacity mechanisms have provided long-term, lucrative contracts almost exclusively to fossil gas turbines under the justification of energy security, EASE underscored.

“Russia’s invasion of Ukraine has demonstrated that relying on fossil fuel imports has detrimental consequences on security of supply. Therefore, the encouraging capacity mechanism reform can be further improved by gradually lowering the existing carbon cap, alongside longer contracts and higher capacity payments for carbon-neutral facilities,” the statement reads.

EASE: The encouraging capacity mechanism reform can be further improved by gradually lowering the existing carbon cap

The European Commision’s initiative will be “a big step forward” if implemented, said Lars Stephan, a senior manager in Fluence, a provider of energy storage products and services. Among other provisions, he highlighted the removal of barriers on grid fees for storage and the strengthening of the role of storage on islands and other remote areas.

Storage was also included alongside so-called strategic net-zero technologies in the Net-Zero Industrial Act (NZIP), so it will be supported via simplified regulatory procedures and public funding, Stephan stressed.