The President of the European Commission announces an overhaul of the electricity market in the face of soaring prices

The President of the European Commission announces an overhaul of the electricity market in the face of soaring prices

In a twist, European Commission President Ursula von der Leyen acknowledged that the European Union electricity market ” does not work anymore “ and should be suitable for “new realities of renewable energies” which are dominant today.

Responding to questions from the European Parliament on Tuesday (8 June), Ms von der Leyen admitted that current measures to deal with soaring energy prices had failed to address structural problems in the European energy market. ‘electricity.

“Indeed, electricity prices — energy prices — are skyrocketing. And we’re doing a lot to fix that.”said Mrs von der Leyen, referring to the ” toolbox “ proposed by the EU executive last autumn, which allows EU member states to tax windfall profits made by energy companies and subsidize the energy bills of households and small businesses the most vulnerable.

“However, we also recognize that this is only a short respite that will not change the structure of the market”she continued, saying that electricity markets were “designed as was needed twenty years agowhen the share of renewable energies was still low.

“Today the market is totally different. Renewable energies are the most profitable and the least expensive” she explained.

Gas prices have soared since the fall, due to the shortage of supply from Russia and the economic recovery from the COVID-19 crisis, a situation further aggravated by the war in Ukraine.

This situation has driven up the price of electricity, which is determined by the “marginal” generation capacity available in gas-fired power plants that can be commissioned in the short term to meet peaks in demand.

France and Spain have issued calls for a reform of the current marginal pricing system, with Madrid asking for “structural solutions” at European level to decouple the gas and electricity markets. They were backed by the leaders of Italy, Portugal and Greece, who urged the EU executive to tackle “the ripple effect”high gas prices on the electricity market.

Turnaround in Brussels

So far, the European Commission has resisted these calls, pointing to the ongoing review of wholesale electricity markets by European energy regulators. Their report, presented on April 29, concluded that the European electricity market was working as expected and that the current design of the electricity market is not to blame for the current crisis.

However, on Tuesday, Ursula von der Leyen seemed to reverse these conclusions.

“This market model no longer works. We need to reform it. We need to adapt it to the new realities of mainstream renewables”declared the President of the Commission to MEPs in Strasbourg.

“This is the task that the Commission has taken on now. This is not insignificant, it is a gigantic reform. It will take time, it must be well thought out. But we must take a step forward to adapt our electricity market to new modern realities. »

Contacted by EURACTIV, Commission spokespersons declined to give details on the timing of the reform and whether it will be presented during the current Commission’s term of office, which expires after the 2024 European elections. .

Change of position for Germany

Besides the countries of the South, other EU Member States are not convinced of the need to reform the rules of the electricity market. In October, a coalition of nine member states urged the EU executive to refrain from taking drastic measures to contain rising electricity prices.

But since then, Germany’s position seems to have started to change.

“The current design of the electricity market with its free pricing must be maintained in principle”the German Ministry of Economy and Climate told EURACTIV.

“Nevertheless, it must be ensured at the same time that the electricity production system is future-proof and fits into the ambitious climate objectives of the years and decades to come” .

The new German government, which took office in December, launched a stakeholder platform “climate-neutral electricity system”to look into the matter. This platform, which brings together experts from the scientific world, businesses and civil society, is currently developing “concrete proposals for the design of the market” the ministry said.

At the heart of the discussions is the question of whether “how guaranteed capacity can or should be boosted to compensate for fluctuating renewable energy production”and how to couple gas and electricity markets with new consumer sectors like transport, buildings and industry, the ministry said.

Emerging technologies such as heat pumps, photovoltaic solar energy storage, electromobility and electrolysers must all be able to respond to market and grid signals to ensure system stability in the future, also explained the ministry.

A skeptical economist

Georg Zachmann, an economist at the Bruegel think tank in Brussels, expressed skepticism about the Commission’s reform offer.

“There have been many attempts to think of better tools for the wholesale electricity market — including capacity mechanisms to cover fixed grid costs differently, and pay-as-you-go systems where operators power plants only receive the price they offered”did he declare.

However, he clarified that this could pose problems regarding the effectiveness of the investment signals sent to producers when billions are needed to modernize the electricity system and drive the ecological transition.

“The first problem is that there are no convincing solutions in theory — which makes it hard to believe that something better can be implemented in practice,” he said in comments sent. by email to EURACTIV. “The second problem is that even if there were a better solution, it is not certain that it could be launched politically, because the distributive effects between producers and consumers, between producers owning different power plants, and between Member States with different fuel mixes, will be brutal. »

“There is a lot of money at stake” he added.

Zachmann also questioned the timing of reform from a political perspective.

“Opening this discussion without a clear landing point will absorb a lot of political and administrative capital at a time when energy ministries are already completely overwhelmed”by other issues like climate legislation, rising energy prices and the war in Ukraine, he said, adding that it could take years.

“I don’t see how throwing away a system that has been painstakingly crafted over 20 years with no obvious alternative in the middle of a crisis is a good idea. »

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