Security of supply and renewables: EURELECTRIC points to market solutions

An evolved electricity market design is needed to reconcile renewables (RES) growth with the Internal Energy Market (IEM), according to a new EURELECTRIC report launched today. The report is the result of a year-long in-depth investigation into how future electricity markets should be designed to ensure a cost-efficient transition towards decarbonisation while securing electricity supply. 

“In the last half year the external dimension of security of supply due to the Russia-Ukraine conflict has dominated the media. But this must not be a reason to forget the dramatic situation regarding the internal dimension of security of supply. Our aim is to reconcile a further growth of RES with a well-functioning market, to create a win-win path which will allow RES development and full market integration while ensuring that the lights will always stay on,” said EURELECTRIC President and E.ON CEO Johannes Teyssen, speaking in the presence of EU Energy Commissioner Günther Oettinger at the launch event in Brussels today. 

The recommendations fall under two main headings: on the one hand, renewable generation must be made fit for the market; on the other hand the market must be made fit for renewables. In any case, completing a properly functioning IEM remains a no-regret option. 

1) Making RES fit for markets – achieving operational integration of RES in the market, designing more cost-efficient and less market-distortive RES policies:

As RES mature and become major contributors to electricity supply, their integration in electricity markets is crucial to enhance competitiveness and ensure that the future electricity mix is both environmentally and economically sustainable. To this end, RES should be developed cost-efficiently, by applying to RES the same rights and obligations of market participation as other market participants. Similarly, RES support schemes should maximise market orientation and minimise market distortion.

For the period after 2020 a market-based and cost-effective deployment of RES means progressively phasing out subsidies and letting the EU Emissions Trading Scheme act as the main driver for investment in mature low carbon technologies.

2) Making markets fit for RES – adopting a European mind-set and following a regional approach to market design that avoids uncoordinated national developments:

RES have already changed the market situation completely. Therefore, the market design must be adapted. The IEM will remain the cornerstone of all market developments. But a paradox must be solved: the markets need back-up capacity to secure the supply for the customers, but they do not provide the necessary incentives. EURELECTRIC has developed conditions and criteria which must be fulfilled for a proper capacity market design. They will ensure that only such capacity is delivered and rewarded which is strictly needed for long-term system adequacy, while opening the opportunity for cross-national and European-wide solutions.

The full report is available here.