EURELECTRIC conference debates the needed electricity market design for consumers & decarbonisation

21 April 2016

Ahead of the legislative proposals of the year-end, today’s EURELECTRIC conference debated ways to reach an electricity market design that is fit for consumers and decarbonisation.

The electricity sector is in the midst of a deep transformation: while decarbonisation progresses full speed, customers become ‘active and smart players’ – producing energy and providing demand-side flexibility. This unprecedented transition will bring about innovation and exciting opportunities as well as challenges. In the short to medium term, the critical challenges are to foster the competitiveness of low-carbon technologies, allow for the development of flexible solutions, ensure that markets provide adequate price signals for existing assets and investments, and avoid structural over or under-capacity, thus ensuring security of supply in a cost-efficient way. As highlighted by Manuel Baritaud from the IEA in his keynote speech, “market designs are bound to evolve. Be prepared for incremental modifications over the next decades, rather than a one-off revolution”.

EURELECTRIC clearly welcomes the interim report of the sector inquiry into capacity mechanisms presented at the conference by Gert-Jan Koopman, Deputy Director-General of DG COMP. This extensive and thorough analysis of existing capacity mechanisms and their rationale is extremely valuable, and EURELECTRIC will contribute with a detailed response, in particular on cross-border participation, to the related public consultation. Herbert Krajenbrink, energy attaché at the Dutch permanent representation, then stressed that Council is strongly committed to further shaping the internal energy market and improving regional cooperation.

Presenting EURELECTRIC’s recently adopted market design report, Juan Jose Alba Rios, Chair of the Markets Committee, stressed the need for the market to effectively value energy, flexibility and capacity. “Today, electricity prices and market functioning are distorted by a range of ill-designed interventions. Market exit barriers and price caps should be removed, market integration must be achieved and cross-border capacity must be used efficiently to fully integrate high shares of renewables. We must move towards regional adequacy assessments which should be taken into account when introducing well-designed and market-based capacity mechanisms”, he stressed. At a time when the sector needs to invest some $2.2 trillion by 2035 to meet the EU’s energy and climate goals, urgent action is required.

Antonio Coutinho, Chair of the Retail Committee, explained that the growing share of taxes and policy support costs in customers’ bill and the current charging structure used for the recovery of network and policy support costs lead to distortions that create inefficiencies. They hamper electrification and ultimately decarbonisation by undermining electricity’s competitiveness against other more CO2 emitting energy carriers. Going further, the way network costs and policy support costs are charged to customers can contribute to distorted investment signals and ultimately to significant social welfare losses. EURELECTRIC will soon come up with recommendations on these key issues.

EURELECTRIC’s proposals were actively debated in a panel involving among others Claude Turmes, shadow rapporteur on the European Parliament’s market design report, Will Francis, policy officer at DG ENER, Stephen Woodhouse, Director of Pöyry Management Consulting and Gilles Dickson, CEO of Wind Europe.

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