Proposal for a Regulation to improve the EU’s Electricity Market Design: A Brief Assessment

The European Commission’s March 14 Proposal for a regulation to improve the Union’s electricity market design (henceforth EMD Proposal) was issued on the heels of the energy crisis exacerbated by the Russian war on Ukraine. It is meant to offer solutions that can both protect consumers from the volatility of energy prices and maintain the EU’s firm course set by the European Green Deal. The key issues addressed by the EDM Proposal are the following:

  • Enhance stability and predictability of electricity prices by reducing their exposure to the volatility of the gas market, especially by increasing the uptake of power purchase agreements (PPAs) closed between low-carbon power generators and consumers, adopting price-stabilizing contracts for difference (CfDs), and boosting the forward power markets.
  • Protect energy consumers from volatile prices by means of a “variety of contracts that best fit their circumstances,” combining dynamic and fixed pricing components to “keep market incentives for consumers to adjust their electricity demand, while providing more certainty for those who wish to invest in … rooftop solar panels, for instance, and stability of costs.”
  • Boost investment in renewable energy sources “in order to ensure that deployment triples, in line with European Deal Goals.” While PPAs and CfDs will provide renewable energy producers with reliable revenues, another critical element for renewables’ system integration is flexibility: “The more flexible the system is (generation that can rapidly turn on and off, storage that can absorb or put power onto the system, or responsive consumers who can increase or decrease their demand for power) the more stable prices can be and the more renewable energy the system can integrate.”

From the second half of March to June 2023, four rounds of revisions have been submitted for the Electricity Market Design during the Swedish Presidency of the Council of the EU, bringing useful clarifications. The present analysis also reflects the main elements of the Presidency’s compromise proposal.

On March 17, EPG organized a roundtable with major stakeholders of the Romanian power system (energy regulator, TSO, DSOs, electricity producers, suppliers, etc.) to discuss the fresh EMD Proposal. Several of them provided substantive feedback on previous drafts of this paper. The positions expressed, though, as well as any possible error, belong entirely to EPG.

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