Redesigning the EU’s energy market
SUMMARY OF:
The EU’s new energy market design — COM(2015) 340 final
SUMMARY
WHAT DOES THIS COMMUNICATION DO?
The EU wants to provide reliable and affordable energy for its people and attain its 2030 targets. To achieve this, it envisages a transformation of its energy market, including redesigning its electricity market to attract further investment.
This European Commission communication therefore launches a public consultation on the benefits of a new electricity market design in terms of new technology and increased investment.
It emphasises that cross-border, short-term (including intraday) markets are central to an efficient electricity market. These need to be designed with a view to the future energy system, i.e. one that would combine large-scale, cross-border electricity flows and high volumes of variable renewable* production. They would respond to the rapid growth of variable renewables and the need for the secure and stable functioning of the electricity grid.
KEY POINTS
Infrastructure
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A properly interconnected EU energy grid is a key priority for energy security, for more competition and for providing the right signals for investment.
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The principal methods for integrating national electricity markets and diversifying energy sources are projects of common interest (PCIs).
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Adaptingmarket design for investment in renewables
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A market with appropriate prices would provide signals for when and where renewable electricity could be generated.
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Flexible and better-integrated short-term markets would help renewable energy producers to compete on equal terms with conventional energy producers, further integrating renewables into the electricity system.
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Renewable energy production can be supported through regional market-based schemes, which address market failures, ensure cost effectiveness and avoid distortions and overcompensation in line with State aid guidelines.
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Increasing regional cooperation
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Regional coordination of national policies is a key factor in the EU meeting its 2030 targets to integrate its internal energy market and strengthen energy security.
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More interconnections are needed as the existing system cannot deal with possible new power flows.
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Enhanced regional cooperation between system operators is vital; specifically the roles played by regional security cooperation initiatives (RSCIs) and the European Network of Transmission System Operators.
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Grid expansion at distribution level is needed for the integration of local renewable energies.
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An enhanced role for the Agency for the Cooperation of Energy Regulators (ACER) is required for market oversight and to adopt binding decisions on EU initiatives and cross-border issues.
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Security of supply
To determine whether its energy systems are adequate, the EU calls for an assessment of the role played by each of the following:
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interconnections between different EU countries’ grids;
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generation of electricity across borders;
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variable renewable production;
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demand response (i.e. incentives to reduce use during periods of peak demand);
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storage possibilities.
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This assessment could help decide whether a capacity mechanism is needed. This would involve making separate payments for available capacity rather than paying for electricity delivered. These payments for available capacity are designed to reward capacity providers for maintaining existing capacity or investing in new capacity. However, the Commission warns that such mechanisms may be costly and distort markets.
EU-level rules could be developed on different EU countries’ participation in capacity mechanisms. The Commission advises that a reference model for a capacity mechanism for use on a regional basis be drawn up. This would facilitate cross-border participation and minimise market distortions.
BACKGROUND
Energy: new market design to pave the way for a new deal for consumers — factsheet
KEY TERMS
* Variable renewables: renewable energies (such as wind and solar) are derived from nature. This means that their production levels can fluctuate.
ACT
Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Launching the public consultation process on a new energy market design (COM(2015) 340 final, 15.7.2015)
last update 23.10.2015