Montel Magazine 4 2021 - Nordic power spat - Page 17

Deliberating intervention

Reducing energy price volatility is becoming a top political priority in the EU , prompting fears politicians will introduce changes which could undermine the bloc ’ s single wholesale power market .
By Siobhan Hall
EU leaders are due to discuss soaring energy prices as this issue goes to press , while EU energy and environment ministers have recently debated possible medium and long-term measures to reduce impacts on end-users .
Two clear camps have emerged so far . France , Greece , Italy , Romania , and Spain – which represent more than 45 % of the EU population – have called for reforms including changes to EU rules to allow governments to regulate end-user power prices so they reflect the cost of generation used to supply them . Meanwhile nine EU countries , including Germany , made clear in a joint statement on 1 December that they will not support measures such as price caps or technology-dependent average prices .
Individual EU countries applying their own “ fair price ” concept might discourage cross-border power trading and so limit their neighbours ’ options for mitigating price and system shocks , said Austria , Estonia , Finland , Ireland , Latvia , Luxembourg , and The Netherlands , along with Germany . “ Free market price formation has proved that it works ,” German energy state secretary Thomas Bareiss told EU energy ministers at a meeting on 2 December . “ We want a smoothly operating market to reduce costs .”
The European Commission is taking heed of the arguments on both sides so far . It planned to explore options to help mitigate power price volatility without distorting the EU ’ s liberalised wholesale market , EU energy commissioner Kadri Simson said at the time of the ministers ’ meeting . The EU electricity market design was ” not perfect ” and needed more flexibility options such as demand-side response , storage and interconnectors , she said . She applauded , however , EU energy regulatory agency Acer ’ s recent initial report that found the existing marginal pricing market design was still the best option , and that there was no obvious market manipulation behind the current high energy prices .
The EC has asked Acer to provide a more detailed analysis , along with potential recommendations , by April . This report would look at how to ensure the EU market design continued to promote investment in renewables , and how to protect end-users better , Simson said . This could involve longer-term hedging instruments and flexible energy solutions . The pro-reform camp has called for the EU to promote longterm contracts – five to 10 years – for zero-emissions power .
Montel Magazine 4 – 2021
The EU executive also wants a separate broad stakeholder consultation to identify within six months what reforms are needed to ensure the EU meets its 2030 goal to cut emissions by at least 55 % from 1990 levels . It wants EU leaders to use this information to define by the end of 2022 priority market reforms to be implemented by 2025 . Only the EC can propose EU legislation , however , although it often follows requests from EU leaders to focus on specific areas .
The EU adopted the 55 % emissions cut target in June 2021 , only two years after agreeing its huge “ clean energy package ” reforms intended to help the EU meet its previous 2030 target to cut emissions by at least 40 %. These reforms included major changes to the EU ’ s electricity market design intended to help integrate the large volumes of renewables needed to cut emissions . Many of these changes only applied from January this year , and some countries have derogations or transitional arrangements that will delay the full impact . These reforms did not change the marginal pricing market design , where the price of power is fixed by the last and most expensive unit used to meet demand – usually gas-fired power plants .
The Czech minister responsible for energy , Karel Havlicek , said on 2 December that he had sympathy with the countries calling for reforms as the recent power and gas price spikes had shaken faith in market principles . He said he understood the desire to mitigate price volatility in the medium and longer term , and that options could include improved market competition and more flexibility and storage . He stressed that any changes to the EU ’ s liberalised power market must be “ thoroughly analysed and evidence based ,” however , noting the internal market had “ proven its merits .”
Acer ’ s detailed market analysis in April is likely to coincide with a falling off in power prices , based on current forward markets , which may cool some of the ardour for reforms . Acer is also no fan of price regulation . In November it urged EU governments to find ways of protecting vulnerable end-users without interfering in free wholesale price formation or discouraging demand-side management . It also found in a joint report with the Council of European Energy Regulators that at least France , Italy and Romania – all in the pro-reform camp – had allowed some domestic generators to offer power at regulated prices in 2020 . This , according to the regulators , could have limited competitive pressure and reduced liquidity in their markets . n 19