So far, the Agency for the Cooperation of Energy Regulators (ACER) has not detected any manipulation of the wholesale electricity market that would explain the recent surge in energy prices, according to an analysis published on Monday 15 November.
Commissioned by the European Commission as part of its ‘toolkit’ to tackle rising energy prices (see EUROPE 12811/1), this analysis is a preliminary assessment of the pros and cons of the current design of the European wholesale electricity market.
In particular, ACER points out that, for the time being, there is “no obvious indication nor evidence of systematic manipulative behaviour or insider trading [...] causing the high energy prices”.
Call for caution
The evaluation further points out that the coupling of national markets “has kept EU electricity prices lower on average for the EU as a whole, than would otherwise be the case”, while some Member States, led by France and Spain, advocate decoupling electricity prices from gas prices (see EUROPE 12821/14).
The European electricity market is based on a system whereby the price of electricity is set by the marginal cost (i.e. the cost of producing an additional MWh of electricity). The last power station needed to meet demand therefore sets the price for all producers. However, in times of high demand, this is usually a gas or coal-fired plant.
According to ACER, this system has the advantage of being technology neutral. By treating all electricity the same (whether it comes from fossil fuels or renewables), it “incentivises and facilitates emerging technologies and business models that can smooth (price) volatility”, such as demand modulation, storage and energy communities.
Regarding the possibility of capping the price of gas-fired electricity (a Spanish proposal), the Agency believes that this may jeopardise not only security of supply in the medium or even short term, but also “some of the benefits from EU energy market integration”.
It therefore recommends that such proposals should be subject to careful scrutiny “so as not to inadvertently impact the ability of the framework to drive desired EU-wide changes (such as cost-efficient decarbonisation) over the medium and longer term”.
There is room for improvement
Nevertheless, the characteristics of the current market “do not necessary imply that the current market design for all intent and purposes is ‘future-proof’”, say the regulators, who plan to make their final assessment in April 2022.
They will examine the advantages and disadvantages of the current design of the EU wholesale electricity market, while exploring options to protect end-users from excessive levels of electricity price volatility.
ACER will also look at long-term options to support sufficient revenue certainty in electricity markets.
See the preliminary assessment: https://bit.ly/3Hruchv (Original version in French by Damien Genicot)