Although there is room for improvement, the current design of the EU wholesale electricity market is worth keeping and is not to blame for the energy crisis in Europe, the European Agency for the Cooperation of Energy Regulators (ACER) concluded on Friday 29 April in its final assessment of the advantages and disadvantages of the functioning of this market.
The results of this assessment - commissioned by the European Commission at the request of some Member States (see EUROPE 12811/1) - are eagerly awaited by EU countries and follow on from ACER’s preliminary conclusions published on 15 November 2021 (see EUROPE 12833/7).
The final report stresses that the current market design ensures an efficient and secure supply of electricity “under relatively ‘normal’ market conditions”.
Among the advantages of the current market, ACER mentions the fact that the coupling of the markets: - ensures that electricity generally flows from low to high price areas, reducing the price of electricity across Europe; - allows Member States to benefit from the flexibility and adequacy solutions of their neighbours (i.e. the ability to guarantee the desired levels of security of supply); - facilitates the growth of renewable energy; - keeps price volatility lower than it would otherwise be.
Regulators estimate that cross-border electricity trade has saved around €34 billion.
Moreover, the design of the European electricity market enhances each Member State’s security of supply (through resource sharing) and resilience to price shocks, the report says.
Unlike some Member States, regulators believe that the existing rules should not be blamed for the energy price crisis in Europe. In their view, these have helped to alleviate the crisis to some extent, by avoiding reduced electricity consumption or even power cuts in some areas.
Carefully assessing the consequences of interventionist measures
As regards the possibility of Member States intervening in the short term in the market to support consumers in the face of rising electricity prices - for example, through a tax on windfall profits (boosted by very high prices) of electricity producers or capping electricity prices - regulators recommend caution.
In their view, interventionist measures run the risk of undoing the benefits achieved by the integration of the European electricity market in recent years, but also of making it more difficult to achieve the EU’s decarbonisation objectives in the medium term, especially if “private investor confidence in an appropriate and stable market framework were to be negatively impacted”.
“As a rule of thumb, ACER considers that the more interventionist the approach, the higher the potential to distort the market, especially in the medium to long term”, the report says.
Ranking the measures envisaged or proposed by Member States according to their impact and level of structural interventionism, the regulators place the idea of a windfall tax on electricity generators in the second least distorting category of measures.
However, ACER notes that such a measure entails significant implementation challenges. In particular, it is difficult to assess the profits made in relation to pre-contracted electricity volumes already sold at lower prices, e.g. on long-term markets.
Electricity price capping is in category 4 (of 5) of the ACER ranking.
Possible improvements
While defending the current design of the EU electricity market, the regulators believe that it is “not designed for the ‘emergency’ situation that the EU currently finds itself in”, and could be improved to make it more consistent with decarbonisation objectives.
They therefore propose a set of 13 measures to ensure the sustainability of the market design, some of which could help protect consumers from possible future periods of high energy prices, although they warn that each of them has drawbacks.
See the report: https://aeur.eu/f/1f5 (Original version in French by Damien Genicot)