The European Commission did not propose any substantial changes to the functioning of the European Union’s electricity market on Wednesday 18 May, in a communication focusing mainly on possible new short-term measures to tackle high energy prices.
Following on from the toolkit presented last October (see EUROPE 12811/1) and the 23 March Communication on joint gas procurement and storage (see EUROPE 12917/7), the Communication has three objectives: (1) propose additional national measures that could be implemented in the short term to mitigate the impact of soaring energy prices on households and businesses; (2) outline possible responses to a major or complete disruption of Russian gas supplies; (3) present potential areas for longer term reform of the European electricity market.
Notwithstanding Member States that support electricity market reform, such as France and Spain, the Commission remains very cautious on the third point.
“Setting a price at the European level would lead to the internal market actually not functioning anymore because there would be no price signals for trade anymore”, said a senior European official when asked about the possibility of establishing a price ceiling.
Based on the recent report of the Agency for the Cooperation of Energy Regulators (ACER) and its contacts with stakeholders, the Commission considers that “the current electricity market design delivers an efficient, well integrated market, allowing Europe to reap all the economic benefits of a single energy market, ensuring security of supply and sustaining the decarbonisation process”.
Nevertheless, the Commission agrees with ACER that “adjustments” are needed to make the market more capable of supporting cost-effective decarbonisation of the electricity sector, offering affordable prices and resisting energy price volatility. Indeed, market participants expect these to remain high for the rest of 2022 and, “to a lesser extent” until 2024-2025.
The Commission has identified a series of issues to be analysed with a view to determining whether legislative measures are necessary, in consultation with Member States, stakeholders and national regulatory authorities.
It intends, for example, to explore the role of contracts for difference for new investments in renewable energy, but also for other public investments in electricity generation such as nuclear power (a reference that did not appear in the draft - see EUROPE 12953/10) in order to make electricity price formation more independent of the cost of natural gas.
The Commission also intends to examine ‘locational pricing’ - where prices reflect local balances between supply and demand and available transmission - and the reopening of the Regulation (1227/2011) on market integrity and transparency (known as REMIT).
Short-term measures
In the short term, the Commission suggests, among other things, extending the possibility of reallocating the exceptionally high profits of some electricity producers to support consumers until the next heating season.
It also proposes to use congestion income - the rent that accrues to an electricity transmission system operator when interconnection capacity between two electricity systems is less than the demand for transactions - to fund consumer support and to temporarily extend the regulated retail price regime to SMEs.
For the Iberian Peninsula, which has a very low level of interconnection, the Communication mentions the possibility of introducing subsidies for fuel costs in electricity generation, under certain conditions.
On gas, the proposals include the extension of the scope of the regulated retail price regime to households and industry, as well as the use of the EU’s common procurement platform.
The European Commission is also prepared to establish an EU-wide gas price ceiling in case of a total supply disruption (see EUROPE 12953/10).
See the communication: https://aeur.eu/f/1q2 (Original version in French by Damien Genicot)