In an analysis published on 14 February, the Bruegel think-tank highlights the “considerable” benefits of more integrated electricity markets, which improve the resilience and ensure the transition of Europe’s energy system.
The authors of the analysis regret that the enthusiasm that seized EU leaders to invest in the completion of the internal market, in response to the energy crisis in 2022, has now dissipated, “at a time of unprecedented investment needs in generation and grids across the EU”.
In their view, better integration of the energy market in the EU has so-called ‘techno-economic’ advantages that can be achieved by optimising the design and operation of several national electricity systems jointly rather than individually.
Under these conditions, much less capital will have to be invested in additional power stations and fewer fossil fuels will have to be burned than when each EU country optimises its system at national level.
It will also mean less short-term price volatility, cost savings from harnessing the benefits of renewables at regional level, a reduced need for costly back-up and flexibility capacity, and greater resilience to shocks.
The authors argue that these benefits will increase as the share of renewable energies rises.
In addition, they indicate that the cost of invested capital will be lower in a predictable and consistently regulated European market.
Advantages linked to management and governance will also emerge, including benefits in terms of competition, innovation and credibility “which are particularly useful in the electricity sector, which typically faces rather long investment times and high degrees of concentration in purely national markets”.
However, the authors warn that further market integration will require significant political investment: “Governments will need to deal with significant distributional effects within and between countries. Experience has shown that domestic political constraints in this respect are often numerous and difficult to overcome”.
It is therefore considered necessary to have a vision of the degree of integration that is achievable and desirable, and of how to implement and govern that integration, “while recognising the implications and costs of not pursuing further integration”, the authors conclude.
To see the analysis: https://aeur.eu/f/awr (Original version in French by Pauline Denys)