A new EU electricity market design to bolster the EU’s leadership in renewable energy

Apr. 12, 2016 | European Commission President Jean-Claude Juncker called in July 2014 for the European Union to “become the world number one in renewable energies”.

The Commission clearly confirmed its political will in the February 2015 Communication on the Energy Union[1] signalling “a fundamental transformation of Europe's energy system” away from the current centralised conventional energy system, based on fossil fuels and nuclear. The communication paves the way for “a resilient Energy Union with an ambitious climate policy at its core (…) to give EU consumers - households and businesses - secure, sustainable, competitive and affordable energy”.

The necessity to proceed with this vision is made more acute by the success of the COP21 conference in Paris at the end of 2015 resulting in 195 governments agreeing on a new international climate treaty. One of its aim is “to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century.” This global agreement clearly signals a global transformation away from a fossil-fuel based economy and an increased level of political commitments worldwide.

To this end, a reform of the EU electricity market must be tackled as a matter of priority. Europe currently has an antiquated energy system, tailored to non-renewable, centralised and inflexible production within national boundaries.

This framework effectively acts as a cap for renewables deployment limiting Europe’s ability to transformation to a decarbonised power sector. The share of electricity produced by renewables could grow from 28% today to 50% in 2030 contributing to the competitiveness of the European economy by supplying inexpensive power.

Reaping these benefits requires adjusting the market design to decentralised and variable power production, thus sending the appropriate signals to remove uneconomic, polluting and inflexible assets from the market. Getting the market design right today will determine whether the energy transformation in Europe is achieved in the most cost-effective manner. While recalling the equally important need for a better designed and more RES based market for thermal energy, the undersigned EU renewable energy associations highlight the following key features as essential for a fully functioning electricity market supporting the energy transformation with renewables (RES):

  1. Ensuring RES participation to integrated markets in every timeframes;
  2. Strengthening the role of prosumers and promotion of  self-consumption;
  3. Promoting and fully exploiting flexibility options for generation (including from dispatchable RES), consumption and storage;

4.         Providing investors with a stable and predictable regulatory framework, avoiding any retroactive measures;

5.          Carrying out an ETS reform which will provide a high and stable carbon price, thereby creating market exit signals for carbon-intensive and artificially inefficient power plants and creating long term investment signals for all abatement options;

  1. Making sure Capacity Remuneration Mechanisms (CRMs) are used as a last resort option and only after standardized regional system adequacy analysis;
  2. Focusing on regional and de-centralised energy production and consumption; and
  3. Analysing the opportunities to develop RES combined heat and power and other integrated energy solutions (smart thermal grids, buildings and appliances).

In the move to a new electricity market design providing a true level playing field for all participants, EU renewable energy associations regard the following policy instruments as a prerequisite to successfully master the energy transformation: 

1.          Maintaining priority dispatch and balancing exemptions for renewables in regions with low penetration rate and until flexibility in the system remains hampered by inflexible power generation;

2.         In line with internal energy market rules, more flexibility for Member States to choose the most appropriate economic instruments, adapted according to market and technology maturity, specific risk profiles and features;

3.          Continued national dedicated frameworks for small and medium sized projects which should not be exposed to auctioning schemes;

4.         Progressive introduction of more market-based support instruments such as Feed-in-premium for large-scale projects; and

5.          Support for research, innovation and demonstration of next generation renewable energy technologies.

 View or download the paper here.

[1] European Commission’s communication, Energy Union Package (COM(2015) 80 final of 25 February 2015.