Research Commentary: The EU Commission’s Proposal for Improving the Electricity Market Design: Treading Water, But Not Drowning
Carlos Batlle, Tim Schittekatte, Paolo Mastropietro, and Pablo Rodilla
On March 14, 2023, the European Commission (EC) published the much awaited “Proposal for a regulation (…) to improve the Union’s electricity market design”. The proposed regulation reflects the verdict of the EC after several months of fervent debate triggered by the energy crisis that has affected the European region.
The declared objective of the proposal is “to accelerate a surge in renewables and the phase-out of gas, make consumer bills less dependent on volatile fossil fuel prices, better protect consumers from future price spikes and potential market manipulation, and make the EU’s industry clean and more competitive.”
In this commentary, we discuss several crucial elements that are part of the proposed regulation. In a nutshell, we deem the EC has done a great job managing a highly complicated situation. In an extremely stressful moment, the biggest challenge has been the avoidance of entering into a regressive process that would have disabled some of the fundamental tools that have supported an increasingly efficient integration of the EU’s electricity systems. The proposal preserves the key role of short-term electricity markets and puts the focus on the key flaw: the perennial incompleteness of long-term power markets.
The EC has put forward a large battery of measures, covering different dimensions and with very different potential impacts on the market design. Here we focus on what we consider to be the four key elements of the proposal: i) the promotion of long-term contracting, ii) interventions during electricity price crises, iii) the strategy for an efficient supplier risk management, and iv) flexibility support schemes and capacity remuneration mechanisms.