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Reform of Europe’s wholesale power markets: In need of a jolt? by Elisabetta Cornago and Zach Meyers, 13 June 2023 The European Commission’s proposal to reform the electricity wholesale market is modest, but pragmatic. But the EU must strengthen the grid to improve its energy security: infrastructure planning should be co-ordinated at European level. When gas prices spiked last year, they pushed up electricity prices too, and the EU fell into a fully-fledged energy crisis. After initial reluctance to reform the electricity market, the Commission has come up with modest proposals to boost investment in renewables and – eventually – weaken the link between gas and electricity prices. While sensible, making the most of renewable energy and cutting reliance on gas power plants would require co-ordinated, ambitious grid expansions – something this reform leaves unaddressed. The price of electricity in Europe is set by the last and most expensive power plant that has to be turned on to meet demand. That means that gas power plants set the price when they are turned on to meet high electricity demand at peak times. When the energy crisis first started, Commission President Ursula von der Leyen was unwilling to propose fundamental reforms to the EU’s electricity market, as some member-states were pressuring her to do. Instead, the Commission encouraged EU governments to roll out temporary emergency measures – such as subsidies and price caps – to protect domestic consumers and businesses from price spikes. However, as the crisis dragged on, the Commission eventually promised to deliver permanent market reforms. In early discussions, some member-states suggested radical changes such as splitting the electricity wholesale market into two, separating markets for renewable and fossil-fuelled power, or permanently capping the price of gas-generated electricity. But ultimately, on March 14th the Commission put forward a less radical range of reforms to both retail and wholesale energy markets. In a previous insight, we assessed the Commission’s proposal to reform the retail market, in which retail companies sell energy to households and businesses. This article focuses on wholesale markets, in which power generators sell electricity to retailers and to very large power consumers such as heavy industry. Several parts of the proposal address barriers which prevent the EU’s energy market regulation from working efficiently. These interventions could help raise investment in renewables and make energy CER INSIGHT: REFORM OF EUROPE’S WHOLESALE POWER MARKETS: IN NEED OF A JOLT? 13 June 2023
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