Insight
European Electricity Market Reform – ambitions and realities by Philip Lowe, 8 February 2024 The EU’s electricity market reforms do a good job of promoting more stable energy prices. But member-states must do more to deliver a fully integrated EU-wide energy market. The events of the last two years in Europe – spiralling gas prices, the war in Ukraine and some of the tangible impacts of climate change – gave us a dramatic illustration of the dilemmas facing energy policy-makers. They have the unenviable task of trying to meet three important objectives of the ‘energy trilemma’ at the same time: guaranteeing security of supply so that lights can stay on, we keep warm in winter and not too hot in summer, and the economy can work and we can keep our jobs and prosperity making sure that we produce and use energy sustainably, including to fight climate change; ensuring that we have access to energy which is affordable for households and cost-competitive for business. Public opinion and politics tend at any particular time to emphasise one or two of these objectives but rarely try to pursue policies which try to encompass all three together. In responding to the recent price spike, EU law-makers risked taking short-term decisions to reduce prices, that would have bad longterm consequences for sustainability and security. Instead, they took a sensible and measured approach. But the best way to deliver all three objectives simultaneously is to focus on reforms to improve energy infrastructure and deepen European energy integration. In the 1980s and 90s, policy-makers in Europe, starting in the UK, focused on injecting some degree of competition into electricity and gas markets in order to improve security of supply and make energy more affordable. These sectors had previously been dominated by national public monopolies which were not very efficient and gave consumers (households and businesses) no choice of supplier, raising concerns about consumers being potentially ripped off. It was not easy to change this. Electricity and gas are network-based industries, parts of which are natural monopolies – like the gas distribution pipes and the electricity grid. Policy-makers had to regulate these networks, since they would face very little CER INSIGHT: EUROPEAN ELECTRICITY MARKET REFORM – AMBITIONS AND REALITIES 8 February 2024
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