Eurelectric Suggests Liquid And Mature Long-term Markets Are Key To Stabilise Consumers’ Electricity Bills
Over the past three decades, liberalisation has ensured progressive integration and optimisation of Europe’s electricity market, delivering around €34 bn per year of benefits to consumers. Today, the fundamentals of market design continue to provide critical investment signals. Yet, increasing investment requirements combined with the ongoing gas crunch, which has caused short-term electricity prices to weigh disproportionately on customers’ bills, call for further evolution of the market.
Today, Eurelectric unveils a new industry position on the electricity market design, with novel ideas to benefit customers and the energy transition. Upon its release, Acting President of Eurelectric Leonhard Birnbaum said:
“The liberalisation of the power sector has served Europe well and is today a guarantor of security of supply and solidarity. Looking ahead, we should continue to develop and complete the market rules to ensure that they are fit for purpose in the future as well.”
“A forward-looking market design should focus on the needs of customers and support the enormous investment volumes needed for the net-zero transition. This new energy system needs to be cost-efficient, resilient and capable of managing excessive price volatility. The vision we set out today is a good starting point to achieve these objectives.”
Eurelectric suggests adding three new pillars to the current market design: first, a consumer contracting and engagement framework to more consistently transfer the benefits of cheaper clean and renewable energy to consumers; second, a market-compatible investment framework to ensure the right investment signals for capital-intensive renewable and low-carbon technologies; and third, a security of supply framework to meet the evolving power system requirements.
An essential element in the proposal is to extend the possibilities to use long-term contracts and hedging instruments for consumers, suppliers, traders, and producers. For producers, this can provide clearer long-term investment signals. For customers, a mix of long-term and short-term price signals can limit the impact of price shocks.
Long-term instruments might take different forms across EU countries. A high level of harmonisation should therefore continue to be sought for wholesale markets to preserve the European internal market and enable cost-efficiency and competition. Some degree of diversity in retail markets, however, will be inevitable to reflect the different realities across the EU. Specifically, the paper calls on policymakers to:
Introduce an enhanced and liquid long-term contracting framework with diverse products reaching up to 10-15 years or beyond the current time horizon of forward markets
Remove existing barriers to long-term contracts by lifting any legal obstacles, promoting standardization, and transparency
Define common indicators, methodologies, and responsibilities to expand system planning framework and support increasing renewable rates, flexibility, and firm power needs
The industry position unveiled today will be followed up by a comprehensive study detailing the individual components the suggested investment framework.