Insight - European Electricity Market Reform – ambitions and realities - by Philip Lowe, 8 February 2024

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. [...] Others said that the market was working well and that high prices gave the correct incentives to consumers to reduce their consumption and to the market to change sources of supply in the short and medium term, and these governments therefore provided support in other ways, such as through one-off payments. [...] As a result of the cap providing little support, it was not surprising that the European Commission found itself under considerable pressure at the beginning of 2023 to re-examine how EU electricity markets were working and in particular to see how the price of electricity could be disassociated from the price of gas. [...] It proposed a Regulation to change an EU Directive (2019/944) and a Regulation (2019/943), as well as changes to the EU Renewables Directive (2018/2001), to the regulation on monitoring and transparency in energy markets (REMIT) and to the Regulation on the powers of ACER, the EU agency for the co-ordination of the action of EU national energy regulators. [...] The more that electricity requirements are contracted long-term, the less influence the spot price for the marginal source of electricity generation (typically gas) will have on the price which consumers pay for electricity.