Power Lobby Warns EU’s Von Der Leyen Not to Tamper With Market
(Bloomberg) -- A key power industry lobby group has asked European Commission President Ursula von der Leyen not to tamper with the system that determines electricity prices, warning it could hold back investments and raise bills.
In February, von der Leyen said she would bring “different options” for possible reforms of the bloc’s electricity market design to a European Union summit on March 19, part of an effort to lower energy prices in the region.
Eurelectric, a power sector lobby group, said that any changes to “fundamental principles” of the system would ultimately raise costs.
“At this critical juncture — when unprecedented levels of capital must be mobilized to deliver the energy transition — regulatory stability and predictability are indispensable,” Eurelectric executives said in a letter to von der Leyen and EU heads of state. “Such uncertainty will also weaken Europe’s attractiveness over the long term compared to other geographies like China or India.”
Energy prices are once again dominating the debate as Europe attempts to reconcile climate policy with industrial competitiveness. In the absence of any quick fixes, it’s led to calls for re-evaluating the system that underpins the power market less than three years after the previous big reform.
German year-ahead power prices remain 60% higher than in 2020, before the energy crisis, according to EEX data.
Europe’s power market operates under a so-called marginal pricing system, where the price is set according to the cost of the last unit of energy needed to meet demand. Often, it’s provided by power plants that run on gas, a fossil fuel that has seen a great deal of price volatility as the EU seeks to end its dependence on Russian supplies.
Supporters say the model boosts the incentives to invest in renewables like wind and solar. Previous attempts to re-evaluate the model, which countries like the UK also use, have failed to come up with a more effective option.
Meanwhile, some countries are starting to take drastic action. Italy is preparing a sweeping overhaul of its electricity market that would strip carbon costs from power bills and has called on the EU to suspend its Emissions Trading System until it’s reviewed and overhauled.
It’s an attempt to lower the cost of that final unit of energy that sets the price. Critics have said that such a move could distort the EU market and hamper the rollout of renewables.
“We must stay the course on the energy transition and decarbonization,” Eurelectric said. “The EU ETS is the core of European climate policy, and maintaining its integrity is essential to further drive cost-efficient emission reduction.”
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