EU energy regulatory body ACER to report by end April on power market design

The Agency for the Cooperation of Energy Regulators (ACER) is to present its final report on wholesale electricity market design to the European Commission by the end of April and present the findings more generally on May 5, the energy regulatory body said April 19.

Power market design has become a hotly-contested political issue since Russia's invasion of Ukraine, with several EU member states seeking to control the influence of gas-fired generation in power price formation.

"Following ACER's submission of its Final Assessment to the Commission (the end of April)", a webinar on May 5 would "present the benefits and drawbacks of the current wholesale electricity market design and related matters", it said.

In its initial findings published last November, ACER said it would look at the pros and cons of enhanced hedging instruments, more liquid forward markets, contracts for difference and power purchase agreements.

All could help support capital-intensive investments with low operational costs.

It would also look at how to boost flexibility via demand response, storage, increased interconnection and trading closer to real time.

Those themes would help integrate growing volumes of intermittent wind and solar generation.

Opex to capex

Speaking to S&P Global Commodity Insights in March, Hakan Agnevall, president and CEO of Wartsila Corp, said power market design needed to evolve from an opex to a capex model, placing more emphasis on the value of balancing power and back-up capacity.

Continually sinking operational expenditure into fueling and maintaining coal, oil and gas plants was untenable, Agnevall said.

In its place, a new capex model would drive investment in renewables as well as the flexibility needed to ensure stability of supply.

The challenge was daunting. Annual additions of renewables needed to double to 2030 to hit the European Commission's REPowerEU goals, Agnevall said.

The dramatic increase in gas and power prices necessitated a fundamental review of power market design, ContourGlobal CEO Joseph C Brandt said in March.

"We have been saying for four years that the future of the European power generation market looked to be increasingly a regulated one with the abandonment of marginal cost pricing and its replacement with some form of a guaranteed regulated rate of return applied to the entire generation sector," Brandt said.

The trader community, meanwhile, has warned against upsetting years of incremental market development with interventions that would distort price and hit liquidity.

"The current level of gas prices and threats to security of gas supply do not justify interventions -- particularly in the electricity market -- that threaten energy affordability and our decarbonization goals in the medium to long term," the European Federation of Energy Traders said in March.

There were ways to make existing electricity markets more efficient, such as standardizing issuance of forward transmission rights, promoting PPAs, making available more cross border capacity, reducing gate closure times and accelerating the transition towards short imbalance settlement periods, the EFET said.

"We are confident that ACER's upcoming report will focus on these opportunities," it said.