On 14 March 2023, the European Commission published its legislative proposal to reform the European electricity market design. Driven by the energy crisis caused by the Russian attack to Ukraine, the key objectives of the reform are to boost investments in renewable energy, protect consumers from volatile electricity prices and promote EU competitiveness. We welcome these objectives as well as the evolutionary approach of the proposal.
Achieving Europe's carbon neutrality goal will require massive investments in new clean energy generation. While the current market model, building on an efficient dispatch and price formation, has worked well so far, it is clear that the growing price volatility in the market combined with the need for investments will require complementary mechanisms to ensure a predictable and stable investment environment.
Developing the current market model to encourage long-term investments is a far better approach than hastily changing the fundamentals of the electricity market without a thorough impact assessment. The mechanisms proposed by the Commission (PPAs, two-sided CfDs) are welcome and require further analysis. However, especially for long-term and first-of-a-kind projects, some other de-risking instruments will be needed, notably to cover the construction phase.
We are happy to see that the Commission’s proposal now clearly recognises the key role of nuclear energy as an enabler of low-carbon Europe and industrial competitiveness.
The Commission has abandoned the idea of including the inframarginal electricity revenue cap adopted during the energy crisis in autumn 2022 as a permanent part of the EU electricity market design. Regarding electricity consumers, the best way to protect them against price spikes is to ensure a healthy supply-demand balance in the electricity market and provide good prerequisites for suppliers to offer a broad variety of customer-driven products.
It is important to keep the short-term crisis measures separate from the long-term market design – the key role of which is to enable the necessary investments in clean electricity generation and overall system optimisation. This supports the decarbonisation and clean growth in industries and is also in line with the priorities of Fortum's renewed strategy.
More information: Lari Järvenpää, Head of Market Intelligence, +358 40 673 5484, lari [dot] jarvenpaa [at] fortum [dot] com