Electricity market design

Electricity market design

One of the key objectives of the Clean energy for all Europeans package is to update the design of the EU electricity market, given the degree of integration and changes in technology seen in recent years and expected in the years ahead.

The share of electricity produced by renewable energy sources is expected to grow from 25% to more than 50% in 2030, so EU rules therefore have to be updated to facilitate the integration of renewables into the grid. At the same time, when the sun does not shine and the wind does not blow, electricity must still be produced and delivered in sufficient quantities. Markets need to be improved to meet the needs of renewable energies and attract investment in the resources, like energy storage, that can compensate for variable energy production. The market must also provide the right incentives for consumers to become more active and to contribute to keeping the electricity system stable.

To address these issues, the EU has updated the Electricity Directive (2009/72/EC) and the Electricity Regulation (EC/714/2009), introduced a new regulation on risk preparedness and enhanced the role of the Agency for the Cooperation of Energy Regulators (ACER). Based on the Commission's Clean energy for all European package proposals from November 2016, the new rules were formally adopted in May 2019 and will be published in the EU Official Journal and enter into force in the summer of 2019. For the Directive, EU countries have 18 months to transpose the new measures into national law.

Updating the Electricity Directive and Electricity Regulation

The new electricity Directive and Regulation, which replace Electricity Directive (2009/72/EC) and the Electricity Regulation (EC/714/2009), are aimed at adapting market rules to new market realities. They introduce a new limit for powerplants eligible to receive subsidies as capacity mechanisms (confirming the phasing out of subsidies to generation capacity emitting 550gr CO2/kWh or more).

Furthermore, the consumer is put at the centre of the clean energy transition. The new rules enable the active participation of consumers whilst putting in place a strong framework for consumer protection.

By allowing electricity to move freely to where it is most needed, society will increasingly benefit from cross-border trade and competition. They will drive the investments necessary to provide security of supply, whilst decarbonising the European energy system.

Updating the design of the EU electricity market contributes to the EU's goal of being the world leader in energy production from renewable energy sources by allowing more flexibility to accommodate an increasing share of renewable energy in the grid. The shift to renewables and increased electrification is crucial to achieve carbon neutrality by 2050. The new electricity market design will contribute to the creation of jobs and growth.

Risk preparedness

The Regulation on Risk Preparedness of the electricity sector requires Member States to prepare plans for how to deal with potential future electricity crises, and put the appropriate tools in place to prevent, prepare for and manage these situations.

This new initiative followed an independent report from May 2015, which highlighted previous experience showing that Member State responses to potential crises tended to focus on the national context only, disregarding cross-border effects and thereby sometimes even exacerbating the problems, undermining the functioning of the market and driving up energy bills.

The new Regulation requires that Member States, using common methods, identify all possible electricity crisis scenarios at national and regional levels and then prepare risk preparedness plans based on these scenarios. Above all, this preparation requires EU countries to cooperate and coordinate with neighbouring member states in a spirit of solidarity. It also establishes a new framework for a more systematic monitoring of security of supply issues via the Electricity Coordination Group.

All in all, the new rules will ensure maximum preparedness against electricity crises and effective management, and ensure that markets can work as long as possible.

The Agency for the Cooperation of Energy Regulators (ACER)

Given the challenges ahead for the EU electricity market – and the changes made in the other parts of the Clean energy for all Europeans package – the role of ACER in the energy market and in the area of security of supply has been enhanced.

Established under the Third energy package, ACER's main role was originally confined to coordination, advising and monitoring. As the new market design rules foresee much more cross-border cooperation, the lack of regional, cross-border oversight was seen as a potential problem, with the risk of diverging decisions and unnecessary delays.

In addition to coordinating the action of national energy regulators, ACER has therefore been granted additional competences in those areas where fragmented national decisions of cross-border relevance are likely to lead to problems for the internal Energy Market. For example, ACER will have oversight on the future regional entities ("Regional Coordination Centers") where TSOs (Transmission System Operators) will be able to decide on those issues where fragmented and uncoordinated national actions could negatively affect the market and consumers. The proposed approach will also streamline regulatory procedures (by introducing direct approval by ACER instead of separate approvals by all national regulators). National regulators, deciding within ACER on those issues through majority voting, will remain fully involved in the process. More about ACER.