Electricity market design
An integrated EU energy market is the most cost-effective way to ensure secure and affordable energy supplies to EU citizens. Through common energy market rules and cross-border infrastructure, energy can be produced in one EU country and delivered to consumers in another. This keeps prices in check by creating competition and allowing consumers to choose energy suppliers.
Given the degree of integration and changes in technology since 2009 and expected in years ahead, the EU electricity market has progressively been updated to match this reality. Notably, the Clean energy for all Europeans package has updated old energy market rules and introduced new ones, while also encouraging the necessary public and private investments based on market signals.
New electricity market rules
The share of electricity produced by renewable energy sources is expected to grow from 25% to more than 50% by 2030. At the same time, electricity must also be produced and delivered in sufficient quantities when there is no wind or sun. 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 adopted in 2019, as par of the 'Clean energy for all Europeans package', four pieces of legislation that will help adapting EU market rules to new market realities.
The Electricity Directive and Electricity Regulation
The Directive on common rules for the internal market for electricity (EU) 2019/944, which replaces Electricity Directive (2009/72/EC), and the new Regulation on the internal market for electricity (EU) 2019/943, which replaces the Electricity Regulation (EC/714/2009) on January 1 2020, 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 and 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.
The new rules contribute 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 therefore help to achieve the goals set out in the European Green Deal, and contribute to the creation of jobs and growth.
The Regulation on risk preparedness in the electricity sector (EU) 2019/941 requires EU 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)
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. Regulation (EU) 2019/942 establishing a EU Agency for the cooperation of energy regulators recasts the regulation 713/2009.
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 Centres") 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. National regulators, deciding within ACER on those issues through majority voting, will remain fully involved in the process.
Post-Brexit relations on energy falls under the EU-UK Trade Cooperation Agreement and the Euratom-UK Agreement.
- Study: The future electricity intraday market design (February 2019)
- Factsheet: Electricity market design (January 2019)
- Regulation on risk-preparedness in the electricity sector (EU) 2019/941
- Regulation establishing a European Union Agency for the Cooperation of Energy Regulators (EU) 2019/942
- Regulation on the internal market for electricity (EU) 2019/943
- Directive on common rules for the internal market for electricity (EU) 2019/944
- Impact assessment on the revised rules for the electricity market, risk preparedness and ACER | Annexes (2016)
- Evaluation of the electricity market design and security of supply: Part 1 | Part 2 | Executive summary (2016)
- Commission Communication: Public consultation on energy market design (2015)
- Review of current national rules and practices relating to risk preparedness in the area of security of electricity supply -independent report (May 2015)
- Electricity Directive (2009/72/EC)