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Electricity market reform: a good opportunity to reflect on the past lessons while securing our future, says EFET

Ahead of the reform of the European electricity market design, the European Federation of Energy Traders (EFET) believes that the pillars which have made that framework so effective – cost-efficiency, European integration, competition – should remain and be reinforced. So that electricity markets can continue supplying decarbonised, affordable and secure electricity to consumers in the world of tomorrow.

According to EFET’s latest position paper, our main challenge over the decades to come is, and will remain, the fight against climate change. Reaching the 55 per cent carbon emissions reduction target by 2030 and achieving a carbon-neutral economy by 2050 will necessitate a huge contribution of the electricity sector.

Therefore, to stay on track with these targets, EFET recommends broadening and strengthening the EU Emissions Trading Scheme (ETS), which has already contributed
significantly to carbon emission reductions in the sectors it covers (-43 per cent between
2005 and 2020); and to attract more renewables. RES represented 37,5 per cent of total electricity generation in 2021. However, much more is needed to reach the more than 60 per cent objective by 2030. In this regard, it is important to harness the power of the private sector to finance RES projects via commercial PPAs and to ensure guarantees of origin (GoOs) are systematically issued to all renewable electricity producers.

Unlock flexibility across sectors: a system with more RES-E will need to adapt to
their intermittency, which requires unlocking the flexibility potential of all assets and
services, including demand response. The marginal price of electricity should
remain the main signal for reducing electricity demand, storing electricity, or
converting it to hydrogen. For these technologies and services to take up, barriers
should be lifted and interventions such as price control measures or
inframarginal revenue caps should cease. This is essential to restore investor
confidence in the regulatory environment.

As also pointed out by 7 EU countries in a letter to the European Commission, it is time to inform better and listen to consumers and give them choices to manage electricity price volatility. Thus, retail markets must be improved to reflect different customer needs and their active participation would help to bring more flexibility to the system.

“As we transition towards more energy independence, good planning and governance will
be essential, together with an efficient electricity market that proved its robustness this year,” read EFET’s position paper, recommending to use the reform to make markets work even more efficiently and to keep legal and regulatory certainty to attract and
retain the private investments needed to run and modernise the European electricity
sector.

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