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EU electricity market reform: 7 countries prepare list of priorities for the Commission

Estonia and Latvia have joined Germany, Denmark, Finland, Luxembourg and the Netherlands in sending a letter to the European Commission urging the EU executive body to propose a targeted EU electricity market reform that takes into account the green transition and investments in renewables; that brings benefits to the customers; and that retains the advantages of the current design.

Indeed, the signatories recognised that the integration of the EU electricity market over the last decade has brought enormous benefits for the EU, including lower wholesale prices, greater security of supply and enabling the large-scale integration of renewable energy. And, despite the severe challenges faced due to a reduced gas supply and very high electricity prices, the internal market has proven to be resilient.

That’s why, as stated in the joint letter, any changes to the EU electricity market design should retain the benefits of European electricity market integration.

“By continuing to integrate EU electricity markets, through interconnection capacity, free formation of wholesale electricity prices and removing barriers to integration, we safeguard the benefits of electricity market integration for all Member States,” read the letter. “This includes ensuring that the electricity generation units with the lowest costs available in Europe can be used to cover the specific demand, ensuring that electricity flows to where prices are highest and ensuring the security of supply. In this respect, it is important to recall that the current EU market design, according to ACER estimates, has yielded a yearly 34 billion euros in benefits over the last decade compared to a situation with no cross-border flows.”

At the same time, the EU must not lose sight of what is needed to achieve the bigger aim: the green energy transition.

Signatories are therefore calling to safeguard and improve incentives to invest in the green transition. According to the REPowerEU plan, to achieve climate targets, the EU needs 487 billion euros in investments in renewables annually from 2021-2030 and then further to 2050.

“To realise those investments, we need a reliable, predictable and robust market framework that ensures investors’ confidence and which addresses both renewable and secure capacity,” continued the letter.

Among the other principles to be taken into account, the joint letter mentioned the importance of ensuring the efficiency of short-term markets and optimising the functioning of forward markets; maintaining market incentives and a level playing field, in particular by incentivising power purchase agreements (PPAs) and both private and government-backed Contracts for Difference (CfDs).

The seven countries are also highlighting the importance of empowering consumers to participate in the energy transition. In fact, the current crises have particularly affected the consumers that need to be more protected in case of fluctuations in energy prices. External shocks causing high or low prices may occur again in the future. That’s why the new electricity market should become better prepared for such external shocks.

Finally, “every market reform needs to make the market fitter for renewable energy and ensure effective price signals for flexibility to develop” and “effective cross border trade must be ensured as one important element for the security of supply.”

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