The energy transition requires us to think whether the current electricity market design can efficiently meet the decarbonisation target while ensuring adequate level of Security of Supply at a least cost.
In the last years, short-term wholesale electricity prices have fallen drastically, as a result of a reduction in demand due to the economic crisis, the financially supported introduction of new low-carbon generation capacities with low variable costs, low commodity prices, and a very weak carbon price signal. They are now far below the long-term LCOE of conventional and RES power plants.
Some of these conditions affecting short-term energy only markets are persistent and bound to be exacerbated as the decarbonisation process moves forward. Scarcity pricing and the introduction of a liquid European intraday market are no-regrets reforms. However a market design relying only on short term prices and a poor CO2 price will fail to trigger an efficient investment path, for a secure European energy transition.
Short term prices, which define the generator’s revenue and the consumer’s bill, are too volatile and sensitive to both macroeconomic indicators and public decisions. The European market must provide all consumers with a competitive, secure and sustainable electricity supply. For this reason two measures should be considered a priority: a functionning ETS in line with the EU climate policy ambitions, and the implementation of capacity mechanisms ensuring the achievement of the targeted level of security of supply.