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EU Regulators: Electricity Market Not To Blame For Energy Crisis

The EU’s wholesale electricity market is not to blame for the gas and power crisis in Europe as the current design ensures efficient and secure electricity supply under relatively ‘normal’ market conditions, the EU Agency for the Cooperation of Energy Regulators (ACER) said in a new report on Friday.

Natural gas and electricity prices in Europe surged to record levels this year as the already ongoing gas supply crunch was exacerbated by the Russian invasion of Ukraine. Power prices hit records in many markets, stoking inflation to four-decade-highs and weighing on consumers’ purchasing power.  

ACER, however, says that the current design of the EU electricity market is worth keeping.

“The current energy crisis is in essence a gas price shock, which also impacts electricity prices,” ACER said in its report.

“ACER finds that the current wholesale electricity market design ensures efficient and secure electricity supply under relatively ‘normal’ market conditions. As such, ACER’s assessment is that the current market design is worth keeping,” the EU agency said.

“Whilst the current circumstances impacting the EU’s energy system are far from ‘normal’, ACER finds that the current electricity market design is not to blame for the current crisis. On the contrary, the market rules in place have to some extent helped mitigate the current crisis, thus avoiding electricity curtailment or even blackouts in certain quarters,” ACER noted.

Still, the electricity market is not designed for the current “emergency” situation in the EU electricity market, the agency said.

Europe’s electricity market integration has delivered benefits to consumers over the past decade, estimated at around $35.8 billion (34 billion euro) per year, “due to the structure of the wholesale energy market enabling cross-border trade between Member States and improving the security of supply across a larger geographical area,” ACER says.

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Although the wholesale electricity market doesn’t need a radical change, it could be improved and future-proofed against price and emergency shocks, according to the agency, which proposed 13 measures for future-proofing the design. Those measures include better integration of forward markets, improved access to renewable power purchase agreements (PPAs), and potentially public intervention to establish hedging instruments against future price shocks.    

By Tsvetana Paraskova for Oilprice.com

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