The Government accuses the European regulator of "not addressing the underlying problems" in its analysis of the electricity market

That the electricity market is not touched. This is what the Agency for the Cooperation of Energy Regulators of the European Union (ACER) defends, in the report requested by the European Commission last October and published this Friday. The report also comes after a European summit, at the request of Spain and other countries, opened the debate last fall on the possible reform of the electricity market, before the effects of the Russian invasion of Ukraine were experienced. . Spain, along with France and other southern countries, asked that the price of the highest energy, no matter how little it entered the market, not mark the price of the electricity package.

Spain, which together with Portugal has recognized an exception to limit the price of gas for the next 12 months as a temporary measure due to the crisis, was also committed to reforming the market. In this sense, the Government considers that the report “has not addressed the underlying problems”.

“The ACER report recognizes that the current design of the European electricity market is not prepared to face emergency situations like the one we are experiencing. It also recognizes that there is greater price volatility in less interconnected markets, such as the Iberian Peninsula. With a view to the future, it proposes some of the solutions proposed and defended by Spain, such as promoting long-term contracts with public guarantees or increasing the participation of independent agents of large firms in the market through auctions”, affirms the Spanish Government: “ However, it points out that the design of the market is not one of the causes of the price crisis, when it clearly is, since it amplifies the volatility and price crisis in the gas market, harming consumers and draining resources to the economy as a whole.

"As a whole", the Government insists, "ACER has not responded to the questions posed by the European Commission last October: an analysis of the design of the European electricity market and proposals to reform it were requested, with the aim of that it is prepared for the energy system of the future and to face emergency situations such as the one we are experiencing. And he hasn't. It hasn't addressed the underlying issues."

gas deal

Indeed, Spain and Portugal have reached an agreement with the European Commission to separate the price of gas from the electricity bill. The two countries had offered 30 euros per megawatt hour, but the agreement with Brussels means starting with 40 euros, with an average of 50 euros in the period of application of the measure: 12 months.

Last Tuesday's agreement came a month after the agreement between the 27 heads of government of the EU. A political agreement that has not yet translated into action, because that afternoon of March 25 in Brussels was an important step in the ambitions of Spain and Portugal to face the energy crisis. But there were fringes, negotiations with the European Commission and pressure from energy companies to prevent the cap on gas.

And, on the other open front, that of the reform of the electricity market, the EU regulators are committed to leaving it as it is: “ACER considers that the current design of the wholesale electricity market guarantees an efficient and secure electricity supply under market conditions. relatively 'normal'. As such, ACER's assessment is that the current market design is worth maintaining. In addition, some longer-term improvements are likely to be key to delivering on the EU's ambitious decarbonisation over the next 10-15 years, and doing so at lower cost and while ensuring security of supply."

However, ACER also proposes “a 'temporary safety valve' when wholesale electricity prices change unusually quickly to high levels for a sustained period. Member States could consider establishing ex ante a temporary price capping mechanism that is triggered automatically under clearly specified conditions (e.g. unusually high electricity price increases in a short period of time), pausing the return to full price formation over a specified period of time (eg a few weeks or a month). The measure would have to ensure that generators earn significant income and would withhold compensation for generators that can demonstrate that supply costs exceed the maximum limit.

Likewise, the report lists 13 measures that governments can take to make the market less volatile and future-proof.

📢ACER's Final Assessment on the #EU Wholesale #ElectricityMarket is out!
🔔Current design is worth keeping but some improvements are key
🔔 13 measures for #policymakers' consideration
📓 Report: https://t.co/9TSdlDajbr
📢 Find out more? Webinar: 05/05/22 pic.twitter.com/tnkivo0dHO

— EU-ACER (@eu_acer) April 29, 2022

“Although the current circumstances affecting the EU energy system are far from being 'normal'”, acknowledges ACER, the organization “considers that the current design of the electricity market is not to blame for the current crisis. On the contrary, the current market rules have helped to some extent to mitigate the current crisis, avoiding power cuts or even blackouts in certain neighborhoods.”

In any case, ACER recognizes that “the design of the electricity market is not designed for the 'emergency' situation in which the EU currently finds itself. The political debates on various exceptional interventionist measures testify to this”. And it warns: “Poorly designed emergency measures or the distortion of price signals by interfering with the formation of market prices can set back the integration of the EU market and competition in general, jeopardizing the benefits achieved until now. now and possibly increasing the overall cost of the energy transition.”

“As a general rule,” says the report, “ACER considers that the more interventionist the approach, the greater the potential to distort the market, especially in the medium and long term. Such distortions imply that the wrong investment decisions are likely to be made regarding future needs and/or that much-needed innovations to address changing system needs are less likely to occur. Furthermore, measures that are more interventionist may curb private sector investment, influence perceptions of political risk, and/or inadvertently exacerbate supply shortages.”