The EU Commission’s Energy Union Communication Package published on 25th February 2015 includes proposals to ‘prepare an ambitious legislative proposal to redesign the electricity market’. This follows the release in October last year of a discussion paper by the Federal Ministry for Economic Affairs and Energy in Germany considering how the electricity market should be designed to support the on-going energy transition.
These issues are highly interrelated. Not only do they both seek to address the requirement for new flexible grid services that will allow the efficient and secure integration of renewable generation, but they also recognise the need for increased integration between European markets. This, in turn, requires that Member States implement compatible market designs and avoid differences that obstruct market integration and introduce perverse incentives.
E3G has submitted comments on the German market design green paper. Given the strong relevance of these comments to the broader Energy Union discussion, they have been reproduced in this document for the attention of a wider European audience.
In summary, E3G supports the proposals of the German Government to establish the optimised electricity market (so-called electricity market 2.0) which gives producers and consumers of electricity an active role in making sure that the electricity market provides a clean, secure and competitive energy supply. This is the most cost-effective way to operate a decarbonised power system and it is not necessary to introduce a capacity mechanism as an integral part of the market arrangements. Indeed, there is a concern that a capacity mechanism would tend to bolster the viability of the existing asset base and associated business models, thereby inhibiting the transition to a decarbonised system.
However, it is a mistake to assume that the new market design could be implemented in full over the next few years. It will require a proactive program of policy instruments designed to deliver the required transformation over a longer transitional period. The attached reports set out our ideas on some of the measures that will be needed to ensure the end-point is achieved quickly, cost-effectively and without compromising security of supply.