WHERE WE ARE
Oficina Barcelona
C. Roger de Llúria, 113 4º
08037 Barcelona
93 004 75 17
info@empresaclima.org
Current market situation
2022 will be marked in history as the year that the war in Ukraine began, a terrible humanitarian catastrophe in European territory that unfortunately is already one year old. The beginning of the conflict of this war has also had a strong economic impact throughout the world, but especially in Europe. The war in Ukraine increased the risk of fragmentation of member states and internationally more tensions have been created between China and the United States, which has had an impact on the industrial competitiveness of Europe and the United States, since we depend directly on materials supplied by China.
The impact of the war in Europe has been particularly noticeable in its energy sector, one of which has been most vulnerable due to its high dependence on Russian gas and which has caused an unprecedented increase in the price of energy that has set historical records throughout Europe, including in our country. Even when our dependence on Russian gas is less than that of neighbouring countries.
In order to curb the exponential rise in the price of energy, exceptional measures have been taken, such as the reduction of VAT on electricity and gas or the implementation of the Iberian Exception, setting a ceiling on the price of gas through market intervention. These shock measures have served to contain energy prices at this specific time, but they are ineffective in achieving market stability in the long term and reducing dependence on Russian gas from the countries that make up the European Union.
In this sense, the conclusions of the experts who participated in the Spanish Clean Energy Forum organized by olivoENERGY and which took place on January 27 in Malaga were clear: it is time to evaluate the need for a reform of the common electricity market.
Recently, the European Commission has opened a process of public consultation and debate on the regulatory design of the electricity market. A fundamental consultation to guide the decisions of the European institutions and all the Member States in relation to the reform of the regulation of this market in the European Union. On March 14, once the inputs received to this consultation have been reviewed, the European Union will publish the European proposal that will undoubtedly be among the main issues to be addressed during the turn of the Spanish presidency of the Council of the European Union in the second half of the year.
The status quo and where we need to go
The crisis has highlighted the need to accelerate the energy transition and for this the reform of the common electricity market is imperative. The design of the market is on the table, you just have to work and polish it, knowing the challenges and making the appropriate decisions, working on tolls and energy taxation.
The objectives under update of the Integrated National Energy and Climate Plan (NECP ) are clear and are expected to increase in June 2023: achieve a 40% reduction in greenhouse gas (GHG) emissions compared to 1990 in 2030. Is this decarbonization feasible? Yes, it is feasible, but we cannot invest only in renewables, but we have to design an action plan that advances at the same pace as investments and in which other technologies and actions enter such as electrifying the system, increasing demand, developing storage and giving entry to hydrogen, an essential resource that will be discussed this year and for which a hydrogen bank is expected. at European level.
For these objectives to be aligned with Europe, we expect a market reform that includes flexibility, demand management and in which there is competitiveness always hand in hand with the digitalization of networks. The objective is to decouple from the price of gas, but without losing focus on achieving a competitive market trying to prevent it from being manipulated. We must continue to encourage the deployment of renewables, without forgetting the protection and empowerment of citizens, key in this process.
Reform proposal of the Spanish Government
The Spanish Government wanted to anticipate the next reform of the common electricity market, with a proposal for a comprehensive change of the rules that are currently in force, through which we would move from the current marginalist market – in which the price is fixed according to the most expensive technology that enters each section – to one in which the price would be set taking into account the average cost of each technology.
The proposal of the Spanish Government is based on the objective of promoting long-term markets and attracting investment in renewable energies, for which it proposes: contracts for difference in inframarginal technologies, corresponding this denomination to those with low variable costs and forward capacity contracts, to attract investment in firm capacity that supports intermittency of renewable generation such as storage and demand management, in addition to keeping combined cycles available.
For its part, the European consultation did not contain a proposal with pre-established and accepted mechanisms, but rather asked about all those mechanisms that should be taken into account when assessing an electricity market reform. First, it described the opportunity to decouple electricity bills from short-term markets through mechanisms such as PPAs, contracts for difference, forward markets, the development of renewables and limiting the benefits of inframarginal generators.
As alternatives to gas, it proposed a balanced electricity system, encouraging the development of flexibility assets and improving the efficiency of intraday markets, as well as improving the integrity and transparency of the energy market by modifying and adapting the REMIT to the current nature of the energy market. Proposals that do not forget to improve consumer protection and empowerment, increasing the possibilities of self-consumption and electricity sharing and adapting metering to facilitate the response to the demand for flexible resources and improving the choice of contracts for consumers.
What implications may these modifications have?
The reform of the electricity market must answer the necessary questions, it must strengthen the real harmonisation of European markets and promote Europe’s industrial competitive development. It is an opportunity that has great risks since the implications of the proposed market mechanisms are uncertain and I dare say sometimes totally unforeseen. Having been very active in analyzing this issue of great impact, since Spain sent its proposal to Europe on January 10, until the working table on the proposal for the reform of the European electricity market that the Ministry for the Ecological Transition and the Demographic Challenge held on February 22 where I had the opportunity to present the relevance of demand flexibility in the reform of the electricity market, I dare to propose some elements that I believe should be present in the electricity market that Europe needs to achieve, thanks to the energy transition, a safe, clean, competitive, affordable and fair energy sector.
The European Union already has a robust regulatory framework set out in the Clean Energy Package, its regulated acts and REPowerEU for a harmonised internal market that promotes the clean energy transition. Any reform must always comply with the principles of freedom, non-interventionism, efficiency, transparency, non-discrimination and competition and participation in markets must always be voluntary, and on equal terms for all resources and that their participation is allowed and facilitated in an aggregate way: generation, demand and storage.
The flexibility of demand must go from being the great forgotten to the great obligatory since it supports the trinomial to be solved:
to. Supports security of power supply
b. It supports investment in renewable energy, which must be matched by the growth of electricity demand that becomes the key anti-spill factor thanks to demand management and storage, in addition to clean electrification – with our sun, water and wind, of the economy.
c. It encourages competitive prices, avoiding discharges of normally low-cost renewables that would otherwise be wasted, in addition to avoiding peaks in electricity demand by flattening consumption by moving to less use of gas for electricity production.
Similarly, it cannot be ignored that demand flexibility must have to participate in all markets.
Graph: Demand Flexibility – Roadmap for Demand Flexibility · ENTRA Aggregation and Flexibility
Any temporary measure applied in response to emergencies such as the Iberian Exception, should not be extended beyond the necessary time and, in the long term, before an interventionism, a more agile use of PPAs can be encouraged, looking for ways to expedite the risks that they entail.
Capacity markets are needed, and Europe must speed up their start-up and promote their harmonisation, opening up in a competitive and non-discriminatory way to all resources and short-term markets are liquid, fair and cost-efficient.
The Cfd-contracts for difference that are positioned as a tool to take into account to promote investment in renewables, even so they must be voluntary, and evaluate the impact that different models and financing of them can have.
Finally, I would like to leave a few words by way of conclusion, the current market has suffered failures, which are not necessarily a consequence of its structure but sometimes of its operation, and it is therefore that I propose that Europe dare to be more concise in its directives and to promote more harmonised and accelerated transpositions. and in the same way I propose to the Member States to be more ambitious when transposing the directives and regulations that the European Union proposes.
Alicia Carrasco
CEO of olivoENERGY
Company Member of the Private Company and Climate Foundation
Oficina Barcelona
C. Roger de Llúria, 113 4º
08037 Barcelona
93 004 75 17
info@empresaclima.org