Abstract
Abstract:
The construction of an integrated and liberalized electricity market and the adoption of an ambitious Climate and Energy Package are the two cornerstones of the EU energy strategy. The original idea was that the European electricity market would lower electricity prices for end-users due to greater competition following market liberalisation. In addition the Climate and Energy Package would reduce greenhouse gas emissions, integrate renewable energy sources at a large scale and improve energy efficiency.
Reality turned out differently. The European electricity markets are in crisis. The overlap of climate and energy policies leads to a collapse of the carbon price and no longer provides incentives to invest in low carbon technologies. In particular, the support for renewables (RES-E) undermines the long term coordination of investment decisions in the market. Reduced wholesale prices and load factors have not only made investment in conventional power stations highly risky, but also made problematic the recovery of fixed operating costs of existing units which are closing. In addition, policy instruments are self-reinforcing: the more RES-E are deployed, the more low and volatile wholesale prices will be unable to guarantee fixed cost recovery. As each member-state addresses market failures relating to the security of supply, congestion management or network expansion through their own instruments, European electricity markets move further from equilibrium.
In this situation, the CGSP has invited some well-known European energy economists, among whom Marc Oliver BETTZÜGE, Director of the Energy Economics Institute of the University of Cologne, and Fabien ROQUES, Senior energy consultant and Associate professor of economics at Université Paris-Dauphine to put forward their recommendations to restore the viability of European electricity markets. These include limiting environmental objectives to GHG targets, substitution of feed-in tariffs with market compatible support mechanisms for small renewable units, the facilitation of long-term contracts for low carbon electricity generation, to institute capacity markets and increase interconnections.
While most experts would support such rationalization of policies, the question is whether the proposed measures will be sufficient to restore the function of long term coordination to the market or whether more fundamental changes will be required. This CEEM seminar provides an opportunity to present and discuss the CGSP report with a broader constituency of European electricity market experts.
