EU's electricity market review lacks capacity mechanism reform: Entso-e

The European Commission's electricity market design proposal is missing simplifying regulation on capacity mechanisms, which need to be seen as essential rather than as a last resort, Europe's transmission system operator group Entso-e said in a series of video presentations released at the end of June.

The statements came after EU member state representatives meeting in Brussels on June 30 failed to finalize a mandate for negotiations on the EC's electricity market design reforms.

Marco Foresti, Entso-e's policy and market design manager, said the EC had missed a trick in not including updated proposals on capacity markets.

"As we move to a decarbonized power system relying on weather-dependent renewables, we need market mechanisms to preserve this system adequacy while we phase out fossil fuel generation," Foresti said.

Under current EU regulations member states can only introduce capacity mechanisms as a last resort, and after trying other options to address adequacy concerns.

Further, any mechanism must first be approved by the EC. That can take up to several years.

"The framework for capacity mechanisms must be simplified to allow a quicker and more stable introduction by Member States," Foresti said.

That would help underpin investments in new flexibility assets, he said.

Instead of a last resort, capacity mechanisms should be recognized as a structural element in national markets.

"This does not mean getting rid of the checks and balances of State Aid guidelines, nor the emission limits or requirement for EU coordination," Foresti said.

Meanwhile in a separate video, Damian Cortinas, Chair of the Board at Entso-e, said the EC's proposals on virtual power hubs, gate closure time and remuneration mechanisms for offshore generation were too complex for that type of targeted regulation.

"We think we need to do a proper impact assessment because they can have unintended consequences, and while we recognize the importance, we think we need time to put forward something that will really deliver for the full European power system," Cortinas said.

Spanish elections

A resumption in political talks on the EMD reforms could be now be delayed beyond September, sector commentators said.

Pierre Tardeau, WindEurope's chief policy officer, said outstanding issues would be difficult to resolve.

In a podcast discussion with Giles Dickson, WindEurope's CEO, Tardeau noted key stumbling blocks as the future application of contracts for difference with regard to existing assets, notably nuclear reactors, and capacity mechanisms with regard to coal plants.

The dossier now shifts to the Spanish presidency from July, with the added complication of Spanish elections on July 23, Tardeau said.

"It is highly probable that the political direction of Spain will change come July, which means the direction of the Presidency may change as well," he said.

"Everybody knows that the opposition parties in Spain, who are likely to form the new government, have a very different position on market design than the current socialist government," Dickson said.

As such, it was unlikely there would be any progress in the talks until a new Spanish government took office.

The next informal EU energy minister meeting was scheduled for July 11-12 in Valladolid, Spain.

For both market design and the EU's new net zero industry act, meanwhile, there was pressure to reach final agreement ahead of the end of March 2024, when the European Parliament breaks up ahead of its own elections next year.

Belgium takes over the rotating EU Presidency for the first six months of 2024, before handing over to Hungary.