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Finance

EU power market reform ‘step in right direction,’ Polish Electricity Association says

Polish Electricity Association (PKEE) has said that the EU’s latest legislative proposals related to reforming the EU power market design are a “step in the right direction.”

“The current model of the energy market, based on the merit order mechanism and the price formation by marginal costs rewards the most cost-effective solutions, enables financing of new investments and ensures that the operating costs of the energy system are balanced and guarantee benefits for consumers. Therefore, the fact that legislative projects published by the European Commission present more evolutionary than a revolutionary approach is a step in the right direction,” PKEE said via a press statement on Wednesday (1 June).

Amidst the green transition, the legislative changes should preserve the EU’s internal energy market and guarantee cost efficiency, competition between market participants and cross-border trade, the Association said.

Temporary measures and interventions in the electricity market established to address the current energy crisis should not be extended beyond the already specified period, the group added.

“The fact that the extraordinary measures, such as revenue cap and regulated prices, imposed in response to the current crisis have not been extended is a positive outcome. A permanent introduction of the possibility to introduce price caps in case of an energy crisis or the mechanism of permanent redistribution of windfall profits would be particularly harmful and distort the functioning of the EU single energy market. This would significantly limit the investment capacity of firms in the energy sector.”

“One of the goals of the reform is to ensure that lower costs of energy generation from renewable and nuclear energy sources translate more into energy prices for consumers,” continued the statement. “The EU’s market design reforms aim to ensure that lower costs of energy generation from renewables and nuclear power are replicated for consumer prices. “In our view, the factor that will contribute to the global reduction of energy prices for consumers is more efficient support for the increase in the use of renewables by ensuring stable conditions for their development.”

The association gave their support for the promotion of the use of public long-term contracts, for example, contracts for differences (CfDs), dedicated to new generation capacities. They can contribute to guaranteeing the long-term sustainability of project revenues, regardless of prices on short-term markets.

The liquidity of long-term markets should be improved by easing access to the market for smaller participants, reducing risks of their insolvency and addressing the issue of collateral, the Association said.

“The review of the functioning of the current energy market model should also address the issue of capacity mechanisms, including capacity markets, which in many countries have become an integral part of the market and the way to better identify the needs of the power system and its balancing, as well as a necessary tool to ensure the security of energy supply,” the statement added.

According to the Association, the framework of energy markets should ensure a balance between stable revenues of market participants, adequate incentives to participate in the market, and price levels attractive to customers. However, funds obtained from CfDs should be redirected as far as possible to investments in new renewable capacities, energy storage and grid infrastructure, so the consumers can benefit from the lower energy prices in the long-term perspective, PKEE said.

“Within a generally accepted framework, Member States should be given the greatest possible freedom to adopt appropriate solutions. Differences between them, such as the structure of generation sources, barriers to investment, legal conditions, and access to long-term contracts, make it crucial to discuss an appropriate level of harmonisation at the EU level,” the press statement highlighted.

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