The worsening vitality disaster besieging Europe has laid naked the “limitations” of the electrical energy market and requires an “emergency intervention” to carry down hovering costs, Ursula von der Leyen has stated.
“The skyrocketing electrical energy costs at the moment are exposing, for various causes, the constraints of our present electrical energy market design,” the European Fee president stated on Monday, whereas addressing the Bled Strategic Discussion board in Slovenia.
“[The market] was developed below fully totally different circumstances and for fully totally different functions. It’s not match for function.
“That’s the reason we, the Fee, at the moment are engaged on an emergency intervention and a structural reform of the electrical energy market. We’d like a brand new market mannequin for electrical energy that actually features and brings us again into steadiness.”
In the present day, the EU’s wholesale electrical energy market works on the idea of marginal pricing, also referred to as “pay-as-clear market”.
Below this technique, all electrical energy producers – from fossils fuels to wind and photo voltaic – bid into the market and provide energy based on their manufacturing prices. The bidding begins from the most affordable sources – the renewables – and finishes with the most costly one – often fuel.
Since most EU international locations nonetheless depend on fossil fuels to satisfy all their vitality calls for, the ultimate worth of electrical energy is commonly set by the value of fuel. If fuel turns into dearer, electrical energy payments inevitably go up, even when clear, cheaper sources additionally contribute to the full vitality provide.
The system was initially praised for reinforcing transparency and selling the change to inexperienced sources, however since late 2021, it has come below intense criticism.
Russia’s invasion of Ukraine has introduced the market design to its most excessive limits, fuelling requires state intervention and significant reforms.
Spain, Portugal, Greece, France, Italy and Belgium are amongst these calling for a “decoupling” of fuel and electrical energy costs to place an finish to the contagion impact.
President von der Leyen didn’t unveil additional particulars in her speech, which touched upon a wider vary of matters, together with rule of regulation, local weather change, the financial restoration and EU enlargement.
Her feedback come within the midst of a record-breaking spike in fuel costs, pushed by hypothesis round Gazprom, Russia’s state-controlled vitality big.
The multinational has repeatedly restricted and even shut down fuel flows to a number of EU international locations. Deliveries throughout the Nord Stream 1 pipeline are at 20% of its day by day capability.
On Friday, future fuel costs on the Title Switch Facility (TTF), the continent’s main buying and selling hub, reached €339 per megawatt-hour, a stratospheric determine in comparison with the €27 mark set a 12 months in the past.
The seemingly unstoppable upward pattern is elevating fears of chapter for corporations and vitality poverty for households forward of the winter season, when heating consumption is predicted to extend drastically.
The EU has already established a voluntary plan to scale back fuel demand by 15% between now and subsequent spring with the hopes of someway cushioning the influence from the Kremlin’s vitality manipulation.