On 24 November professor Pantelis Capros was invited to address the webinar “Forthcoming electricity market design reform in the EU” organised by the Chief Economist Unit of DG ENER and attended by several DG ENER officers.
During his presentation Mr. Capros provided a detailed analysis of market reform principles to decouple electricity prices from soaring gas prices and, more permanently, to accommodate critical new features of the power sector dominated by RES.
The green transition increases market prices when resources are scarce and decreases them significantly when RES are abundant. The resulting high volatility of wholesale market prices drives supernormal profits under the current market design, which would pass on to retail prices. The reform should avoid excessive profit pass-through all while allowing consumers to get direct access to renewables, the lowest-cost technology.
In addition, the reform has to ensure long-term, cheap financing to deliver the huge investment endeavour of the green transition. The cost structure is already changing: by 2030, more than 2/3 of the generation assets will be capex-dominated. Only long-term guaranteed revenue streams could achieve low-cost financing of RES and nuclear and thus only long-term bilateral contracting is sustainable.
Facilitating and supporting CfD and PPA contracting while avoiding opportunistic and volatile earnings is a challenge for the market reform. The Greek proposal for a two-stage day-ahead market design is a valid basis for the market reform debate.