Energy reforms and electricity market: perspectives and controversies

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Highly-politicized reforms in the EU’s electricity market, which are concentrated on assisting the member states in decarbonizing their electricity system and lower prices for businesses and consumers, have gained new attention EU-wide due to increasing energy prices to companies and households during recent months. 

The new geopolitical and energy market realities require the EU governance to drastically accelerate regional clean energy transition and increase Europe’s energy independence from unreliable suppliers and volatile fossil fuels. REPowerEU is the European Commission’s plan to make Europe independent from Russian fossil fuels well before 2030, in light of Russia’s invasion of Ukraine. About 85% of Europeans believe that the EU should reduce its dependency on Russian gas and oil as soon as possible; by acting together, the EU member states can achieve the goal faster and efficiently.

REPowerEU program on energy market
The REPowerEU plan sets out a series of measures to rapidly reduce dependence on external supplies (mainly, Russian fossil fuels) and fast forward the green transition, while increasing the resilience of the EU-wide energy system. It is based on three main elements:
= Diversification: the EU is working with international partners to find alternative energy supplies. In the short-term, it is going to be alternative supplies of gas, oil and coal as quickly as possible; in future the EU-27 will need new and renewable sources, e.g. hydrogen.
= Saving: every citizen, business and organisation shall save energy; even small behavioral changes in the energy use can make a significant difference. But some contingency measures for supply interruptions will also be needed. There are many ways to reduce energy consumption in our daily lives, including by: -reducing heating temperatures or using less air-conditioning; – using household appliances more efficiently; – driving more economically; – shifting to more public transport and active mobility; and – switching off the lights.
= Accelerating clean energy: renewables are the cheapest and cleanest energy available; they can be produced domestically and reduce states’ energy imports. REPowerEU will speed up the green transition and spur massive investment in renewable energy. The states also need to enable industry and transport to substitute fossil fuels faster to bring down emissions and dependencies.
In March 2023, as part of the European Green Deal and the REPowerEU plan, the EU agreed on stronger legislation to accelerate the rollout of renewable energy, raising the EU’s binding renewable target for 2030 to 42.5% with the ambition to reach 45%. Reaching 45% as foreseen under REPowerEU would almost double the existing share of renewable energy in the EU, bringing the total renewable energy generation capacities to 1,236 GW by 2030, in comparison to the 1,067 GW by 2030, as is envisaged under the “Fit-for-55” plan.

European electricity market’s vulnerabilities
In 2019, EU legislation paved the way for a revamp of the electricity market; in this quickly modernised market, the role of “demand response” (i.e. the flexibility of household electricity use in response to the needs of the grid) enables active participation of small consumers, while increasing security of supply and making the grid more resilient. However, single households are not a significant resource in the electricity market: the so-called independent aggregators come in, pooling together many households that become a leading player on the market.
More on electricity market in the 2019 Directive:

     The EU has recently adopted a number of new laws that will make the EU electricity market fit for the challenges of the clean energy transition. Legislation suggests for example: – better connected, better protected against black-outs, and better able to integrate renewable energy, – more market-based and more consumer-oriented national structures. The new rules include the revised electricity market regulation, the revised electricity market directive, a new risk preparedness regulation and an enhanced role for the Agency for the cooperation of energy regulators (ACER). The ACER will coordinate work among national energy regulators and ensure that best decisions are taken for using integrated EU-wide energy market for the benefit of business and citizens.
On ACER regulation:

    These changes will adapt current EU market rules by: – allowing electricity to move freely throughout the EU-wide energy market with more competition and better regional cooperation; – enabling more flexibility to accommodate an increasing share of renewable energy in national electricity grids; – fostering more market-based investments in the sector, while decarbonising the whole energy system; – introducing a new emissions limit for power plants eligible to receive subsidies; – improving planning to anticipate and respond to electricity market crisis situations, including through cross-border cooperation.

    The EU has also set new rules for energy efficiency, including an ambitious target of at least 32.5% by 2030, following on from the existing 20% target by 2020. Extending the energy saving obligation beyond 2020 sends a positive signal to investors and the energy market; it encourages the uptake of innovative technologies, techniques and services which will stimulate the demand for energy efficiency improvement measures. EU countries must put measures in place to save on average 4.4% of their annual energy consumption between now and 2030.
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    After a second formal meeting of the steering board of the EU “energy platform” (in March 2023) concerning joint gas purchasing (gas is still a major source of electricity in the EU), seven EU member states have been “skeptical” over the Commission’s proposal: i.e. Germany, Denmark, Estonia, Finland, Luxembourg, Latvia and the Netherlands. It means, that one-fourth of the EU-27 member countries have warned against “deep and hasty reform” of the Union’s electricity and power market adopted recently at the “energy crisis summit” in a joint letter setting out their priorities on the energy development in the EU. Commission’s public consultation period lasted about a month (before it puts forward its legislative proposal) and shows that either Commission prolongs consultations or makes some swift changes in the initial proposal. Reforming EU electricity policy acquired un-balanced approach in “deep and hasty” efforts; backed by seven mentioned states, the best way is for a “targeted approach” to modernising the bloc’s wholesale market that does “not endanger the decarbonisation efforts and well-functioning of the electricity market”.         According to these states’ plans (February 2023), “any reform… should be underpinned by an in-depth impact assessment and should not be adopted in crisis mode.”
About fourth of the EU countries also say they are “skeptical” about any attempts to make permanent the temporary and emergency measures agreed in 2022 that set revenue limits on energy firms, and argue that so-called contracts for difference “should be voluntary” and “not be imposed retroactively.”
In March 2023, over twenty EU member states have expressed their preliminary interest in aggregating gas demand of more than 17 billion cubic meters of gas for the next three years; five remaining EU states will notify their volumes soon. This will be topped up by close to 4 billion cubic meters of gas demanded by Moldova, Ukraine, and Serbia. At the end of March, the energy-service provider selected by the Commission in January – PRISMA – will help the states to implement the demand aggregation as a first step towards joint purchasing.
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On saving electricity
Commission’s “save electricity” website suggests the following items:
= Replace incandescent or halogen light bulbs with more energy efficient ones. One LED light bulb could save a person over €100 in electricity costs over its lifetime of about 20 years.
= Switch off your devices: internet-connected devices like smart TVs, printers and games consoles from 2016 or earlier can use up to 80 watts of electricity when on standby mode. It is recommended to use a single multi-socket power strip to switch them all off easily.
= It is well-off to ask an energy supplier about installing a smart meter: i.e. smart metering systems for gas and electricity could save 3% of energy use.
= It’s preferable to “go for green power”: most energy suppliers offer ‘green’ electricity tariffs, which support the expansion of renewable energy sources such as wind and solar. In case of an apartment/home having its own roof, it is wise consider fitting solar panels to generate some electricity.
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Creating efficient structures
The Commission has also advanced in the EU-wide discussions to identify the most efficient structure for organising those companies who will pool their demand together. For this, the EU foresees for instance a so-called central buyer scheme, under which one gas company will negotiate, on behalf of smaller gas companies and gas consumers, a contract with suppliers for the aggregated demand.
It seems that quite soon the EU will launch a call for expressions of interest for companies to act as a central buyer with the aim of having a number of central buyers, representing different groups of companies, to encourage competition for the ultimate benefit of European consumers.
The Commission also intends to assemble representatives of major industrial consumers and the EU-wide reliable international gas suppliers in order to create a “positive engagement” with the US LNG suppliers.
However, to succeed, the EU needs a “consistent political will” and constructive approach of the EU’s gas industry to continue positive development. Currently, the EU was benefitting from a milder winter and the energy sobriety applied by the states’ households and industry, as well as relatively high levels of gas storage in Europe and lower demand for LNG in China.
The revision of the electricity market design is a priority for the present Swedish Presidency in the Council; it will work for an effective process in leading negotiations with The EU member states on improving “the market design against the backdrop of the ongoing energy crisis and the need to speed up the phasing out of fossil fuels”. At the same time, Sweden wants to keep elements that are working well within the present market design and do not harm the functioning of electricity markets. The electricity market design should be able to withstand extreme stresses during crises, offering better protection for consumers against high and volatile energy prices while at the same time facilitate security of supply and accelerated investments in the clean energy.

Global LNG market
However, the global LNG market is expected to remain volatile due to limited volumes of new LNG becoming available, the potential rebound of the Chinese economy, and drastically reduced imports of Russian pipeline gas to Europe, which helped the EU member states to fill storages during the whole 2022.
Therefore, the Commission’s intends to take resolute steps in order to make full use of the EU energy platform for joint gas purchasing: i.e. not only to protect the states against gas shortages but also to tackle high energy prices.
It is well-known that the price of gas in the EU remained inflated for long, for instance, it is almost seven-times higher than in the United States. This naturally affects Europe’s competitiveness, deters entrepreneurship and increases the cost of living for citizens. Besides, as soon as “trading energy” is first and foremost a matter of business, the EU energy platform also has a political dimension: it shows again how European players can pull together in a time of crisis.

German’s example
After much controversy and uproar within the government, especially between the Free Democrats (FDP) and the Greens, the German Cabinet on approved at the end of April 2023 the draft law for the conversion of heating systems to renewable energies.
According to the draft bill, from next year onwards all newly installed heating systems are to be powered by at least 65 percent renewable energies; that means an effective ban on oil and gas. On first sight, this looks like a win for Green Economy Minister Robert Habeck over Christian Lindner; but the controversies are from over…
There was a bitter dispute in the end, when German Finance Minister Lindner agreed to the bill, but recorded his displeasure in a statement for the minutes: “We must ensure in the context of the further treatment of the bill that a practical and financially feasible implementation of the principle of technology openness takes place,” it says. Even before Habeck and construction minister Klara Geywitz presented the draft, the finance ministry “expected necessary changes to be made” during the parliamentary procedures.
Nuclear energy issues were also discussed: Green-led ministries propose climate-related policies but the FDP-block is skeptical; while leading Greens are furious, especially the ones in Brussels. Some say that “all seems like the FDP is in a permanent advertising show for itself instead of in government responsibility”.
German new energy policy, presently, seems like shifting heating to renewable energies with countless exceptions, as those receiving social benefits in Germany and people over the age of 80 do not have to comply with the new law. Also, there are special subsidies to help people replace their heating systems, at a minimum 30 percent of the cost, and much more if certain conditions are met.

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